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Want to start a investment portfolio should be continue to rent our ppor or buy ppor first?

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Michelle | 30 Jan 2013, 02:30 PM Agree 0
We have sold our PPOR and are currently renting. We are looking to start a residential property portfolio asap but don't know whether we would be best to buy a ppor first or continue renting. We have no debt and @ $470k from our house sale in the bank. We are paying $600 p/w rent and if we were to buy would look at properties @ $600k. Husband works full time earning $100k gross. What would be the advantages and disadvantages of both scenarios to enable us to start an investing portfolio? Thanks in advance.
  • Eos Property | 30 Jan 2013, 03:45 PM Agree 0
    You can probably do both. Buy the house and use the equity in your new home to fund your investment property.

    Each option has advantages and disadvantages and your short and long term plans, along with your current situation will determine what is right for you.

    PPOR means you are not beholden to your landlord and you have security of residence for you and your family for as long as you want. The downside is that any debts you take on to buy your new home will not be deductible - having said that on the basis of the figures you have quoted the level of non-deductible debt is relatively modest.

    If it is possible your new PPOR will become an investment property at some stage in the future then make sure you structure your loans correctly. Look at the possibility of maximising your borrowings and placing any spare funds into an offset account so you retain maximum flexibility of your money.

    If you do elect to start an investment portfolio then make sure you try and retain as much of your cash as possible. Seriously look at minimum deposit and funds in an offset account again. While this means you tax deductions will be reduced - it also means you cashflow is maximised. If there is a discrepancy between income levels your accountant should be able to advise on suitable ownership arrangements.

    Above all you will need to take into account your family plans (kids?, kids off to uni, travel, change of work, etc) as all of these factors can influence your decision making.

    There are so many options available to you - I would recommend finding yourself a decent broker and talking through your finance options first and then see what happens from there.

  • Maryanne | 31 Jan 2013, 02:29 PM Agree 0
    I am finding it a very slow process in saving enough deposit to purchase my own home on just the one income. I would appreciate your thoughts on the idea of saving enough deposit to purchase a small unit/apartment as my first investment property and possibly using the equity in that (plus any savings) for a deposit towards the purchase of my own home?
  • Eos Property | 01 Feb 2013, 06:18 PM Agree 0
    Maryanne, saving for a deposit is always a challenge, moreso if you are one income.

    Bottom line is you will need to get a deposit together - whichever route you choose. Sometimes it is case of getting the head down and tail up and committing to your dreams to turn them into reality.

    Now you haven't indicated what your income is or how much you have saved so I'll ask a few questions that may get you thinking. What are your spending habits like? How committed to your goal are you? Do you have parents/family who may be able to assist with some deposit funds? Maybe going tenants with a good friend may be an option?

    Now assuming you don't have friends or family in a position to help you out you may be able to look at the First Home Owners Grant (if you qualify). Some state governments offer incentives and assistance through programs such as Keystart (WA Program) which may be of assistance to you and your situation. Might be worth checking out your state government websites to see if something is available in your home state.

    Another option you may be able to pursue is the option of taking out a 95% loan. Some of the bigger banks do offer these products which means the amount you need to save is considerably reduced. This will obviously speed things up for you if you do qualify for such a loan.

    Whichever way you go grab a decent mortgage broker in your area and give them a call. It is possible you may be able to move banks and help yourself reach your destination quicker than otherwise estimated.

    If you are able to get yourself started the buy an investment property first is generally speaking the best option as you'll have the assistance of a tenant or the taxman to pay your loan interest. Having said that if you are aiming to get a second property you will need to make sure you first property has good cash flow and make sure you use an offset account facility so you can retain flexibility over your funds when the time is right to buy your new home.

    Hope this helps.
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