[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

June 16, 2013 - 2:55 am

It finally happened!

I'm pleased to announce that I finally made the plunge after finding a property that was suitable to my lifestyle and future plans. I found a nice, well-positioned 3bedroom townhouse in Maylands, which is walking distance from the river and approximately 5-6km from the city.

The property came in under 500k, which allowed me to avoid paying any stamp duty whatsoever as I am a first home owner. I quite like the design of the house, however the current choice of colour scheme for the wall paint is quite average, and some fittings could do with replacing and a modern touch. Likewise the kitchen and bathroom are sufficient, and definitely will suffice for now, but a handymans touch and some ongoing renovations wouldn't go astray.

The real estate agent marketed the property as a "paint and profit" and I couldn't agree more. An identical townhouse in the complex went for $60k more only a few months ago and I am of the firm opinion that I could have the property I just purchased in a better condition than that one for approximately half that price, or maybe a bit more.

I have almost no experience renovating but I feel like this will be a good opportunity to learn and I expect to make some (okay many) mistakes along the way.

First home purchase down, next one to come soon (hopefully!)

Here we go.

Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

April 22, 2013 - 2:17 am

Hi Merlin.

The search for that elusive first property continues! The situation is as follows –

I can honestly say I've been looking for a property to buy for about 6 months now, with the last 3-4 months of that being very focused, and my primary ambition. I'm putting a lot of my time in effort into it, for what seems like very little result right now. I'm not getting dejected just yet, but I've learnt what I'm after and just how fussy I am when it comes to housing options.

I've been to a few home opens and I'm on real estate website every day, or every other day looking for the new additions.

Out of the hundreds of properties I've viewed online in the area/price range I'm looking for I can honestly say there have only been a handful of places that I've really liked. It appears I must have good taste because all these properties are under offer within days of being advertised, often before the scheduled home open, and sometimes within 24-48~ hours. The market is a little bit crazy where I'm looking at the moment.

I feel like I'm going to miss out on a lot of opportunities (as I already have) because of the amount of time I spend away from Perth working my 3/3 roster in the offshore oil & gas industry. I've already told many realtors, as well as my current leasing real estate agents, that I'm in the market to buy and they should give me the heads up on properties that become available for purchase – but the properties are pretty much selling themselves at the moment (from my perspective, only what I've seen) so I'm yet to hear anything from them.

I think it's time to bite the bullet, front the cash and solicit the services of a buyers agent and let them work with my particularly fussy set of stipulations that I'm setting myself getting into the property market.

Luckily enough I have a pretty great rental apartment now (in the area I'm looking to buy) and I'm on an indefinite periodic lease through a real estate agency who love me to bits and an owner who has no intention of selling. That's the one thing that's in my favour right now.

Alas, the search continues….

-Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

December 6, 2012 - 9:26 am

Ok guys… just an update on the situation as it stands.

Have met with mortgage broker and they have advised me that due to my financial circumstance (good loan serviceability, stability in job/house, no debt etc.) that I could secure a mortgage of up to 800k for a first house! 800k!

I was shocked to figure it would be so much.

I plan on spending half of that (400k), or thereabouts, to secure a low maintenace PPOR and will be looking towards my first IP within 12 months when I've put a bit of equity into the offset.

Has anyone here used a buyers agent to find a house? With half of my time spent working away I'm not sure I will be able to find the right place, visit it and do all the communicating back and forward at the approrpriate times on my 3/3 roster. I've been quoted around $10k for a buyers agent fee on a 400k house, but told it was tax deductible and could be added to the final loan amount.

I really am flying solo on this one. I have no hesitations in doing this by myself. But, would is be a smart move to get someone like that on my side?

Other than – what are the next steps that take place in purchasing a property? I've been told I could, and should, bullshit a bit (excuse the language) in terms of having finance preapproved, even if I do not, as to speed things up and look more attractive to the seller.

Presuming I find a place that I like and contact the realtor to view it, how does it progress from there in terms of putting in an offer/ receiving a counter offer / getting finance etc?

Sorry for my ignorance. Just trying to get my head around this all for the first time.

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 19, 2012 - 10:56 pm

Hey guys,

The corporate real estate I was looking at is a small (just over 60 sq m) office space, with a couple of rooms.

