Investment Property Analysis

We’re debating if we’re ready to purchase our Investment Property, so we’ll need to run a few numbers and analyse and see if it makes financial sense for us.

Our variable rate of 6.54% will be effective this SEP23. Based on my assessment on the Mortgage Repayment Offset Calculations, having 150K in the Offset Acct is the most efficient saving on mortgage interest overtime. After comparing 125K, 150K, or 175K in the Offset Account, and making additional contributions over 10 years: listed below are my assessment:

125K / 12.5K x 10 years / Total Interest: 197K

150K / 15K x 10 years / Total Interest: 163K

175K / 17.5K x 10 years / Total Interest: 135K

With a 530K remaining principal, assuming no additional contributions and none in offset, total interest is calculated at 485K. Using the % metrics, we have the following:

485K - 235K = 250K Int. Savings = 51.5% [Offset @ 100K for benchmark]

485K - 197K = 288K Int. Savings = 59.4% (Var 7.9%)(Var +38K)

485K - 163K = 322K Int. Savings = 66.4% (Var +7%)(Var +34K)(Net -4K)(Var -.9%)*

485K - 135K = 350K Int. Savings = 72% (Var +5.6%)(Var +28K)(Net -6K)(Var -1.4%)

As of to-date, we have the following in cash equity (liquidity):

• Macq (Savings): 130K

• ING Offset: 45K

• KD Holding: 18K

  Total: 193K (Surplus of +43K favorable)

Certain ETFs are hitting their 52WH’s, so we’ve DCA sold their positions. Currently sitting in cash of 105K in EFI, KFI-BInvT of 37.5K, and US of 25K. Total (excluding US) is at 142.5K. Including US is at 167.5K. Since we’re using the TPP 15% of 52WH an DCA Buy of -5% spreads, there is still plenty of buffer if we were to DCA Buy.

If we were to proceed with our investment property purchase, we can make a down payment (including closing costs) of +43K from surplus + 142.5K = 185.5K. We haven’t decided which property we would like to make our primary residence or investment property, but the 150K will remain in the ING Offset. US cash will either be reinvested, or transferred back to AU for EFI. Every month, we’ll top up the EFI of 2.5K totaling to 30K.

Now the question becomes how long it would take for us to top up the offset account for the investment property prior to the grace period of the variable rate taking into effect. Using our NSR, we can effectively increase our equity by about 75K (excluding EK Super). Assuming we use the 185.5K amount, that would be 185.5K/75K = 2.5 years. Depending on how much rent we receive to offset the mortgage, we’ll run another assessment, but purchasing an investment property now is looking promising.