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  • Profile photo of Chris89Chris89
    Participant
    @chris89
    Join Date: 2011
    Post Count: 49

    Hi Everyone!

    I am very new to the world of property investing, so new infact I haven't started nor bought a house, or even have the deposit.

    I am however, very keen to buy into the market as a PPOR within the next few years and then start an investment portfolio as soon as possible there after. I have started reading a book (I Buy Houses) but since reading these forums I have became quite confused, so if thats ok I have a few questions that I would like to ask you all.

    1) From what I have read, negative gearing is the way to go, however from the posts I have read here everyone says positive gearing is better? Is there a better and worse? Would I still be able to buy as many properties with positive gearing? As it is obviously going to take a longer period of time to buy a property am I correct?

    2) My yearly salary is about 54k, im thinking if I want to buy a house for 300k, I should have around 40-50k to be ready to buy? From what I have read, its possible to buy a property every 2 years with NG, seems a tad unrealisitic, would that be a fair assumption? Or is it quite achievable? I have done the maths in my head and it seems next to impossible.

    3) From what I've read, negative gearing seems the most appealing strategy to me, as I would be able to purchase more property at a faster rate, therefore have tax benefits and also in having more property be able to hold long term and sell for a lot more than I paid. I may be 100% incorrect with my assumptions and please tell me if I am, as im very very new to this, maybe to new to be making these statements haha.

    4) Is there any other forums, books or articles that I cld read to expand my knowledge? I was thinking of doing course in real estate / mortgage broker to learn more and be able to ave a better understanding when I go to purchase property. Is this a bad or good idea? Should I stick to books, forums and articles?

    I hope I haven't bored you with all my questions, and my apologies at my very very basic understanding of the game. I would love for anyone to point me in the right direction :)

    Thankyou very much!

    Chris

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Chris89 wrote:
    Hi Everyone!

    I am very new to the world of property investing, so new infact I haven't started nor bought a house, or even have the deposit.

    I am however, very keen to buy into the market as a PPOR within the next few years and then start an investment portfolio as soon as possible there after. I have started reading a book (I Buy Houses) but since reading these forums I have became quite confused, so if thats ok I have a few questions that I would like to ask you all.

    Hi Chris, welcome to the forum.

    Chris89 wrote:
    1) From what I have read, negative gearing is the way to go, however from the posts I have read here everyone says positive gearing is better? Is there a better and worse? Would I still be able to buy as many properties with positive gearing? As it is obviously going to take a longer period of time to buy a property am I correct?

    There's no wrong or right – it's a matter of different stokes for different folks. As a very generalised comment, negatively geared properties (which are generally in larger, metro settings) cost you money to hold but generally experience decent capital growth. On the flip side, positively geared properties (which are generally on the fringes of metro areas or within regional areas) add to your income but generally experience less capital growth. Please note – this is a huge generalisation and there are always exceptions to the rule.

    Chris89 wrote:
    2) My yearly salary is about 54k, im thinking if I want to buy a house for 300k, I should have around 40-50k to be ready to buy? From what I have read, its possible to buy a property every 2 years with NG, seems a tad unrealisitic, would that be a fair assumption? Or is it quite achievable? I have done the maths in my head and it seems next to impossible.

    For your first home, you could get away with a lower deposit. Depending on your state, there might be stamp duty concessions that make the purchase a lot cheaper. A 95% lend with mortgage insurance added on top means you only need a $15k deposit plus costs (remember, you'll also be eligible for the $7k FHOG as well).

    A couple of negatively geared properties will reduce your borrowing capacity. On your income, I'd be aiming for something close to neutrally/positively geared. 

    Chris89 wrote:
    3) From what I've read, negative gearing seems the most appealing strategy to me, as I would be able to purchase more property at a faster rate, therefore have tax benefits and also in having more property be able to hold long term and sell for a lot more than I paid. I may be 100% incorrect with my assumptions and please tell me if I am, as im very very new to this, maybe to new to be making these statements haha.

    As above, negatively geared properties on your income will reduce your borrowing capacity. I wouldn't have thought that this strategy would be best for you.