I think I'll wrap my head around residential IP's before delving into anything corporate, but I'll discuss it with my broker in the future. The same goes for buying within my super. That may be a bit beyond me at this juncture.

My plan is still to go for two properties at once, but I get solid advice warning me against that, or the financials don't add up, I won't be too disappointed if I have to wait another 6 – 12 months before getting that first IP.

I've waited 28 years, what's another couple of months?

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 19, 2012 - 1:43 am

Hey,

The loan structure makes sense now. I think it may cost me a bit more than I had earlier calculated, but it's still not going to be a huge cost to me at the moment. Thanks for the advice on the API mag data, I'll check that out shortly.

Will be heading to a broker in two weeks time, when I'm back in Perth. I'm thinking your idea of going for a double mortgage, one for a PPOR and one for an IP, ($700-$750k), is looking more viable at this point.

Currently, I could buy one of the apartments in the complex I am in at the moment which is exactly the same as I am renting only pay an extra $9500 p/a to own, instead of rent. I will barely notice the difference. It would be remiss of continue renting when buying is so affordable at this point.

And the leftover of the loan allows me to spend up to $375k on an IP. I've got several in mind with expected rental return around the $400 p/w mark or thereabouts, with the rental shortfall to be a manageable cost to myself. (Hopefully the broker/bank sees it this way too)

I do have my eyes on a corporate space (relatively small, but modern and <5km from CBD, near public transport etc.) that is going for $330k at the moment…… has anyone had experience with buying corporate real estate? I've heard from a friend that corporate rental returns tend to be higher, and you are able to lock businesses in for longer contracts as tenants. How does property maintenance and tenant sourcing compare to a residential IP? Is it practical as a first IP?

Also……… sorry for the gender assumption faux pa Merlin! I blame your male looking profile avatar

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 18, 2012 - 9:32 am

Thanks Derek.

So how should that affect my calculations – given that I'm already assuming only 80% of rental return will go back into the mortgage? 

Actually – I'm operating on the figure of 80% rental return from Merlins earlier post – maybe he already calculated property management into that? If not, would a figure of 70-75% be accurate?

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 18, 2012 - 8:25 am

One last thing…

I've entered the calculations into a calculator and I'm getting pretty big differences here (based off 360k mortgage/6% interest/80% rent return of $400 pw). The shortfall I'm seeing between the mortgage repayments and 80% of the rent comes to $178 p/w.. or around $9256 p/a. This is significantly more than what you've mentioned? Can you tell me how you came to your calculations? 

Not to mention that I will be out of town for half the year, so I will definitely need to seek out property management to solve any tenant issues while I am away. I figure this will incur additional fees to the 80% rental return that is calculate, which would create an even greater disparity between mortgage repayments and income garnered from rental return. 

What percentage, or flat rates, would property management services charge to look after this type of IP?

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 18, 2012 - 3:12 am

Merlin,

Thankyou so much for this. This is exactly the kind of information I was looking for.

While I don't think I'll be looking at purchasing two properties in one hit, I would like to follow the path of adding a relatively cashflow neutral property shortly after purchasing my first PPOR. I think your figures behind the $375k purchase / rent out at $400 p/w make sense to me and it is an extremely affordable way (for me at this moment) to get a foothold in the market with an IP. What sort of houses (3×1/villa/apartment?) in what sort of areas (location,suburbs?) would fit this criteria? 

And in terms of the 5.8% loan you have mentioned in your calcuations – can you provide more details on what type of loan you are referring to. IO or P+I? Fixed? Variable? Presuming I look to take out a similar loan to what you have described after buying my first PPOR and draw out of the offset to put a deposit of 5% down on the IP, will they loan another $375k to me if I'm already in $400k or thereabouts in debt? Should I use my PPOR to secure the loan for the IP? Will it help?

I know you're talking about lowering my expenses to do this, and while a large mortgage for a PPOR may not seem to do this, I see it that I will be building equity to allow me to invest more in the future, and switch the property to an IP when the time is right. Does that make sense?

Sorry for so many questions but I'm just trying to get all the information I possibly can before making this big decision that may impact all further investments in the future.

And I really do appreciate all your input so far.

