my first Ip questions

Hopefully this is the right thread to write my post in, if not Mods please feel free to move it.

Im new to property investing and would be grateful of some opinions no matter how small.
I am trying to learn but rely on you guys to help me out every now and again.

I have seen a Unit up on the NSW Central Coast for 279k , i am trying to work out figures and the reasons to buy it etc before i buy it.

So anyway i do have 350k saved up so i dont need to borrow.
So if i buy the unit for say 270k add about stamp duty , conveyanyer etc will be about 285k all up.
There is a tenant in there that pays $300 week rent.

My questions are
1/ should i buy the unit outright with no lending?
I will then have about 50k only left in life savings and wont have enough to put a deposit on another property but will be getting the rental income.

2/ what should i be seeking to achieve? Growth or rent income? Is $300 ok for investment of nearly 300k? Thats without real estate deductions though.
Am i better off putting that 300k into a term deposit?
Im hoping the unit goes over 300k in value by say 12 months?


4/ if i buy this unit by borrowing say 80 % of 270k would i buy be better off financially tax wise?



Would you buy it outright without borrowing?

 

Hi There,

Firstly, do you have an income ? If you do my recommendation is to buy 2 IPs and leverage ~50% (If you're not comfortable with debt). This way not only the property should cover it's own expenses, you'll can also get some tax deductible from depreciation of your IP (so you pay less tax).

If you're more comfortable with debt, you can leverage 70% and buy several IP(s). I believed even 70% leverage, you'll still be sitting at neutral to positive cash flow.

 

DB, the answer to your questions all depends upon what you are ultimately wanting to achieve from using property as your chosen vehicle - all based around time frames, financial circumstances and personal risk profiles...

Can you provide more details on these?

There is no one method/s you can use that fits every one's needs.

 

Yes my age is 40yo , i have a salary without overtime of $54,000 a year.i have my apartment in Darlinghurst paid off .

 

In my opinion no. Agree with @WinDyz. I would use that money as deposits on several separate investment properties. First off the loan is deductible, so you may as well use the banks money. You could spread your risk eg. 1 x $900k property vs 3 x $300k properties, if 1 is vacant it's not as big of a deal across 3.

 

Depends on your risk tolerance.

For me I would rather leverage that 350k and buy something nice in Brisbane or Melbourne even at 50% LVR (650k property) it would be cashflow positive (most likely) and you would gain more money than a term deposit.

If you really wanted to leverage it out you might be able to get 90% LVR (3M) however this might expose you to much to early.

I wouldn't do term deposit, lets say you get 5% on a term deposit = $17,500 before tax (50c tax) = $8,750 after tax

If you leverage at ~50% LVR (650k) - and got 3% rental yield and 5% CG = $19,500 before tax (50c tax) = $9,750 + $32,500 (gains) = $42,250 total less mortgage (350k @ 5% = $17,500) = Total $24,750 p.a.

At 90% LVR - using the same as above it would be 90k rent (45k after tax, if positive) + 150k CG - 135k mortgage = 60k p.a.

NOTE these are really rough calcs and I am not breaking down the negative gearing aspect, deprecation, etc etc. Also I am not a financial planner so this is MY opinion not advice.

 

Wow, that's a lot of cash to have saved up.

Just to address question 4, personally, I'd borrow, but that's a personal choice.

It may be worth borrowing for the investment property, if you are comfortable. That way you don't lose control of all of your cash which happens when you buy outright. If you borrow and park the leftover money in an offset account against the new loan your costs will be the same as if you bought outright but you will have a better tax outcome and have much greater flexibility and control over your money.

If you're comfortable, some of that leftover cash might allow you to buy another property down the track too.

 

Sorry to butt in guys, i phoned the Commbank where currently i have a redraw facility on my City Unit.
I told the loans person my story about buying a unit for Ip, i told him i wanted to borrow for a IP, he said dont do that !! Use your redraw !! Its much easier !!

He said its better to increase my redraw which i relucantly agreed actually now i feel stupid to do that.
So he said he will increase my redraw to 280k so i will have the 350k of my own money plus my redraw of 280k BUT ... Im now worried so if i use the redraw to buy the IP i cant claim tax deductions can i ?? The redraw is on my PPOR .
So just say i take 240k out of my redraw and use my money for the rest of the purchase , i cant claim any tax deduction can i because the redraw came from my Ppor , i cant believe i agreed for the bank to do that .
Is just that its easier that way that going through all the hoops of getting a home loan but im not better off am i because i cannot claim for interest.
hopefully you all understand what im talking about lol

 

Most people would say not to use your own money to buy IP's- borrow the money.

