澳洲Australia property More IPs or upgrade PPOR? | Sydney


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


Hi All,

I'm in a bit of a dilemma at the moment...hoping to get some advice on what I should be doing to turbocharge my wealth creation, but at the same time making sure I secure a quality home for me, my fiancee and future family.

Current situation:
-both earning median sydney salaries
-1 IP, purchased '07, now worth ~$350k, ~70% LVR
-1 PPOR, purchased this year, worth ~$350k, ~80% LVR
-looking to upgrade PPOR from flat to house in about 2~5 years
-looking to keep current PPOR as an investment
-current PPOR loan is IO only with offset account
-have some spare funds to use as a deposit for another IP (i was thinking another cheapish flat in canterbury/bankstown region)

Question is...we know we want a house in the Hills district as our future PPOR....and want to do it ASAP before prices creep up beyond our budget.

Should I approach this by...
A) Hold off on buying another IP, but instead save up for another deposit to buy the future PPOR asap to lock in today's prices. Then rent it out until ready to move in. Once moved in, pay down the debt before investing in more IP's.
B) Use available funds now to buy cheaper IPs in areas with more potential capital growth/returns

Would greatly appreciate any thoughts or comments!
Thanks, J  

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Hi All!

Looking to get some help on this one...

To help me expand my understanding of option B, what is a common strategy that people use to leverage IP's to buy into their dream PPOR?

Thanks!
-J  

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What value to you put on owning the place you live in?

Can you be patient enough to generate/acquire more equity in your PPOR and defer your investing choices?

These aren't strictly financial questions, because they are all about being very clear about where you prioritise your future goals. There will always be a trade-off.

From a strict financial or investing viewpoint, acquiring a PPOR IMO, is not logical. It is the ultimate cash flow negative investment. You are trading all your cashflow now for the hope future capital gain. Of course, you have to live somewhere and renting still costs (and moreso relatively to owning home than it has in the last five years), however it is still cheaper than owning in most capital cities.

IMO, I would live in a property that suits your lifestyle needs, but is a reasonable drain on your cashflows. I would rent it. If you are wedded on your dream home, then I would look at acquiring properties, adding value and then selling at the right time. Make some profit and do it again. Then at some point in the future if you want to purchase your dream home, you have a solid deposit so as not to have a huge mortgage (which will also impact on your ability to invest further).

My relatively recent choice in the same situation was understanding the cultural and obviously some personal preference to having a nice PPOR. But my taste and preference as to where I wanted to live would offer me a $600k mortgage. :( This would quite simply curtail any investing plans for a number of years if I chose not to sell any other properties. I had a very clear plan starting back in 2002-ish, about building wealth and making choices which added to this path. After discussion with family/friends, who all funnily enough were very pro-PPOR, I decided that this was not so much a dilemma, but a fork in the road. I chose (well I hope I did) to stay on the wealth building path, and will not buy a PPOR, at least for the foreseeable future, focusing on expanding my property search from simple resi to commercial. That was my trade-off.

Maybe my future wife, will have a different view ;)  

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dajackal said: ↑
Hi All!
Looking to get some help on this one...
-JClick to expand...
Generally the earlier you buy, the better it is but the property has to be affordable and the time has to be right. In your situation, considering your current debt levels and LVR, I feel that the timing is not right.

Usually what people do is buy their first PPOR, reduce the mortdgage to the level where they have enough deposit to upgrade, plus can afford the new higher mortgage, and then buy their next PPOR.

In your case it will be some time before you can upgrade.
In regards to your question if you should buy another IP
I'd buy 1 more if I could afford it
Also, for me to buy it now, it would have to be selling at 2008 prices which means it will need some tlc.

My advise? don't stretch yourself too thin, prices could move upwards a little but in some areas they could also fall. I could be wrong ofcourse and I've been wrong before....  

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Thanks for your replies :)

Owning my own place ranks very highly in terms of priorities. Ideally I want a balance between dream PPOR and investing.

Dream PPOR for us represents a modest house in the Hills. We can always renovate or remodel the house later on when funds permit. We started looking at houses in Baulkham Hills just yesterday. It'll be a mortgage of 450k~500k or so.

We'll be able to save up a 10% deposit in about 6-12 months from now.

I did some quick sums the other day and it'll be negative cashflow about 10k per year between the two of us after tax. This is assuming we're renting it out, with 10% deposit and 8% IR.

This seems reasonable to me if it means I can lock in today's prices...this also assumes properties in this area will continue going up based on historical trends 5~6% growth pa.  

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I have to keep reminding myself that I am 49 years old. The thought of having a $500K mortgage horrifies me, but when I think back to my second PPOR purchase, I upgraded from a $56K house (paid $49K two years before) to a $91K house.

At the time, I worked in a bank and was on a cheaper interest rate, so we were able to borrow more than if I was not a bank johnny. I know that I had the largest loan of any of the staff, including the bank manager of my large branch. Of course, he would have had his loan for a while, and bought years ago, but at the time, people said "that is a HUGE loan".

