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Need advice on what type and where to buy in Sydney

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Piercy | 18 Mar 2013, 06:29 AM Agree 0
Hi, I'm 22 married with a baby coming in 3 months, living at mu inlaws for very little rent, I earn 150k gross per year and wife earns over 50k ( will still be working when she has the baby) and have a combined savings of 300k. Goal is to own a nice house (500sm block in eastern subs) and also have investments.

My family recommends me to buy the big house now while I can and Market is low, my in laws saying to buy a coogee unit (for cg) now and a stepping stone house in a year that we can live in for a while and sell in 5 years for our goal house, but there is also possibility to buy multiple properties and make big money.

Have a lot to learn but read what I can in my spare time in my busy life, all help is appreciated
  • Eos Property | 18 Mar 2013, 01:48 PM Agree 0
    Congratulations on the impending birth of your baby - great times ahead.

    If it was me I would attend to the family needs first and make this my priority. You can do this in either of two ways - one buy a home to move into in your preferred locality or rent in your preferred locality.

    i would opt to buy - only because I moved around a lot in my previous line of work and having a place to call home was comforting.

    Once you have settled in you can then start looking at investing. Your aim to be an investors doesn't necessarily have to wait. Let me explain.

    Assume you buy a home for $700K. You'll need a further $35K (approx) to settle the property. Total funds required = $735K

    Take out an 80% loan of $560K and use cash savings of $175K for your deposit and purchase costs. Place the remaining funds ($125K) in an offset account linked to your mortgage. This will significantly reduce the interest incurred on your home loan.

    See how you go with this arrangement for a while and if things are working well then investigate starting your investment journey. You can do this either of two ways.

    Use the $125K cash as deposits and purchasing costs for investments and take out 90% loans to stretch your available funds. Any funds not used can remain in your offset account.

    Another option may be to pay down your mortgage using the $125K you have available in your offset account. Once this has been done set yourself up with a line of credit and grab the funds released from this process for deposits and purchasing costs for future investments.

    From my point of view option 2 is better - but this is on the proviso you remain in your home for an extended period of time.

    If you find property with high cashflow and built in profits then you are well on the way to achieving property success.
  • Piercy | 19 Mar 2013, 10:43 PM Agree 0
    Thank you, I also forgot to mention that we were going to continue staying at the in laws for 2 years as I work big hours so wife may need somebody around more for the baby and will also help financially.

    So should i buy the house, rent it out for 2 years and buy and investment when we feel in the possition or buy the investment first and buy the house when we are ready?

    What is the benefit of having a line of credit after paying down the mortgage rather than having in an offset account and how much would have for available funds after doing so?
  • Eos Property | 21 Mar 2013, 04:02 PM Agree 0
    If you are going to live with in-laws for a couple of years I would still lean towards buying the house and renting it. In this way the initial two years of ownership would see all direct property expenses being tax deductible.

    During this time I would retain funds in an offset account rather than paying down the loan. While the net effect on your interest bill remains the same it does mean you retain maximum flexibility over your funds. If, for example, you change you mind and no longer wish to live in the house you chose you could tap into your offset funds and buy an entirely different place without efffecting the loan deductibility on your first house.

    By setting yourself up with a line of credit and paying for your deposit and purchasing costs from this facility rather than your offset cash it means the borrowings (LOC + New Loan) are full deductible. You can then leave your cash in an offset account to retain flexibility, pay down your home loan or whatever else suits you at the time. The key point is you remain flexible with your money this way, maximise your deductible debt and minimise any non-deductible debt costs.
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