Hi everyone,
I am 19 years old and have almost finished my first year as an electrical apprentice. I am living at home with the parentals and will be doing so for the next three years until I finish the apprenticeship.
With all my savings added together I am worth an amazing $20,000.00!!!! Now by the end of the apprenticeship I will easily have a fifty thousand dollar deposit for an investment property. My parents are also willing to give me $100,000.00 in addition to my own deposit. Could this be split into two investment properties??
Once I am a qualified electrician I’ll be earning approximately $50k a year before tax.
I am living in Adelaide, so I will be looking at purchasing a house/unit around the $300k.
My investing goal is to be financially free asap, meaning I don’t have to ‘work’, rather manage my investments. This could mean renovating full time once I have sufficient cashflow from my property portfolio.
How does this all sound? I guess I am looking for advice/guidance about this little plan I have and if it is at all feasible!
I am thinking of purchasing positive cashflow properties (or near to positive as possible).
Should I buy one IP and hit the mortgage as hard as a can or buy two.Any comments/advice would be appreciated.
Cheers!Hi!
You are probably eligible for the First Home Owner Grant as well.
Remember you'll be up for stamp duty and legal fees … basically allow 5% of the property price for this (so about $15k for a $300k property).
Even though you're looking at targeting cash flow positive properties, I wouldn't borrow more than $300k or it'll bury you if anything goes wrong (eg tenant decides not to pay rent). The bank will look at how much you are earning, and your capacity to repay under such circumstances anyway.
Hey! Thanks for replying.
Yes, I was hoping the FHOG would cover most or perhaps all of the purchasing costs. It would be good if someone could list all of the necessary purchasing costs, just so I can do some research on all of them. i.e Stamp Duty, Legal Fees….(and I am sure there are more!)
For my first IP I was thinking of having a $100k deposit, so then I would only need a $200k loan, which would hopefully mean it would provide positive cashflow from day one.
Climbingjac, I would have thought the tenants are in no position not to pay rent. Some further information about this would be great.
Cheers!
Hi Pasha
First of all welcome to the forum and sounds like you certainly have your head screwed on with that amount of savings …well done.
Structuring your loan / s is imperative as you are only young and may decide that what starts off as your PPOR may not be for ever and a day.
Personally i think i would be looking for a 80% lend on the PPOR and "Yes" subject to the other qualifying criteria you will receive the First Home Owners Grant and other concessions. Place the balance of your savings funds in a 100% offset account.
Then probably look for a 100% lend on the investment property and if you now have surplus cash (Your PPOR interest is being offset by your savings) set up a 2nd offset account linked to the IP loan.
Remember an offset account is all about discipline. If you can feel you can add to the offset account then fine keep them separate. If you get tempted to go and spend big chunks then pay down the loan as obtaining a redraw (not tax deductible) or new loan will require action and might make you think twice about actually doing it.
I have other clients in a very similar position to you in SA and as i said to them getting the right loan and structure is probably as important as buying the house itself.
Apart from this good luck with the rest of your apprenticeship and serviceability is the only issue i can see you having in the immediate future.
Richard Taylor | Australia's leading private lender
Hi Pasha,
Just a few quick words of advice from someone who started investing around the same age as you:
– If you end up purchasing more than one investment (my preference if at all possible), make sure they are different types of property. For instance, buy a two bedroom unit with a strong yield, and perhaps a 3 or 4 BR house with maybe a slightly lower yield but a large land content. There are several benefits with differentiating your portfolio from an early stage.
-Push yourself to the limits of what you can afford (without going overboard), and stay at home with mum and dad as long as possible (I stayed until nearly 24). When you do finally move out, IT IS OKAY TO RENT. Your parents and most friends will tell you that rent money is dead money, but it frees up your cash flow. A close friend of mine is 26 and she has around $1.1mil of equity in various properties throughout Victoria, but no home of her own! Do you think she cares? I would refer you to the section in Steve's book about "Lifestyle assets versus Investment assets" if you have it*
-If you are disciplined enough (and I stress IF), then borrow on a Variable Rate basis with an Interest Only loan that has an offset account attached. There are several good reasons for this which you can research further through the forums using the search function. If you decide that you need the security of a fixed rate loan, then borrow a PORTION of the loan as fixed, not all of it. The reason for this is that fixed rate home loans can not have an offset account, which will provide complications if you ever decide to move into one of the properties, and then want to change it back to a PPOR later.