And it was a huge loan. I think average house prices in the area we bought for similar properties were probably around $70K and we were buying our "dream home" so we were prepared to do the hard yards before children came along and whilst I had access to a cheaper loan.

I think I have to remember that my "huge" $87K (or whatever it was) loan in 1986 was probably comparable to a $500K loan now. When I (now) think back to that loan I think "how could I EVER have thought that was a big, scary loan amount"?

I think young people now borrowing $500K for buy a PPOR must think they will NEVER be able to reduce that loan down, but that is EXACTLY how I felt about my loan in 1986.

I'm curious if the younger people think the same way now?  

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Yes I agree, a 500K house would be a bit of a stretch due to lower yields...but at the same time I'm afraid of being locked out of this suburb for my future PPOR if prices continue to rise. If I pursue this option I'll:
a) Have tax advantages to minimise negative cashflow...estimated at 10k p.a. after tax
b) Continue to add to the offset account on current PPOR
c) When moving into the house...pull out funds from the offset account and pay down the loan on the house

Otherwise, I'm thinking we can easily afford to purchase another one or two affordable units in the next year or two. An example being a 2 bed unit for 220k in Belmore/Lakemba.

When the market is strong I could look into selling one of them to help pay down the PPOR debt or increase the cash deposit..but is selling the only way to draw equity out of them? I'm not sure how to calculate selling costs, but I've heard these can be quite significant. Then there's capital gains tax :(  

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dajackal said: ↑
-1 PPOR, purchased this year, worth ~$350k, ~80% LVR
-looking to upgrade PPOR from flat to house in about 2~5 yearsClick to expand...
So basically, you've had a change of mind in the time frame?

Option C: Sell PPOR, trade up to new PPOR.

Now to make this one work financially you need to make a PROFIT (net of expenses) - and take full advantage of the CGT exemption. Tax free money :)

Cheers,

The Y-man  

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The Y-man said: ↑
So basically, you've had a change of mind in the time frame?Click to expand...
Not exactly...we knew we'd need to upgrade as soon as the kids arrive.

I thought it would be good to put something in play now...rather than have to compromise on the family home because all our money is tied up in IP's.

Thanks for Option C. I'll do some reading up on selling costs.

I think this might be the preferred option. That way I can continue to purchase IP's and when the time comes to upgrading I can sell the current PPOR without any capital gains tax.  

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dajackal said: ↑
Not exactly...we knew we'd need to upgrade as soon as the kids arrive.Click to expand...
Actually you probably don't need to upgrade until the kids are of school age  

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Current situation (revised):
-both earning median sydney salaries
-IP#1 purchased '07, market value $370k, ~70% LVR
-IP#2 purchased '09, market value $280k, ~75% LVR
-IP#3 being purchased, ~$350k, 97% LVR
-1 PPOR purchased '09, market value $380k, ~75% LVR
-$100k in offset account

Still wanting to buy a house as the suburbs we want to eventually want to live just seem to keep increasing $$ at crazy rates

I still seem to think the best policy would be to buy now to lock in today's prices, rent it out, continue saving for a few more years, move in and then pay down the mortgage as to reduce the amount of non deductible debt.

Thoughts?  

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dajackal said: ↑
Current situation (revised):
-both earning median sydney salaries
-IP#1 purchased '07, market value $370k, ~70% LVR
-IP#2 purchased '09, market value $280k, ~75% LVR
-IP#3 being purchased, ~$350k, 97% LVR
-1 PPOR purchased '09, market value $380k, ~75% LVR
-$100k in offset account

Still wanting to buy a house as the suburbs we want to eventually want to live just seem to keep increasing $$ at crazy rates

I still seem to think the best policy would be to buy now to lock in today's prices, rent it out, continue saving for a few more years, move in and then pay down the mortgage as to reduce the amount of non deductible debt.

Thoughts?Click to expand...
My advice would be paydown as much of your debt on the PPOR. If the bank allows (even if you cross collatarise), buy your future PPOR with 100% debt interest only.

When your ready to move into the new PPOR, sell the old PPOR and move all the equity into the new PPOR. If you have the resources, you could then buy a new IP to replace the old PPOR.  

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toony said: ↑
My advice would be paydown as much of your debt on the PPOR.Click to expand...
Into an offset account so it can be pulled out later down the track when it becomes an IP. Then you don't have to worry about selling it as the transaction costs are just too high.  

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thanks toony :) awesome advice

We're directing all of our savings into the 100% offset account against the PPOR loan. Can this be considered the same as paying down the PPOR debt?

The intent is to keep the property as an IP after we move out.

Will there be any issues from the taxman if i buy future PPOR now and make full use of the negative gearing benefits in the meantime? i.e. 100% loan vs 90% loan as that way we can keep our savings to offset against the non-deductible loan. This sounds like a loophole - is there a catch?  

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