All Topics / Help Needed! / Help as im completely lost

Viewing 7 posts - 1 through 7 (of 7 total)
  • Profile photo of R scottR scott
    Participant
    @rsco
    Join Date: 2016
    Post Count: 3

    hi all, fantastic site! I can see myself spending many hrs reading through all the posts.
    I was wondering if any of you would be able to give me some advice, I love the idea of getting in to investment property’s but feel that I’m not 100% if its the right time or not. ill start by laying out what I have to work with and where id like to get to.

    so I’m 31, married with 3 school age kids, the house we live in is worth about $440K with a $240K loan on it, I am the sole income earner and clear $180k a year but it hasn’t been like this for long (1 year) the job i’d go back to pays about $60k a year but I plan on staying in this roll for about another year and a half, maybe 2. I have $80k in trust that I would be able to get if I really needed it, but I think my family would be really annoyed if I did have to take it.

    now for the other stuff, other then for work I haven’t left Victoria for 13 years and would really like to have a look at the world, so don’t want to be to bogged down if I can help it.
    also we would like to build a new place for us to live in, (lone of about $500k all done if we did place worth about 700k) but feel that it would be better to buy an investment first and see if we can still make it work after that. (the place we are in is only 10 years old)
    I would like to get to a place that the rent income is enough to live off while I semi retire at some stage in the next 30 years lol
    I am looking at 4, 1 bed room units, that I think I could get for about $440k and that are leased at $165 per week. I am also thinking I could just buy 2 of them but then its not as clean with all the body crop stuff.
    am I on the right path? or is there a better option?
    thanks for your help.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi @rsco,
    Welcome to Pi.com – sounds to me like you have come to the right place, going by the excitement that it seems to have generated inside you. And yes, there are lots of alternatives, and lots to think about.

    Seems you have lots of options too – all great, but then too many options can make choice difficult. This is an elephant that should be eaten slowly and carefully – don’t gorge and then lay down with a full belly. The path through from where you are is found by more reading (books, and websites like this one), going to seminars on property investing, meeting up and chatting with other investors, having inaugural discussions with Mortgage Brokers. You have a very good set of “numbers” that will make financing a breeze and give you even more choice !!

    As weeks go by, you will find that answers start to come naturally and the choice won’t seem so overwhelming.

    Keep posting here too – what you learn as you go will provide a guide for others who will one day be where you are now. Meanwhile, learn from others as they post THEIR results on here. One thread that has “turned on a light” for many is this one:-
    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977

    The “4 units” option sounds like it could be a goer – though the numbers aren’t brilliant, they seem good. But numbers are only the beginning – there are so many other things to consider. Perhaps use the units as an example to start working what “the numbers” tell you about the deal. Then think of other things that would make these a good deal, and the converse too. Find other posts that give you pointers on HOW these things are done.

    And yes, you ARE on the right path – the path that says “there are lots of possibilities out there, and they are out there for me and my family too – not just other people….” Keep on treading that path – and keep in touch,

    Benny

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

    Hi @rsco

    Righty-oh then let’s see if we can help you steer the ship !

    First and foremost, let’s address the idea of the units you mentioned.

    Based on the pricepoint and rental return I’ll assume the units you’re talking about are in a regional location. It’s really important to check on holding costs because councils and water authorities like to hit unit owners with big bills that are more in line with 5 bedroom homes. It can really chew into your rent money. For instance, a one bedroom unit will be slogged with the same service charges for water and sewage as a 5 bedroom home, despite the fact there is less showering, dishes-washing and toilet-flushing happening in the 1 bedroom dwelling than there would be in a fully occupied 5 bedroom home. In regional Victoria, the councils and water companies can issue rates per dwelling, even if the dwelling is not on its own title (for instance, a unit in a block of units that is not yet strata-titled). The water company can indeed also rate dwellings separately even if they do not have their own water meters. They can, and thus they do.

    Another thing to consider are whether it is possible to get residential finance for such a purchase. If the units are still all on the one title there will be very few lenders that will now do a 4-pack at residential loan rates. Commercial rates are more expensive.

