All Topics / Help Needed! / Help on buying my first property and strategy

Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of AdamAdam
    Participant
    @darksun
    Join Date: 2016
    Post Count: 3

    Hi guys,

    I’m looking to buy my first property and I have lots of questions.

    ======================================================
    BACKGROUND

    I have $230k in savings, no assets and no debts and based on my pre-approval I can borrow $900k.

    I have a full time job plus a business I have started recently so I don’t have much spare time.

    I can only spend a few hours a week to do research, and probably won’t have time for reno, etc. So what I’m trying to get from property investment is putting my money into better use. I’m making the lump sum I need through the business I have started which I enjoy spending my time growing it.

    =======================================================
    MY RESEARCH

    I’m looking at this suburb about 2 ~ 3 hours of drive from Sydney where 3 and 4 bedroom houses have between 1% to 3% positive cash flow, priced $300k to $400k, with low vacancy rate.

    I’m researching the houses, to buy one, rent it out and offset the loan until finding the next deal in a different suburb.

    ======================================================
    QUESTIONS

    1- What are the cons of strategy below? What is the best strategy given my situation above?

    I’m looking to buy in regional areas with low vacancy rate and positive cash flow so that:
    I’ll get a better return than bank for my 20%
    Low vacancy rate means potential capital growth (unemployment is around 9% though)
    Offsetting the loan means I’m getting 4.5% return, tax free, for the amount I’m offsetting

    2- I read somewhere I need to inspect 100 properties, there are hardly 10 properties listed in this suburb, does that mean I have to wait for a few months? Does inspecting surrounding suburbs count?

    3- I’m willing to pay an experienced advisor to answer my questions, does anyone work on hourly rate basis? any recommendations?

    Thanks,
    Adam

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    1. Is regional a good idea? What has the growth been like in the past?
    You could be going back wards if no growth, and what is the opportunity cost?

    2. That would just be a general comment. But the more you look at the better a feel you would get.

    3. I charge $660 for a 2 hour meeting to discuss structures, strategies from a legal, loan and tax perspective – but don’t discuss where to buy etc,

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    I’m just curious about where you live, do you rent? Do you want to buy?. If you plan on buying a house to live in in the short term it might change your plan.

    For me total return also includes capital gain, so 1% in a regional area with no growth isn’t anywhere near as good as a neutral property with 7% capital growth. This is especially true if I have high serviceability but low deposits as I can redraw on the growth for the next property.

    • This reply was modified 5 years, 5 months ago by Profile photo of TheNewGuy TheNewGuy.
    Profile photo of AdamAdam
    Participant
    @darksun
    Join Date: 2016
    Post Count: 3

    Thanks Terry, will reach out after figuring out where and what to buy.

    TheNewGuy, how can I calculate future growth?

    Below is growth stats for the past 6 years:

    2010: 3.77%
    2011: 13.31%
    2012: 1.78%
    2013: -10.48%
    2014: 22.35%
    2015: 1%

    I’m renting, sharing with my brother. At the moment my mind is set on building wealth, lifestyle can wait for a few years. So I’m not thinking of buying a house to live in (unless it is a good idea with financial advantages and gets me closer to my goal)

    What would you guys do with $1m? I can also partner with my brother, which will give us around $1.8m

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    Renting and investing elsewhere is a perfectly fine strategy, but immediately I thought of the following option – and since I don’t know your age, where you live (maybe Sydney?), whether you want to get married / kids etc, local house prices, whether you could get the FHOG etc… it might not be the right one. Also, as my name suggests, I am only relatively new too.

    Buy a home – $500k. Use all $200k as a deposit. $30k in Offset (less stamp duty etc) – might not leave much depending on where you live.
    Redraw $100k for investment purposes from your home.
    Buy $400k investment property, from the $100k use 20% deposit, stamp duty, etc.
    Let you brother pay you board to help cover your mortgage.

    Loans:
    $300k – Non Deductible home loan. PPOR.
    $100k – Tax deductible purchase costs for IP. Held against your PPOR. Interest only.
    $320k – Tax deductible 80% loan on your IP. Interest only.

    Now you have $900k in property, $720k in loans, but only $300k in non-deductible debt and $420k of interest you can claim on your tax. You have rent coming in from your IP, and your brother to help cover your mortgage rather than a landlord somewhere.

    Lots of things to consider going this path though.
    – Will you be buying a place where you want to live for a long time?
    – Will your PPOR still be a reasonable investment?
    – Can you buy a house for $500k that you want to live in for a while?

    In regards to the capital gain you outlined, is that where you are thinking of investing – is houses, units or both? It seems very unstable if it is. Imagine buying in 2012 and having to sell in 2013? You’d be a long way behind after buying and selling costs, and then depreciation.

    Profile photo of AdamAdam
    Participant
    @darksun
    Join Date: 2016
    Post Count: 3

    I’m 30, single, no kids, no intention to settle down in next 7 8 years.

    I live in North Sydney, a 5 min walk from where I work. We are lucky we pay a very cheap rent, because properties are really expensive to buy around here. It also saves me commute time which is great.

    Can I buy an investment property and redraw equity for buying the second one, or does it have to be the place I live in?

    So basically what you suggested but instead of home and investment property I’d get 2 investment properties.

    Figures above are for houses only, I’m looking at 3 and 4 bedroom houses.

    There are a few projects government has approved for next few years, that’s why I think it will have growth, and the town has schools, tafe, uni, … . Crime rate is at NSW average, unemployment is 9%, population 10,000, 45% rent and 55% are owner occupied.

    I’m not sure what else to look at. And I don’t know if these stats are good or not.

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    You can redraw from investments so you’ll be ok there. But from a tax perspective you’ll have all your ppor as non deductible debt – not necessarily a bad thing in the overall strategy though.

    Unemployment is high and the towns a bit small for my liking. Is it close to other towns so people might commute from your place? Sydney is probably a bit far. If it’s positively geared and you believe government investment will increase value then it sounds ok

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

    Hi Adam,
    Sounds like you are off to a great start. Certainly, considering the purchase of property as an investment is worth some time and thought, for sure.

    So I’m not thinking of buying a house to live in (unless it is a good idea with financial advantages and gets me closer to my goal)

    Buying your own home can provide some benefits, but these come at a cost, so it is well worth looking at other options too. One such option would be to purchase an IP or two instead :-
    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697967

    Purchasing in a regional area CAN work for you – but it is advisable to consider the purchase from many different angles. e.g. Steve’s first purchases in Ballarat did very well for him back in the early 2000’s – they produced significant Capital Growth but this was a bonus rather than an expected outcome for him.

    Adam, do take some time to “read up” around the vast subject of property investing before spending too much money in an area that might prove to be a poor move for you. Follow on from the link above to find other posts in that “big picture” thread that are dated around Apr 2014 – there are some posts around that time that can provide you with a lot of food for thought.

    One of these posts shows what a young investor was able to do in just 3 short years starting out with less than you have at your disposal. Can you do what he did? I don’t know – but you will…… ;)

    Or, if you have a suspicion that property investing might become a large part of your future, then getting educated before risking your hard-earned would be a very smart move. Check out Steve’s Property Apprentice course – many people rave over the outcomes they have had on completion of it.

    Check it out in the “store”,

    Benny

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