Hi Everyone.
My husband and i are just starting in the investment game.
We currently work in the mines so have a combined income of over $(200,000 pa)
We are 28 & 29 with a beautiful 18mth son
We have just been given pre approval from our bank to invest in property.
(4465,000)
We have two options we are looking at and unsure which i should go for….
Option 1 – BUY DHA PROPERTY in the Adelaide Hills. Purchase price – $399,000. Rent $375pw
Option 2 – BUY 2 CHEAPER PROPERTIES IN RUN DOWN AREAS LIKE ELIZABETH – Approx purchase price of each is $200,000 which 5 – 7% rent
We are still very much learning about property investing and as we are using our home equity to help start our investment portfolio ($100,000 equity in our home we own and reside in)
With a 18mth baby, and in the future we hope to have another, we dont want to be too risky as we always want to ensure we have a stable home for him while being able to live comfortably.
I like the guaranteed rent from DHA and easy to manage (as they do it all) but dont know what would be the best way to go.
Our plan is to buy as many investments over the next 5-8 years and hold on to them and slowly sell later in life or be able to live on a passive income.
Would love your advice please
Cheers
Hi Bellagirl
Welcome aboard.
With DHA properties, the management fees can be quite high and you relinquish a fair bit of control due to the long lease periods. However, the "doing it all for you" aspect can be good for those that are risk adverse which you mention you are.
That yield isn't overly impressive either – so the capital growth would need to be good to make it a worthwhile investment.
Have you considered a non DHA property for around the same price? I only ask because it's written as if there's only the option of a DHA property or two cheapies in north Adelaide.
I'm not sure what Elizabeth is like at the moment but tenant selection could be an issue there – which might not be ideal if you're looking to avoid risk.
When the next baby comes along, will someone be taking an extended period of time off work? If so, will there be a period of time when your disposable income dips? If so, then base all of your financial decisions now on that future income level.
In terms of financing the properties, you want to set up a second loan against your current property. It can either be an interest only variable loan or a line of credit. This loan will then be used to cover the deposit/costs on your investment property purchases. You then set up another loan to cover the remaining balance of each investment property.
This way, you avoid cross collaterising your current property with your investments – which banks love to do!
Hope that helps.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you for your reply Jamie.
I much appreciated it.
I have been doing alot of research today and i think you may be right with the quality of tenant that we would attract in suburbs like Elizabeth.
I have actually sent off a few emails to financial advisors in hope of some steering in the right direction.
There is so much jargon i don't understand even tho i'm reading like crazy.
The thing that attracted me to the DHA property is the guaranteed rent so we can preplan for when we decide to try for number 2. Plus i am ex navy as is my husband so it sort of feels like familiar ground there.
I took off 9 months with baby number 1 and will probably do the same for number two however my husband is the bread winner so when i'm off work, the only thing that stops is our big savings but we manage with bills etc fine
It would be better to get a better yield too.
I really appreciate your help.
I will continue to read, read read and educate myself before making any big decisions regarding the DHA property
Cheers
I would give DHA properties a miss from a capital growth perspective. I am yet to see a DHA property that 'has done well'.
There are different strategies to get what you are looking which is the rental guarantee however don't overlook capital growth and the strategies associated with this, such as but not limited to, renovation, subdivision and granny flats.
Go through the strategies that are available and have your banker or broker do the numbers (cash flow, capital growth potential, etc) and see which works well for you.
Arguably buying your first property is the most important as it really sets you up for the future properties so make sure you make an educated decision.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Bellagirl wrote:Thank you for your reply Jamie.I much appreciated it.
I have been doing alot of research today and i think you may be right with the quality of tenant that we would attract in suburbs like Elizabeth.
I have actually sent off a few emails to financial advisors in hope of some steering in the right direction.
There is so much jargon i don't understand even tho i'm reading like crazy.
The thing that attracted me to the DHA property is the guaranteed rent so we can preplan for when we decide to try for number 2. Plus i am ex navy as is my husband so it sort of feels like familiar ground there.
I took off 9 months with baby number 1 and will probably do the same for number two however my husband is the bread winner so when i'm off work, the only thing that stops is our big savings but we manage with bills etc fine
It would be better to get a better yield too.
