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
I have a PPOR and just about to jump into my first IP!
My main goal is to build up enough properties to eventually be self-sufficient (don't we all!)
So before I actually make an offer, it would be great if I could get someone to run through my logic and make sure I haven't missed out anything obvious.
Location: Campbelltown area
Expected Rent: $225
Deposit: $0 (using equity in my PPOR and the fact Westpac has a promo where you can avoid LMI for up to 85 LVR
Spend a couple of K "sprucing" it up.
By my calculations (taking into account interest, strata, water, council, PM fees and repairs) I figure it will cost me approximately $65 per week (before tax benefits of approx 30%).
Capital growth in this area is not promising, based on the research I have done, but my rationale is, if I can get the tenants to pay off my loan, in a few years, it will become cash-flow positive, and eventually i'll have an asset that is paid off and earning passively (obviously I am assuming I will pay this off before 30 years is up!)
What have I missed? Is $60 out of pocket pw a poor outcome?
Should I be calling the RE agent tomorrow and making an offer?
jodes92 said: ↑
Should I be calling the RE agent tomorrow and making an offer?Click to expand...That's what I'd be doing (as long as I'm happy with the building and obtained a strata report)
The only fault with your logic is that for the first few years anyway all the principal reduction will be paid by you. I'm not critical after all that's what I did and it paid off for me. It would be worth talking to a quantity surveyor as there might be parts of the common property you can get building write off on or depreciation. I seem to remember Peter Spann in Australian Property Investor several years ago referring to that.
jodes92 said: ↑
Capital growth in this area is not promising, based on the research I have done, but my rationale is, if I can get the tenants to pay off my loan, in a few years, it will become cash-flow positive, and eventually i'll have an asset that is paid off and earning passively (obviously I am assuming I will pay this off before 30 years is up!)Click to expand...Hi Jodes
It all sounds ok. The only thing I'd be questioning if paying down the IP loan when you've got a PPOR.
The IP loan is deductible - the PPOR isn't. Therefore, if you want to lower the debt on a property, it should be your PPOR.
I'd leave the IP loan as interest only.
Have you factored in all the costs? strata, rates etc?
As you will be effectively borrowing 105% I worked it out at about $80 a week out of pocket. Still sounds pretty good though (based on numbers).
I've got one with very similar numbers. Purchase price $155k, rent $225pw, 100% lend. The cost to me so far this year is $56pw. Of course, it all depends on some variables like maintenance (there hasn't been any) cost of strata, insurance and interest rates (I'm on a pro-pack with extra discounts).
Like Jamie said, I'd go interest only and focus on paying down the PPOR if you want to reduce debt.