I’m looking to buy or even build my first house to get my foot into the door of real estate. My parents are wanting to help me and rent my first house, they would rather be paying rent to their son (me) than a random bloke.
So my questions are:
Should I build or buy?
If my parents pay enough rent for me not to lose nor gain rental income is it still a good investment for the future?
Does it matter a lot on picking the right house if they are willing to pay enough rent to help me to at least pay it off?
First time in this forum and I’m excited to receive advice, Thanks
Welcome aboard. Property investing can be an exciting journey, but can also be risky, stressful, and even (for some) dangerous. The best way to guard against all of the negatives is by educating yourself. Here is a good place to start, but I would also suggest the following:-
1. Don’t be in a hurry to buy “any old thing” (but of course your parent’s situation might be a factor in your case – e.g. are THEY needing you to buy quickly to help THEIR situation?)
2. Read around a lot. Steve’s books are a great start, as is his STEPS program (which guides you through the minefield of purchasing by utilising “Due Diligence”).
Other books can be a blessing too, as can seminars, meeting with other investors, and even meeting and talking with RE agents. Be careful of folks whose role is to SELL to you though (e.g. agents) and especially beware of spruikers who are itching to HELP you by selling you a new property, and they can provide legal help and all. These latter will tell you “The tenant and the Taxman can make you rich as you buy one of our new properties, and hey we’ll even fly you there for free”! There is no such thing as a free lunch, as I’m sure you know. ;)
3. That “Big Picture” link (below) has a host of different topics and learnings wrapped up in it. Do take the time to step through all of the various subjects in there, as they will help to grow your knowledge at least enough so you can ask your advisers more pertinent questions.
OK, I’m sure you’d really like to hear some thoughts re your actual situation, so let’s take a look at that now:-
FIRST – “Should I buy or build?” That is quite a question – for me, I found purchasing 2nd hand to be more lucrative than buying new. There are many reasons for this e.g.
– folks selling a second hand house may be more amenable to price negotiation than a developer selling a new one,
– a second hand house may be in need of some renovation that can be tackled over time, thus reflecting in a lower purchase price.
– a second hand house can be bought in an area that suits Mum and Dad more easily than a new house (latter often in new estates away from amenities)
– a second hand house can be viewed then and there, where a new one may be only a drawing on a pad when you purchase it, or a builder may go bankrupt leaving you with a problem.
– a new house has included the developer’s profit in the purchase price, so any equity gain could be 5 to 10 years away.
Read Westnblue’s story in the Big Picture link (it is halfway down the first page of topics in the Big Picture) – how he created a small fortune in a very short time by buying 2nd hand properties, and doing them up. He only bought 2nd hand properties.
SECOND – “If my parents pay enough rent for me to not lose or gain on the rental income, is it still a good investment for the future?” Jezza, if you buy a good investment, it will be a good investment. The property will be a good or a bad buy – the amount your parents pay should not be determining that. e.g. If your parents could afford the rental on a high-class property on the water-front, it could lose tenants if times were to get tough. To me, such a purchase would not be a good investment. I prefer to buy where ANYONE can afford to rent there. In that way, I never found it hard to get good tenants even in hard times.
THIRD – “Does it matter a lot on picking the right house if they are willing to pay enough rent to help me to pay it off?” I think I’d repeat my answer to the second question. In short, yes it does matter. Buy well and you can do well. Buy badly, and it can reach out and bite you.
With times being as they are, I’d be looking for the kind of property that can pretty much support itself. Buy in a good area, in good(-ish) condition, with a projected income that is likely to cover any/all mortgage and other costs. Some areas are cheaper than others (some are cheap for good reason, so beware) while other areas are expensive. Do consider checking out Steve’s product, STEPS, to help you buy well.
In all this, Mum and Dad are likely to factor into any decision you make. Do they have a preference for which city, suburb, area, etc? Do they need to be near shops, hospitals, amenities, transport, etc. What suits them is likely to suit many others once M and D cease to rent it.
Hmm, that’s a fair bit. Go looking for an Accountant who understands property investing (has some property themselves ideally…) as there are several things you need to account for with Mum and Dad renting. e.g. paying a commercial rent can be a biggie…. it may not be an issue for you, but you need to KNOW that !! ;)
Hope that helps somewhat – do check out the “Big Picture” – you’ll be glad you did I’m sure,
PS For those readers who aren’t able to find “The Big Picture”, here’s the link:-
Thanks Benny for the advice it helps a lot, I am blessed to have parents that are willing to help me out as much as possible and are really flexible. I’ve been reading one of Steve McKnights books which is how I found out about this site and having advice like yours helps reinforce what I’ve learnt and opens up different ways of thinking.