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  • Profile photo of Charlie_BCharlie_B
    Participant
    @charlie_b
    Join Date: 2011
    Post Count: 12

    Hi everyone,
    I'm a newbie on this site and am enjoying reading about people's experiences here.

    I'm not yet an investor, but am just about ready to jump in the deep end. My situation is as follows:

    • Am 36yrs and married with 2 preschool aged kids
    • Husband is paying child support for 4 other children from his first marriage
    • I'm working part-time on a reasonable wage
    • Husband is working full-time on an average/reasonable wage
    • We are renting ourselves in Sydney and don't own any form of real estate or other investments
    • We have no debts
    • We have about $40 000 in cash at our disposal to invest

    My accountant has recently given me advice to purchase an IP in a regional area. I have thought about doing this over the last few years, but just didn't take any action as I was unsure whether we could afford it. I think that investing in property is going to be our best chance of being able to buy our PPOR in about 10 years time. I'm only just trying to wade through all the information there is on varying strategies, finance, rental yield, capital growth etc… I've just purchased the Residex Best Rent Report which is somewhat useful in narrowing my search.

    I'm trying to decide whether it's best to buy a small unit under $100 000 (a debt that I know we'll be able to service in the worst case scenario of extended vacancies, rent decline, interest rate rises etc….), or whether I should be looking at a better quality house that is around $300 000 but may be more attractive to tenants and buyers in the future.

    Any thoughts?

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Charlie

    Welcome to the forum.

    What’s stopping you from purchasing your PPOR first? $40k on a 95% lend will get you something just over the $400k mark (pending borrowing capacity, etc), or is that not enough to secure the type of property in the area you’d like to live?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I would be very wary of buying in a regional area.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of angelinsydneyangelinsydney
    Participant
    @angelinsydney
    Join Date: 2011
    Post Count: 270

    Hi charlie,

    I would tend to agree with Jamie on this.  I'm sure the money you're paying for rent can't be sneezed at — knowing the Sydney rental market.  If the mortgage repayment for the PPOR is the same as the rent, why not rent to yourself?

    I can almost see myself in you way back dinosaur years, although our circumstances weren't the same.  I can sense the same palpable desire to get ahead not only for yourself but for the kids.

    You will get there eventually. 

    Take care.

    Angel

    Profile photo of HassassinHassassin
    Member
    @hassassin
    Join Date: 2011
    Post Count: 15

    Hi Charlie,
    I would also agree with Jamie and Angelsinsydney. You could then look at using FHOG too (if applicable to you) and achieve what you want now, rather than having to wait 10 years for a PPOR. Unless of course your accountant is suggesting you get an IP for tax deductibility reasons? I guess it all depends on your financial situation. Perhaps ask your accountant why he/she recommends you to do this?
    All the best!

    Profile photo of Charlie_BCharlie_B
    Participant
    @charlie_b
    Join Date: 2011
    Post Count: 12

    Hi guys,
    Well….not a very encouraging read for me so far!!!!

    Jamie…the median house price where I'm living is $630 000. A bank wouldn't lend us this amount anyway and the repayments would be more than double our current rent. I'm not going to move out to Western Sydney where we could afford to buy just to say "we've bought our own place" when getting to work would be extremely difficult for me and we would be further away from family support. Our quality of life would substantially decrease.

    Hassassin…I think my accountant has suggested it because in his professional experience, he's seen people do best out of a property portfolio. Even in the hard times, people still need a place to live!

    Such a tough decision to be making. I want to do the right thing by my kids and try to do SOMETHING that will benefit them in the future too. I'm pretty frightened of screwing it up though and leaving ourselves in a worse position.

    ARRRGGGHHH!!!!!

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Charlie

    I presume you are currently renting in a pricey area!

    Where is your family support located?

