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  • Profile photo of hawko79hawko79
    Member
    @hawko79
    Join Date: 2011
    Post Count: 5

    Hi everyone,

    I an a newbie to this site and have been reading the forums over the last week. I'm based in Melbourne.

    I'm in a very fortunate position of having $500k sitting in the bank at the moment (I inherited a property and sold it last year). I was overseas for 2 years and have just come back home and ready to settle for the long term and think about investing into property etc. At the moment I don't have a job but hopefully will get one soon.

    I'm not sure where to start off.

    1. Should I buy a PPOR first in an area I want to live before investing?

    2. Am I eligible for the FHOG even though I have inherited a property in the past?

    3. Should I focus on smaller purchases (eg. in rural areas) to begin with?

    I know some of my questions may have been answered in other threads, but I appreciate your help.

    Thanks a lot.

    Profile photo of ScottsdaleScottsdale
    Participant
    @scottsdale
    Join Date: 2011
    Post Count: 63

    Good afternoon Hawko,

    It's great that you're thinking of using the money to invest in property. Personally, I would (and have) put such a large sum of money in a term deposit at the best rate for a year or so and use that time to learn as much as possible about investing in property. There's many books, forums and seminars out there that would easily fill up your time. By then you'll be far more educated and be able to make better informed decisions regarding your strategy, structuring your finances etc. Also, the interest by the end of the year on the TD would be enough to put a deposit down for a house. Thank you bank!

    1. If you're single and don't have a job, I think renting a room may be a better option and use the money to buy IP's instead. Negative gearing will slowly drain your bank account as you don't have any money coming in. Of course if you do get a job and earn a high income, there are tax benefits associated with NG'ing your PPOR. There was a thread created on here about renting vs buying a PPOR but couldn't find it.

    2. If you haven't bought a house in Aus before then you are eligible for FHOG but the inheritance being a property may affect this. Was the house in Aus?
    Check out the discussion on Somersoft- http://www.somersoft.com/forums/archive/index.php/t-31168.html

    3. Starting small is always a good idea as it will give you an idea of what goes on before, during and after buying a property and  mitigates risk associated with larger deals in capital cities. It's a lot of work and requires a lot of effort. It also depends on  what your portfolio strategy is and what outcome you are looking for from property investing. Buying rural may produce neutral or positive cashflow (especially as you can put down larger deposits) but historically, it is slow to gain much CG. There are also reno's, flips, vendor financing etc that are good ways to get into the proeprty market and these can be done in any market.

    I would highly recommend any books by Steve McKnight, Michael Yardney, Dolph DeRoos and Margaret Lomas just to get you started. And of course, reading through websites like this on a daily basis helps greatly.

    https://www.propertyinvesting.com/forums/property-investing/help-needed/4337228?highlight=rent%2Cvs%2Cbuy

    Best of luck with the future decisions,

    Derek

    Profile photo of xdrewxdrew
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    @xdrew
    Join Date: 2010
    Post Count: 479

    Hawko,

    It all really depends on your current job situation. With a half million inheritance and NO income schedule .. i'd suggest making the next step to be an income producing property. It would leave you with a situation where you can quote to a potential lender a fully owned (or near fully owned) asset, and a residual income that you can use for your next property purchase.

    The next question is really proportionate to your age. If you are a young FHOG who thinks he'll be earning well for the next 5-8 years, go strong into something that is a decent property to live in (if you feel thats where u want to be). On the other hand .. with a decent job .. you get extended leverage on what you can possibly get. So your half million can probably get you an ongoing steady passive income of about 40k – 50k from a 900k + investment if you purchase right. With a passive income at that level, anything you actually earn from a job is a bonus. Five or six years down the track your whole loan/  equity scenario will have changed and you can approach the banks for your next step (whatever that may be).

