Hi all
First post here. Not sure if there is place where I should be introducing myself first?
Anyway, here goes. I am a South African. Yeah, we beat you guys a lot at sports
Actually, you beat us plenty enough.
I am starting off as a property investor at the moment, and have an offer on a flat that has been accepted according to the agent. I'll believe it when I get the paperwork signed.
According to all my calculations this property will be cashflow negative for the first two years. Sometime in year three I will start seeing some cash inflow.
I will be getting a 100% bond, so my input will only be the transfer costs (I think you guys call it stamp costs or something like that?).
My question is this, do I let the property become cash positive in year three, by not investing another cent of my own money, or do I stick a few extra bucks into the bond, to make it cash flow positive as soon as possible? In simpler terms what is more important, the property being positive as soon as possible, or putting in as little as possible of own's one money?
As I said I am new to this. I like the school of thought that you put in as little as possible of your own money. But I am not aware of all the pro's and con's.
Look forward to your replies.
Hi, there are many strategies out there but my strategy is to pay as much off the property as possible using your own money as well as the rent received to enable you to have plenty of equity to buy the next one. This strategy has worked for us and we now have 5 properties with little debt. We generally avoid units (except for one) as older properties on larger blocks may have more development potential down the track. Good luck.
Thanks for your reply, Ros.
After having read your answer, I realised I probably should have given some more context to this deal specifically.
If the deal goes through, I will be able to get a 100% bond, since this is classed as a 'distressed' bank sale. The previous owner can't pay his bond anymore.
Under normal circumstances, I would only be able to qualify for 90% bond on a second (or third) property.
So to expand on my initial question, do I put down a deposit on this unit and make the property cash positive almost from day one?
Or do I rather buy this unit with 100% financing, and use the would-be-deposit on a second deal where I might not be as lucky to get 100% financing?
Some background on my decision to go for an apartment (and please feel free to jump in with some advice).
This is my first investment property. I do have a bond on my primary residence, and have a little bit of quity built up that I can access if I need to.
For my first property, I think a flatapartment would work best, as there are no maintenance to be done on the outside of the property. I am afraid of tenants neglecting a garden during their lease, leaving me with a property that doesn't look enticing to potential new tenants.
Also, cost is a huge factor. Flatsapartments are bit cheaper compared to housestownhouses. This makes the risk a bit smaller in case something does go wrong.
I am specifically targeting 2 bed, 2 bath flats with the view that these are viable options for roommates sharing, or young families.
Over here in SA, we had some new legislation passed a few years back, and this is making it incredibly hard for potential buyers to enter the market. Large deposits are being asked, and very few buyers can afford it.
This means that potential buyers need to let for longer while they save up for these deposits. And with this in mind, the 2 bed, 2 bath apartment seems to be a great option in my inexperienced view.
I would take advantage of the 100% loan and try to pay as much off it as soon as possible. We have found we can get 100% loan on every property after paying a good percentage off the initial one.
Thanks, Ros.
So instead of looking at a second deal, rather focus on paying this one off? Even if not to the point of fully paid up, just to make myself look like a more trustworthy lender?
Hi Sparnar
Welcome aboard.
Are you currently renting or do you own a home? If owning – does it have a mortgage?
If renting, do you plan on purchasing your own home in Australia one day?
These are important questions that will help you decide whether or not paying down your investment property debt is a good idea or not.
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]
Hi Jamie
Thanks for replying.
I am actually from South Africa. Although I worked with a bunch of Aussies in the Walkabout bars in the UK, but that is something for another day.
I bought my primary residence, and this is still under bond (mortgage).
My aim (for now) is to invest in real estate for income. In the next few years, I might also try a deal or two to make a lump sum gain, but I have to get my feet wet first.
The good old Walkie – it's been about 10 years since I've been in one of those! I still have good friends in Durban and Cape Town from my London days.
If you've got a mortgage on a main residence in Australia then I'd be inclined to not pay down your investment property debt.
The main reason is because investment property debt is tax deductible whereas the debt against your home isn't – so if there's any debt you want to knock on the head first, it's your PPOR debt.
This article I wrote for Australian Investment Property magazine explains a common finance structure I usually set up for clients.
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]
Thanks, Jamie.
I will have to speak with someone who knows who all of this applies in South Africa.
But I understand your concept.
So you would recommend going for 100% financing, and paying the shortfall for the first year or two, instead of paying deposit to make this property cash flow positive?
Hi Sparnar
Sorry – are you living and investing in Australia or are you living and investing in South Africa?
I read the post as if you were a South African who's living and wanting to invest in Australia.
If the latter- disregard what I've said – I don't know the finer details of South African property financing. The Aus market keeps me busy enough
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]
Hi Jamie
My bad. Should have stated that I am living (and investing) in South Africa.
Busy reading Steve M's book, and thought I would come here.
Unbelievably, I haven't found a single South African forum about property investing. So I had to come and check this site out.
And while some of the legalities regarding contracts and financing might differ between SA (not South Australia…) and AUS, I think the motivation, and the methods for investing in real estate should be pretty much the same.
Thanks for your comments!
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