    I see you have two PRESCHOOL aged children.  This suggests to me that for quite a few years (ie the entire duration of primary school) the children could share a room.  A room with a bunk bed if need be.  This means you could look at acquiring a two bedroom property with a view to adding a room or two later on when you have more cash.  So.  Why not consider a two bedroom house in an affordable suburb, that has – preferably, space in the backyard to add rooms, or if there is absolutely no other option, to add a second storey.  Keep in mind the cost of construction of a second storey will be higher than adding rooms at ground level.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Have you ever considered a Shared Equity style loan?

    You put in 10% of the purchase and borrow and pay interest on say 70% of the purchase price.
    An investor puts in say 20% and you share a percentage of the Capital Gain down the track when you eventually sell the property.

    In the meantime you get to live where you like and can afford although only end up paying a percentage of you would if you owned the full 100%.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Charlie_BCharlie_B
    Participant
    @charlie_b
    Join Date: 2011
    Post Count: 12

    JM – we're renting in Berowra. Family support is both in Lake Macquarie and the Nth Beaches. We're about 1/2 way from both. Your suggestion would be good (and we probably would have done it by now) if it wasn't for my stepchildren who come over every other weekend and 1/2 the school holidays. We still need to account for their presence in our home as well. Currently we have 2 children in one bedroom and 3 children in the other bedroom. By court order, neither he or his ex-wife are allowed to move any further away from each other which restricts our movements. This will be the case for about the next 10 years.

    Qlds007 – I haven't heard of such an arrangement before, but it's something I'd definitely love to investigate. How would one go about finding an investor though? I'd love to stay in the Berowra area for the time we're in Sydney.

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    From reading it seems you cannot afford to buy in your area, you do not want to move, so you will have to continue paying rent. I know a lot of people are a bit turned off by rural areas because I guess they see less oppurtunity or growth in there, which I guess is a fair assumption, but provided you purchase in a steady rural town that has some sort of population growth over the years, or at least something to keep people there, I would imagine you would be fine, at least not lose out on an investment. For example Tamworth amd Armidale has universities. Bear in mind a lot of people are suggesting that Sydney prices will take a correction in the next couple years so there may not be much growth in the Sydney market either.

    I am also looking into rural NSW for some positively geared property. Just something that can pay itself off with hardly any input from me and in 15 years or so, it is completely owned (I prefer to have a property paid outright rather than just always the bank owning it), without me having to put forward a dollar of my own money apart from the initial deposit.

    Below is an example of something you could easily do.

    http://www.realestate.com.au/property-house-nsw-tamworth-107250602

    Property for $130,000, with your deposit loan of about $95,000. Interest only that would be $555 a month in interest (7% IR). Currently receiving $210 a week in rent, $910 a month. So a gross profit of $355 a month. If you put it all towards paying down the interest and principal, would take around 15 years to pay it off, as I said before, without really putting much of your own money into it.

    Down the line you could always renovate, add rooms, sub-divide (was a decent amount of land), to increase some equity and then hopefully be able to purchase your PPOR in your desired area.

    Profile photo of Charlie_BCharlie_B
    Participant
    @charlie_b
    Join Date: 2011
    Post Count: 12
    streamlineinvesting wrote:
    From reading it seems you cannot afford to buy in your area, you do not want to move, so you will have to continue paying rent. I know a lot of people are a bit turned off by rural areas because I guess they see less oppurtunity or growth in there, which I guess is a fair assumption, but provided you purchase in a steady rural town that has some sort of population growth over the years, or at least something to keep people there, I would imagine you would be fine, at least not lose out on an investment. For example Tamworth amd Armidale has universities. Bear in mind a lot of people are suggesting that Sydney prices will take a correction in the next couple years so there may not be much growth in the Sydney market either.

    I am also looking into rural NSW for some positively geared property. Just something that can pay itself off with hardly any input from me and in 15 years or so, it is completely owned (I prefer to have a property paid outright rather than just always the bank owning it), without me having to put forward a dollar of my own money apart from the initial deposit.

    Below is an example of something you could easily do.

    http://www.realestate.com.au/property-house-nsw-tamworth-107250602

    Property for $130,000, with your deposit loan of about $95,000. Interest only that would be $555 a month in interest (7% IR). Currently receiving $210 a week in rent, $910 a month. So a gross profit of $355 a month. If you put it all towards paying down the interest and principal, would take around 15 years to pay it off, as I said before, without really putting much of your own money into it.

