What would you do ?! 30, married, 2 dependants, sole income earner with 1 property

Hey guys-

Very new to all this just been reading and taking everything in. Here’s my situation..

30 years old, married, with a 2 year old son and another one on the way..

We bought our first place start of last year a 2 bed unit Southern end of the Gold Coast for 310k, borrowed 280k and mortgage repayments only 300pw plus body Corp $40pw and rates and water about 3k p/a. This was deceased estate and was valued at 340k (in original state from the 80s..I’ve done some small Renovations/ additions to spruce it up and had another valuation for 360k in 1 year (I think just from renovations)

Prior to this we were renting the unit next door for $365 pw and this was from the start of 2017 so rent has gone up to $385 pw

So... I need a bigger place to live! This is what I need advice on.. I actually don’t know what I was thinking but I figured I would go and rent a 3 bedroom place and rent my unit out and let it take care of itself. But I now want my next purchase to be my PPOR and turn my unit into the IP.. I’m looking at a 3 bed house, low set, bit of yard and definite doer upper (I’m a chippy/ plasterer by trade) and can paint etc... this will also be on the southern end of the Gold Coast for 650k

I have 80k savings, 70k available equity, I’m a sole income earner on 100k..

Any advice would be much appreciated! Cheers

 

As the sole income earner for a family of 4, I suspect your biggest hindrance is going to be borrowing power. If you need to upgrade now, your best option may be to rent yourselves, or possibly to sell and then buy another place - call a broker and ask them to model some borrowing capacity outcomes for you.

Regretfully the best way to increase your borrowing power will likely be for your wife to return to work.

 

Thanks Peter, yes I suspect it will be too.. I didn’t have any troubles getting our first place on sole income only now like you said I’ve got another dependent (on the way) and the house I am looking to purchase is double the price of my first purchase. I don’t think I will have trouble getting a loan for around 500k (150k) deposit.. it will probably be the serviceability of the loan with 3 dependants. Also yes the wife will return to work but I would say maybe in about 12 months time.. helps out so much with serviceability even part time bringing in an extra $1600 per month.. over half the MMR..maybe I will just have to wait it out

 

you dont have a 150k deposit. What will it cost you to access the equity, if you can at all?

 

Sounds like you might just have to wait a little longer - save as much as you can, park your savings in the offset account (if you have one), if your wife goes back to work, you need to factor in daycare costs.

As Peter notes, selling and purchasing another PPOR may be the way forward considering that the profit will be CGT free.

 

Maybe you can help me out there? I haven’t talked to my broker yet. But we’ve been living in our unit for 12 months.. How much does it generally cost to access our equity.. All I know is I can’t access the 100% hence why I had in my figures about 70k equity not 90k

 

Thanks for your advice.. My brother in law advised me to open up an offset account so in the process of doing that.. and as for day care.. of she returns it will only be for 2 days a week.. and we have retired 2 grandmothers that are more than happy to have the kids for 1 day each week

 

:360k val, 280k loan? Even if you could youd have to pay lmi.

you need to talk to a mortgage broker to understand what you can get and how much it would cost.

whats your brother in laws experience with property? Be careful of taking advice from people who arent knowledgable.

 

My bad, 370k val.. but I suppose that doesn’t change much in the big scheme of things.. yes am talking to them this week..

 

Do you still owe 280k on the Unit? Are you paying P&I or IO?

You've already paid LMI once, I wouldn't wanna do it again in a hurry, that means an 80% borrow on 370k will be 296k, only a 16k draw down.

If you are P&I repayments, I would talk to your broker about the benefits of refinancing to IO and whether it will help your borrowing capacity.

How much will it cost you to rent a 3bdrm home where you want to live?

If you can get 385/week rent for the unit and are looking to pay 385-400/week to rent a 3bdrm home, then it may be worth renting, as your home loan repayments/rates/body Corp/maintance will all come back off your taxable. You should get a depreciation schedule done as well for the renovations.
Your cost base will be reset when it first becomes income producing and you can also use the 6year main residence exemption if you want to sell to help fund your PPOR in the near future.

Your best bet will be to talk to a property savvy broker to walk you through the best route to take moving forward.

 

You are looking at buying ppor for 650k with about a 600k loan. Your pay is maybe 6000 a month. That loan would be about 2.5k pandi a month. Plus rates, utilities, insurance 5k a year.

thats half your pay. Not saying thats excessive but consider it as its a significant increase to what you are paying now.

 

As Peter mentioned your biggest blocker is likely going to be borrowing capacity.

However you may have options
- Is your wife on maternity leave? If so you may be able to use her return to work income.
- Does your 110k income take into consideration add backs?

 

Why not just rent a larger property? (as per your original thought)
Wait until your wife goes back to work or your income improves.

 

hmmmm, rent yourself out eh. Guess that's a good way to increase the income to increase the borrow capacity.