I really appreciate your help.
I will continue to read, read read and educate myself before making any big decisions regarding the DHA property
Cheers
You're more than welcome. I'm glad you find the info useful.
With financial advisors, many will steer you away from property as an asset class because they don't often make a commission on the transaction.
For advice on borrowing capacity and finance structuring – any decent broker should be able to provide this service.
If you're comfortable with using email/phone then you can choose to use any broker anywhere in the country.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
You are both young and on good incomes. The problem with defense housing is that it is often is secondary areas and has been mentioned has high property management fees.
What you need to do is buy quality property that will provide you with capital growth. It should not be the number of properties you buy but rather the quality of what you purchase, especially with the money you are currently earning.
Do your research carefully, remember a bad investment can set you back years.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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Also have a look at your structuring overall. Different entities work for different purchases in different states. Also you may find an entity more flexible in the future should there be a change in one partner's income. Small outlays on setup can be more than made up for in taxation savings on a sale if you ever need or choose to sell in the future.
Asset protection is also important.
See an accountant regarding taxation implications
A Lawyer regarding structuring
regards
Darryl
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
Email Me | Phone MeProperty Lawyer & Town Planner
Hi Bella,
Most financial planners don't advise in direct property investments – in fact there is little in the way of recognizable property advice qualifications in Australia. Having said that I do know of a couple of organisations trying to rectify that anomaly at the moment.
Given you are looking at adding to your family make sure the property/ies you select do not drain on your back pocket too much, if at all. While you sound like you can manage, from a cash flow perspective, having two bubs, one income and possibly a couple of properties on the go at one time can drain the tank rather quickly if you do not select carefully.
For what it is worth – by thinking DHA and Elizabeth I think you have started your research at the wrong end. I would suggest stepping back and work out what you want from the property, then identify areas and then the property. Get the macro stuff right first and then work from there.
Hope this helps.
So you've been approved for a certain amount? (i'm assuming its 465k and not what seems to be 4,465k)
So you'd like to create a reasonable starter portfolio?
Well .. lets look at what your existing conditions are and what your goals are so we can match your wants to your goals.
You're young .. so you dont really have any deadlines for retirement or illness or work related issues yet. So you've got a degree of flexibility. But on the same front .. you've got a newbie out and about and you want one or more in the near future. Thats going to create its own bed of initial expense. In your investment, your family is ALSO an investment strategy.
I keep one frame of mind when people ask me what to invest in .. and thats where your goals and your situation will lead you. And believe it or not .. for each person i've ever dealt with .. its rare for two people to have the same needs and requirements.
I would actually suggest a close to neutral or positive cashflow investment to start off with. Simply because of your timing involved. You want more of your money in the next few years to be towards nappies .. kindergartens and crayons rather than having it tied down in financing property.
Buy with the 'buzz'. I hear from a lot of people that Elizabeth is picking up quite nicely .. but then i also hear that it has its fair share of problems still. So like any investment you will take … you should dip your feet into the area and get to know what your 'lifestyle' will be surrounding your investment. Become so familiar with the local shopping and transport routes .. the new activity in the area .. that you should be able to test the local agents on it. The most important part in the whole investing scene is working out where your gain will be made. Undervalued property? Property in demand? Scarcity?
I cant tell you this. A real estate agent cant tell you this fully. Your best decisions will always need to come down to your best education.
Dont buy premium, OTP, or managed schemas on the premise of 'investment'. An investment has to be attractive to the next purchaser too. And high management fees dont impress anyone. Premium has to be justified on future resale, and OTP remains 'airspace with a promise' until construction is complete. Also OTP is actually indeterminate on actual market value until the first resales take place. A resale places an accurate point on market demand.
Grab a couple of suburbs you consider interesting and possible investment areas. Become expert in their prices for various levels of housing. Know before you make your purchase .. that your reason for purchase was sound .. based on your new experience.
Oh .. and since you are going to be relying on a property manager since you want to spend time in the mines and not driving out to loose tenancy complaints .. do your property manager interviews to get the property manager that works right for you.
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