Property upgrade strategy - what's next

Hi All,

Looking for a recommendation on how to approach property upgrade and any tips on how to structure loan, sequence of interaction with a lender, etc.

Current situation:
> PPOR Sydney, recent bank valuation ~$1.85M
> Loan ~$450K
> Dual income: 280K & 105K, 2 dependents
> Under 35

We are looking to buy a house within a better high school catchment. E.g. Sydney Upper North Shore. Option 1: buy existing house/minor renovation
Option 2: knockdown & rebuild

Q1: Bank is willing to lend about $2M for an IP if I want to buy knockdown/rebuilt and rent it out for a year while we work on DA, etc. Houses sell minimum of $2.2-2.8 depending on location. Should we talk to anyone else who can lend more? Or does $2M sound like upper limit in our situation?

Q2: What loan type should we be getting pre-approval for? I was looking to get investment pre-approval and not bridging loan. We don't want to sell the current house until we buy the next one as the risk of not being able to buy anything in a rapidly growing market would mean we can loose a lot of money by selling beforehand.

Q3: Is there anything else we should be considering?

We could wait for another year and save may be $200k more but thinking prices may go up by much higher amount during this time. Don't want to rush and jump in either as I don't know Sydney Upper North Shore well and would want to spend 4-8 weeks exploring it every weekend as soon as lockdown is over.

 

Q1 - cant really give you a definite answer cause there is more information needed to do cals on. Assuming you're with a mainstream lender, then there's definitely lenders that can give you more.

Q2. If servicing permits, no bridging loan should be needed.

Q3. Find a broker who can do multiple servicibilities for you with different lenders.

 

Nice situation to be in. Numbers may work, high level it will be close but may be able to stretch it a bit.

1. Run two capacities, one as OO and the other as an IP purchase.

2. Bridging unlikely to be useful or necessary in this situation - lot of equity you can pull out and utilise for the next purchase. The existing property you have (current PPOR) shouldn’t have a negative impact on servicing for another property in future (as it will earn rental income if kept and the yield on debt would be high). Many often assume bridging is the right fit given what they are trying to do - but in most cases there’s better ways to do it without giving the bank so much control over your choices/timings.

3. Not sure a year of savings will help much - equity is plentiful, prices are moving. Will likely be the same or similar situation in 6-12 months (extra capital will flow through to higher prices).

Goodluck!