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Buying Second Property

Discussion in 'Real Estate' started by MasterCheif, 11th Apr, 2009.

  1. MasterCheif

    MasterCheif Active Member

    Joined:
    22nd Sep, 2007
    Posts:
    43
    Location:
    Melbourne
    Hi Guys,

    I am looking at moving on to buying my second property and have a couple of questions on the best way to do this.

    Current Situation: Bought a house with FHOG in March 2008

    Purchase Price: 315k
    Current Loan: 235k

    I work mainly in Melbourne CBD, however my house is in Berwick (this is where I grew up) and I am looking at getting an apartment closer to the city.

    I am currently living in the house in Berwick however I will be moving back with parents in 2 months. Ideally I would like to rent both house and apartment (when purchased) out for 6-12month period to try and save as much as possible.

    Quesitons
    1. Should I release the equity in my first house to buy the second? Or would it be better to save for the deposit separately? I have no access to an offset account with ING. :(

    2. What is the best loan structure for purchasing the 2nd IP, one of which will eventually be an PPR? Currently with ING Direct for the loan above, but this has no offset account which is annoying.

    3. When converting my current place to IP given that I have no redrawn any funds will all interest on the loan account be tax deductable?

    4. Any other advice?

    Many Thanks.
     
  2. archangelsupreme

    archangelsupreme Well-Known Member

    Joined:
    7th Sep, 2007
    Posts:
    206
    Location:
    Australia
    1. Why not both? 80% of 315k = $250 - $235k = $15k equity to use as a deposit for the next property. Prices in the inner city are around $350-$450k for a 2-bedroom liveable apartment meaning you will need at least a $70k deposit....well that is if you were to avoid LMI and cross-collaterisation.

    I've raised a similar issue in my post in the "Investing Strategies" forum as well LOL.

    2. Hmmm, i've got no experience over PPR...though if you plan to lease both in the medium term, perhaps go interest only with offset.....i think all the big banks have package loans which offer offset and reduced fees on other banking products. Though you do pay an annual fee of around $300-400.
     
  3. TROM

    TROM Active Member

    Joined:
    17th Jul, 2006
    Posts:
    35
    Location:
    WA
    My advice talk to a good mortgage broker who understands financing structures for multiple purchases.

    ex would be Set up Line of Credit for deposits and borrow 80% from the bank

    and try and avoid crossing your loans with your PPOR.

    Keep your houses stand alone loans if you can.

    check out Parallels H-Sphere
     
  4. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    MasterCheif

    I don't know your market well enough to know what you should do.
    If prices are moving upwards and you want to move quickly
    I'd access as much equity from property 1 as possible and pay the LMI.

    How much can you save per month?
    Sometimes people grow old waiting to save for a deposit and can never catch up with property prices.

    If you intend to buy more IP's in the future then it doesn't matter if you pay LMI or don't have an offset or even having the 2 IP's cross col'd.

    Offset accounts are good if you have a PPOR and just want to leave it fully mortgaged but if your current lender does not have such a product don't worry too much. When you are first starting out, you should look at the bigger picture.

    Sticking to 1 lender could also get you a bigger discount and could help you get to your target sooner.

    cheers
     
  5. MasterCheif

    MasterCheif Active Member

    Joined:
    22nd Sep, 2007
    Posts:
    43
    Location:
    Melbourne
    Thank-you all for your responses,

    My budget for the new place is 400-500k, I can only afford this when the first IP is rented and once I have moved out which will be in the next 2-3 months. I am definately going to buy a place this year. Just need to structure everything the right way, and by the sounds of it I should talk to my accountant/morgate broker.

    Once rented my IP (where i am currently living) will rent for 300 a week, which will mean it is fairly close to not costing me anything.

    So I should get a Line of credit against the equity in IP1 to use to by IP2 and then if thats not enough to avoid the LMI just simply pay it? Can i only borrow up to 90% of IP1?

    I intend to buy as many IPs as possible over the next 10 years, the aim will be one every 2 years - im only 23.

    Cheers.
     
  6. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    MasterCheif

    The question should be,

    will the property cost you nothing to hold even when interest rates are at 7% or more?
     
  7. MasterCheif

    MasterCheif Active Member

    Joined:
    22nd Sep, 2007
    Posts:
    43
    Location:
    Melbourne
    If interest rates go up to 7% interest bill will be approx $1200.

    Current interest bill approx $1000 per month. Rent at $300 a week. So should be OK.
     
  8. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Hi Master

    If you believe that the Melb market is continuing to climb value-wise and you're afraid you'll miss out, then taking out a loan and paying LMI may be worthwhile. However, given the current economy and especially the situation with the FHG probably returning to normal, it may well be a time to sit back, save a little more or reno your existing property to access possible further equity instead and put more into the second property.

    Admire your drive and enthusiasm :)