Need some help with investment strategy. Melbourne SE.

Discussion in 'Investment Strategy' started by Lukesr20, 26th Nov, 2018.

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  1. Lukesr20

    Lukesr20 Well-Known Member

    Joined:
    1st May, 2017
    Posts:
    143
    Location:
    Frankston South
    Hi guys and girls,

    A bit of background info first.

    I brought an older 3 bedroom unit with my partner 2 years ago in Frankston South, we paid $449k for it and still have roughly $420k left on our mortgage due to us renovating the house rather than paying down the loan.

    With this property, we have always treated it as a future IP and in doing so have renovated quite modestly, but have modernized the entire place and spend about 30k in doing so, this meant new flooring throughout, kitchen sprayed with new appliances, stone bench tops, sprayed bathroom with new vanity and mirror, downlights throughout and a new lick of paint.

    The unit next to us sold for 612'500k last week, it is exactly the same floor plan but at the rear of the complex rather than at the front, it was staged with nice furniture and had new paint but other than that it is completely unrenovated.

    We had our place valued and were told our house would easily exceed the price of that house, and could be put on the market for 590-640 and could potentially hit the higher end of that estimate, we also got a rental appraisal and were told we would get between 450-480 a week, this got is thinking as our current mortgage is 470 a week.

    We are now thinking of possible, buy another proporty in the same area as a PPOR and rent out our current unit, our only issue is, is that we don't have savings as we have been renovating into the unit so we would be leveraging souly off equity. Do the banks generally still allow this, and would this be a good idea? The only thing that I can think of as a negative is having two proporties in the same area as it is kind of putting all our eggs in one basket.

    We figure it's better to do it now though than before having kids to try and set us up. We both work professional jobs and earn combined about 150k, have no credit cards and a small personal loan of 11k.

    What do you think?

    I am so sorry, I realise this is a very long winded post.
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Yes, banks do allow. You could have the existing one treated as an investment and next as PPOR. Will come down to lender selection. You will be able to use the rental income towards the borrowing.

    Also important to lock in the equity as markets in the region go side ways / backwards for some time..

    I would lock in the equity as starters. As you call out, growing family can and does stop people in being able to move forward. So purchasing can also future proof yourself.

    As for buying in the same area....what do you like about the area? Home purchase is an emotional decision over a financial decision.

    How has the area performed in the past? Is it an owner occupied driven or investment driven market?

    When markets rise, everything rises....so whether you buy in the same suburb or the one next door, will not be much different as opposed to buying in another city. Look at the property clock concept.
     
  3. Lukesr20

    Lukesr20 Well-Known Member

    Joined:
    1st May, 2017
    Posts:
    143
    Location:
    Frankston South
    Thanks so much for your informative response. When you talk about "locking in" your equity, what do you mean by this?

    Is there any lenders specifically that you can suggest? Would it be worth going to my current lender first who is Rams?

    As far as the area, it has all the same qualities I fell in love with when I brought two years ago. Major arteriaps like the pennisupa link and the eastlink to get you into the city with ease, a beautiful beach nearby, gateway to the rest of the Mornington Peninsula, a fantasic high school (Frankston High) which has performed as a top state school for decades (our unit is in the high school zone), plenty of amenities as it is an older area and as the area holds a marginal seat in government it's had a huge amount of money invested by the government. A 60 million dollar train station development, entire TAFE redevelopment, and a future Hospital redevelopment with the addition of over 100 beds and a mental health ward. I believe the area has been undervalued for a long time now due to a negative stigma that is gradually going with gentrification.

    As far as to weather it's an investor driven market or a owner occupied market, that I am not sure of as I don't have any data on those specifics. If what you mean is do most people rent or are most people owner occipier, I'd say the vast majority are owner occupier but their is a high demand for rentals in the area.

    Thanks
     
    Property Twins likes this.
  4. jazzsidana

    jazzsidana Well-Known Member

    Joined:
    27th Jan, 2018
    Posts:
    459
    Location:
    Melbourne
    Good Day Mate,

    Frankston has done exceptionally well over the last few years. I hold one in the area too (bought in 2013) and it's gone up by 70% approx.

