Keep investing or buy ppor

R

Robbo2621

Hey guys,

Currently own 2 investment properties which pretty much look after themselves at the moment. I'm starting to get to the stage where I would like a place of my own, you know, the great Australian dream :p (I'm renting a townhouse for $465 p/w). Im definately going to keep investing, but I'm wondering if I buy a ppor next will it hurt my investing thereafter? Or am i better off to keep investing for Now? I'm 25, wage of about 100k per year, would be looking at a ppor of around 450k. The Missus and I are going to Europe middle of next year for a month, so funds are kinda tied up until then anyway but just trying to plan ahead :)
 
Robbo2621 said:
Hey guys,

Currently own 2 investment properties which pretty much look after themselves at the moment. I'm starting to get to the stage where I would like a place of my own, you know, the great Australian dream :p (I'm renting a townhouse for $465 p/w). Im definately going to keep investing, but I'm wondering if I buy a ppor next will it hurt my investing thereafter? Or am i better off to keep investing for Now? I'm 25, wage of about 100k per year, would be looking at a ppor of around 450k. The Missus and I are going to Europe middle of next year for a month, so funds are kinda tied up until then anyway but just trying to plan ahead :)
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If you purchase a PPOR for $450k what would you be borrowings?

Because if your borrowing 80% the IO repayments would be less then your current rent.
 
Would be borrowing 90%, so repayments would be about $100 more a week than the rent I'm paying at the moment on a P and I loan @ 6.2%
 
Robbo2621 said:
Would be borrowing 90%, so repayments would be about $100 more a week than the rent I'm paying at the moment on a P and I loan @ 6.2%
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For starters you shouldnt be paying 6.2% if your borrowing >$400k @ 90% would be at least expecting 5.9%, but more like 5.7-5.8%... definitely 5.7% if you have existing borrowings with the same bank.

Borrowing $405k (90%) + $7k (lmi) = $412k x ~5.8% puts your interest repayments at ~$460p/w, similar to rent, but then you have extra costs (council rates etc)

You really need to decide if purchasing a PPOR or IP is better for you, usually when people purchase a PPOR its an emotional purchase as the needs and wants are quiet different.
 
Buying your PPOR is definitely going to have an adverse effect on your ability to purchase further property. Due to the way lenders assess affordability, whilst it might only cost you $100 a week more to own, from the lenders point of view it'll be substantially more. From a financial perspective you probably are better off to continue to rent and funnel your surplus funds to investing.

Dispite this, I was also in the same position many years ago. It got to the point where the desire for our own home outweighed the financial costs. I love having a dog.
 
PT_Bear said:
Buying your PPOR is definitely going to have an adverse effect on your ability to purchase further property. Due to the way lenders assess affordability, whilst it might only cost you $100 a week more to own, from the lenders point of view it'll be substantially more. From a financial perspective you probably are better off to continue to rent and funnel your surplus funds to investing.

Dispite this, I was also in the same position many years ago. It got to the point where the desire for our own home outweighed the financial costs. I love having a dog.
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Should be too big of a difference in how its assessed (although even if you are paying IO for servicing you will be assessed as PI uness special reasons), he still has a commitment of his rent p/w.

But as stated, its personal. Financially your always usually better off IP, but you cant live in a IP :D
 
I went with 6.2% as a rough guide, i like to overestimate a little just to Be safe. Pt Bear, I'm also in the same boat, love having a dog, can't where I am :(. I do think it would make more sense to keep renting and buying IP's. But at the same time there is the big pull to get away from renting. I work in the mines and get bored on my days off so would love to be able to have my own place to work on and add value to, while keeping me occupied :cool: it's definately a tough one
 
PT_Bear said:
Buying your PPOR is definitely going to have an adverse effect on your ability to purchase further property. Due to the way lenders assess affordability, whilst it might only cost you $100 a week more to own, from the lenders point of view it'll be substantially more. From a financial perspective you probably are better off to continue to rent and funnel your surplus funds to investing.

Dispite this, I was also in the same position many years ago. It got to the point where the desire for our own home outweighed the financial costs. I love having a dog.
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This is the dilemma my neice and her partner were facing. They asked for opinion/advice.

I advised that they should buy their "dream home" and not worry about IPs for the moment.

Both in early 20's, both great high paid jobs.

My logic was they had time on their side.

The "dream home" is in a blue chip area where they could eventually tap into the equity to purchase IP down the track.

I believe in enjoying today as there is no point buying many investment properties when you are not actually happy where you live. Its like cutting your nose despite your face.

Cheers, MTR
 
The counter argument is that while in your 20s, your idea of a dream home may not actually be the home you live in long term. By buying too much PPOR now (as owner occupiers almost certainly do), you kill your ability to invest, only to find in a few years that the 'dream home' doesn't really fit your changed circumstances. You've lived a few years in a place you would probably enjoy more than a rental, sure, but you've given up possibly multiple IPs worth more than your PPOR, thereby reducing your ability to buy a better PPOR No2.