    Historically, owning your home is a money dunk. It means you DONT have someone paying off your property you are paying the full amount to keep your loan suppliers happy, you pay usually till the loan is down to acceptable levels (anything up to 15 years) and you've provided wear and tear in the meantime for the house. Not usually a good invest strategy. But hey you get the full benefits of PPOR (now) so your money invested is CGT free. Even so .. its not a winning strategy in the long term. Its a long term money invest .. HOPING for the potential of capital gains to offset your maximum money spent.

    Rural areas are for people who have either a built up knowledge of the area, or are just seeking income vs capital returns. Historically the returns have been good and the capital growth poor. I dont think with trends the way they are that situation will change in the near future barring any major events to change that. But take a look for yourself, dont just go on anyone (including me) for your opinion.
     
    In the long term any of your decisions need to be made not on what other people will tell you but your own best judgement. Like a swimming pool .. dip your toes in the water before you jump in. Get familiar with your market and expectations before you find yourself holding a dud because you didnt do your homework.

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Agree with xdrew here…with no job- you best to go for IP first — produce rent ie around $15k-20k per year..and can be used as ur “job income” for your next purchase the PPOR OR IP 2…

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of hawko79hawko79
    Member
    @hawko79
    Join Date: 2011
    Post Count: 5

    HI again,

    Thanks a lot for the detailed responses. To answer some of the above questions:

    At the moment, I'd be able to get $45-50k from a job. I'm not worried about employment prospects as I believe I'll be able to get a job sooner rather than later.

    I guess my reasons for suggesting rural vs Melbourne were the property prices. I guess I would feel more comfortable with 2 x 250k properties vs 1 x 500k property, kind of like spreading the risk. Also, for CG, would you recommend a house as opposed to an apartment/unit?

    I assume I cant borrow any money to buy at the moment without a job, so would you think that its better that I find a full time job first and then get a loan from the bank to purchase an IP. Do I need a full time job for a long time before the banks will lend me money?

    I know there are a few obvious questions in my response, but I just want to make sure that I am thinking on the right track.

    Thanks again.

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Get job first then buy..that why u can lavage more from the bank; rather then using all ur cash.

    In regards to the rual VS inner—it’s a personal choice and depends on your overall financial “plan”…i have personal have only invested in Inner city and have 6 good foundation property all with good capital growth ( all within 1-30km of CBD)…VS my older sister who has 17 properties but mostly located in the rural regions ( 30-100km CBD) —- one has good rental one has good capital growth.

    Never hurts to have a mix of both; but i say for ur first property get a good “foundation ” property that you can keep on leverage against ( ie a capital growth property- established area)

    Generally speaking House alwasy brings more CG then units- CG comes from Demand ( land) , location and gentrification.

    P.s you can stil get a loan based on your “rental” income – just not a LARGE loan…

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of hawko79hawko79
    Member
    @hawko79
    Join Date: 2011
    Post Count: 5

    Hi Shape,

    Thanks for your response. If I decide to buy a house I'd want to try and get the FHOG. I'd live in it for 6 months then rent it out. Therefore it would be best if I could get a loan for most of the purchase price so I can claim the interest deductions instead of using my own cash to purchase it.

    Sorry if I am stating the obvious, just want to confirm that I am on the right track.

    Thanks again, much appreciated.

    Regards,
    Matt

    Profile photo of Tracey BTracey B
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    @tracey-b
    Join Date: 2009
    Post Count: 158

    Hi Matt
    Nice $ position you find yourself in!  I think the decision about PPOR or IP is a personal one it's not up to me to tell you what to do.

    Re what/where to buy – why not consider using say half of the money as a deposit towards a small block of units.  If you buy some with decent returns you will be cashflow positive and the lender will include the income from them in your servicing capacity? And they'd put money in your pocket each week. :-)
    Personally I like units because it reduces the risk of vacancy – we're not likely to have them all empty at once.  Then there's the benefit of strataing and selling them individually in the future.
    Keep doing your research – there's a mountain of information on this forum and also on other websites.
    Cheers,
    Tracey

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099
    hawko79 wrote:
    Hi Shape,

    Thanks for your response. If I decide to buy a house I'd want to try and get the FHOG. I'd live in it for 6 months then rent it out. Therefore it would be best if I could get a loan for most of the purchase price so I can claim the interest deductions instead of using my own cash to purchase it.

