Join Australia's most dynamic and respected property investment community

Someone actually listened and implemented the advice on this forum....

Discussion in 'Property Finance' started by marty998, 8th Feb, 2016.

  1. marty998

    marty998 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    125
    Location:
    Sydney
    Post is partly a case study, partly a thank you to those broken records out there who bang on about interest only, offsets etc.

    For PPOR I had a 30% deposit, for the IP's I borrowed the 20% deposit and stamps against the PPOR using split loans, and took an 80% loan against the IP. No crossing, no LMI but all loans with the same lender. I did everything the boring, slow conservative way. Save up cash, buy when you feel comfortable. It can and does work.

    PPOR (Sydney southern suburbs 2/1/1 unit)
    Purchased Sep 2010, $385k, current value $550k-$600k. Current loan balance $250k (I/O variable) with $250k in offset (i.e. makes my day to see $0 interest debited each month).

    IP#1 (Sydney southern suburbs 2/1/1 unit)
    Purchased Jul 2014 $450k, current value $550k-$575k. Deposit & stamps funded by split I/O variable loan against PPOR ($108k), remainder $360k 5yr fixed rate loan against the IP.

    IP#2 (Canberra southern suburbs 2/1/1 unit)
    Purchased Jan 2016 $320k. Deposit & stamps funded by another split I/O variable loan against PPOR ($74k), remainder $256k I will likely fix for 2 years on settlement.

    Overall negative gear will be about $4k per year combined after depreciation & after tax refund.

    Total Property ~$1,420,000
    Total Loans $1,048,000
    Offset cash available $250,000

    PPOR will probably become IP#3, with the offset cash used to buy a future house. Pausing for now for a bit to diversify into shares for the next year or 2. Probably good timing with all the market gyrations.

    In hindsight probably shouldn't have fixed for 5 years on the first IP at 4.89%...but I guess the excitement of getting a rate under 5 guaranteed for 5 years was a bit too much!

    Not an immediate issue now but serviceability became an issue. Bank wanted to throw money at me but the computer kept saying no. Last May they said I could borrow a further $550k... but in Jan when I just went for this one it was a struggle to get the $330,000. Assumptions relating to P&I, assessment rate, household expenses cut very hard.
     
    Phil_22, Cactus, S.T and 1 other person like this.
  2. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    4,941
    Location:
    Sydney
    Hello!!
    Quick question... why fix?
    I'd rather more flexibility?
    Also... you should be able to get 90% loans with no LMI?
     
  3. marty998

    marty998 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    125
    Location:
    Sydney
    Last year at the time the fixed rate was the same as the variable rate... I was just happy to lock it in, especially considering I was highly unlikely to need to sell.

    Still borrowed the full 105% anyway without LMI... whether it was 90/15 or 80/25 against 2 properties didn't matter so much to me.

    Smarter people than me can comment as to right or wrong, won't pretend to know the answer to that
     
  4. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    4,941
    Location:
    Sydney
    Cool. Now i'm just wondering why you would want to fix on the new Canberra property though?
     
  5. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    173
    Location:
    NSW
    90% no LMI? Where from??

    Agree with the flexibility, but also need to look at the whole picture (including not stretching yourself too far - if fixing one or two properties will keep you from overstretching and crash and burning, then possibly the better of two evils). That said, I'm not a fan of fixing and if so, for shortest time.
     
  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    4,941
    Location:
    Sydney
    Working in banking has its perks :)
     
  7. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    173
    Location:
    NSW
    @Gockie are you saying here not to fix a newly purchased property (and maybe think about fixing later into the ownership), or not fixing a Canberra property specifically?
     
  8. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    173
    Location:
    NSW
    Blahhh :) I'll keep to my contract management role and vest my trust in brokers....
     
  9. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    4,941
    Location:
    Sydney
    I'd say don't fix anything at all. You lose all flexibility. Say it goes up in value, great! You now want to pull out the extra equity. But wait... what if that lending institution won't lend you any money because you have hit the serviceability ceiling with them?

    You either have to:
    *Not touch that equity (and lose the ability to use that capital growth)
    *Refinance away and incur break fees.

    Another scenario is; the property has grown in value. Yippee! But the bank's valuer says, "no it hasn't". Now normally you could try another lender but if you move it away, you incur break fees.

    You may also think you mightn't touch the loan in the period it is fixed, but you never know... plus its unlikely we'll have high interest rates in the near future anyway.

    There maybe other ways around it but they probably aren't that easy/straightforward.
    Whereas, if you only had a variable loan the whole time, there is no problem with a break fee if you decide to break the loan/pay it off early/refinance etc, because there isn't one!
    I hope this has been of use @Mac Fields. :)
     
    Last edited: 8th Feb, 2016
    tobe likes this.
  10. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    173
    Location:
    NSW
    Brilliant, thanks @Gockie , yep absolutely agree about having the flexibility.
     
  11. USC

    USC Active Member

    Joined:
    2nd Jan, 2016
    Posts:
    36
    Location:
    Melbourne
    @marty998 well done, looks like a great structure just by the book!

    Your two loan splits for deposits+costs are very specific amounts $108k and $74k. Are the loans exactly those amounts? I'm interested logistically, did you set up those loans prior to purchasing (ie. ready for a deposit) or after signing contracts?
     
  12. marty998

    marty998 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    125
    Location:
    Sydney
    $108k covered 20% (90k) stamps ($15,700), legals, settlement adjustments and body corp search ($2,300). I had to chip in $54 cash to make up the shortfall (who can calculate my ROE?)

    $74k brings the total loans on the PPOR up to $432k, which is 80% of the valuation the bank is using ($540k).

    $74k covers 20% deposit ($64k) ACT stamps (~$7.5K) and legals and settlement adjustments (~$2500 TBC).

    Basically talked to the bank and set up the equity releases an hour or so before contacting the agents and saying yes agree price and will sign contract. Bank releases funds pretty much immediately, haven't had any difficulties at all.
     
    USC likes this.
  13. S1mon

    S1mon Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    260
    Location:
    canberra
    remember to tax deduct your act stamps...yes obvious i know :oops:
     
    marty998 likes this.
  14. Gargamel

    Gargamel Member

    Joined:
    18th Jun, 2015
    Posts:
    20
    Location:
    Brisbane
    What suburb was your Canberra purchase in?
     
  15. S.T

    S.T Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    428
    Location:
    I'm not selling anything
    Good work, just keeping it nice and simple and as you said, using a lot of the advice from these forums. I like when investing is boring.
     
  16. marty998

    marty998 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    125
    Location:
    Sydney
    Oh my god.. Score! I totally forgot about that. Unbelievable. Icing on the cake

    It's near Canberra Hospital. Bank wasn't generous enough for Manuka/Kingston which would have been 1st choice. But for $100,000 less I was ok with the final outcome in a slightly different area.

    Prices in the North were beyond me.
     
    Gargamel and Perthguy like this.
  17. S1mon

    S1mon Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    260
    Location:
    canberra
    i think anything near the hospital will do well,,,they are always adding massive new buildings etc to the hospital..you think there is not much room but they squeeze 'em in