What direction to go in now

[Andrewm]

My partner and I (23 years old) have a house with boarders we have 430k left on the mortgage with a registered valuation of 540,000
Our combined income is 110K, One of our boarders is going to move out and rent a whole house with his new partner but is interested in renting it from us.
We have a new boarder lined up to replace him.
As it stands I have only a few thousand in savings however plenty of disposable income, about 700 dollars a week between us after everything is paid that I currently spend on renovating our house.
Is it possible or even advisable to get another house on 100% finance in our situation. I have found one nearby that I like as it is a huge 4 bedroom house 2 lounges etc that could easily be a 5 or 6 bedroom house, however it could cost me upto 500k I wouldnt pay any more, this would return 600 per week from the best and most reliable tenant imaginable.

I know the return is mediocre but it is an exellent tenant in a good area and the property has great prospects for renovation and I would have no trouble selling my current place and moving in to this one if I had to.

Or should I save until I have another deposit?

Thanks in advance

[TheLiberalLeft]

Could you sleep at night with $930k debt (about 6.6x your income)?
What if one of you gets pregnant? I have no idea if you're a bloke or sheila - who knows, you might be Colin Craig's arch foes. Doesn't worry me any either way.
How do you know you'll have no trouble selling (for the price you want)?
Jobs secure?

[spaceman]

I'd say go for it....you're young and if you cock it up it'll be a good learning experience rather than destroying your retirement plans.

100% finance is higher risk but the rewards are worth it IMHO

The proviso being of course that it's always a good time to buy a good deal and always a bad time to buy a bad deal.....make sure you're buying a good deal

Cheers
Spaceman

[Glizzle]

I would be savings, whats the point of dumping 40k into your house per year.

[drelly]

I know the return is mediocre but it is an exellent tenant in a good area and the property has great prospects for renovation and I would have no trouble selling my current place and moving in to this one if I had to.

How much value could you add renovating? How much would it cost you?
The quality of the tenant is nice but unless he's signing a 10 year fixed lease, there's no guarantees there.

[spaceman]

I would be savings, whats the point of dumping 40k into your house per year.

You do realise what kind of site this is don't you????

You do understand what gearing/leverage can do to your returns????

Cheers
Spaceman

[TheLiberalLeft]

I think you've missed the point, Spaceman.

Another way of asking it: How come you have so much disposable income yet only a small amount of savings? You're throwing all that money at your home? Month on month?

[spaceman]

^ I think you've read that wrong.

What's the point of having savings if you have a mortgage (apart from an emergency fund)????

If Glizzle had said "I'd be paying down my mortgage", I'd perhaps be more inclined towards your version. But that wasn't what was said

Cheers
Spaceman

[Andrewm]

I have been putting about 700 per week into the house for the last few months only, upgrading appliances, furniture ,repainted whole interior, replaced every light and switch and power socket, etc it has been some months since the 540,000 valuation and it is likely higher now however there is not much more I would like to do to this place as the returns on my renovation investment will no longer be feasible.(there are only a handful of 600-700k properties in my area) This is why I am looking to renovate a new place.
I have 5k i keep as a buffer and have 300hours holidays should I lose my job however it is very secure
I have only 5k beacuse I put an additional 10k of savings into my mortgage to get me 20% equity for access to good interest rates.
There will be no pregnancy we take the usual measures
I can sleep just fine with 930k mortgage, I could restart an old business If money became tight.
I believe i could add 40k to the new place with 5k invested and around 100 man hours not including any captial gains and all of this while the place is tenanted.

Yes the tenant may leave but he will be more than happy for me to renovate while he lives there.

[Glizzle]

yeah TLL nailed it, i was posting sorta like if i was his mortage lender, they will question that exact point. It dosnt matter where the money is going atm, as far as the bank is concerned he dosnt have it.

[spaceman]

^ My bad....obviously TLL is way smarter than me

Cheers
Spaceman

[Glizzle]

What's the point of having savings if you have a mortgage (apart from an emergency fund)????

So you are saying to buy a investment worth 500k allready owning and flating in a house valued at around half a million and just hope that a couple of thousands is enough for reservses？
I mean the bank is allready owning 9/10 of both propertys should he go ahead and he has no backup.

[GenY]

Good on you, you're doing well. My suggestion is live off the lower income for one year and use the other income to pay down some of your primary residence - it's tax free and will build up your equity in your home

[spaceman]

So you are saying to buy a investment worth 500k allready owning and flating in a house valued at around half a million and just hope that a couple of thousands is enough for reservses？
I mean the bank is allready owning 9/10 of both propertys should he go ahead and he has no backup.

Yes...that basically sums it up.....like I said 23 is young enough to cock it up and bounce back......yes it's a higher level of risk than many are comfortable with, but with what the OP has explained so far I reckon it's worth a crack.

Cheers
Spaceman

[flyernzl]

It is quite difficult for us oldtimers to say what a young bloke should/might do.
Our nerves twitch.
We have seen too much blood on the floor and bodies in the ditches.

Given the above scenario, right now I wouldn't go for the proposal.
However, I may well have when I was 23 (lost in the mists of time, I may add).

Your timing in terms of loans is probably good, the banks are flush at the moment.
But - what if interest goes to 7% (I can remember 24.5%) or some major repairs are needed.
I would strongly suggest that you accumulate a cash float as quickly as possible.
Your tenant however good may move out in a few months having been made redundant, got a job in Australia, or whatever.
These things happen, and usually at the wrong time.
Money buys you time to sort things out.
You do need a cushion.

I wake up each morning owing a million dollars. It does help you concentrate .