What's the best strategy for my situation? Equity ready to go, first IP

Just looking for some friendly advice on what my strategy should look like.

Early 30s couple
Aspire to buy PPOR worth $1.3m closer to work (at the moment, commute is terrible being so far away) in next 1-2 years but unsure if that's the best move when we could live somewhere much cheaper and buy investment property instead with cash savings.

Income and Savings:
Two full time workers - combined income of $300k+.
Situation may change in the future (1-2 years) with the arrival of kids - depending on how we handle that, combined income MAY drop to $220k and living expenses will increase.
At the moment saving about $5k / month.

Assets:
- $580k cash ($300k sitting in PPOR offset)
- PPOR which cost $460 k and has had negligible capital growth since purchase in 2012. The property is in a very middle class suburb, with families and lots of renters. Not particularly appealing to owner occupiers. Rental income would be around $400 - $420 p/w.
- $100k shares (ETF-type) which will be retained for diversification.

Liabilities:
- None

 

On that salary, no liabilities and only saving 5k a month... what you doing with all your money..

 

Maybe more like $8k per month, + $1k per month which I would put into stocks. And lots of tax...so much tax....being paid.

 

Forgot to mention I have already paid off $260k of the PPOR. So, I don't pay any mortgage payments on it at the moment .

 

You have great serv

That's a big difference to what you said earlier. If it were me I'd first to a budget to see where your financial position is. Sounds very strong to me, but get clear on it.

 

Thanks, that's a good point. I do need to get a bit better with understanding my expenses. The $8k saving per month i revised to, is based on what I have actually saved over the last two years, averaged out over 24 months, whilst also paying for aanew car and wedding. I am happy to assume for now that's my typical savings - to be conservative in my approach.

 

How do you have an offset with no liabilities?

 

Chappy, with a 1--3 mill target range what have you looked at so far ,if this is in Brisbane ..
With the ppor,that's sad to hear that ,if you don't mind what location would that be,,is it inside the BCC footprint or outside..welcome to the site..

 

Yes, I have a loan but I don't pay anything on it because some of my cash savings are in the offset and that offsets the loan balance.

 

Yeah it's pretty disappointing! It is in an adjacent council area, 10m drive to 2x major shopping centres and good access to transport. But not a super desirable place to live, people are Aussie battler type families so I think that has capped growth here.

 

So you have debt. Leaving out things like this will effect the advice you get. That's is why it is risky to advise without knowing the full story

 

The net still seems a little low unless the salary increases are recent.

your problem is that ppor upgrade. Net 800k assets (say 400k ppor, 300k mortgage, 600k cash, 100k shares). For a 1.3m ppor, sell the current ppor but keep the shares, you need to borrow 750k+, full stamp, income drops to 200ish but single income. Basically no deductions. If you are say saving 8k now, cut the 5k a month from one income and 3-4k in new ppor payments.....

doable but you would have zero capacity for investments.

based on those numbers, your ppor requirement is very high (relatively). If you want to also invest its tight.

 

Yes, that's right. Thanks for helping me to clarify .

 

That makes sense and what my gut was telling me, can't easily have the dream house and invest with our situation. We are happy to forgo the dream house for 10 years if needed to make the investments happen.

What kind of properties should we be going for? Capital growth, yield or a mix? I have seen a few families in our situation who get one or two properties (growth focus) and then have to stop because they can't service the loan. So I was thinking of yield focus in outer rings of capital cities such as Adelaide and Brisbane. Would miss out on tax deductions but then can continue to build equity through saving and hopefully a little bit of capital growth.

 

Run the numbers. Will outer adelaide / bris ips get you to where you want to go? Gut feel says you need capital growth.

your friends either cant save, or it hasnt been enough time for rents to go up. Though brisbane and perth have been pretty dismal for the past decade.

 

If you’re gutsy I could think of much more explosive stuff