Hello all,
New & very novice investor here, so bear with me…
Basically I’m in a fulltime position now, for the last 8 months, and want to put the excess income towards something constructive.
At this point I’m looking at continuing to rent for the next 2 or so years (free spirit and all that crap). However I’d been approved for a $400k home loan based on salary only, though on the assumption of a greater deposit saved (currently only $10k put aside, and growing).
I’m 25, my income is a $60k salary, and an additional $10-25k via odd freelance work. I expect the salary to move to the $70k bracket mid year.
I think purchasing a house is probably not what I want right now (or rather, what is best), so I’ve been looking at small city studio apartments around the $150k mark, which seem to have returns of $800-$1000 PCM. If I was to pay it off over a 6 year period, the interest paid (assuming a locked down rate) would total at ~$30k, and the tenant having paid ~$60k of the total cost… as far as a few mortgage calculators have shown anyway.
As I can comfortably put in the necessary funds (and will soon have a deposit that should be enough), can anyone suggest any flaws in this avenue of thought? It surprises me that property is available so cheap and that, potentially, a couple could be purchased and paid off (over a period greater than 6 years) without putting a great dent in the income. Just not sure I want to lock into such a heavy mortgage yet, when this seems like a good compromise, and paid off quickly, can equate to a nice downpayment (or equity, if sold off earlier) on a better place down the track. I’d otherwise been looking at off-the-plan apartments around the $300k mark.
Aside from the above, if anyone can suggest a good piece of reading in my ignorance, or can personally recommend an investment advisor to chat to, that would be excellent.
Cheers,
O
The only problem is size. Sometimes these little studios are a bit too little and it can be hard to get finance. If it is over 50sq m, then should be ok. 45sqm maybe even be ok, below that and you may have problems.
And one suggestion. Rather than pay it off, why not use a IO loan with a 100% offset account attached. You will save the same in interest, but have your funds available for the next purchase with no adverse tax consequences. But if you are the type tempted to spend savings, this may not be a good idea.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks very much Terry – I’ll look further into the suggestion to make complete sense of it.
Cheers!
O
Just one further question – are certain commercial properties subject to vastly different lending criteria from banks? In particular, office space, etc, around the same pricepoint as mentioned above.
Cheers
Yes a considerable difference.
A Commercial loan cannot be mortgage insured so means you would be limited at best to an 80% LVR.
In todays climate this is more likely to be back to somewhere around 65-70%.As Terry has indicated it may well be that depending on the size of the apartment you will again be limited to a similar LVR as you would with a commercial property.
Richard Taylor | Australia's leading private lender
Yes a considerable difference.
A Commercial loan cannot be mortgage insured so means you would be limited at best to an 80% LVR.
In todays climate this is more likely to be back to somewhere around 65-70%.As Terry has indicated it may well be that depending on the size of the apartment you will again be limited to a similar LVR as you would with a commercial property.
Richard Taylor | Australia's leading private lender
studio apartments while looking attractive because of price, you do need to look at the resale at some point and that can be a little difficult. Don't buy something simply because it's in your price range. Of course i don't know the area you are looking in and that could make all the difference. And commercial property does lure people with great returns, but bear in mind they can be susceptible to long vacancies, again position does have some bearing.
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