Newbie looking for suggestion and advice

Newbie here, please be nice and gentle.

We are in our mid 40s and have just purchased our next PPOR. We are thinking of our next investment journey move. My work colleague recommended us to this website, which I found really useful and have open our eyes to IP.


Current Situation:

Family of 4 with 2 children in early teens.

We sold our previous PPOR to purchase this new PPOR. We have been thinking of investing in property since 2012. However, we have been too pre-occupied with the mindset of upgrading our PPOR, and only wanted to pay off our PPOR as quickly as possible, and didn’t purchase any IP, so we missed the property investment opportunity of the last 5 years (Luckily we had our previous PPOR).

Current new PPOR worth $2M, with loan $1M. We split the loan into two parts consist of $700K and $300K. We also have approx. 300K cash. The idea was to put the $300K into the 2nd loan and then redraw it out for investment. Keeping the 2nd loan account like an investment account.

The loan is a simple loan with no offset, only redraw. We like offset, but the bank only offer offset facility with package loans which have a package fee and higher interest rate. So we chose the basic loan.

We want to start investing into IP, but want to get our strategy right. What should we do or should plan to do?

Thanks

 

I would move to pay off your loan on ppsr as that is not tax deductible. With real estate ready for. Few years of stagnation if not price dropping, paying off your PPOR is number one in investment advice.

 

What’s your combined income?

If I were you I’d make sure my super contributions were at least 15% and pay off your PPOR to a more manageable amount before investing in property.

 

Agree on that one. Lower interest rate shouldn't be your number one concern, especially on a big PPOR loan. I would probably be considering using some of that separate loan for some debt recycling.

 

Welcome to PC.

As suggested above a low rate is only one of many factors to consider.

Having an offset allows you to keep control of the money, rather than a redraw.

You may want to keep some of your savings for personal nonote deductible expenses, and servicability permitting draw down equity to fund the next IP or IPS.

In terms of where to start:

1) determine your driver for investing
2) educate yourself... learn from the wealth of experience on PC
3) surround yourself with like minded individuals
4) work out your strategy, capital growth vs cash flow and how it ties into your overall goal and risk profile

Lastly and most importantly....take action!

 

What's the goal here?

What's income and cash flow like?

What bank you currently with and how much extra interest will they charge?

Lot more info required tbh to be able to advise properly.. It's kind of reverse engineering!!..

Best to sit down with your broker and accountant for right structure..

Good broker and accountant will be able to guide you on if it's worth purchasing next IP or not...

After that next question will be, where to buy and that's where you BA will be helpful..

Cheers,

 

Based upon the minimal information provided I would definitely suggest hitting up @Rolf Latham to discuss a debt recycling strategy.

You clearly have a high combined income to be servicing 1mil debt with 4 defendants but it’s unknown how much of that is surplus.

Due to age and current debt IMO your focus needs to be on reducing that, not taking on more debt (unless done correctly with a recycling strategy).

 

Didn't expect so many responses in such a quick time. Thank you very much.

Our combine income is approx $180-$190K, one full time on 140k and another on 40-50k stable casual work. Expenses are around 50k-60k per year.

the $300k in the redraw effectively reduce our loan to about 700k. However, we were thinking of using that down the track for investment. The interest rate on the loan is 3.65%. With offset, the rate would go be over 3.80% plus $395 package fee.

To be honest, we are not sure what our goal is. We were always just thinking paying off the PPOR and then use any surplus for investment (we paid off the original PPOR, but just got a bigger mortgage for a bigger PPOR). Back in our mind, we do hoping to maybe get two IP (one for each kid sort of thinking).

Though we may have the $300k for investment, we may not be able to get another loan for IP since we already have a large mortgage. That is why we need to think what we should do in the next few years. Maybe keep paying off the PPOR, or invest the surplus into something more liquid like shares and/or build more buffer and invest into IP later.

 

Ain't that the truth...for me anyways

 

BFI-er?

 

give @Rolf Latham a call, he has helped many ppl on the forum.

 

I suppose I do have a sort of a "wishlist", such as I would like to be able to pay off the current PPOR when I reach retirement age, and have $1000 passive income per week ($50K a year). But don't really know whether it is achievable, let alone a plan to achieve it. That is why it is more of wishlist rather than goal.

Had a discussion with a financial planner from the bank, however, he seem to be focus more on insurance, fund and superannuation. I want to explore a bit more about property and this forum has been very useful. I wish I had found it much earlier.

 

Hehe yes!!! But in this situation, it makes sense. The OP has dependents and has about 20 years before retirement with a large PPOR debt. If the OP was in her 20's, different story.

 

Using the redraw is debt recycling, but not having an offset means you will be paying interest until you pay the $300k split down. Where is your $300k now?

Once you do use the $300k to pay down the loan, redraw and invest, where will you put your savings and buffer cash after that?

You could easily debt recycle without borrowing any more money overall, but that might limit the sort of investments you can make.

 

All the extra saving will be put into the $700 loan account. The $300K will be used for investment purpose, unless there is an emergency situation which may require extra money.

While the property market is in a down or flat trend, I might use the time to educate myself about property investment before making any decisions.

Having an offset is good, but with the difference in interest rate, my current simple home loan would save me approx $1500 a year. Maybe later on when I do make a decision to invest, then change to a loan with offset (or is there any downside doing it later rather than doing it now?)

 

that might be ok, but if you were to ever rent that property out you might have trouble working out how much of the $700k loan remains deductible and even if you could work it out it will result in much lower deductions.

But if you are unlikely to rent it then this may never be an issue.

 

Naturally any bank FP is going to be more focused on selling products for which they receive a benefit (ie: commission) so their 'advice' has to be taken knowing this. FPs rarely advise direct property investment, as it's not a product for which they receive any benefit (unless it's new developer stock for which they're receiving commissions) If you want a truly independent FP forget the banks, as they're all allied to their own products....

Second the advice to seek out a good broker (and potentially independent FP) and work on structure, plan and then take it from there. Best of luck with it all