    Chris89 wrote:
    4) Is there any other forums, books or articles that I cld read to expand my knowledge? I was thinking of doing course in real estate / mortgage broker to learn more and be able to ave a better understanding when I go to purchase property. Is this a bad or good idea? Should I stick to books, forums and articles?

    Good books have been written by Lomas, Somers, Yardney, De Roos and Fitzgerald to name a few. I wouldn't bother with becoming an expert at everything (I'm talking about the REA and broking education) – instead, surround yourself with a team of professionals that are experts in their field.

    Chris89 wrote:
    I hope I haven't bored you with all my questions, and my apologies at my very very basic understanding of the game. I would love for anyone to point me in the right direction :)

    Not at all – and I hope you take the knowledge you gain and act upon it. All the best with the investing :)

    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 Heath WorkmanHeath Workman
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    @heath-workman
    Join Date: 2011
    Post Count: 13
    Chris89 wrote:
    From what I have read, negative gearing is the way to go, however from the posts I have read here everyone says positive gearing is better? Is there a better and worse? Would I still be able to buy as many properties with positive gearing? As it is obviously going to take a longer period of time to buy a property am I correct?

    I haven’t read I Buy Houses so I obviously can’t comment on the strategy it teaches but I would have said exactly the opposite and I believe most of the people on this forum would agree. You will be able to buy far MORE properties if you stay positively geared.

    A positively geared property means that the income generated from property (rent) is greater than the total holding costs (eg interest, coucil rates, insurance, maintenance) per year.There for you end up with more cash in your pocket than you would have had before the purchase.

    Negitive gearing is when the holding costs are more than the return so you end up loosing money week to week, some people are happy with this trade off due to growth in the value of the property and of course it has the added bonus of the tax benefits.

    So to wrap that up, if you negitively gear you will evenually max out and not be able to buy and more properties because the ones you already own and draining your pocket to much to service more debt, where as if you positively gear your servicability is basically limitless.

    There are more experience investors than me on this forum who will come and give their two cents soon too. :)

    Profile photo of Chris89Chris89
    Participant
    @chris89
    Join Date: 2011
    Post Count: 49

    Thankyou for your time Jamie, much appreciated :). I have a few more questions if thats ok?

    For my first property (PPOR) would a PI or IO loan be better? Should I look to shave as much as I can off the principal before buying an investment property? Or would it be better to pay the repayments and save the rest to purchase an IP to be neautrally/positively geared?

    Would it be a good aim / goal to buy an IP 2 to 3 years after I purchase my first home?

    What amount would I need to deposit on a 300k IP if I were to be neautrally geared and the rent being say 300pw? Would it be simply to the point of where my repayaments equalled the rent pw?

    My pay is likely to increase to the high tax bracket when I am ready to buy, would this put me in a position where negative gearing would be the best strategy? Is it the best strategy based solely on the tax benefits, or is there more to it?

    Thanks again :)

    Profile photo of Chris89Chris89
    Participant
    @chris89
    Join Date: 2011
    Post Count: 49
    Heath Workman wrote:
    Chris89 wrote:
    From what I have read, negative gearing is the way to go, however from the posts I have read here everyone says positive gearing is better? Is there a better and worse? Would I still be able to buy as many properties with positive gearing? As it is obviously going to take a longer period of time to buy a property am I correct?

    I haven't read I Buy Houses so I obviously can't comment on the strategy it teaches but I would have said exactly the opposite and I believe most of the people on this forum would agree. You will be able to buy far MORE properties if you stay positively geared. A positively geared property means that the income generated from property (rent) is greater than the total holding costs (eg interest, coucil rates, insurance, maintenance) per year.There for you end up with more cash in your pocket than you would have had before the purchase. Negitive gearing is when the holding costs are more than the return so you end up loosing money week to week, some people are happy with this trade off due to growth in the value of the property and of course it has the added bonus of the tax benefits. So to wrap that up, if you negitively gear you will evenually max out and not be able to buy and more properties because the ones you already own and draining your pocket to much to service more debt, where as if you positively gear your servicability is basically limitless. There are more experience investors than me on this forum who will come and give their two cents soon too. :)

    Thanks for the insight heath :).

    The reason I said that was because would it not mean I would need a saving of say 120-150k on a 300k property to be neautrally / positively geared? Therefore taking many years to achieve this, if im already paying off a PPOR?

