Hi there,
Just a little info on our situation… We are paying $900 a week off our mortgage which has $279,000 left. I would like to start buying investment properites but not sure the best way to go about it. At this rate our house will be paid off in around 7 years. Although if we start investing, we'd drop the repayments to $650 or so a week.
I've searched lots of apartments/studios in the Melbourne CBD/Docklands but all of them seem to be Serviced apartments and reading the reviews on here we should definitely steer clear of them. We would be looking moreso at the long term benefits which are that they are cheap to purchase, good rental income (main objective) but the negative is the growth isn't great.
Not sure of the logic, but if we were interested in long term and one day having 4,5,6 of these and living of the rental income – is this a good idea or are we still better off staying away from them and investing in either actually apartments or houses? I live in the outer west where property is cheap, should i consider that or places closer to the city?
Hope this all makes sense and you peeps can help, cheers!
Hi brmiau
I'm sure there are investors out there who have done ok out of serviced apartments – I just haven't met any yet.
Personally, I'd avoid them. You normally need a large deposit to finance them, long term growth is very minimal and the cashflow is not normally as great as it appears once holding costs are taken into account.
With your current property – do you ever think it will become an IP? I only ask because you're doing a fantastic job with knocking this debt on the head – but if it ever turns into an IP later on you would have paid down a massive chunk of future deductible debt.
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]
G'Day Brmiau,
I would strongly recommend that you stay well clear of Serviced Apartments and Studios. I recently tried to help a client refinance his Serviced Apartment that he bought in 2007 for $700,000 and it has now been valued at $370,000. The cashflow is fantastic however the capital growth is extremely risky.
That aside finance is very difficult. You will find yourself feeling like a leper when it comes to finance.
There are some really good buys (houses) about 20km out of the Melbourne CBD.
What is your budget?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
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Thanks for the quick responses.
Jamie – No this property will never become an IP. The reason we are thinking about investment properties is once we've paid this house off, or near enough, we think we'll stay here for 25-30 years and have (hopefully) 4+ investment properties. Our other thought was we might pay it off, or near enough, then possibly move to a larger property on a couple of acres worth $800k+ and use the money from selling this house to help fund the move. But we are leaning towards staying in our current house.
Shahin – Wow thats a massive loss. The ones we were looking at are low $200k on Collins st or Flinders st. The one on Collins looks great but when I spoke to the agent, he said all expenses are paid but after 12 years, we are responsible for finding tennants. Which doesn't seem ideal. Our budget would be around the $250-300k mark. I hear off horror stories about renting out residential houses being trashed etc… so thats why we were learning towards apartments but not Serviced ones now.
Yes it was a huge loss. There was a 'fire sale' in one of the units in the complex. This meant that the valuation who certainly come back lower. This is just one of literally tons of risks associated with Serviced Apartments. Studios also fall into that category. Risk is only slightly lower. Re your comment about the horror stories, 2 points. Firstly, you are going to have more stable tenants renting a house than a studio. Secondly, that is why you need to ensure you have landlord insurance.
I would do a little more homework and see if I can grab myself a nice bargain a bit out of the CBD.
Apartments are not bad but be very careful of the strata.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
brmiau wrote:Thanks for the quick responses.Jamie – No this property will never become an IP. The reason we are thinking about investment properties is once we've paid this house off, or near enough, we think we'll stay here for 25-30 years and have (hopefully) 4+ investment properties. Our other thought was we might pay it off, or near enough, then possibly move to a larger property on a couple of acres worth $800k+ and use the money from selling this house to help fund the move. But we are leaning towards staying in our current house.
No worries at all.
In that case, there's no issue with paying down the principle. However, I'd still look to use the equity in your PPOR to fund your IPs though – that way you can maximise your tax deductions.
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]
brmiau wrote:, then possibly move to a larger property on a couple of acres worth $800k+ and use the money from selling this house to help fund the move.Nice plan – be aware that the zoning of the land can effect the amount a bank is prepared to lend on a property. If the land is zoned rural then some difficulties may occur.
Try and stick to resident or special rural zoned land if you can.
One of the resident brokers may clarify this for you.
Hi, I would also consider looking a investment properties interstate. You already own a property in Victoria, why not diversify?
As Jamie alluded to, with serviced apartments you need a large deposit to buy as lenders see them as a higher risk than normal residential security.
That means if you are looking at multiple investment properties down the track, you either need a lot of cash or access to equity to purchase.
Personally I think the Docklands is oversaturated with apartments, which doesn't lead to great growth. Greater opportunities elsewhere. You said you were from the outer west, what do you think of Sunshine out that neck of the woods?
Cheers
Tom
You have to make your money work for you buying serviced apartments will not help you. In fact if you are losing money on property unless there is strong capital growth you are wasting your money.
If you only spend $400,000 and one grows at 5% and the other grows at 10% and you are keeping the property for 20 years the difference between the 2 is around $80,000 per year for each year you own the property. So think about it could you live on $80,000 per year. The serviced apartments you are talking about will not grow at anything like 5% so do not waste your money.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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Thanks for all the comments.
I've done some more searching and there is quite a few houses/units for sale in the inner western suburbs – Essendon, Aberfeldie, Ascot Vale etc… It might be worth looking into them. Most are around the the $450,000k mark for 2/3 bedrooms, 1 bath and 1 carspace on small land.
We dont have $45k available in cash but we have $120k (ish) equity in our house.
I also read somewhere that if you plan to stay in your current home for a long time, its better to pay it off over the period of the loan and concentrate on putting excess money into IP's. Is that true?
Either way, I think we are going to need to talk to some professionals in person to get the ball rolling and all the info we need. Anyone know/recommend some good ones in Melbourne? Preferably CBD or North/West surburbs.
Cheers
brmiau wrote:I also read somewhere that if you plan to stay in your current home for a long time, its better to pay it off over the period of the loan and concentrate on putting excess money into IP's. Is that true?
Surplus money should always be directed to paying off non-deductible debt (your own home) rather than deductible debt on your IP.
Better yet if there is a chance you may move onto a new home in the future then excess cash should be placed in an offset account linked to your home rather than directly into teh loan itself.
brmiau wrote:Either way, I think we are going to need to talk to some professionals in person to get the ball rolling and all the info we need. Anyone know/recommend some good ones in Melbourne? Preferably CBD or North/West surburbs.
Cheers
No need to talk to them in person these days. Everything can be done via phone, fax and email. There are two great mortgage brokers on this site that many forum members have used, myself included, without ever meeting in person. At least you know they are just as passionate about property investing as most people on here and not just turning out loans for a paycheck.
-Nathan
nguli that is very true, a lot of things can be done through the internet and email now. I am very green and new to this game and dont really understand much so to talk to someone, even via phone, would be very beneficial for me. Even if its just to get my head around positive/negative gearing (I think I get the basics), whether or not to go princical and interest or interest only loans, the tax benefits, knowing when to buy more properties, how to setup the loans etc….
Well you have definitely come to the right place! Everyone on here is more than helpful! Best advice I can give is to educate yourself. All this can be done without going to expensive seminars and stuff like that. There are plenty of good books out there, you will find a few lists if you do a forum search of good books, also grab a copy or subscribe to one of the main property investor magazines.
-Nathan
I didn't realize Jamie had already commented on your post. Send him an email or give him a call and he will make sure all your loans are structured correctly for moving forward. He's a great mortgage broker.
-Nathan
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