Hi, my name is Rob and was I hoping that some of you might be able to help me out. I have only been researching the world of property investing for the past few months. I came across this forum and read one of Steve’s books and feel this is the right place to get some direction.
I am 32 and currently live with my partner in a 1 bedroom apartment in Hawthorn. She is 27, from Europe and has been living in Melbourne for 1.5 years with me. We are waiting on a defacto VISA that we applied for in January 2014. We plan on buying a house together later this year as a PPOR and then start to build a property investing portfolio.
Below is some basic information about finances:
I am currently earning approximately $100000 a year as an electrician in a very stable job. My partner is earning $50000 a year on a 12 month contract possibly ongoing. Our income is expected to rise yearly. We have become accustomed to living off just my salary as an apprentice and 1st year tradesman but now I am earning more and my partner only recently got her new job. We have savings of only $10000 as we have been paying down the mortgage on the apartment. With our increased income we want to set ourselves up for life
I am currently paying the mortgage off on the apartment we are living in. We have paid down the mortgage to $102000 owing to the bank. (I know that this is a mistake if we want to rent it out in the future. I set up the basic variable home loan with no offset when I was 27 as I didn’t know what I was doing). The apartment above mine sold for $370000 about 2 months ago and it’s very similar to mine. I’m in a block of 100 apartments. Apartments in my building are renting for $380 a week. The body corporate is large at $3600 annually.
We have recently started looking for a house/town house/villa in Cheltenham/Mentone/Bentleigh East. We are looking to spend about $650000. We would possibly like to rent this out in the future after we do it up but would plan to live in it for a minimum of 7 years.
I have recently been to a mortgage broker and he recommended that we keep the apartment borrow equity from there to use as a deposit for our new home and rent out the apartment. I am not sure this is the best idea as there has been very minimal capital gain from this apartment in the past 5 years. On top of that only $102000 left on the loan is tax deductible.
Would it be better to sell this apartment, buy a house to live in then use any extra we have to invest in something smaller (eg a cheap positive property in New Zealand)?
Any ideas someone has to point us in the right direction would be really appreciated. I think I need to see an accountant that specializes in property but not sure. Thanks again and sorry about the long post as I feel I have to get it all out.Hi Rob,
Welcome, and well done. You already appear to have a chunk of equity – that is a good start for someone of your age.Right now is the right time to identify your goals, thus your direction. Keep on reading, especially stories on here of what others are doing, who they are seeing, and how they are charting their course. While doing tht, ask yourself a bunch of questions – e.g. :-
1. Would you be prepared to stay in your current apartment for another xx years if necessary?
2. Do you have plans of starting a family, which could have you lose (or lower) one wage?
3. Are you a handyman – do you enjoy doing reno work?
4. Would you consider creating equity in other ways – e.g. developments (subdividing blocks, or rebuilding after demolition of older homes)?
5. When considering “positive vs negative geared”, take advice on long-term effects of such a path. It may be better to concentrate on equity building now, and create/purchase positive geared IPs later – or vice versa. This is where taking advice from others with real knowledge can set you on the right path (e.g. a MB or FP with “runs on the board” and a wealth of exdperience). What may be right for others may not be right for you.You mentioned having an apartment with just $100k owing on it. You seem concerned that it has been paid down, thus not an ideal Rental (with less Tax deductions) and yet you mention buying positive geared in the future (which will also have less/no Tax deductions). As you can see, determining just WHAT is needed now to get you to your goal is paramount.
One good reason to SELL your apartment might be to enjoy CGT exemption, and liberate a huge chunk of cash. That can then be applied to whatever becomes your “next step” (buy a PPOR, or an IP – or both?) But then, there may well be good reasons to KEEP it.
For now, I’d say – keep on reading, thinking, and taking advice all around this subject. Meet up with other investors at “Meetups” that occur around the country. Discuss your family needs with your partner, and identify what your goals are. Once you know just where you want to be, plan the basic steps to get you there. Read some good books too – Steve’s books put in a lot of “numbers” that help to understand how IP investing works.
I learned how to use Excel prior to my first purchase and, following almost a year of free seminars, meetings, reading, and spread-sheeting, I had built up my knowledge to the point that I went into purchases CONFIDENTLY, knowing that I now had good knowledge of many of the early tripwires, and could avoid them. That, along with having a number of people with whom I could discuss any problems or plans, helped me immensely in my early days.
Again, welcome Rob. Get on this horse and ride it home (wherever that is for you). It is a sweet ride – mostly….. And in case you haven’t yet seen it, do check out this link for starters,
https://www.propertyinvesting.com/forums/general-property/4349450
Benny
Hi Rob,
Well done having the discipline in paying the PPoR debt down. As you’re still in 2 minds on what to do with the unit I would stop paying the principal down ASAP and set up an offset account if possible so if it does become an IP you haven’t reduced too much more of your principal.
Benny made some good points above – you can sell your apartment without CGT so then you will have that cash which would could use to leverage several properties.
Take a step back – if you were looking at your apartment now to buy as an investment, would you?
What’s your end goal? If it’s to buy properties as quickly as possible then do you need to buy and move into the $650k house in the burbs sooner rather than later? If you continue living in the apartment for a few more years then you could still draw on the equity and use that to fund deposits on investment properties which would then maximise your tax deductions a bit more as well as setting up your portfolio.
You’re definitely on the right track though. You just need to firm up your plan and your goals and like you alluded to – get a team of experts around you that can guide you with your journey. And read. Read as much as you can. I find forums likes these to be an amazing source of knowledge.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Thanks for the replys!
Benny, cheers. I understand that I could hold onto the apartment and that it will be positive but I think I’ll have to hold too much money in it. I think there are better investments out there where I can use less capital to keep it positive. Thanks for your advice, I will continue to read, calculate and research.
Kinetic, thanks. We stopped paying down the current loan about a month ago when we found out that important information. I really believe that there are better investments out there than this apartment. It has been great for lifestyle but there are better numbers in other properties the more I investigate. My partner definitely wants to move closer to the beach and where we can have a back yard for a dog.
I understand that I could hold onto the apartment and that it will be positive but I think I’ll have to hold too much money in it.
True, but then you can borrow against its Equity to become the Deposit on another IP (making the extra Loan deductible) and/or take equity to buy a PPOR. Whatever you choose, it is great to have so much choice !!!
Rock on,
BennyHi Bobby
I agree with what has been mentioned above. It would be best to first define the goal. Only then can it be determined how to step closer to your goal.
Is the goal to collect properties?
Is the goal to end up with a certain income per month without attending a job? If so, what is the $ per month goal?
Is the goal to have fun renovating because it is your favourite hobby irrespective of whether it pays its way?I suspect item 2 above is the goal?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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