    Down the line you could always renovate, add rooms, sub-divide (was a decent amount of land), to increase some equity and then hopefully be able to purchase your PPOR in your desired area.

    This is the sort of thing my accountant was suggesting…getting something that is self-sustaining. He said that when we do eventually go to buy our own home, the banks will have more regard to us already having some property and able to service a loan rather than having invested in shares etc… Not sure how true this is, but it kinda makes some sense.

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    I was having a bit of a look at the numbers and comparing what sort of return you might need if you did invest in shares. Firstly the assumptions:

    * Interest Rate of 7.0%
    * Initial Net Rent of $610 a month (gross was $910)
    * Capital Appreciation of 2%
    * Rental Appreciation of 2%

    After 10 years, property value was $158,500. Principal still owing would be around $65,000. So value would be $93,500 after 10 years and a profit of $93,500 – $40,000 (initial investment) = $53,500.

    Obviously I have made a lot of assumptions but bare with me.

    Investing in shares a year on year net return of around 9% would be required, $40,000 x (109%)^10 = $94,600.

    I will be honest with you I do not know too much about shares. But that is the sort of return you would need to make shares viable. Also remember I did make a lot of assumptions in the property example, and used 66% of the gross income as the net income when maybe 50% would be more appropriate.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I would suggest this may not be a good investment.

    You should always work out the figures on the full amount of property and costs as this is what you will be paying. Because there is an opportunity cost of pulling the cash deposit from other investments.

    So based on $130,000 with, say $10,000 worth of buying costs = $140,000
    7% IO loan on this = $188 pw
    if you are getting $210 rent then you pay 8% to an agent and are left with $193 pw

    So you are left with $5 pw profit. This is before you pay rates, insurance, and the big one repairs – how happens if you need the hotwater system replaced? What about vacancy rates too.

    Usually this is made up for with capital gains, but, realistically how good would capital gains be in Tamworth? If there is 2% CG then there is no point in investing at all.

    The only way I would buy out of a capital city is if the property had some potential to sub-divide or add value somehow, or if you could buy dirt cheap and resell quickly.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    Sorry I made the mistake in my initial thing by not including capital gains in the property example. I guess the return for stocks would need to be GROSS returns of 9% not net returns.

    I do not think property is that bad in towns like Tamworth, most likely the capital gains may not rival big cities, but it does not mean they still cannot increase. I guess I just am very keen on positively geared property and since that is very difficult to find in large cities, unless of course you do get creative and sub-divide, add rooms, renovate etc etc. Whereas plenty of rural properties are positively geared without having to do anything.

    Profile photo of Charlie_BCharlie_B
    Participant
    @charlie_b
    Join Date: 2011
    Post Count: 12

    Thanks both streamlineinvesting and Terryw for your comments. it's all food for thought. I have an awful lot of research to do! I'm certainly not going to rush into anything without a clear view of the financial position I may put us in.

    I really value hearing everyone's views. At the end of the day….it all comes down to how much risk I'm willing to take and how much cash I have to put up. Can't buy what I can't afford right?

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Charlie_B wrote:
    This is the sort of thing my accountant was suggesting…getting something that is self-sustaining. He said that when we do eventually go to buy our own home, the banks will have more regard to us already having some property and able to service a loan rather than having invested in shares etc… Not sure how true this is, but it kinda makes some sense.

    Hi Charlie

    When it comes to buying your PPOR down the track, the bank will want to see you have a deposit (whether that be cash or equity from another property) and the ability to service the loan (and an impairment free credit file). Having owned a property isn’t going to put you in higher regard with them – they’ll simply look at it as another liability and the rent as another income.

    It can be handy, to a certain degree, if you’re sourcing finance for your second property with the same lender as your first – because certain features (such as 95% loans) which are often only available to existing bank customers (that’s for some banks) can, in my experience, be a little easier to get across the line.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of angelinsydneyangelinsydney
    Participant
    @angelinsydney
    Join Date: 2011
    Post Count: 270

    Hi Charlie_B,

    I sent you a private message, as you wondered where to find an investor angel.