    Please let me know if this understanding I have is completely wrong

    Profile photo of Heath WorkmanHeath Workman
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    @heath-workman
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    Quote:
    Thanks for the insight heath :).

    The reason I said that was because would it not mean I would need a saving of say 120-150k on a 300k property to be neautrally / positively geared? Therefore taking many years to achieve this, if im already paying off a PPOR?

    Please let me know if this understanding I have is completely wrong

    Oh yeah, I understand now, that makes good sense.
    Keep in mind there are other ways to create a postively geared property like buying a house in need of some TLC for a bargin price, renovating to increase the value and then renting it out at a price that achieves a positive cashflow effect.

    Profile photo of Chris89Chris89
    Participant
    @chris89
    Join Date: 2011
    Post Count: 49

    that is another good idea!

    It seems like a double edged sword, both have their advantages and disadvantages.

    The only way I would see it working is to basically pay off my PPOR and then save the amount to become neutrally / positively geared when I go to buy my IP. Which would many atleast 10 years before I am able to, atleast by myself.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Chris89 wrote:
    Thankyou for your time Jamie, much appreciated :). I have a few more questions if thats ok?

    No worries at all.

    Chris89 wrote:
    For my first property (PPOR) would a PI or IO loan be better? Should I look to shave as much as I can off the principal before buying an investment property? Or would it be better to pay the repayments and save the rest to purchase an IP to be neautrally/positively geared?

    I have a preference towards IO with an offset attached. Any spare savings gets put into the offset account which lowers the repayments. If you ever decide to move out of this property and convert it into an investment, you can withdraw the money from your offset, which boosts your loan back to it's original level – thereby maximising tax benefits.

    Chris89 wrote:
    Would it be a good aim / goal to buy an IP 2 to 3 years after I purchase my first home?

    Personally (and I stress – this is my personal opinion), I'd aim to be more aggressive. Look at buying something that you can add value to. This way, you create equity. This newly created equity can be accessed to purchase your first investment property. This way you don't have to wait a few years for the property to increase in value. However, your income at the time will play a major role in whether the bank will actually lend you money for your first investment.

    Chris89 wrote:
    What amount would I need to deposit on a 300k IP if I were to be neautrally geared and the rent being say 300pw? Would it be simply to the point of where my repayaments equalled the rent pw?

    The minimum deposit is 5% plus purchasing costs (keeping in mind that you may be able to take advantage of stamp duty concessions dependent on the state you live. You'll also receive the $7k FHOG). In terms of how much rent you require to make it neutral/positive, try this spreadsheet – http://www.passgo.com.au/pass-go-investment-property-analysis-tool

    Chris89 wrote:
    My pay is likely to increase to the high tax bracket when I am ready to buy, would this put me in a position where negative gearing would be the best strategy? Is it the best strategy based solely on the tax benefits, or is there more to it?

    Investing purely to minimise tax is not a good strategy. Think about it – you have to make a loss in order to reduce your taxable income. That said, there is absolutely nothing wrong with negatively geared properties providing you suspect that the capital growth they achieve outweighs the ongoing costs of holding the property.

    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 Chris89Chris89
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    @chris89
    Join Date: 2011
    Post Count: 49

    If I had an IO, am I paying more interest then I would be on P & I?

    Would it be more beneficial to me to just have the 5% deposit rather than save for 10%?  is the mortgage insurance much different between the two? I guess what im asking is, is it worth saving for 10% deposit to save on mortgage insurance?

    This is why I said about negative gearing, I have always had an agressive mind set. I want things to happen now rather than later. Would u be paying as much of your PPOR off as possible, whilst the equity goes up then buy an IP? This would be my logic, please correct me if im wrong.

    I agree with you on it not being a good strategy, it does not make sense.

    My apologies for being a newb, but im very keen on trying to get my head around this so I can jump into the market.

    btw, im  based in Melbourne.

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

    Hi again

    A 5% deposit means you spend less time saving for a deposit – which means you can enter the market sooner. It will cost more in lenders mortgage insurance, but some lenders will allow you to add it to the loan.

