Time to cash out of Sydney and into Brisbane? A case study

Thanks skater. I may have to give that some thought. My gut feel is that no matter the broker I use, they will all come back to me and say I am stuck for the moment. I may be able to leverage above 80% at another lender but that certainly doesn't mean the lender will agree to do it. The changing serviceability requirements I have been hearing about are so conservative I wouldn't be the only investor feeling the pinch post APRA. I have 3 NG IP's and I wouldn't be surprised that had I applied for funding on just these 3 all over again on current serviceability calculations I might come unstuck, let alone pushing for a 4th.

 

Something really doesnt sound right. Without understanding all of the dynamics - the simple first observation is this; if your two existing deals serviced at ING when they were established a year or two ago, even using their pre APRA calculators - provided your income hasnt reduced, FirstMac should easily, easily service. Even pre APRA, ING was very poor for servicing. FirstMac's calculator (along with Homeloans Ltd) even post APRA is MUCH better that ING's pre APRA calculator.

If ING wont give you any more money because of either servicing or LVR - move to a lender with more generous servicing, who will.

If the only barrier to that is a few K of break costs and paying some LMI - put that into perspective. It would ( subject to understanding the dynamics in more detail) allow you to potentially hold Randwick and Parramatta and buy a 3rd in Brisbane .

 

Years ago I wanted funding to buy a property for $67k, and I could not get it. I went to several brokers who all said the same thing. Then, in desperation I contacted a broker from the forum and was able to buy that property and quite a few more in quick succession.

Yes, I know times are different. Yes, I know that $67k is peanuts, but so was our salary at the time........but the point I'm trying to make is that AFTER my problematic $67k purchase, I went onto buy over $300k worth of properties in the same year.

 

That's true of investors who have a lot of debt with what were previously considered "top of the pile" INV lenders like Westpac, Macquarie, NAB/Homeside, AMP and a few others, who used to take "actuals" pre APRA. But your debt is with ING, who never took "actuals" and whose servicing calcs have always been bottom of the pile - even pre APRA.

The point is - the APRA changes havent impacted ING's calcs in the same way the changes have affected other lenders calcs - ING were ultra conservative well before APRA came to play . Ultimately, it will take @ 3 or 4 minutes to tell you if it can work or not, if all the data was at hand.

 

I see your point. My thinking on this would be that I need to get smart right now in order to have a chance to grow my portfolio in the near term.

I would like to think that 750k would afford me a property in Brissy in a 'good' location, not a 'maybe' one.

I am happy with the assumption of 15% growth difference over 5 years. I think this is actually conservative. That's a kind of call that all investors must make at one stage or another.

Shifting to Brisbane would allow me to wipe a bunch of CGT, entry into a house property with higher land component, ability to value add and manufacture equity and go again. I expect lenders would look more favorably on a Brisbane IP over a Sydney one (certainly the case with some already). Much higher yield too.

I'm pretty confident I could I would manage a better end result than letting my Randwick IP sit for 5 years. The idea would be that I get back into a blue chip IP in Sydney in time for the next run.

I guess I just see more opportunity elsewhere for the time being, rather than the possibility of a long plateau as we have seen historically in Sydney.

 

Yep, I acknowledge that I will need to take a hit and get out of ING at one stage or another. Maybe I just sit for now, all my fixed terms come off in December next year, and will probably need to refinance anyway as they may default to P&I.

 

Another option I have is a spare 100k I was wanting to use solely for a granny flat, to supercharge cash flow on my Daisy Hill property and refinance off that IP. I ideally want to use pure cash for that as I don't relish trying to get construction finance for a GF as I hear it can be a nightmare.

Maybe I can have a look at diverting that 100k into a growth property instead, the worry there being that I'm then stuck with getting finance for the granny flat. I want to get this done because it will pull in big cash flow.

 

Why dont you just ask someone here to take a 2nd look at your position?

 

Loud and clear guys. I will go do that.

