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What to do next?

Discussion in 'Property Finance' started by Johnbrown12, 13th Jun, 2016.

  1. Johnbrown12

    Johnbrown12 Member

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    Hi guys,

    I want to start planning what I do next. I current have one IP which I bought two years ago while I currently rent in Sydney. I want to continue to buy IPs, however at some point in the future (circa 5 years) I want to buy a PPOR in Sydney. Do you suggest I save for my PPOR instead of buying an IP as my servicing capacity will be higher as I have less debt? or would buying higher yielding properties mean my servicing remains about the same? I just don't want to buy a handful of IPs to find out down the track that I have no servicing capacity left and cant buy a PPOR.

    Any advice or strategies would be much appreciated.
     
  2. tobe

    tobe Well-Known Member

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    Can you afford to buy your ppor now? Rent it out for 5 years pay down some debt then move in?
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Another option is to continue saving for your PPOR, and use equity if possible for your IP deposits. If you can do this and save all your cash inot the offset, that's a good way to go about it.

    Chat wiht your broker though to be sure how much you can borrow in total - if you need to spend close to a million for your PPOR, it's almost certain you'll be limited in the amount of IP's you can have unless you're on a very high income. Tobe makes a good point in that renting the eventual PPOR out first will also help with the servicing as rental income can be taken into consideration.
     
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  4. Johnbrown12

    Johnbrown12 Member

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    Thanks for the replies. With the way Sydney prices are at the moment, I cant afford to buy a PPOR now. I would have enough equity in my IP for another deposit on a circa $350,000 property.

    Does buying higher yielding properties help at all? i.e the income covers the mortgage so the property has little impact on your ability to service future loans (PPOR)?
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    neutral gearing helps no doubt,,,,,,,,,,,,, but doesnt make the space for borrow cap between 500 and 1000k

    ta
    rolf
     
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  6. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Hey @Rolf Latham,
    Can you please explain what you mean by the above?
     
  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Any income increase is better - including a higher yield, but it's a drop in the ocean compared to the liabilities. Consider that lenders will only take ~80% of the rent received, it's going to take a significantly higher yield to bridge the gap between inflated serviceability rate and rent received.
     
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  8. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Also, I heard lenders cap at 6% yield - is this correct?
    Or do different lenders cap at higher %?
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    thanks CB

    snap

    ta
    rolf
     
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  10. Redom

    Redom Mortgage Broker Business Member

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    Some take a 6% cap (CBA/NAB for example). Some don't have caps. For specialised high yielding properties (e.g. serviced apartments) most apply a greater shading of that income instead of the general 80% figure taken.

    Also some lenders have softer rental reliance policies for those who have a significantly high proportion of income coming from rental income. It can also impact credit scoring models lenders use.
     
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  11. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Thanks @Redom for the breakdown.
     
  12. Johnbrown12

    Johnbrown12 Member

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    Thanks for the replies. Interesting to know about the cap on yields. Does anyone know of any companies that 'map' out strategies of what you should do and a timeline based on your strategies, income?
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Many of the brokers will do something similar if you ask them - no point doing it too far out though as too much changes, but the next 2-3 can be useful.
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In general, a 20 % higher rental income on a nominal portfolio may increase borrow cap by 10s of thousand rather than hundreds of thousands.

    Obviously if the portfolio generates 100s of thousands in income now, a 20 % increase will help a bunch more

    Even in the Pre APRAhensive days for a property to be "neutral" in lender eyes, we needed 12 to14 % gross...........


    ta

    rolf
     
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  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Based on the above you would be wise to aim to hold as much cash as possible so that you can minimise any loans on the future PPOR.

    You might be able to do this via a combo of the following:
    - All loans IO
    - Offset account on loan with the highest rate
    - borrow to pay expenses
    - invest in a growth asset which could be cashed in
    - consider ownership of IPs
    - consider future possibility of spousal sale
    - consider spousal loan strategies.

    You might also consider buying the future PPOR now and rent it out - like Toby mentioned.

    Maybe even using the 6 year rule on a high growth property which could be sacrificed later on and the money released used to pay down the PPOR debt.