    Personally, I don't have an issue with paying mortgage insurance. It allows me to use more of the banks money rather than my own. Without it, I wouldn't have been able to build my portfolio (saving 20% for each property I purchased when starting out would have been way too burdensome).

    What are your plans with your first property? Do you suspect you may convert it into an investment property at some point? The reason I ask is because I see so many people who have paid down a significant portion of the principle on their home and then decide to turn it into an investment property and move into another home. The issue here is that they're generally left with a small loan on the investment property (which is tax deductible) and a large loan on their new home (which isn't deductible). There are ways around this – but they are generally costly.

    Don't apologise for being a newb! Your questions are valid and unless you ask them you'll never know.

    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 Chris89Chris89
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    @chris89
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    Post Count: 49

    I would definitly be converting it to an IP, I plan to spend no more then 300k on my first property. I have a much more expensive idea for the home I would like to live in down the track.

    So it would be better for me, knowing I will convert to an IP to get an IO loan and pay the minimum repayments and pay into an offset account? Which I could then move around to any property I buy yes?

    Would you be able to explain to me what situations would benefit getting an IO loan a and a principal & Interest?

    With an IO loan, do I pay the same amount of interest as I would on P&I or is it the same?

     

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    If it's going to become an investment property in the future then (and again, my opinion) I'd take out a high LVR loan – either 90% or 95% with IO and offset. When converted to an IP, take all of the cash out of the offset and move it onto your home.

    With a P&I loan, the interest repayments will reduce as the principle slowly erodes. However, if this property is turning into an IP in the future, you don't want to erode the principle (as it reduces the loan amount which will become tax deducted once this becomes an IP).

    Hope that helps.

    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 Chris89Chris89
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    @chris89
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    Very smart man Jamie, that makes sense. Thankyou so much :)

    I will keep reading my books and use any resource I can and hopefully have a great understanding on everything to make the jump into the market.

    Thanks again :)

    Profile photo of Chris89Chris89
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    Sorry, I have one other question to finish.

    Is the idea to keep the IO loan on the IP until I sell in say 20 years? Or would you change to pay it off? Or is the aim to only pay off when u sell down the track

    Profile photo of Jamie MooreJamie Moore
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    You're welcome Chris – any time.

    With those books, scope out ebay and your local library. No point paying retail when you've got a deposit to save for :)

    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 Chris89Chris89
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    @chris89
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    Sorry Jamie, would you also mind answering the above question from your comment, it would give me a lot better grasp of the idea.

    Profile photo of Jamie MooreJamie Moore
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    Haha – we should have just skyped :)

    For me, I have every intention of leaving my IP loans as IO until I sell up – which will be many, many years away. The idea is that by that point, the properties have gone up in value whilst the loan has remained at the same level (which in 20 or 30 years time should be a relatively insignificant amount).

    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 Chris89Chris89
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    @chris89
    Join Date: 2011
    Post Count: 49

    I assumed that :) thanks heaps mate!! You have help me very much.

    And yes, we should have skyped haha!

    Thanks for your time and reacting well to the million and one questions I put on the table :P

    Profile photo of ScottsdaleScottsdale
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    @scottsdale
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    Post Count: 63

    Hi Chris,

    Just finished reading Michael Yardney's book 'What Every Property Investor Needs To Know About Finance, Tax and the Law' and it pretty much covers all the questions you asked. I highly recommend buying it as it would definitely be an invaluable learning tool for grasping the fundamentals of property investing. It's also written in plain English so quite an easy read too.

    After reading McKnight's books, I was all set to hunt for postively geared properties only but when I finished reading Yardney's book and grasping the concept of how negative gearing can really help accelerate your rate of acquiring IP's, I will be implementing this method into my PI business strategy.

    As Jamie said, there are more creative ways that can also help gain equity over a short period of time. Nathan Birch seems to be a master of this, check out his Youtube channel for some impressive reno's and figures. He's still making massive profits and creating positively geared IP's when many people believe this has become exceptionally difficult due to the current market conditions.

    Regards,
    Derek

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Derek makes a good point, it's important to read widely – each author will have a different point of view from the next. I'd also check out some Margaret Lomas books as well. I think Nathan Birch will have a book out soon as well – that will be one to add to the list.

    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]

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