PPOR almost paid, now looking at first investment PERTH

Discussion in 'Investment Strategy' started by Improve, 12th Oct, 2019.

Join Australia's most dynamic and respected property investment community
  1. Improve

    Improve Member

    Joined:
    12th Oct, 2019
    Posts:
    7
    Location:
    Perth
    Hi All,

    First time poster and would like to say what a great forum this is with a wealth of information!

    The count down is on, balance is falling and we are on track to have our ppor paid out by December 2020. We are now looking at our strategy moving forwards and to set ourselves up for the future. We always planned to have our house as close to being paid off as possible before children entered the picture.

    So a little about myself, I'm 30, married, my partner is also 30. We plan to start a family in 6 months time.
    We have no debt other than our current mortgage, PPOR valued at $750K, with $160K remaining. we do not have any other forms of investments.

    We don't have any intention of moving for the next 10+ years, and built our home 3 years ago large enough with an upcoming family in mind. We have been quite aggressive with our savings and over the last 5 years, 65-70% of our income has been put on the mortgage. Once children come into the picture we would both like to be there for our family and try and enjoy the moment of raising our family as much as possible knowing our future outgoing expenses would have drastically reduced by effectively owing the bank $0 on our own home.

    Purchasing an investment property(s) has always part of our long term goal, and with the market down we are actively looking for the right first investment property, weather its the perfect time is the unknown. But its about time in the market compared to timing the market, right? to an extent id say.

    While our serviceability is high, still both working full time and before we start for our family, this further makes us think we should be getting into the IP market now if we find the right buy.

    The investment property ideally needs to be less than $450K and the intention is to buy in an area where there will be capital growth and hopefully pick something up undervalue, that will attract reasonable rental yield, preferably no strata fee and we have no immediate plan to sell in the near future.
    Its been difficult to decide between purchasing an older home/duplex with larger land where we could add some value over the years or to purchase a smaller land/home that is newer, have the benefit of depreciation, less likelihood of unexpected expenses and may attract better tenants.

    Some locations we have been looking at is, Palmyra, Melville, Willagee, Kardinya, Waterford, Shelley, Riverton, Willetton, or areas reasonably close to the coast and cheaper and closer to Fremantle such as Hamilton hill, Spearwood, Munster, Beeliar and Success.

    In terms of borrowing, we could borrow against our PPOR loan for the 20% deposit, and then take out a second loan for the remaining 80%. both would be P&I. Or we can borrow 100% of the investment property and use our home as security which would carry some further risk, though the position we would be in, i could not see us defaulting and not being able to afford repayments, even if there were times of no tenants.

    If you were in my position, would you be plunging into the market now? I think financially we are in a good position to start though interested to hear other peoples opinions and what your strategy would be if you were in my shoes. Thanks!
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    10,002
    Location:
    Perth
    I think financially now would be the time as your serviceability will go down once you have kids. You are in an awesome position financially with so much paid off against your house so well done to you both! That is no easy feat and I have to say your dedication to the cause has been epic!

    Ok the budget for an IP isn't brilliant but it also isn't terrible. As you have worked out it might be an older duplex in those areas or a house in the ickier areas. In those areas I probably wouldn't go new as all the profit has been taken by the current developer HOWEVER there is some bargains to be had if a developer can't get rid of some stock and has to sell at cost. Those tend to be in larger developments though and I'd probably steer clear of them. Just keep an open mind and don't be too narrow in your search, be open to new and old and see how each one stacks up.

    Personally I could do a Line of Credit against the PPOR for the deposit and then another loan for the new IP. It keeps it clean and easy and there is no point adding the complication of cross collateralisation.
     
    wylie, croseks, Stoffo and 1 other person like this.
  3. spoon

    spoon Well-Known Member

    Joined:
    17th Nov, 2016
    Posts:
    1,463
    Location:
    Time-dependent
    Rossmoyne and Willetion SHS zones will put you in good stead.
     
  4. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,372
    Location:
    Perth WA
    Welcome! You've done so well, that's awesome!

    Once kids arrive your borrowing capacity will go down significantly, assuming your partner works now and the income isn't all yours.

    You really are in an awesome position - what's the end goal? Have you thought that far ahead?

    Rather than concentrating on this immediate purchase straight away, you'd really benefit from doing some forward planning - first to see what's possible now in your current situation, and also what's possible once kids come into the picture.

    If you're clear on the end goal, you can consider how this next property will fit in terms of cash-flow and growth, but also what may come next for you in terms of your property strategy once your borrowing capacity is diminished.

    Unless you're going to buy one and stop, that is :)
     
    John_BridgeToBricks likes this.
  5. Synergy

    Synergy Well-Known Member

    Joined:
    6th Jun, 2019
    Posts:
    164
    Location:
    Brisbane
    perth is a wild card, brisbane a better choice right now
     
  6. marmot

    marmot Well-Known Member

    Joined:
    23rd Jan, 2018
    Posts:
    1,215
    Location:
    N.S.W , W.A
    Perth is probably a very good market at the moment to watch intensively, but still sit on the sidelines, Id personally never buy into a market that had seen a big rise in the last 5 or so years for the same reason that many people just kept on buying in Perth, thinking the next boom was just around the corner.
    Real estate markets can sometimes act like an elastic band , things can tend to happen quite quickly.
    Many local investors are already underwater , so the banks wont loan them more money , especially if they have never attempted to pay of the principle of the loan.
    Many of these were probably still owing big amounts on their PPOR , which have gone nowhere as well.
    For example, in 2009 we were after a property in N.S.W and had our PPOR in Perth paid off , the bank would let us borrow 100% plus the money required for all the fees.
    I wonder how many people took up that offer from the banks and added the fees onto the loan , they may have even taken it one step further and gone interest only.
    I've heard of stories from my mining days when guys were buying a couple of houses at a time, expecting to get similar returns to what I got from Perth property from 2002-2007
    If they are trying to pay off 2 or 3 mortgages simultaneously, with falling rents that puts them under a lot of pressure to sell, if after 10 years the market has gone nowhere.
    Luckily interest rates have gone all downhill since 2012, for someone with a 500 k mortgage would be almost 20k a year better off , but with IO loans they still might have a 500k mortage, for a house that may have been only worth 450k + fees, back from the days when lending practices were really slack.
    Eventually the Perth market will pick up, just as many give up.
    But the amount of properties for sale also has to come down , according to the West Australian real estate section from 2013/14 numbers for sale were around the high 8000s to low 10,000 with rental properties sitting around 5000.
    Back in 2012 available rentals were sitting around the high 2000s, before the wheels started to fall off in a rather dramatic fashion .