 

Servicing seems to be the biggest hurdle in 2015 for investors and owner occupiers alike.

Hate to say servicing will tighten again before the end of 2015 and as always with lenders is 1 part of a reactionary policy adopted based on both current and historic data.

Certainly for 750K you could get yourself into a couple of very good suburbs but just ask yourself is this going to help you achieve the longer goal especially in a tightening lending market. Maybe you look to buy something around 500K with good growth prospects and then another around 300-350K with cash flow to aid progression.

Cheers


Richard

 

Dear @longhaul, how did you go?

I hope you will hold onto Randwick. This is worth reading...

http://propertyupdate.com.au/sydney...tzRss&utm_campaign=michaelsblogrecentposts#11

And thos is worth watching...

 

The height of Sydney has probably past and it is now questionable whether it's worthwhile cashing out post boom.

 

I don't have anything in Sydney, but my gut feeling would be really confirm for sure that you have hit your servicing limit. As others have suggested, I'd consider refinancing before selling. My strategy is to buy and hold as well.

Good on you for challenging your own strategy to see if that still makes sense.

 

Hi Gockie

I've had a bit of time to think and tend to agree with you, I don't think I will get rid of Randwick any time soon. After some financial advice I will sit on my hands until the time comes where I can get funds for the GF. Unfortunately this will most likely be in the form of a construction loan rather than any current loan cash out.

In the meantime I will source quotes on all costs associated with GF construction so I have it all ready to go for a lender when they need it.

I learned that I don't actually qualify for the PPOR 6 year rule because I didn't move into the Randwick property immediately upon purchase, I rented it out for 8 months first. This eliminates the tax advantage of selling Randwick over Parramatta. I now see more advantage of selling Parramatta if push came to shove. Psychologically, it's a little difficult to come to grips with potentially letting go of an IP I only purchased 2 years ago (Parra), particularly as I would consider myself a buy and hold investor.

 

$100K upside over 4 years i suspect is a small-ish %age p.a. over 2 IP (and PPOR?) in Sydney.

Randwick is a buy and hold area ... I say hold it. If you're excited about Brisbane, try and release some equity or add some cash and do both. Do nothing / hold Randwick is your lowest risk move.

Selling agent, solicitor / conveyancer, govt stamp duty - are all guaranteed to get paid before you make a cent ... If the theoretical $100K is actually there.

 

Lots of granny flats going up around daisy hill and shailer park, a quick drive around will reveal many frames being erected....more so than other suburbs.

 

Some good points. Selling in Sydney only for implied growth in Brisbane would be risky indeed. The factor that has me the most willing to take the risk is the certainty of a significantly better cash flow position in Brisbane, whilst Sydney goes into into a potentially long CG stagnation period. I agree with you in terms of high long term CG risk, however in loan serviceability terms I would consider a move a low risk strategy. Either way, I plan to keep the sell button in my back pocket and hopefully never have to use it.

Thats interesting to hear. I asked for rental estimates off my Daisy Hill PM the other day and she says they have not had any experience with GF's in the area yet. I haven't physically been there since the new planning code went live. I hope this isn't a bad thing - a spike in increased rental stock

Is it clear what size/quality is being built? Any 100sqm ones?

 

Here are some thoughts.

Are you really CGT free ? you said you lived there for 18months, if it has been rented, then there will be some tax, not much though & tax means you made money.

If you are into chasing rising markets, then why not.

If going to sell, I would be onto it, it is not going to get better than it was a few months back.

750 should get you a pretty good house in Bris in many places.

 

I asked a GF builder who is based in Cornubia where all his current GF projects are, he didnt list any in Daisy Hill, there was one in Shailer Park the rest in Eagleby, Kingston, Logan Central and Waterford. All were planned before the new Logan town planning which allowed them to vary in size.

 

I Would think the opposite regarding your first point: holding into Sydney is more risky than Brisbane - like for like suburbs and property only. Brisbane is clearly on the up, whereas Sydney is at peak or maybe just over peak in some markets in Sydney.