How should I buy an investment property?

Hi Thomas

You mention you are a 17 year old student.  Does this mean you are in high school or university?  Do you have an income in the form of a part-time job or otherwise?  The bank will probably insist on seeing an income stream before dishing out money.  If you have no income stream, what is the plan if the tenant in your investment property fails to pay rent, or if there is an unexpected cost associated with the property?  (Perhaps a plumbing problem…)

When do you plan to no longer be a student, and instead be in the workforce?

If you are unlikely to have an income stream for a while, an idea to add to the mix might be considering buying something "Off the plan", which means you are buying something that is still under construction, or proposed to be constructed.  You pay a small amount, and  the balance is not due until the property is completed in a year or two.  It is important to be careful such properties are not overvalued, or in fact that there are too many of them, causing a situation where there are more properties (of its kind at least), than there are available tenants to live in them.  I read recently that it can be possible to buy a deposit bond or bank deposit for say, $2500, which secures the property (you'd still want to ensure the bank was prepared to loan the rest tho!), but you don't have to find any other money until the property is completed.  Hopefully by that stage it has gone up in value and you can refinance with the bank, thereby getting a higher loan-to-value ratio.

Another possibility is doing a joint venture – perhaps with someone that has access to money or has equity in a property.  You could offer to do your bit with the cash you have, and also doing a lot of the legwork in finding a suitable property, and perhaps doing some minor renovation work, based on your skillset.

Whether it is a good idea to take out a loan under your parents name is a matter for you and your parents to discuss.  What about buying in your name, but having your parents use some of the equity in their home to help you with your deposit?  This is probably your best chance of getting on the ladder.  You can ring the bank home loan info line, or a mortgage broker, and ask them to explain the concept if you and your parents are not across it.

I'm uncertain whether the bank will include Youth Allowance when assessing how much income you have to service your loan.

You'll probably need to get yourself that part time job before applying for the loan.  A few months before, in fact.

At the end of the day, the bank isn't going to give you a big wad of cash because you think it would be nice to have a property for when you graduate.  They will give you cash only if they can see you can repay it.

The best thing to do is to get some property investing knowledge and it is virtually free.
You can do this by reading books and formulating a plan and there are plenty of books in the library these days.
In the meantime you need to work out how you can borrow and what you have to do to borrow, usually it is to have an income.
But as they say "there is more than one way to skin a cat" and property investing offers plenty of opportunity for someone with the right knowledge
Maybe your parents have enough equity in their house for them to help you buy without going to the bank.
These days with higher rents you should be able to buy a house that is close to cash flow neutral.
To get your parents to help you I would be putting forward a plan to them showing you know what ytou are doing and why you are doing it. You can formulate a plan quite easily by reading books because that is what I did.
There is a fortune to be made in property if you know what you are doing and some of the books give you a step by step process to follow.

Good on ya mate!
Make it happen, If you were to get a House at your age and JUST have The Tenants pay The Interest you would have a Property that will have Increased Dramatically by the time you are 25.
And that would mean Capital Growth and / Equity.
If you have The Vision to do this then Go ahead,  just buy something that has Potential, and try Buying a House for The sake of The Land.
If you Buy right a Developer may want to Build Units on your site or you can consider this as an option for yourself.
There Is so much to know and Learn If you like you can contact myself.
It Is better that you Discipline yourself now instead of wasting alot of Money In your Growing up years.
You will be miles ahead of your Friends If you do as you say and act on this and make It a Reality.
Looking Forward to Hearing from you!

In regards to what Property88 has to say I would be Interested to know what Investments He has and what Qualifications He has also.
I am a Qualified Tradesman who has worked with and know's Residential and Commercial Builder's and Developers, Carpenters, Finance Consultants, people with Multiple Properties and I have studied The Melbourne Realestate Market for 11 years now.
I have Properties of my own also.
If you do choose to just wait and not take The required action you will be like every other person who has good Intentions to enter Into The Realestate Market but does nothing about it.
Absolutely you need to be wise about your First Property Purchase, but you do not have to have a Phd.  Just common sense.
Melbourne has a Plan which Is known as 2030, by that time Property will become so Highly priced most people will have to Rent/Lease as they do In England as we speak.
If you look at the Increase Of House and Land prices since The 1970s you will see there may be a few ups and downs but The Trend is always upwards.
In The 70s Houses were perhps 20k 30k now that same House could possibly be Worth 1 million Dollars.
Australia has experienced Dramatic price rises In the last 10 years.
What do you think will happen in The next 10 years….. Hello!

You're doing well so far by taking the first step and asking questions about managing your money and building your future wealth.  Well done!

Suggest you investigate setting up a Trust for the property with a company as the Trustee of the Trust.  Your parents could possibly be the Directors of the Trustee Company (if they have an unblemished financial record), and you and your parents can decide who should be the beneficiaries of the Trust.  Then look at you, (and your parents?), lending money to the Trust for the purchase, borrowing in the name of the Trust for the balance of the purchase, and if your parents are working perhaps they could be guarantors on the loan so as to meet the servicability requirements.

If you can find, or create, a +CF property the Trust should have money to distribute each year and your circumstances suggest that under current tax law it may be possible for you to receive a distribution amount tax free – (for you to put towards your next investment perhaps?)

You are on the right track, stick with it – where there is a will there is a way!  You will need some professional advice that takes into account all of your (and your parents) personal circumstances.  A half hour chat each with a legal eagle (regarding the Trust/Company structure), accountant (regarding the tax aspects), and a mortgage broker (regarding the lending aspects) should clarify things for you – there may be a cost especially for the legal and accounting advice although mortgage brokers often offer their services free to you (shop around, some may offer initial interview free hoping for future business).

Good Luck!

Hi Thomas,

Your parents are very kind to help you.
I agree that you couldn't get a loan in your name (bank will look at cost of living, and $200pw won't go far!)
Definitely repay parents from rent, if following CAN DO's (I think) plausible suggestion.
Your deposit may cover conveyancing, Trust set up and accountants advice, but probably not all the not stamp duty (depending on purchase price and state property is in.) (You don't have to buy in your state, but need legals to purchase to be done in state of purchase. Agent may advise you on someone who does a good job. Or ask on forum.)

Your parents should talk to their accountant about how this affects them.
You should be clear on how it affects you. eg if you take more than $120pw in cashflow (including any part time wages), you'll start losing your Centrelink allowance. 

Ask your accountant in Family Trust structure, do your parents stand to lose their house if the deal falls over for some reason?

(Having said that, I think it is a great idea and worth pursuing. Speak to a mortgage broker re "what would it take. How much equity from your parent's house would the Trust need to get the loan approved." etc.
May need to try several brokers, may be a bit hard for one who only usually does family homes.

quickchick