Would you buy again?

I'm just going to throw our situation right out there! Is this a good time to buy again or do we need to be much more conservative? All of these properties have been PPOR originally.

PI 1 - bought 2011 $300k, loan $250k new val $350k (this is where I am tempted to draw equity) currently rents $345pw long term tenant. Recently changed to interest only

PI 2 - bought 2013 $345k, $35k reno (used cash), reval 2015 $450. Used $80k equity to purchase current PPOR. Renting $400pw. Changed to interest only recently.

PPOR - bought 2015 $520k, Loan $450k P&I.

Both self employed, combined income approx $180k (feels secure but you never know)

No other debts besides $5k CC that we live off/pay off & a new car through business.

Only about $10k savings, due to paying everything off to get in this position and new house a few months ago.

Should we use equity from PI1 and purchase again? I have my eye on a $350k property. Or should we stick to saving more cash for the next 6 to 12 months?

Thank you

 

Probably a good move switching to interest-only.

You don't have much cash at hand considering how much income you earn and the 7-figures of debt you are carrying.

Might be an idea to top up loans and sit cash aside in offset for a buffer, pile extra cash into offsets (not paying down loans) and assess your situation from there.

What happens if you both have a dry spell of income and only $10k in the bank?

 

Thanks Steve. I thought that would be likely be the case. We aren't big spenders anyway so it won't take us long to get a decent chunk away. That valuation was just so tempting!

 

It's up to you but I was quite aggressive in accumulation phase. If it were me I'd buy again. But this is coming from someone who could only save his first deposit - the rest were all equity draws for more IPs.

 

Where are all your properties located if you don't mind me asking? If they are all in 1 state, I'd consider buying the next one elsewhere.

 

I'd look at accessing equity at least - that way you have a buffer for emergencies and depending on your plans could establish some debt recycling to reduce your non-deductible debt. Or keep it ready for a deposit on the next IP when the moment strikes.

Also it would be worth getting your loan structure reviewed to make sure you're set up correctly for when you do make your next purchase - are they all with the one lender?

 

I'd access the equity, stick it in offset and get your savings up. In case anything goes pear shaped do either of you have anything liquid (eg shares) or access to cash pretty quickly from other sources? Eg maybe retained earnings in the business or whatever.

10k savings, particularly when you are self employed and have 3 mortgages isnt a great position to be in. If something went wrong in the business and at the same time a tenant moved out and you had some maintenance issues you could be broke pretty quickly.

On a side note, what state is this in? There hasn't been much growth in your properties, is this that in line with the market or have your picks underperformed? PPOR's turning into IPs can sometimes be a bad idea from a financial POV.

Do you have any other ideas for the capital? Could it be used to increase your business earnings?

 

All on the Sunshine Coast

 

Ok thank you for that, I didn't know you could actually access equity without buying again. I will speak to our broker and get more info into doing this.

 

So whatever you do... don't buy the next one there too. You are already overexposed to that one area imo. If it goes bad, there goes your whole portfolio.

 

Thank you for your input. Yes there is access to 40k in a business account, this is why I haven't been too worried about not having alot of savings as we could fall back on that money. Also good insurance cover.

These properties are on the Sunshine Coast, I really think we bought at a good time especially PI2. Also the bank didn't do a formal valuation on that one this year, I think if they did it would have been higher but we got the equity we needed to buy again.

 

Yes I agree! Thank you

 

Everyone goes thru acquisition and consolidation phases... just a matter of how long for which is based on your available resources and risk profiles. We've bought several in the past 18 months and still in acquiring mode.

 

My personal opinion is do not buy, save some money. Reasons as follows:
You only have 10k in savings, yes you mentioned 40k in business but these should be totally seperate if you ask me.
You are both self employed which is naturally higher risk.
You mentioned insurance, which is all well and good for injury but doesn't help if your business underperforms.

Also and please do not take this the wrong way but what is your investment strategy. From the figures you have supplied, IP1 after closing costs has had 0 growth, the second IP has been better with some ok sweat equity and you now have your new PPOR. So from what I can guess you are buying negatively geared properties for capital growth but in the one area which TBH in the last 4 years would be way down my list of choices when considering growth.

So my advice would be spend the next 6 months saving as much cash buffer as possible, in that time really educate yourself and formulate a solid investment strategy. First thing I would do is speak to one of the gun brokers on here regarding that. I also think the property market is pretty volatile at the moment, steam is definitely running out in Sydney and Melbourne, new APRA changes are having an effect, media doom Sayers, rising interest rates next year?? I think in 6 months of you sit on the sidelines saving and learning you will be well primed.

Good Luck

 

Thanks for your response albanga,

I can definitely see things from another point of view now and will be sitting tight for a while and getting as much cash in offset as possible over the next 6-12 months.

Because these properties have been PPOR they were bought more for our lifestyle at the time, but when it came time to moving on, we didn't want to waste money selling and decided to rent instead, so they may not have been the best use of money investment wise but I will get more educated for future purchases and look at strategies others on this board use.

Thank you to everyone who has taken the time to respond.

 

A mentor of mine did once say that "if you can find better use of your money then Do it". I think the notion of holding on to avoid costs "Never Selling" (agent fees, CGT, re-entry costs) is seriously flawed.
Consider if you had sold and then reinvested into Sydney how much more equity you would have even after the costs. Even a loss is not the end of the world because when you learn from your mistakes and strike gold next time you can offset those losses against your huge gains

 

I'm not comfortable with saving level if I were you. I may save "just in case" scenario..
Consider 1-3 years from now RBA will increase the rates. Include that as part of your decision making.

At the end I still consider adding more to portfolio

 

You should make yourself aware of this post,

YIP Investor of the Year 2012

 

I'm pretty sure Terryw has posted in his brilliant tax tips about the dangers of parking cash in offset account - may mean you lose the ability to claim interest even if used for investment purposes later. If I knew how to link the appropriate thread from my phone, I would.

 

Borrowed money, not cash. Cash is perfect to store in an offset