    I personally wouldn’t acquire something that fetches less than circa $200 per week in rent. This is because regardless of how high or low the rent is, you must still provide and maintain an oven, hot water service, electrics, toilet, shower etc. Just talking about the oven, if the oven blows and the rent is $165 per week, it is many weeks of rent gone just on replacing the oven. The hot water service would hurt even more.

    You didn’t mention whether you would intend to use savings or equity release to fund the deposit on the proposed units purchase. Most lenders would only go to 80% lend on a block of units, and if you do an equity release you would normally still have to leave 20% aggregate equity on the table with the bank (aggregate being total of your home and the units). I looked at a very similar set of figures to yours only last week, and in order to comply with leaving 20% on the table in an equity release situation, the PPOR (home you live in – Primary Place of Residence) loan needed to be down to $200k (yours is presently at $240k).

    Now for ownership structure

    An investment property that is cash-flow positive may not be best purchased in your name while you’re working, since you would be taxed relatively heavily on the cash-flow positive component. If your wife isn’t working, ownership in her name might be a consideration. These sorts of things are best discussed with the family accountant to nut out pros and cons of each ownership structure scenario.

    Another consideration is superannuation – many folks now set up SMSFs (Self Managed Super Funds) and use their super to fund deposits and buying costs on investment properties.

    Questions

    Are you able to fill us in on how you plan to fund the deposit money on the investment property so we can ponder your case a bit further?

    Also irrespective of whether you intend to tread down the SMSF route it is always important to have an awareness of how your superannuation is going and be proactive in ensuring it is performing.

    Hope you found some helpful thoughts in the mix there!

    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 R scottR scott
    Participant
    @rsco
    Join Date: 2016
    Post Count: 3

    thanks Jacqui! that did point out a few costs that I was un aware of, I have gorn a little cold on the units, favouring building a place for us and trying to hold on to the place we are in as a rental, scary because we would end up about 700K in debt on the 2 houses!
    at least by doing this the place we are in now should be positively geared and help pay the other place off. ( 240k debt $1600 rent income) just leaving us to service the 500k ish on our place.

    just on a side note, can you claim a vacant block as an investment property till you start to build on it? or dose it get messy?

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

    Hi @rsco

    Taking a step back… you will want to give very serious consideration to the dilemma of “purpose of borrowings” which was discussed extensively here ; http://somersoft.com/forums/showthread.php?t=29734

    The moral of the story is this:

    Unless you are a person that cannot resist the urge to spend money that is sitting in offset accounts, it is generally better to put spare money in offsets rather than physically putting it in as a payment off the loan. That way if you want to move to another PPOR you can whip the money out of offset account of the old PPOR and use it as a hefty deposit on the new PPOR, thus leaving the debt on the old PPOR.

    Some folks instead opt to sell the old PPOR to free up the cash to spend on a new PPOR. The nuisance is of course that you don’t get the stamp duty you paid for the old PPOR refunded, and you have to line up to pay stamp duty again on the new PPOR, so $$ pros and cons of each course of action have to be weighed carefully.

    Again, best to talk to a savvy broker before you get too far down the track of taking action.

    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 Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    Great post Jacqui,

    There is a lot of poor advice given, particularly in the media, with regard to whether interest only or P&I loans are preferable. The fact is that all you are doing by paying down a loan is reducing the options you have with your available cash, and potentially costing yourself money in reduced future tax benefits. In the case where the loan has an offset account, this is for zero gain in terms of reducing interest payments. There are circumstances where someone might want to pay down a loan, but it is important to note that this decision is unlikely to be for purely financial reasons. The greatest value in using an experienced and knowledgeable broker is to have all these pros and cons explained to you in the context of your own personal circumstances.

    Regards

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

    Thanks @aperry

    @rsco I hope you don’t now feel as if we’ve stomped on your ideas and that you’re stranded. Chatting to a savvy broker will be invaluable for you and help steer you onto a path that enables to you grow your wealth as time goes on rather than stunt it. They will likely have suggestions relevant to your scenario that you’ve not yet considered.

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

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

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