    My proposal is slightly different but it will help you achieve your dream.

    Take care,

    Angel

    Profile photo of HassassinHassassin
    Member
    @hassassin
    Join Date: 2011
    Post Count: 15

    Hi Charlie_B,
    So if not for tax deductibility reasons then perhaps consider getting PPOR now. Like what Qlds007 said, there are certainly strategies you can use to borrow up to value of what you are looking at. Another strategy i’ve used is a family guarantee (used as an “investor”). Say your parents or someone in your family has equity in their home you can use a portion to secure a property. Obviously, doesn’t matter whether you do deals with family, friends or not, make sure to always have business agreements in place so everything is clear and above board. Have used and seen this strategy used with great success. Besides, its more fun doing deals with other people. You get to leverage your time and money so that everyone wins! I’m sure the finance gurus on this page may be able to assist in explaining more about this. All the best!

    Profile photo of number 8number 8
    Participant
    @number-8
    Join Date: 2010
    Post Count: 333

    Thinking out side the square, will loking at making the most capital gain for your children in future years. If it happens that you can not afford to buy, then continue to rent- that is the simple part.

    Why not make a non-consessional contribution to your Super fund, this will prop up the balance of the combined super balance of you and husband. Then purchase a property in a nice suburb. The risk of no tenant is reduced in that you have 9% contributions rolling through your fund from the SGC……. On retirement the profits are tax free….. After all you are investing to improve your nest egg and I could not imagine you selling the property in the short term. There is no schemes, scams or tricks required on this one, just simple math.

    http://www.birchcorp.com.au

    Profile photo of ajayayyarajayayyar
    Participant
    @ajayayyar
    Join Date: 2005
    Post Count: 176
    Charlie_B wrote:
    Hi everyone,
    I'm a newbie on this site and am enjoying reading about people's experiences here.

    I'm not yet an investor, but am just about ready to jump in the deep end. My situation is as follows:

    • Am 36yrs and married with 2 preschool aged kids
    • Husband is paying child support for 4 other children from his first marriage
    • I'm working part-time on a reasonable wage
    • Husband is working full-time on an average/reasonable wage
    • We are renting ourselves in Sydney and don't own any form of real estate or other investments
    • We have no debts
    • We have about $40 000 in cash at our disposal to invest

    My accountant has recently given me advice to purchase an IP in a regional area. I have thought about doing this over the last few years, but just didn't take any action as I was unsure whether we could afford it. I think that investing in property is going to be our best chance of being able to buy our PPOR in about 10 years time. I'm only just trying to wade through all the information there is on varying strategies, finance, rental yield, capital growth etc… I've just purchased the Residex Best Rent Report which is somewhat useful in narrowing my search.

    I'm trying to decide whether it's best to buy a small unit under $100 000 (a debt that I know we'll be able to service in the worst case scenario of extended vacancies, rent decline, interest rate rises etc….), or whether I should be looking at a better quality house that is around $300 000 but may be more attractive to tenants and buyers in the future.

    Any thoughts?

    Hi Charlie B,

    Welcome to the forums. 
    If you are looking at investing in regional areas, I would look at buying a house instead of a unit.  You can get something at roughly the price bracket you're after, and the advantage of a house is that it should have better capital appreciation potential.

    Regarding regional areas, I looked at 2 areas recently – Wagga and Tamworth.  I bought at Tamworth because I prefer the town, and found exactly what I was after.

    I think that a well-researched regional area is a good bet due to the following reasons –
    1. Lower prices and good rental returns.
    2. Government is starting to support regional areas more, and should give more infrastructure grants and assistance in these areas in the future.

    I would look at the investment as a long-term prospect (10 yrs+ timeframe) – capital cities are becoming quite populated and I am sure that regional areas will continue to grow as people look for additional alternatives for both work and housing.

    Cheers,
    Ajay

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