Buying a second property

[Lyyynnnchy]

If the value of the property falls below the loan amount and you continue regularly making repayments, why would the bank force you to sell?

If banks are going to enforce sales due to cases of negative equity then we could be in for some trouble in 2010 given the number of first home buyers who jumped in in 2009, the sharp rise in house prices, rising interest rates and continued economic uncertainty.

Thats right. That's why a lot of people are predicting a crash. Although I think the massive leverages that the media has spoken about are over exagerated. 4 of my other mates have all brought houses at the 80%lvr mark. Most of the banks were always looking for the 10 - 20% deposit, 5% saved for FHB. I know they did with me minus the 5% saved proof.

Banks are well known for making forced sales even though repayments are being met. During leaner times they don't like the risk of a high leverage. That's why I'll be very reluctant to ever go above 85 - 90% lvr unless I'm extremely confident (if the banks let me as well).

Talking from personal expirience. My cousin went through this expirience with NAB. Lvr went to 105% and they asked him to take it down to 95% which is reasonable. Had to sell, lucky he sold for a reasonable price and had a few thousand let over.

 

[Scotland]

Banks are well known for making forced sales even though repayments are being met. During leaner times they don't like the risk of a high leverage. That's why I'll be very reluctant to ever go above 85 - 90% lvr unless I'm extremely confident (if the banks let me as well).

Talking from personal expirience. My cousin went through this expirience with NAB. Lvr went to 105% and they asked him to take it down to 95% which is reasonable. Had to sell, lucky he sold for a reasonable price and had a few thousand let over.

I've never heard of this happening to anyone I know.

Say I lend you $400k @ 5% on a property worth $450k and the value drops to $350k after 3 years of you never missing an interest payment. Surely it's in my best interest to keep taking your $20k each year on a loan attached to a property which will rise in value over time than force you to sell and owe me $50k attached to nothing?

 

[PatrickBateman]

Can I throw this at you guys and get some opinions please?

My gf and I have 200k collateral. I'm thinking of buying a premium coastal block(VIC, Torquay/Ocean Grove) in the 400k price range, setting up an offset and smashing it with all we can. Both of us are professionals with no other debt.

AND, buy a 250k-300k suburban property to rent, borrowing 100%.

I have just sold my 'home' and we are content in renting for now, making some $$ off the rental and hitting the offset hard enough to build on the land within 5-6 years. I guess I'd be better off financially buying 2 rentals instead of the land or a house to live in instead of the land.
I am a little concerend about quality coastal property availability in the future....

 

[Lyyynnnchy]

I've never heard of this happening to anyone I know.

Say I lend you $400k @ 5% on a property worth $450k and the value drops to $350k after 3 years of you never missing an interest payment. Surely it's in my best interest to keep taking your $20k each year on a loan attached to a property which will rise in value over time than force you to sell and owe me $50k attached to nothing?

You would think so wouldnt you

Banks dont like you going above a certain lvr when going through lean times. Have a look at the property investing forum www.somersoft.com.au they go into detail about it in one of the threads there.

 

[Lyyynnnchy]

Can I throw this at you guys and get some opinions please?

My gf and I have 200k collateral. I'm thinking of buying a premium coastal block(VIC, Torquay/Ocean Grove) in the 400k price range, setting up an offset and smashing it with all we can. Both of us are professionals with no other debt.

AND, buy a 250k-300k suburban property to rent, borrowing 100%.

I have just sold my 'home' and we are content in renting for now, making some $$ off the rental and hitting the offset hard enough to build on the land within 5-6 years. I guess I'd be better off financially buying 2 rentals instead of the land or a house to live in instead of the land.
I am a little concerend about quality coastal property availability in the future....

Good luck borrowing 100% at the moment

I'm not trying to spruik the website I listed above but it truly is a great property investing forum. It's how I got started and there are people ranging from bank managers to brokers to people who have retired off property and net $500kpa+ from there investments all willing to give out advice and share there investment storys.

I have recieved so much help from the forum. I highly recommend it for anyone interested in property investing

 

[Simon_Nesbit]

Lyy..., I think the point was his 200k investment in beach property, cross secure both, with investment purpose allowing 100% tax deductible (negative geared) on the rental property.

 

[PatrickBateman]

Lyy..., I think the point was his 200k investment in beach property, cross secure both, with investment purpose allowing 100% tax deductible (negative geared) on the rental property.