    Sorry if I am stating the obvious, just want to confirm that I am on the right track.

    Thanks again, much appreciated.

    Regards,
    Matt

    I dont know which state your in…but my ans will be based on NSW.

    That’s true get the PPOR for the FHOG- but really in affect doing it this way your only saving the $7,000 and buying the PPOR the bank will NOT lend you anything ( ie no income/ rent to support the mortgage) ; however down the track when you do get a job…you could release some equity. refinance to borrow the funds then.

    If you bought an INV first then PPOR- you could borrow the funds based on the rent ( not much i have to say as well) and yes you will not get the FHOG benefits…but you will still be entitled to the no stamp duty ( $500,000) when u do buy your PPOR…but lose out on the $7 benefit.

    Of course if you got a job; this would be a diff story.

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Friggen helll! $500,000 cash.

    I would immediately take some legal advice on asset protection. Possibly gift it to a discretionary trust and then take a loan back from the trust to invest the money, or buy a PPOR etc.

    Later on if you were to get sued, for eg, then the money would be still repayable to the trust.

    This would also help with tax. eg you pay cash for a PPOR using borrowed trust money at nil interest for the first x years, variable rates, and then move out, the loan could revert to 7% and the whole interest on the loan deductible.

    Many things to consider before you start to consider investing.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Mick CMick C
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    @shape
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    Terryw wrote:
    Friggen helll! $500,000 cash.

    I would immediately take some legal advice on asset protection. Possibly gift it to a discretionary trust and then take a loan back from the trust to invest the money, or buy a PPOR etc.

    Later on if you were to get sued, for eg, then the money would be still repayable to the trust.

    This would also help with tax. eg you pay cash for a PPOR using borrowed trust money at nil interest for the first x years, variable rates, and then move out, the loan could revert to 7% and the whole interest on the loan deductible.

    Many things to consider before you start to consider investing.

    From a true voice of a good lawyer ahha

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of TerrywTerryw
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    @terryw
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    The first thing lawyers think of is covering their arses. The second thing is covering the client's arse!

    Another thing to consider is future relationship break downs (a trust may not help in this regard, but could). And, if Hawko dies then attacks on his estate, family provision claims etc. Having the money in a trust can assist in keeping it out of reach.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
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    @terryw
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    Hawko,

    It is a pity you didn't get some legal advice as you may have been able to setup a post death testametnary trust and transfered the money to the trust. Any income from this trust fund could have had large tax advantages and asset protection advantages.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
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    @terryw
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    Actually it may still be possible if the deceased you inherited from died less than 3 years ago.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of mahdeen18mahdeen18
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    @mahdeen18
    Join Date: 2004
    Post Count: 13

    Get a job first, you will need to wait 3 months to clear the probationary period before a bank will give you a loan based on your income.

    It is imperative you educate yourself about all the options available to you and work out what is the best strategy for your needs/desired outcomes.

    You can get some serious leverage off $500K and if you set yourself up right to start with you can create a fantastic portfolio. Get some books mentioned by the authors above and also check this site out. They will post you a free copy of their book. http://www.yourempire.com.au/

    Another option I would recommend for education is RESULTS mentoring. Their 12 month program has just started on the 1st July so it won’t be too late to join if you were interested. It’s a very thorough mentor-based education program that covers all aspects of property investing.
    http://www.resultsmentoring.com/

    Good luck!

    Profile photo of hawko79hawko79
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    @hawko79
    Join Date: 2011
    Post Count: 5

    Hi everyone,

    Thanks for your help. I've just got myself a job (started this week), wages aren't great ($45k) but its a start as I was teaching English overseas for the last 2 years.

    Been reading API and almost finished "0 to 130 properties" by Steve McKnight. I'm nearing the end of the book, but I found an interesting part that said that you should buy commercial property (debt free) when you have enough cash to do so (which I do at the moment).

