Wanting Advice on How to Continually Borrow and Purchase Properties

Lfuudrizzle on 27/10/2016 - 22:41

Greetings,

I recently purchased an investment property in Brisbane for 515k on an interest only loan with offset account with CBA at 90% LVR with it being rented out at $420 (appraisal being $450), and I'm wanting to continue with my acquisition of purchasing more property as a buy and hold strategy with the idea of holding for 20 years plus. I asked my broker what my borrowing power was for my second potential property and he said it would be roughly $330k-380k, higher if the property had good rental returns. This isn't much in my eyes and am wanting advice on how to continue borrowing more to be able to have a strong portfolio in the future as I would prefer to purchase properties in good locations for good capital growth, otherwise may need to have a balance portfolio with second property having a 5.5-6% yield or possibly higher.

About me:
Self-employed: Last financial year statement 85k taxable income, expect to be similiar this year.
Hecs debt: 25k, paid $5k for HECS last financial year.
Living at home and not paying rent, outgoings roughly $500-800 a month for day to day living expenses.
Credit card: $6k limit
May be negatively geared 2-5k from 1st property

There are several things in my head that I can do to move forward and be able to borrow more.
- Pay of HECS, but will have reduced total taxable income statement for this year.
- Increase rent slowly over time on 1st property
- Reduce credit card limit
- Joint venture/tenant in common
- Pay of principle on first property
- 2nd property having a higher yield

Any advice on what you think would be best moving forward short and long term would be greatly appreciated. Any other details required please ask away.

Thanks!

Financial

Comments

  • spackbace on 27/10/2016 - 23:35
    +1

    1) move out of home
    2) now deal with investments

    • Almost Banned on 28/10/2016 - 00:30
      +5

      Disagree - stay at home as long as you can.
      You will never find a place as cheap and the money you save can be applied to your investment portfolio.
      Your strategy will depend in large part on strong capital growth on your properties - creating more equity for you to borrow against for subsequent purchases.
      It can be a bit risky, but you've made a start.

      • spackbace on 28/10/2016 - 00:42
        +6

        Or you know, ask the folks if they're cool with that.

        If my kid had graduated uni and was into a full time job, there's no way they'd still be under my roof. Learn some independence, not just financial.

  • jleno on 27/10/2016 - 23:42
    +7

    Get a second job to increase your income long enough for bank to lend you more. Once you have the loan approved feel free to quit - or not. Keep buying and leveraging up. Then when house prices fall, pray hard that you can hold on long enough to wait out the cycle. If you can wait it out until the cycle when it appreciates significantly, you can retire and not work again. Or if you can't hold on to the properties long enough and you have to sell at a loss, you'll probably need to declare bankruptcy and queue up at centrelink (or start the above all over again).

    • mskeggs on 28/10/2016 - 07:46
      +8

      Maaate, what's all this nonsense about bankruptcy? Real estate in Australia only ever goes up. People on $85k incomes are fools not to be leveraged to multi-million dollar levels. Your post is dangerously unAustralian.

      • brotherfranciz on 28/10/2016 - 17:53
        +1

        This. Borrow away! Nevermind what happened in the States!

        …am wanting advice on how to continue borrowing more to be able to have a strong portfolio in the future…

    • mskeggs on 28/10/2016 - 07:53
      +3

      Or to put it another way.
      OP, are you content with bankruptcy should the property market sour?
      Your maximum leverage strategy only works in an upward moving market, but it is valid if you accept the downside risk of being wiped out and no access to finance for years.
      If I had done the same when I was 25 I would have $10m in the bank right now. But I can't see how the last 2 decades of gains can be repeated.

  • chazfg on 28/10/2016 - 00:13

    My suggestions:
    HECS is your only "bad" debt, pay that off first.
    Get a second source of income to increase your repayment capability.
    Never put in capital to the investment property, unless that is your only way to build deposit for the next purchase. Offset account is a better option for you.
    Improve your first investment property to increase rent or modify to dual occupation.
    You are doing well, but don't forget to diversify your investment and don't buy in over-inflated suburbs.

