Purchased IP, next move ?

Discussion in 'Investment Strategy' started by KGENIC, 15th Aug, 2018.

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  1. KGENIC

    KGENIC Member

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    Hello everyone,

    I have been lurking on the forum for some time now and have now decided to post and seek your valued advice.

    For some context:
    Single and aged 23, living at home with few expenses and in stable employment with 80k (before tax).

    I'm looking a purchasing a second IP, having purchased one early last year at 420k. The property has never been without a tenant at $450 per week. I have since saved 30k (expecting another 10k+ in returns) in an offset and would have accumulated equity in this time, given the growth in the Pakenham area.

    I'm thinking about purchasing in rural Victoria and have been looking at properties around 160k (positive cash flow) with the intention of clearing the loan in a short period of time to use this as an asset/passive income for future purchases.

    Concerns:
    • Low likelihood of growth in value, due to location.
    • Likelihood of property remaining untenanted. However, I think I could still afford.
    • Metropolitan Victoria seems to expensive for me as I have been told that I cannot borrow too much more given that I'm a guarantor for another loan (250k)
     
  2. Trainee

    Trainee Well-Known Member

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    Thats a really bad move for someone so young. What is it?
     
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  3. KGENIC

    KGENIC Member

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    I would agree with you. Usual judgement lacks when family is involved. It was an IP, which has also done well value and rental wise.
     
  4. Trainee

    Trainee Well-Known Member

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    Then ask for the guarantee to be removed.
     
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  5. Eric Wu

    Eric Wu Well-Known Member Business Member

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    welcome to PC @KGENIC, well done, great achievement at such a young age.

    agree with @Trainee, if the value has grown a lot ( if the LVR is under 80%), removing yourself from the guarantee ASAP is the first thing on your list.

    once you are free form it, you could buy again.
     
  6. KGENIC

    KGENIC Member

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    When I last considered it, it did not seem like a possibility as the other individual on the loan is no longer employed. I don't see the bank taking that risk and allowing me to exit.

    I'm actually meeting with a broker from the back this evening, so I can have that discussion with them. Thus far, I've been told that I can borrow a further 160k.
     
  7. astonma

    astonma Well-Known Member

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    Hiya well done so far

    You're young and i assume have good job growth prospects if already on that sort of money? If i was in your boots I'd be going after properties in areas that have historically seen strong capital growth because you have time on your side, in the long run its capital growth that will get you well on your way to financial freedom rather than cashflow positive properties. You will know already how powerful growth is by how much equity you have created in your first purchase already! If you see no or negative growth in the short term from a property purchased more for its growth prospects you will be able to ride this out given how young you are and then reap the long term benefits of buying something well located with good growth prospects. Perhaps the focus right now should be on working out how best to release the guarantee, if that takes another year then so be it. Sometimes doing nothing for the time being is better than doing something right now with the borrowing capacity you have and then being stuck with a property thats using up serviceability and returning positive $50 per week and lengthens the time out before you can purchase the 3rd IP
     
  8. Trainee

    Trainee Well-Known Member

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    Even if the rent is covering payments, your basically a broken toilet away from having to carry those expenses if the other person doesnt have money.

    Talk to the individual. Sell and move on. If the bank wont take the risk, should you?

     
    Last edited: 15th Aug, 2018
  9. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    To remove a security guarantor, no servicing assessment is required as it's only for security and not for servicing. You should have no issue, unless you were a servicing guarantor, and that's unlikely as almost no banks do this. It's usually as easy as a valuation and discharge form.

    Also important to know that a broker from the bank is not a broker - they're a mobile bank lender. :) If you're serious about building a portfolio, the quicker you team up with an investment savvy broker, the better - they'll make sure your structured correctly to maximise your borrowing capacity and reduce your risk, which a banker is highly unlikely to ever do for you, and at best can only do within the confines of their own bank policy and products.
     
  10. KGENIC

    KGENIC Member

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    Thank you everyone for the informative responses !

    That's comforting to hear and something I will look into. It seems I should seek further advice.

    I just met with the bank broker (ME Bank to be specific) and apparently my borrowing limit 70k, which is quite useless to me. According to him, being a guarantor is not a concern when it comes to borrowing, but an outstanding student loan of which I assume is no more than 15k. I have chosen not to pay this off at once, but could if I wanted to. He suggested that I do this and then I would be looking at a borrowing limit of 150k.
     
  11. KGENIC

    KGENIC Member

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    I haven't been worried about this as they have a good amount of savings. Selling is something that I have considered, as it would free up a decent amount of money for further investment. However, they are keen on holding long term and I suspect there's a level of attachment, which is never good when it comes to investing.
     
  12. Trainee

    Trainee Well-Known Member

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    Paying off a low growth, hard to rent property doesn't help you. You might as well buy shares or funds.