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 16, 2012 - 11:08 am

Hey Merlin,

Very interesting idea. And it makes good sense. But how likely is it that I could secure a $700-800k loan with no collateral (no existing PPOR/IP's under my name)?

Sadly, I need somewhere to live too. And while I'm sure the divorcees would love me, I kind of like my living situation at the moment, albiet an expensive one.

I think pumping cash into an offset on a PPOR before selling or turning it into an IP is the best plan of attack for me at this stage. If I had somewhere else to live I would have no hesitation in using my earning power to go for two rentals at the same time, rather than just one. It is something I will probably look at doing in the not too distant future.

Your wealth of experience on the subject seems very relevant though. What kind of property should I be looking to get into now if I want the potential of a cashflow neutral/positive investment in the future?

Also – how much should I be expecting to pay a broker for the whole "first home" experience?

Regards,

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 15, 2012 - 11:24 pm

Hey,

I agree, I'd much prefer to have a fellow investor, and someone who has done this several times before, than a pen pusher for a franchised business helping me with these important decisions.

I may be thinking old-fashioned, but isn't it easier to have someone you can talk face to face with to organise all the details? And won't a local broker be able to provide more relevant information for a local market and the laws pertaining to the state that I'm in? Maybe I'm not giving the man enough credit!

The thought of having a loan sourced by a great broker is very appealing It was great of you to volunteer his services (free of charge too!)

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 15, 2012 - 7:58 am

Hi Derek,

I could definitely sell the shares to shore up $25k and have some left over, which it sounds like I may need.

Could you provide an estimate for how much the extra fees (Loan establishment, valuation, solitors fees) would total? Is it under $10k? And are there any other fees or expenses in purchasing an established house that I should know about?

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 15, 2012 - 2:33 am

Great feedback guys. I appreciate all your responses.

Jamie – in your first post you mentioned borrowing the funds for the deposit rather than using my own savings. How does one do this? What sort of loan/interest rate are we talking here? Sorry if this seems a stupid question but I'm not really sure how this would work.

Also, will it be harder to get a first mortgage without a guarantor to sign on? Are there any financial penalties I will incur by signing a mortgage without a guarantor?

Cheers

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 13, 2012 - 10:53 pm

Gents, 

I'm very glad I asked you all this question. You've definitely shaped my decision to go with an interest only loan and seek out a broker who will accommodate this wish.

Armed with the new knowledge that stamp duty concessions are available to first home buyers making a  purchase under 500k, I think it stands to reason that I will limit my purchase to take advantage of this concession. 

How feasible is it to buy a 600+ sq.m property for a first house with the goal to subdivide? If I undertake an IO loan, and have 200-300k in the offset, will this count for anything when I finally look to subdivide and build?

Would it be preferable to go for a few high rental yield IP's, or CG IP's before looking to get into a subdevelopment IP?

Also, my current "savings" is invested in shares. I plan to sell these, place the money in a savings account and use this as a deposit. Will it go against me that I haven't had a steady period of saving, as I have been siphoning my money off monthly to purchase more shares? Surely I could show proof of a growing share portfolio to indicate that I have been saving money on a regular basis?

Cheers all

– Dan

[danfreshParticipant@danfreshJoin Date: 2012Post Count: 16]

November 13, 2012 - 11:27 am

Hi guys,

Thanks for the quick replies – You both seem to know what you're talking about.

Jamie – I hadn't even thought of that. How well do the tax deductions stack up? And what if i reside in the house for 10 years (just an example)? If I had to wait that long to start claiming the interest on the loan as a tax deduction would it still be a solid strategy? If I liked the house and wanted to stay in it for a while, and use equity in it to buy other IP's it would serve better to start out with P+I ?

Derek – The amount I have saved is in inclusive of the interest. When I was talking about leaving it too late to buy, I meant in terms of buying/settling/moving before my current rental lease expires in March 2012 (giving me approximately 4 months to have the whole process completed) I can't imagine arranging finance and buying as a first home owner could be done so quickly?

And you're right – I'm not particularly interested in a family house in the suburbs (or out in the sticks for that matter). Nor am Ireally looking at the house and land packages tailored to first home buyers- more so I am seeking established houses/townhouses in areas close to the CBD (<10km, close to amneties).

Cheers,

– Dan