Hi all,
im a young guy only just about to start my first full time job, and im looking to get into property as soon as i can.it will be my first property, and i intend to purchase it as my first home. i am hoping that i will not have to sell the property for a very long time. instead borrowing against the property to buy more in the future (although this may be difficult with sydney’s slowing market).
can someone please explain to me the pros and cons of getting an interest only loan and a principle and interest loan? I have been told to go interest only as it will free up my cashflow while i wait for capital gains, allowing me to invest more when i get the chance. But my parents are saying i should get a house and pay it off as soon as i can.
Also, im tossing up between a unit or townhouse and a house. I understand that i will likley have a higher yield with a townhose over a house, but sacrifice potential capital gains. But at the same time, townhouses will have body corporate fees where a house doesnt.
Then i have the question of old or new….do i go for something old with potential to add value..or something new where i have depreiciation benefits.
All these questions have got me stumped and I really dont know which way to turn!
Any guidance would be appreciated!
ThanksHi Ivan, and welcome to the Forum. It sounds like you’ve got things well mapped out for the future which is great to see in someone so young. First I’d probably visit the bank or a finance broker and get an idea of your borrowing capacity. As you’ve only just started work they may prefer you to settle in for 3 months first.
If this is going to be your home I’d be looking at a principle and interest loan to gain as much equity as possible. You want to pay down all non tax deductible loans ASAP. However if you intend to rent out some of the rooms then perhaps an interest only loan may suit, but it really depends on the finance institution.
Do you have experience in renovating ? Can you call on family and friends to help out ? Will your work/study make it hard to have time to renovate ? Do you have the tools and equipment to renovate or would you need to employ someone. Consider these issues when looking for older homes. Perhaps go with something that only needs cosmetic changes like paint and carpet.
Personally I believe in having full control on an asset so we stay clear of units and townhouses. It is the land that appreciates in value over time, buildings depreciate, so we look for houses with a high land content.
When choosing a property take into account its location. Close to shops, schools, transport but in a quiet leafy street surrounded by well kept homes.
Hope this helps in some way and best wishes, but you’d be far better of moving to sunny QLD !!Amanda
“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”Originally posted by AmandaBS:First I’d probably visit the bank or a finance broker and get an idea of your borrowing capacity.
Agreed – and if if the broker says ‘not yet’ use the time to do your research.
If this is going to be your home I’d be looking at a principle and interest loan to gain as much equity as possible. You want to pay down all non tax deductible loans ASAP. However if you intend to rent out some of the rooms then perhaps an interest only loan may suit, but it really depends on the finance institution.
If at any time in the future the property is going to become an IP or part IP you are better off taking out an I/O loan and placing all surplus money into an offset account. This way you will reduce your monthly interest bill while retaining capacity to claim interest costs in the future if/when you redraw any funds and direct to a future IP. This appraoch means you have maximum flexibility while retaining full access to future tax deductions should the current PPOR become an IP.
Personally I believe in having full control on an asset so we stay clear of units and townhouses. It is the land that appreciates in value over time, buildings depreciate, so we look for houses with a high land content.
This statement comes up quite frequently and needs qualifying. It is the value of the land component that is critical. As an extreme example 1 hectare at the back of beyond is worth less than a handerchief size plot in the city centre.
When choosing a property take into account its location. Close to shops, schools, transport but in a quiet leafy street surrounded by well kept homes.
Agree and I would also add your lifestyle choices. It seem we (the collective we) are wanting to travel less so are therefore choosing property close to the things we use.
Hope this helps in some way and best wishes, but you’d be far better of moving to sunny QLD !!
Derek
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http://www.pis.theinvestorsclub.com.au
0409 882 958
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