Need guidance-

Hi,

I hope someone can guide me in the right direction.

I have opportunity to buy a villa unit for $560,000 in Northern suburbs of Melbourne (12km from city) or buy a house for $450,000 in western suburbs (30 KMs from city).

Current situation:

Age-27 & Single
Savings -$ 130,000
Fully Paid PPOR (my share (50%) $220,000) in Western suburbs
Income- $70,000 per year
Commitment- Doing post grad part time, can't increase the income for another 3 years

Strategy 1
Buy unit (IP) - $560,000
Loan-460,000 (fixed term for 3 years)
Rent - 375 per week
Live in PPOR for another 3 years, and continue to save (aiming to save $100,000 in 3 years)
Pay the family member out after 3 years
Move to IP and turn PPOR to IP

Strategy 2
Buy a house (IP)- $450,000
Loan-$350,000
Rent - 350 per week
Live in PPOR for another 3 years
Paid the family membert out after 3 years, and continue to save (aiming to save $100,000 in 3 years
Move to IP and turn PPOR to IP

My aim is to keep both properties. Do you think I can manage or not? Should I buy (unit or house) now or continue to save?

Thank you

 

@Ria

That's a great position to be in.

I would suggest using equity in your PPOR for the IP purchase - that way you have an IP that is tax deductible. As well as you preserve your savings. Having said that, when and if you do borrow from your PPOR, you will be seen as liable for the entire amount (joint and several liability) in most circumstances.

Speak with a mortgage broker to determine how to structure as well as the borrowing capacity. Borrowing would be key given the lending changes... So whether you can borrow for Strategy 1 or Strategy 2 will come down to what's possible with your current resources.

Also, what do you want the property to do for you? What makes Strategy 1 better than Strategy 2 and vice versa? And why Melbourne?

 

Hi Rolf,

Yes, I mean both. I don't have big investment goals. I just want to have 2 properties paid off asap.

 

Good stuff.
As to whether you can manage it or not. Have you done a cash flow analysis / spreadsheet on what both properties will cost you to hold (with the existing property having the usual rates etc).

Not sure if the structure is ideal though from a tax perspective. And given you want the new purchase to be a home, is ANZ the most suitable lender? What made you select ANZ?

 

This could be good, but the IP wouldn't be tax deductible. Interest on a loan used to acquire an income producing property may be deductible. This should be confirmed with a lawyer or registered tax agent.

 

In that case simply using the cash as the deposit may be easier as no need to get the other family member involved. If you borrow 100% and kept the cash in the offset account it would be the same tax outcome. The difference is this would be better if you changed your mind and didn't move in.

 

Not sure if the structure is ideal though from a tax perspective. And given you want the new purchase to be a home, is ANZ the most suitable lender? What made you select ANZ?[/QUOTE]

New purchase would be IP for atleast next 3 years.
I always bank with ANZ, and I was advised that it is better to stick with Bing banks?

 

Thanks Terry for your reply

I am planning to get 3 year fixed rate (principal and interest). I hope it will give me some security in terms of mortgage payment while I complete my study commitments. At the end of 3 years period, I will use $100,000 ( which I will save comfortably over 3 years) to pay down PPOR loan.

What's your opinion on 3 years fixed term?

Thanks

 

Why fix when you won't be able to use an offset? I would suggest you consider splitting into a variable and fixed portions. Personally though i would never fix because of the lack of flexibility.

 

If you were buying an IP to remain an IP I would look at more land content, flexibility to subdivide if possible, potential for prices to go up further in the suburb by looking at the kind of people moving to that area, the infrastructure going in etc. If you are buying to eventually live in it, it complicates it slightly as you should be able to go for where you personally prefer to live, whether or not it’s the most sound investment.. or that’s how I think anyway.

Which northern suburbs are you targeting? Which western ones? What’s the difference in actual travel time to city? Where do you prefer to live? Is it better to go for the less costly option so it’s less of a financial burden?

 

Thanks Gypsyblood (btw I like this name) for your reply.

I'm buying this place with a view of moving in 3 years time. My current PPOR is in Wyndham vale (next to Werribee), and I'm looking to buy in Reservoir (near Edwardes lake). I work in city, and this is the area I would like to move in future. My plan is to turn Wyndham vale to IP when I move to Reservoir.