– Lastly, in regards to climbingjac's point above, some tenants are just plain bad! You have to be aware that from time to time you will get a dodgy tenant who will have no respect for your place, and may decide to stop paying rent – Be prepared for this by using conservative rental figures in your calculations – ie: when working out yields, perhaps base rental on 48 or 50 weeks of the year rather than 52. Another thing to consider is Landlord's insurance which you can research on the net.
I could probably go on for another hour, but it's probably better for me to answer any other queries you have as they arise.
The advice above is more direct than what I would normally give, which I have some very good reasons for, but don't take my word as gospel – Interpret what I have said and feel free to challenge me on it. (I am sure others will!
)After all, that's how you learn!
Regards,
YI.Hi matie
OK here is an online stamp duty calculator for you ; http://www.realestate.com.au/cgi-bin/rsearch?a=calc&jar=StampDuty
A call to a couple of local solicitors would help you establish the legal costs they charge to cover their services to help you with buying a property. Note they will hire a surveyor, so ask about the portion of the fee that pays for the surveyor. You'll probably be up for a figure less than or equal to $2k.
You absolutely must ensure you can afford to pay the mortgage yourself for a couple of months if your tenant stops paying. If they choose to do this, you cannot even serve an eviction notice until they are 14 days late in payments. Then a tribunal hearing gets set, which is not going to occur immediately just because you are out of pocket. It takes a couple of months to get problematic tenants out, and hopefully they will not trash your house or steal things, leaving further costs for you to absorb.
Shop around with some insurance companies – you will need Landlord insurance With Tenant Protection. Google "Landlord insurance With Tenant Protection" and you'll be presented with some starting points.
Please promise me that you will not rush in and buy anything in the next couple of weeks. I can see that you have much research and number crunching to do before you arrive at a model that is comfortable for you to sustain. You must ensure that you can absorb a worst case scenario. If a tenant starts to do anything wrong – you will be out of pocket. It is merely a question of how much. A few dollars in extra mortgage interest due to late payments, or thousands in lost rent and damaged property.
PS remember that there are certain costs that you have to pay. The tenant doesn't pay them. They are costs such as insurance (this will easily cost you at least $500 a year), some water costs (call your local water supplier to ask what a landlord pays and what a tenant pays – you pay the lot unless you specify otherwise – I think as a landlord I'm paying $300-$400 a year for the water bill), and council rates (probably about $1200 a year on a place worth $300k – call the local council in the area in which you intend to buy and ask them). Remember also to factor in interest rate rises on the loan.
Check back in with us with any questions – we are all here to help
I was going to say something similar to Richard.
If it was me, I would look at getting a house and using the FHOG and stamp duty concessions while they are still available. Live in the place for 6 months, or as long as required and during this time do it up as much as you can without spending too much. I would suggest you look at a 80% lend with the 20% coming from your parents in the form of a loan – have a written agreement in place. Make sure you get an IO loan with the offset and save as much as you can into this.
Then after 6 months move back home and save like mad for the next one. After a while the value of the first may have risen and this will help with the deposit for the second. But never cross collateralise the loans. This will prevent you for going forward as fast. Aim for 1 house a year initially and after a while it may speed up as equity and rents increase as well as your increasing wages.
Make a written plan on what you are going to do and when and check it monthly. Also make a written budget. And make a assets and liabilities statement and check it monthly and this will help motivate you too. Also work out watch income you need to 'retire' and how you are going to achieve it – eg 10 properties returning $5000 pa each.
Keep reading as much as you can as learn.
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
Hey!
I must say a massive THANKS to all that responded. That was some awesome information, some of which I’ll need to digest for a little while!
Terryw, what you said is exactly the plan I had in my head. I’m actually going to print your post out and stick on my wall!!!!
For the past 18 months I’ve been recording all of my income and expenses, so I can decide where I can cut back and really budget my money.
10 properties! I’d like to think I can have x10 that much!
I’ll post some more specific questions in the future, but for now happy investing
)
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