    If plan is to buy PPOR and that's the place you prefer to live, nothing wrong with the area. One tip - See if you can source something on decent block size. As an example, one I have is on almost 700sqm..

    Regarding releasing equity for next purchase, that shouldn't be an issue at all unless serviceability otherwise is an issue.

    If I was you, i'll release the equity asap. Benefit being, if market drops further (which won't surpise), you already have got your equity released at current market price and won't be paying any extra interest (offset a/c).. Pretty sure that's what @Property Twins are recommending too (i.e. - lock in the equity).

    And with prices still heading south, now/next year will be good time to negotiate hard when hunting for your PPOR. But if planning to purchase another investment, Frankston probably is not the best bet at this point due to low yields..

    Hope it helps...

    Cheers,
     
  5. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Extract the equity while you can before the market pulls back further. Make sure you maximise the equity pull.

    Don't know enough about your specific circumstances. Lender selection will depend on:
    * Your income and hence borrowing capacity
    * Type of income
    * Outstanding loan terms and hence..
    * Your overall strategy and goals
    * Valuation you can receive - whether that's your current lender or a different lender
    * How flexible your lender is to release equity vs a different lender
    * What your current loan to value ratio is - so you can have flexibility

    Work on setting finance up correctly right from the start and before you do the next purchase. It's harder to go back and fix structures.
     
  6. Lukesr20

    Lukesr20 Well-Known Member

    Joined:
    1st May, 2017
    Posts:
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    Location:
    Frankston South
    Hi Jazz

    2013 was a fantastic time to buy, you got in right before it started going bonkers. Can't say I've seen growth like that yet, but I am still quite impressed that it's jumped at the very least 160k, in two years.

    I think it's time I talk to a bank then and see if I am able to release the equity. Yeah the goal was always to buy a PPOR here as parents live close by and I want my future kids to go to the highschool and be brought up by the beach. Would love something on a nice big blog but I am afraid it will be out of budget for Frankston South. We want something a little closer to the beach, something with character, and a minimum of 3 beds 2 bathroom's. It seems if we want anything close to this we will be looking at 850k at least. That's why another option could be to buy ppor and rent it out for 5 years until the unit we currently love in gets too small.

    Plan is to try and set my self up for the future with the equity from my current place, it's just I worry banks are now pretty tight with lending, I'd be interested to find out how much they'd give us with no savings.

    Thanks for your reapores
     
    Lindsay_W likes this.
  7. jazzsidana

    jazzsidana Well-Known Member

    Joined:
    27th Jan, 2018
    Posts:
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    Location:
    Melbourne
    If you happy to stay at place where you currently are, another better option is to invest in growing market outside of Vic. 5yrs is long time and surely better places (outside vic) to maximise gains/yield returns ..
     
  8. Ian87

    Ian87 Well-Known Member

    Joined:
    23rd Sep, 2016
    Posts:
    680
    Location:
    Melbourne
    Hey mate I also own in Frankston South and it’s gone brilliant for us. We are up 42% in 3 years with no renovations. I watch the market really closely and it seems some steam has come out of it, also spoke to my agent the other week and he agrees. I think long term it’s a good place to buy but in the short term there isn’t a rush to buy again.

    Jaz is correct about possible better capital growth in the short in other states. However if you want to purchase close to you then I think long term it will do well. However I don’t think there is a rush right now with the way the market is heading. I would spend the next few weeks going to opens and auctions, I bet the volume of people there is a lot lower than when you purchased. If that is the case then you could spend the next 12-18 months saving and by the time you come to buy the market very well might have softened so you will spend less in your new purchase.

    If you do this I would release whatever equity you can right now and have it sitting in an offset so it doesn’t attract interest but is there and ready to be used when you need it.

    Good luck.
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    The other issue you may face is accounting for the tax deductibility of the loan you access from the equity, if you rent out your current place.

    The Y-man
     
  10. wilso8948

    wilso8948 Well-Known Member

    Joined:
    23rd Jan, 2018
    Posts:
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    Location:
    NSW/QLD
    - Get your cashflow right
    - Model situations regarding kids and single income
    - Educate yourself regarding other markets and growth cycles
    - Rent out current home
    - Move into a rental you like in the area you want to live in
    - Go see a broker
    - Invest in other growth markets