We are looking at purchasing our first property to begin an investment portfolio.
Our question is: Do we buy a home to live in to take advantage of FHOG and avoid CGT or buy an investment property?
Wage 1: 96000k pa
Wage 2: 60000k paOption 1: Buy an investment ($300k-$350k) and rent it out for ($300 pw). Continue to rent ourselves at $490 per week
OR
Option 2: Buy our own first home for ($520k) in Botany (Sydney)
Appreciate any advice as to which will be more financially advantageous?
Thanks
Have you got enough deposit and can you cover stamp duty as this will affect your financial decision.
Hi duckster,
would you be so kind as to elaborate on how this would affect the decision please? would appreciate the input
thanks bud
To be honest with you .. neither of your suggestions are for a creative investment environment. Let me explain.
Option 1
Your investment would be conservative to start with (lets be realistic if you are on 150k gross a 300k investment is very conservative. And on the other side it would only be returning a barest of 5%. Now since borrowings start at a 6.99%+ now .. you'd be working with a minimum 2% over income as your initial figure. So .. your strategy would be slightly negatively geared to start with. Its a great conservative invest, but since your rough borrowing power should be around the 600k mark off stated incomes .. its nowhere near gearing to a maximum benefit. Of course like all investment possibilities its how u gear it that matters. But running it together with a 25k pa lease isnt too bad a starter folio.
Option 2
Its now your house .. and you are going to be living in it. Its also based on a reliance of both your incomes for the period of the loan, barring any fractures in relationships. So its a full dunk into maxxing your borrowing to gear it as the best that u can purchase. BUT YOU ARE PAYING BIG FROM YOUR BACK POCKET. So this leaves you with a total reliance on a framework of interest rate stabililty (DONT GO VARIABLE ON A HOME LOAN) and the possibility that in a downturn you dont lose your valued deposit due to a slimming down in house prices. Why do i mention both of these? BOTH or EITHER are likely within the next 24 months.
You'll work out what situation is best for you. But neither a conservative investment OR a highly extended home PPR is a good investment strategy. The investment doesnt do enough, and the highly extended home locks your investment freedom for a LONG period of time.
Best of luck,
Hi Duckster, we have savings and the equity in our parent's house up to $300k to use as a deposit.
Xdrew, thanks for your comments. If we go with Option 1, we were planning on then purchasing a second property within a year. I understand your point on negative gearing though so you believe we'd be better to increase to $400k or $500k?
In regards to Option 2, there is no way we could buy a unit/house in Sydney in the suburbs we want to live for less than $500k. My parents have agreed to go halves in the mortgage repayments with us so this would allow for saving of excess funds to purchase an investment property. We also need to retain some savings as cash as we plan to start a family within 2 years which means the $96k salary will be unavailable during maternity leave.
It is all very confusing to know what to do. We dont mind being a little conservative as a starting point but also want to see some growth in future.
I hope Wicki my info was helpful.
My basic premise is that an investment property should be a means of future sustenance for your wellbeing. I think thats what most people gear it for in the long run anyway. So think of it this way, any money you make from your investment property (over and above interest payments) is money you will never have to work for again. So, to get to a decent wage income with your work, you probably sat thru hours of tests .. graduated with a cert saying how wonderful you were and then marketed TO WHAT YOU THOUGHT YOU WERE WORTH. And yet, you are prepared to compromise on an income you will pay yourself for the rest of your life. Sounds a bit like studying for 3 yrs for a drive-in position at McDonalds.
Make the loan repayment something you feel comfortable paying above and beyond the rental income from the investment property. On the 5% return basis .. a 300k property will return you 15k income, and a 500k property will return you 25k income. Ask yourself which is a better starting block for your long term future. 15k or 25k. Check with your accountant before your bank manager as to what strategy works best for you. Bank managers will not hesitate to say a yes regardless of whether its in your best interests.Whichever method you choose i wish you the best of luck,
Good reply xdrew.. I might add a good broker might be worthwhile . I would avoid bank lending managers as most of them are clueless when it comes to growing a portfolio (in my experience) they want to cross secure everyting and sell you everything under the sun. Dont trust them. A good broker with property investing experience themselves is the way to go. Happy to recommend one if you want.
Xdrew yes your comments make sense, thanks for your logic in my mess of confusion!
Sue, would love a recommendation for a broker. Sorry if I’m naive but do you mean a mortgage broker or more of a property advisor?
Hi Wicki
I take it Sue means a mortgage broker.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks Jamie. The mortgage brokers I’ve dealt with so far have only given advice on features of different loan products available, not investment strategies or where to start! So if anyone is able to assist with recommendation of a good one in Sydney eastern suburbs area it would be greatly appreciatedd
Hi Wickl
A good broker that deals with investors will understand investement strategies and will structure your finances correctly to help build your portfolio.
There are a few regular posters in this forum that offer these services. I'm not sure if any are based in Sydney. However, to quote someone else on the forum – these days location is not as important as finding a mortgage broker who understands your needs.
By using phone, email and fax it's quite easy to get things done – irrespective of where the client and broker are located.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Jamie M wrote:Hi WickiI take it Sue means a mortgage broker.
Cheers
Jamie
Hi Jamie yes mortgage broker is what I was referring to…
You must be logged in to reply to this topic. If you don't have an account, you can register here.