It's good to see some people on here fully read posts before replying...

 

[raskolnikov]

Helps when you have 2 good mates who are an electrician and plumber

Painted the walls and ceiling throught - $300 - 6 tins of paint @ $40 from bunnings and a few rollers
Painted bathroom wall tiles white - Free from parents reno (came up a treat!)
Ripped up bathroom floor tiles myself
Pulled out old shower screen and towel rails myself
Plumber to pull out toilet and vanity - $100
Tiles - $150 (smallish bathroom but tiles where only $15sqm)
Layed the floor tiles with the help of plumber - $100 (2 sets of 3 odd hours)
Cement + grout - $80
New vanity from bathroom auction in Maylands - $240 (rrp $400)
Taps - $75
New corner bend toilet (double the price of normal s-bend or u-bend ) - $240
Toilet & Vanity installation - $150
New shower head + taps - $175 - easy to do yourself
Shower screen - $800
Towel Rails - $50
Toilet roll holder - $20
Bits and pieces (soap holder, toilet brush etc) - $25
New lights and installation - $300
New door - $120
Timber blinds throughout house - $540
Paved outdoor courtyard with paving from maylands auction - $100
Pots and plants - $300
Outdoor table and chairs - $300
Outdoor heater and bbq pack - $400
Outdoor lighting and installation - $250
Relaminated kitchen bench and new doors - $400

Tad over $5000. Rounded most of the prices

I always aim for every dollar you spend to make at least $3 on the val of your house

I've pretty much done the same. I've also got friends who are tradesmen. I have spent about $10,000 on my house and probably increased the value by $50,000.

 

[bunsen burner]

Can I throw this at you guys and get some opinions please?

My gf and I have 200k collateral. I'm thinking of buying a premium coastal block(VIC, Torquay/Ocean Grove) in the 400k price range, setting up an offset and smashing it with all we can. Both of us are professionals with no other debt.

AND, buy a 250k-300k suburban property to rent, borrowing 100%.

I have just sold my 'home' and we are content in renting for now, making some $$ off the rental and hitting the offset hard enough to build on the land within 5-6 years. I guess I'd be better off financially buying 2 rentals instead of the land or a house to live in instead of the land.
I am a little concerend about quality coastal property availability in the future....

Problem 1.

Why buy vacant land? You don't have rent coming in to service the loan. You're better off buying a home, renting it to service the mortgage and when you're ready to build, buy land and build. You will find you will have more money to build with.

Problem 2.

Torquay is being developed. A few new estates down there. If what you have in mind is a block in a new estate they usually have a condition that you build on it within a reasonable time period.


Solution: buy an older house that's close to land value. Rent it out until you are ready to knock down and build.

 

[PatrickBateman]

Problem 1.

Why buy vacant land? You don't have rent coming in to service the loan. You're better off buying a home, renting it to service the mortgage and when you're ready to build, buy land and build. You will find you will have more money to build with.

Problem 2.

Torquay is being developed. A few new estates down there. If what you have in mind is a block in a new estate they usually have a condition that you build on it within a reasonable time period.


Solution: buy an older house that's close to land value. Rent it out until you are ready to knock down and build.

Thanks bunsen, appreciate the feedback.

 

[diamond8]

BB, Can you further elaborate on your Torquay comment.

I'm thinking of purchasing an Investment property down there.

Are you suggesting that it is now over-developed?

Appreciate your comments.

 

[raskolnikov]

I'm going to buy my investment property in Gladstone Qld, where my mum and sister live. Apparently there is some huge company moving there in a couple of years and prices are going to skyrocket.

 

[PatrickBateman]

BB, Can you further elaborate on your Torquay comment.

I'm thinking of purchasing an Investment property down there.

Are you suggesting that it is now over-developed?

Appreciate your comments.

Sure, what I meant was more so in the 300k+ bracket so close to the beach. I'm thinking that blocks will be tough to pickup and rare in 5-10 years time, close to the beach. There really isn't anywhere else to go development wise for the town. The Sands is as far East due to marsh land, and nearly everything JanJuc side that isn't developed is protected forest. I still think Torquay's $$ growth potential is great, especially with Armstrong Creek on the way and the new ring road. Lots of Melbourne money flowing into the town.

