Next move for single income for the long term

Hi everyone

I'm at a bit of a cross roads. Approaching mid 30s, with 2 apartment IPS in Sydney, no PPOR (currently renting cheaply, working in Syd). I have equity released of about $220k waiting and bank is willing to allow purchase of max value $480k IP. Being on a single income, I will hit the serviceability wall after this one and given the tighter lending restrictions, this next purchase could be it for quite a while. I am planning for a single life (hopefully not).

I have fairly modest long term goals. Get to around $2.1m net worth (sooner the better) - of which about $500k to pay off PPOR and the rest is in share market. Draw down about 3% each yr for living costs.

I've always wanted to buy in Melb (Syd out of reach) to go for CG with a townhouse or house, but with the current boom a lot of the areas with good transport to CBD are now out of reach, not to mention the increasingly low yields. Werribee and other suburbs out that way is still okay but tbh with the amount of investors and hype currently in that market, I'd rather avoid it.

So lately I've been considering an alternative and that's to skip the IP and buy what may be my future PPOR. So a house in Adelaide, Brisbane or even Hobart. I can see myself living a quieter less crowded life later on. Upside being, I can buy a decent place now, the holding costs will be low and potentially CF positive to cover future IR rises, have 10-15 years time to work, maybe sell IPs, and reach fin goal before moving in. Perhaps find house/land that is big enough to be subdivide later.

But does that sound a bit defeatist ? Is there another way ? I am willing to take risks but in this current climate and with single income, its hard to see a path.
Suggestions over which city has best lifestyle is also welcome =)
Thanks

 

Could also look at cheaper option, central coast in NSW for primary residence? I believe Gosford is going nuts?? could be a win/win??

 

Hi there Tattoo... I actually have similar goals to you.

Not planning to be single forever but if those are the circumstances than that's how it is. Early 30s, need around $2m, about halfway there.

Also am starting to hit the borrowing walls, combined with IO loans rolling off to P&I.

Will follow this thread to see where it goes...

 

Consider a safari into other asset classes. I hit my serviceability wall so I'm using shares to boost capital and income. That will provide me with capital I need for development and eventually retirement.

Sometimes if you hit an obstacle you need to take a different path.

Long-term you will do well by using multiple strategies.

Don't underestimate the power of networking for improving knowledge & mindset.

 

I've mentioned this before, the challenge of being a rentvestor, is that one day, everybody wants to have their own PPOR (especially when you meet somebody), so you should consider your plan of how best to purchase that PPOR. It might mean selling up all your IPs, taking the cash, buying the PPOR and then re-starting the IP journey. Have had a previous experience with IPs and no PPOR, to turn it around is a bit of a challenge but can be done, but once you got your own place (is a good feeling) and with the equity available and can re-build the IP portfolio. Remember, owning IPs is only a means to achieve a goal.

Hence, for the rentvestor, I do consider there is a valid strategy of:
I) purchasing IPs / renting elsewhere to create initial capital gain.
II) sell down appropriate to achieve a large cash deposit for PPOR, ideally with sufficient equity.
III) re-start / re-build the IP portfolio.

The key issue is to turn around the debt structure so minimum loan on PPOR and maximum on IPs, hence initial structuring is important (e.g. offset accounts, etc). Drawing out equity from an IP for a PPOR is generally not tax deductible if the PPOR is your residence. There can be some other measures like setting up a trust, refinancing the IP and selling to the trust to get the cash out, but generally need to pay stamp duties on the transfer and possible CGT implications, so selling the IPs, taking the cash (paying your tax), buying your PPOR and rebuilding an IP portfolio is a very valid strategy.

 

But would I be able to easily rent it out for most of the time ? The rental demand and job opportunities are still mostly with the capital cities. Public transport is also lacking along the coast, though if ever a fast rail is built to join Sydney and Melb (and then Brisbane) that will open up more demand. But I'll have a look at the rental situation in these areas, living along coast would be nice

 

getting to the $2m is probably reachable for me in about 10 years - by investing in share markets and selling IPs then. And that doesn't include super. If you come across any ideas to speed up the process, do share !

 

Just presenting some suggestions.

Is this still an option? and is there an opportunity to make money now? still much cheaper than Syd.

Wollongong has recorded the highest jump in home prices across Australia for the past 12 months, knocking off Sydney for the fastest growing house price title for the first time, according to new data released by CoreLogic.

The median house price for Wollongong has risen to $720,000, with the median unit price around $520,000. The Sydney median house price remains at around $1.08 million, followed by Melbourne $810,000, Wollongong now sits in third with Brisbane Perth and Adelaide still under $550,000.

Wollongong house prices surged 16 per cent for the past 12 months with unit prices up 14 per cent. The influx of buyers into the region is a mix of equity rich cashed up retirees, families looking for greater value and those lucky enough to be able to work from home – who are looking for a more relaxed South Coast lifestyle.

 

Aside from keeping my safety buffer amount, I try invest everything else into shares. My super is simply spread in 2 low fee ETFs. My money outside is in direct shares. I had considered that now may not be the best itme to buy another IP and use equity release instead in investing shares (and maybe with margin loan to use what leverage I can with shares) - but I still think property will be better in providing more leverage and the boost needed to reach fin goal earlier.

 

I would seek to invest in a place counter cyclical to sydney. That excludes melbourne.
Id say brisbane is the safest and best bet going forward. The lifestyle is getting more like melbourne and sydney, although not there yet. Its quieter and more laid back but has enough commerce and job opportunities for people your age.
Plus, as a huge added bonus for a single guy is that the 'talent' in brisbane is considerably higher quality than any other place..

 

you're right, and all rentvestors should start with an exit plan in mind first. I didn't plan to be a rentvestor - first IP was cheapie straight out of uni and is not in an area I'd want to live in. The 2nd IP is in great area but is a 2 bdr, so in my single status, it doesn't make much sense to move in and take on that non deductible loan.
I've recently refinanced both IPs to 2 yr fixed rates and in hindsight maybe I should've sold one off now and put proceeds in offset. That would've helped reduce significantly the loan left in other IP and I could've turned that into PPOR and paid it off in 2-3 years. But if I break the fixed rate now I'll cop a fee.

 

Check the cost of the break fee. If you are talking about selling and getting a profit of multiple $100k, and if current market is at peak, and if the break fee is a few k it might be worth it.

 

I love Melbourne and its life style. Have many colleagues who travel from other cities here and like it. Maybe if you get the opportunity to check it out on the ground you can make a better choice. But in 10 years a lot can change.

Btw I'm in the same boat. And I bought in Werribee but not before I roamed around as there is a lot of land there but what I saw was enough to make it my top choice in the 450k price bracket.

Currently I'm looking at international shares and learning about them... Better returns. i believe at a PPOR and two IPs all at P&I I have hit my serviceability wall but I am not keen to buy for another couple of years. At most will consider a subdivision of an existing IP and build.