Hey guys,
First of all – great site, support base and source of information and knowledge here!
I've been reading the forums on and off since about the start of this year as an unregistered user and decided to post some Q's of my own, just to see if I am on the right track.I'm a student in my 2nd year of a combined Law and Business degree. I major in Finance on the business side of things. 1 more year after this year until I complete my finance degree, then another 3 years of Law before I graduate completely.
I am lucky enough to be living at home and very close to Uni. Thus, my annual expenses do not amount to much. I.e. Petrol, rego, insurance on the car, then whatever I spend on myself.I'm also fortunate enough to have a great, stable day job AND a night shift job. I can afford to put away $250 p/week and still have enough cash to spend on myself and cover what little expenses I have.
Strangley, in finance, we haven't really discussed property investment at all. It's basically been stocks/evaluation of company's etc.
Anyway, I started uni early, and will be done when I'm 22. And, by then, I should have about $85,000 to lay down on some property.
My plan was to purchase something pretty close to the city (Hobart) with about 2 bedrooms or thereabouts for around $400,000. This all depends on what the prices will be like in another 3.5 years however.
I intended then, to rent the property out, and have it pay it's own mortage back whilst I chip in weekly to get the mortage out of the way asap.
Then take out a mortgage for another property that I would soley pay off and live in whilst I have a job.After paying back the house I lived in, I'd then rent this property out and repeat the process of me moving into another house but, have my two previous properties pay for the mortage through the rent repayments I'd receive from owning them.
However, after reading this post from Ryan Mclean;
ryan mclean wrote:If you can get your investments to pay for themselves (so then the 7% interest or whatever doesn't come out of your pocket). Then I would stock up on properties instead of focusing on paying off loans.…it got me thinking – Should I be so concerned with paying the mortgage off? This is a big step and a big loan (to me). I was under the impression of trying to pay it off as soon as I can. I wanted to 'own' the property as fast as I could.
I want to start young and get the most out of what I save. Is my idea above (SORRY IT'S LONG) any good?
Any advice to guide a young person would be greatly appreciated. Any advice regarding 'what you would do' in my position would also be really helpful also.
Cheers
Hi James.
I think your original plan is pretty good, especially if you can live at home or with friends cheaply. However
I also think you are on the right track looking at the positive cash flow concept, as it may allow you to buy properties with smaller deposits that are paying their own holding costs. This means you can own more of them with less of a weekly financial commitment. The down side being they are often not as centrally located, may need some work from you or are in dodgier areas. There are lots of discussions on this site re. the subject. Margaret Lomas writes on it extensively. Basically you need to target areas with potential economic and population growth that have not taken off yet..Another tactic that I wish I had done earlier is to target properties with development potential. This may be two incomes from a home and flat or subdivision of a corner block, etc . This is more hands on, which not everyone wants, and also involves good research into council regulations, plus keeping a finger on the prices and demand in different locations.
You sound in a great position and will do well with your relevant qualifications.
G
Oh one more thing James.
If you buy a place of your own and pay it off, it won't be tax effective as a rental property.
G
GeraldineM wrote:Oh one more thing James.If you buy a place of your own and pay it off, it won't be tax effective as a rental property.
G
Sorry, could you please expand on that a little?
If you own the property then you cannot claim tax deductions for things such as your interest on loan repayments, Whereas if you still have a mortgage on the property then you can claim your interest costs etc. you are better off having a loan against the property otherwise all of the rental income is classed as income with no costs to claim against. There are a few posts on this perhaps try searching for a topic such as benefits of Interest Only loans and/or Best financial structure etc. Also if you wait until you have paid off the property before you buy again then you will be out of the real estate market for a much longer time and may find yourself priced out of the market.
cheers
Sonya
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