To be honest I'm probably not going to bother and buy 2 houses rather than 1 house, 1 block. Make more money that way and bulldoze something old in Torquay or similar down the track.

If you buy in Torquay, try and stay away from the estates(Sands not incl.) I've just sold a place in 'The Quay' and the quality of homes is declining badly! Estate building guidelines are the biggest joke I've ever seen. It's turned into Metricon city. Buy 'the odd' block or Sands.

 

[Dan26]

I have two investment properties and I own my own home (i.e I have no mortage)

I owe a combined total of about 380,000 on the two investment properties, and I am gradually paying both off. I estimate they'd be worth a combined total of about 550K if I was to sell both of them (which I'm not planning to do)

I want to buy another investment property, but if I do, should it be interest only? These "interest only" loans have come up a bit on this thread. One of the investment properties I do have was interest only for the first 3 years but now I'm starting to decrease the loan thrugh regular repayments. If I get a new investment property, should I try to pay it off gradually like I'm doing with the other two, or go for an interest only loan?

 

[Simon_Nesbit]

Depends on your risk profile. Sounds like you have plenty "in the bank" are you a 'safe' person?

Although you can't judge a book by its cover (or in this case BF history), I'd suggest you are more the penny-counting, 100% aware invester, rather than the 'got lucky' type.

Given you own your home outright, and have additional equity in the others, I'd set all 3 up as 80% I/O loans, with an offset account for you to pour all your additional savings into (includin rent received etc).

Each time your offset builds up to 25% of purchase price (extra 5% to cover costs), you make another invesment.

==============

If you weren't risk adverse, you could lend 80% of all (including your home), and make a couple of investments now.

Say your home is worth 450k. Investment properties worth 550k, giving you 1 million in assets.

You could lean 800k and stay under 80% lvr. You currently owe 380, so there's another 440k available.

Buy one property for 400k. 80k down, 20k costs. Borrow 80% IO against it. 340k left.
Buy 2nd property for 400k. "" "". 240k left
Buy 3rd property for 400k. "" "" . 140k left.
Buy 4th property for 400k. "" "". 40k left.

You would then have 6 investment properties (est total worth >2 million), all at 80% LVR, set up with I/O to minimise repayments. 1.6 million in repayments = say $2000 per week.

Even if you only rent the 4 properties for $350/wk each, and your existing two for $250 - it's only costing you in the realms of $100-$200 per week to keep all of them. If the market grows at just 0.5% each year, you're in front.

...or the market could drop and you'd go broke.

 

[diamond8]

Sure, what I meant was more so in the 300k+ bracket so close to the beach. I'm thinking that blocks will be tough to pickup and rare in 5-10 years time, close to the beach. There really isn't anywhere else to go development wise for the town. The Sands is as far East due to marsh land, and nearly everything JanJuc side that isn't developed is protected forest. I still think Torquay's $$ growth potential is great, especially with Armstrong Creek on the way and the new ring road. Lots of Melbourne money flowing into the town.

To be honest I'm probably not going to bother and buy 2 houses rather than 1 house, 1 block. Make more money that way and bulldoze something old in Torquay or similar down the track.

If you buy in Torquay, try and stay away from the estates(Sands not incl.) I've just sold a place in 'The Quay' and the quality of homes is declining badly! Estate building guidelines are the biggest joke I've ever seen. It's turned into Metricon city. Buy 'the odd' block or Sands.

Thanks Pat,

I was actually looking around The Sands.

I think most of it is Mirvac and they have a pretty good reputation.

Although I don't think the locals are too wrapped with the development taking place.

Body Corp fees seem high though.

 

[bunsen burner]

BB, Can you further elaborate on your Torquay comment.

I'm thinking of purchasing an Investment property down there.

Are you suggesting that it is now over-developed?

Appreciate your comments.

The comments were more regarding why it's a bad idea to buy land as an investment in any area (because you have no income to service the loan). I elaborated on the development just to find out if he was think new estate (because there's heaps of them) - the point being new estates usually have clauses that require you to build pretty soon.

I wouldn't think this area is over developed. It first came to my attention 12 or so months ago. The Melbourne market has been going gangbusters so not sure how much fuel is in the take and whether or not the ripple has reached Geelong and beyond yet.

I think at the very least it's a sound area to invest in long term. It's near beaches and waves and going foward will be a desirable area rather than one full of ferals. ie more like Yallingup than Deception Bay