    • jayt on 28/10/2016 - 02:10
      +7

      I will have to to disagree with HECS being "bad" debt…

      HECS is the cheapest debt you will find anywhere - at least until they make changes to the current system.

      If you have the money then it's better to invest that on other investments or even keep it in the bank (as long as bank interest > HECS indexation).

      • mchoodie on 28/10/2016 - 08:11
        +1

        Yes. Not sure if the rules have changed recently. But I am certain this is the cheapest form of a debt you can have.

  • eatwell365 on 28/10/2016 - 00:39

    Since you have a loan, you would already know few mortgage brokers. They know their stuff. Most up to date info.

  • Stewardo on 28/10/2016 - 02:31
    +1

    Get a tax depreciation schedule prepared by a quantity surveyor.

  • mskeggs on 28/10/2016 - 08:04
    +3

    The property spruiking…er…investment magazines at the newsagent run regular stories about how to put a gloss on your financials.
    Try http://www.smartpropertyinvestment.com.au/ or http://www.yourinvestmentpropertymag.com.au/
    There is also a forum dedicated to this and related things at: https://www.somersoft.com/
    I take a pretty dim view of all this by the way. I wish buying investment properties today would deliver me the wealth I have seen it deliver friends and acquaintances over the last 10 years, but it seems clear to me all that can be accomplished now is to provide the exit funds for those who got in earlier.

    • jleno on 28/10/2016 - 12:54
      +3

      or take comfort from the fact that so many Australians are up to their eyeballs in property related debt that if it all goes downhill, you won't feel alone and the government will have no choice but to try to keep the voters happy. Who knows, maybe govt will add a 5% "battling Australians relief levy" added to the top tax bracket for the next 5 years.

  • CyberMurning on 28/10/2016 - 08:13
    +1

    Get positively gear then you can keep buying more properties, ignore those advises from agents saying negative gear is the best

  • JetLi on 28/10/2016 - 13:27

    He has minimal savings and has to borrow majority of purchase price, hard for him to get a positively gear property anytime soon. Focus on your career for the next couple of years and try to bump up your income, this will also increase your savings which will enable you to borrow more. Another option is invest with a sibling.

  • The Wololo Wombat on 29/10/2016 - 15:40

    I am 26 and on the same income as you. I have three properties, combined value of $750k in SE QLD. Lower SES areas are good for me as the yield is higher and purchase price is lower. I can positively gear. Rental yields range from 7%-9%

    Positively gearing means there is no limit on your loan servicing capacity. Negative gearing is restrictive IMO.

    Another idea (I've not tried it): You can consider vendor finance as an option. Listen to the podcast 'We buy houses Radio' for info, or read the book 'How to buy a house for $1'

    Also, get along to a property 'meet up group' near you (meetup.com), education is the key!

    Or listen to the podcast 'everyday property investing' I owe my success to that podcast!

  • save my dollarydoos on 30/10/2016 - 11:26
    +1

    Considered alternative investments other than property? Managed funds, shares, etc?

  • anna10 on 31/10/2016 - 15:03
    +1

    Once when I needed more income than the bank thought I had, I asked a friend who had a small business to write a statement saying that I did some office work. Would you get away with that now? I did have to live very cheaply for a while, but it was worth it.

    And agree, spread your investments into different sectors, not just property.

  • johndowy on 01/11/2016 - 15:06
    +1

    I did a similar thing. Buy one, rent it out, then buy another one slightly less.

    I have maxed out how much I can borrow right now so what I am doing now is with the equity I have built up in the properties, I am borrowing again to buy a business that I can hire a manager to run for me. This should add to my income by doing minimal work. With the extra income i'll go borrow again and buy a couple more houses.

    This way I can keep doing my day job, have extra income and invest some more.

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