    What do you guys think I should be looking to do? I was thinking of starting out small (ie, +ve cashflow property most likely in regional area) and then working my way upward.

    Thanks again for your help, much appreciated.

    Profile photo of TerrywTerryw
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    @terryw
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    I think you should get some proper advice first.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099
    hawko79 wrote:
    Hi everyone,

    Thanks for your help. I've just got myself a job (started this week), wages aren't great ($45k) but its a start as I was teaching English overseas for the last 2 years.

    Been reading API and almost finished "0 to 130 properties" by Steve McKnight. I'm nearing the end of the book, but I found an interesting part that said that you should buy commercial property (debt free) when you have enough cash to do so (which I do at the moment).

    What do you guys think I should be looking to do? I was thinking of starting out small (ie, +ve cashflow property most likely in regional area) and then working my way upward.

    Thanks again for your help, much appreciated.

    Congrate on the job.

    Even though the salary is not great; the bank will still lend you a certain amount– the short fall will jsut come from your own pocket.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of Josh AthertonJosh Atherton
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    @josh-atherton
    Join Date: 2011
    Post Count: 269
    Terryw wrote:
    I think you should get some proper advice first.

    I agree with Terry here, there are so many options in the property world, and in fact so many people with different opinions as there are so many ways to make money in property. There are safe ways, there are risky ways and there are ways in between. Its hard to even recommend who to see, I know a financial advisor or planner would state the obvious but even then you are facing a biased point of view if you get the wrong one. Also if you ask the wrong person about something they don’t know eg a structure or area lets say, then quite often they will dismiss the idea without giving it any thought.

    This is how I work when it comes to property, and I stress I am in no way giving advice here. I look where I WANT to be in 20 years (long way I know), then I break that down to where i NEED to be in 15 years to achieve that 20 year goal (although in 20 years a lot can change I know also). From there I break down what I NEED and where I NEED to be to get what I WANT right down to today.

    However in saying this, I found it easier said than done initially. It took me a number of years to get the ball rolling smoothly. It doesn’t take everyone that long maybe I’m just a slow learner (You’ll see Nathan Birch got the feel of his model fairly quickly). Any property advised based person can help you “map” out a strategy, I do with (not for) my clients and so do many others. However each person is going to make that map relevant to what they know, and in a some cases to what benefits them also. I think at this stage there is no right or wrong answer for you, seek AS MUCH advise as possible, decipher what you want or need to, work out what and where you’re comfortable with, and pick what YOU think will grow and will help your strategy.

    Hope this helps you,

    Profile photo of wisepearlwisepearl
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    @wisepearl
    Join Date: 2009
    Post Count: 264
    Terryw wrote:
    I think you should get some proper advice first.

    I liked a much earlier comment about a term deposit whilst researching, and Terry's multiple comments about seeing the right professionals.

    I think you're in such a fantastic position having that lump-sum cash, so take the time to educate yourself on how to most successfully invest your money to achieve your personal goals. If the money is not already sitting in a high interest account, the first thing I would do is deposit the lot into perhaps a 6 month term deposit at a great interest rate. Then book yourself in with a good financial planner, and accountant. Start talking to the experts (and yes it will cost you money, but its all worthwhile for the tailored, professional advice) and work on a plan that suits your goals. Might as well have your money earning top interest while you're preparing your path for investment. Also it does appear that the majority of property markets are reasonably flat at the moment, so you wont be missing out on large capital gains over a 6 month period.

    Also a popular theme mentioned in investing books is about delayed gratification and if you can live frugally for a while, you can reap the benefits later. so perhaps consider renting/sharing and focussing on investments for now… FHOG benefits vary from state to state, and also in some states if you buy just for IP this doesn't mean you are ineligible for FHOG for a PPOR in the future.

    But I'd pay a lot of attention to Terry's posts and not spend a cent of your income without some professional advice, and getting it set up in the right structures from day 1.

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