Let's say you stretch to buy a 500k PPOR, but if you'd rented cheaply, you could have bought 1m of IPs instead. By your 30s, you find that the 500k inner city unit no longer fits your family needs. You're financially better off having the 1m of IPs and having rented for a few years. Sure, you've lived in a place you don't like as much for a few years, but you're hopefully going to live for a long time. Your 30s and onwards are going to involve increased costs from children, etc.

To plan on eventually tapping the equity to buy investments down the track is a minefield. Owner occupiers are more likely to try to pay off the loan first, delaying investing by a decade or two.

The idea of investing as much as you can (not necessarily just IPs) while in your 20s, especially if you don't have kids yet, is that by your 30s, say, you can spend more money on the lifestyle and don't have to worry as much about saving as you have more investments ticking away in the background. Yes, you have time on your side, and that's exactly why you should invest as much as you can while you're young (a PPOR, generally, is an investment but not a very good one because of the emotional element).

Yes, you can take the delayed gratification to extremes and end up never enjoying a good lifestyle, but a good income isn't an excuse to invest any less, because inevitably, your desired lifestyle is going to creep up to match your income.
 
Some more great advice, hence why I love this forum :D. Im thinking now I should probably keep renting to buy more IP"s, it does make more financial sense and im trying to get ahead as much as i can. And as you said the dream home now most likely won't be in a few years time.
I would have about 20k equity in IP 2, wonder what that would get me???? Maybe abit more growth needed yet lol
 
It all depends on what is important to you.

Personally I sacrificed a PPOR to invest and this got me out of the workforce at a young age, but PPOR is different to other people.

My 72nd property just became my PPOR and my 100th one will be my family home one day (dream house).

Good luck!
 
damn 72 properties! good luck/work nathan.

im also just reading this thread out of interest too. i have 3 ips (1 house 2 units) but no ppor. company pays for housing (well 70bucks a week i pay). we plan to move back to the east coast in a few years time and hopefully stay there. (i will do fifo work tho.)
cant wait to hear more opinions.
 
Why not do both? ie buy a PPOR and investment at the same time.

eg. Buy your dream home. Live in it 6 months. Then move out and rent it. Keep it CGT free for up to 6 years and get to claim all associated deductions while renting yourself at lower rate. You get the benefit of lower rents and extra deductions. Then after 5 years you move into your home.
 
Terry_w said:
Why not do both? ie buy a PPOR and investment at the same time.

eg. Buy your dream home. Live in it 6 months. Then move out and rent it. Keep it CGT free for up to 6 years and get to claim all associated deductions while renting yourself at lower rate. You get the benefit of lower rents and extra deductions. Then after 5 years you move into your home.
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Would you want to move out of your 'dream home' and put strangers in it???
 
Nathan said:
It all depends on what is important to you.

Personally I sacrificed a PPOR to invest and this got me out of the workforce at a young age, but PPOR is different to other people.

My 72nd property just became my PPOR and my 100th one will be my family home one day (dream house).

Good luck!
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This is good advice, as you say depends on what you want to do.
But ultimately you are sacrificing lifestyle, not right or wrong, just your choice.
Also, not everyone has the skill set to acquire 72 properties...... just curious how many of these do you need to sell to purchase your dream home???:)

Just to add another side to this......OK, I purchased what I perceived as my dream home for $185K, and sold it 16years later for $1.32M.

During this period we enjoyed lifestyle and continued tapping into the equity to purchase IPs, as you can see by the figures the property just kept going up in value.

The figures are real, the reason the property continued to grow was location - inner city, and because it was a period home on a development site.

My point is, if you buy well you can probably enjoy both. It does not mean you need $1M, but certainly identifying properties which are in high demand and tightly held areas will give you a greater chance of achieving better than average growth. Best of both worlds.

Cheers, MTR
 
My advice is to make a few sacrifices now while you are young and keep investing in properties that hold their own like you have been. Sure you will see all your mates driving brand new cars living in flash properties however all of your debt will be deductible, producing passive income for years to come.
 
If the repayments on PPOR mortgage are not much different to the rent you are paying - Well I'm going to be contrary and suggest buying the PPOR.

The PPOR is still an asset, you might find some more funds to pay it off and gain equity that way (as people tend to do more for PPOR than IPs), as well as the growth (which is not assured in the current economic environment) you'll get whether PPOR or IP, and more importantly, you say you are handy and have some time on your hands - if you buy something you can improve then you can increase equity that way too - plus it will all be capital gains free when/if you sell.

If you do buy PPOR and think it might become an IP later, please make sure to structure your finances appropriately (look into offset accounts, etc).

Congrats on having two IPs at your age and considering your financial options - I'm sure you'll do well whatever you decide.
 
Nathan said:
It all depends on what is important to you.

Personally I sacrificed a PPOR to invest and this got me out of the workforce at a young age, but PPOR is different to other people.

My 72nd property just became my PPOR and my 100th one will be my family home one day (dream house).

Good luck!
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My whole take of this thread: WELL DONE MR NATHAN, you are a legend. that number is beyond my imagination , is it actually 72? assuming each prop is worth atleast 200K, thats cool 14M+ if my maths is correct
 
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