But here's the thing; if you were to put that $350k into the Bank - what would be the NETT return? After tax and inflation you will have gone backwards every year.

It may be better to use the cash towards multiple IP's as others have said, and take out some loans for the remainder - bigger footprint, still CFP if you manage it correctly with the LVR's, and still way better returns than the Bank.

 

I agree - I wouldn't buy it outright. Especially if you intend to keep working for the next 10, 15, 20 or more years (maybe you have an interesting and purposeful job). I'd borrow enough so that it would be neutral to positive at 9%.
Based on your post above, I think there'll be a few brokers along very soon. First thing you should do is choose 3 to talk to and then 1 to work with.
good luck. You should do well.

 

I also think you should borrow to purchase the IP, i would go up to 80LVR and keep the excess in the offset. That way, even if you don't want to purchase any additional properties you're no worse of than if you had used just cash. In the meantime, you have flexibility with what to do with the money and can deploy it as required.

 

Darlinghurstboy,

If you are looking to make property investment something more than a passing hobby, I would strongly recommend you buy some property books to read the basics, then come to the forum to refine your plan , questions etc. IMHO this will be the best, most beneficial way to move forward. (I know others disagree).

From your original post its evident you have little knowledge or plan (and its totally understandable and normal mate, before I started to learn this stuff I knew absolutely nothing and I was totally lost).

IMO by reading some books it will give you a much better idea of your options, different strategies and some of the basics to do and some basics to avoid. Your mind will start to tick from there and then the answers you receive from the forum will make a lot more sense and build on your knowledge. This is my honest opinion. Forum is great, but start with some books to get the basics. Especially if this is something you want to do long term. Your savings is amazing and will help you to a great start when your ready. So well done!

Good luck

 

DO NOT use the redraw. The best advice I got years ago was to only listen to people that have what i want. If someone at the bank suggests a product ask them how many properties they have. I would advise speaking to a mortgage broker before doing anything. There are some great ones here on this forum.
I too think you should leverage in to a few properties. By buying one outright while you are still working is just making the tax man happy.
your current wage.

 

This.

It won't cost you a cent to talk to a broker and you'll have expert input on you situation. There's a bunch of excellent brokers on here.

I'd also ensure you have a good accountant to help out and advise you

 

Yes i wont use the Redraw i got from Commbank, but if i did use it for an investment property does that mean i cannot claim any tax deduction on the interest payments as the redraw is from my Ppor.

 

Short answer no. You will get better returns with shares if you're not borrowing the banks money to invest.

If I were you I would do nothing but sit on this forum and ask questions for the next six months or so before I did anything.

That's what I did.

It seems you have a lot to learn.

 

That's what I learned from being here. Don't use redraw, don't approach the bank yourself and make sure you take your equity in a separate split.

We'll done on owning your place

 

Hi Darlinghurst boy,

A great broker who understands how to structure loans for portfolio growth will be the very best person to obtain advice from in regards to your finance structure. I find the staff at banks are trained to do things the way we should NOT be doing them as investors. (ie - advantageous and easy for banks, not so great for us when we go to buy more property)

Without knowing the finer detail, if you do use money from your redraw you can claim it*** provided the loan is split and the split is used 100% for investment purposes.

However, the less of your own money you use the;
- more options you have for your money
- The greater your financial buffer to cover potential issues
- The more money you will have for deposits for other properties and if structured correctly the less likely you will be cross securitised (which is also advantageous for you not to x securitise your assets for multiple reasons - this is a whole new conversation and I encourage you to post a new post asking people about this if you are not sure what I am talking about)

***I am not an accountant or practicing mortgage broker, this is my view and you should seek clarification and advice from properly licensed professionals on your specific circumstances.

I wish you all the best and congratulations on asking for others opinions before going ahead with one persons advice.

 

Yes you could claim a deduction by using redraw. You mentioned above that your loan is fully paid off - if this is actually the case then the balance is $0 so redrawing money would not result in mixed purpose borrowing.

Remember that redrawing from a loan is new borrowings. It doesn't matter what the security of the loan is when considering deductibility of interest (matters for estate planning purposes though).

However if your loan is not paid off then using redraw would result in a mixed purpose loan and this is not good.

Get tax advice before doing anything.