Hi there,
Just looking for an opinion on a situation I’m in right now. Firstly I’m a newbie and this is my first post :) I’ve been doing a fair bit of searching and trying to educate myself the past 6 months or so to get into the property investing mindset. But here it is:
– I have around $140,000 saved (military deployment and inheritance), I live just north of Adelaide and after inspecting have found a neat little 2br, 1 bth brick house in the suburb of Blair Athol. It’s listed for between $299,000-$309,000 (around my budget) and was built in 2007. From what i know the area of the suburb is largely housing trust. I’ve done some calculating (roughly) and I believe that I can positively gear this property (just) My main concern is if I was to go ahead with this property I’d need to outlay $100,000 (best case) to bring the price down be able to positively gear it as far as i understand…and thats a fair chunk of money! I’m concerned also about the area but the location is good I think as its only 10km or so north of the city and my newbie guess is that in 5-10 years the area may improve. It was previously rented for $300pw but have been informed it could be rented up to $310.
This may sound like a stupid quetion but, is it wise to outlay more money, to bring the price down and therefore turn it to a positively geared investment?
Thanks for your time, I can try my best to elaborate! Any feedback would be greatly appreciated :)
Hi Knox,
This may sound like a stupid quetion but, is it wise to outlay more money, to bring the price down and therefore turn it to a positively geared investment?
By adding more deposit you are bringing the Mortgage down, not the price (but then, THERE’s an idea !! Read on…)
Let’s look at “the numbers” in a slightly different way, then see if you think it would be wise to do – OK?
You say it would take $100k of your money to positive gear it. Allowing (say) $15 for costs and $60k for a 20% Deposit, you need to stump up an extra $25k just so it doesn’t cost you money to hold. So, if you didn’t pay that extra $25k, that would mean you would be paying 5% Interest on an extra $25k of mortgage instead – which is (roughly) $1250 a year, or $25 a week.
If you paid an extra $1250 a year off using the “saved” $25k, how long would it last? TWENTY YEARS !! And, if instead you invested that $25k, you might be able to make 5% with it, and be neutrally geared anyway. That $25k remains under YOUR control – you could put it into an Offset account against the mortgage and effectively have it “paid” off the mortgage (Interest paid on $25k less than what is owing) yet remains under your control, and you can call on it at a moment’s notice without having to ask for it. Read up on Offset Accounts later on in this link :-
https://www.propertyinvesting.com/forums/general-property/4349450To me, a big part of the charm of property investing is the massive leverage that is available to you. Of course, leverage is a two-way street, and risk is also leveraged, so softly softly. A better way to go is to pay less for it, or derive more income from it.
Outside of your initial question, does a 2bed 1ba house fit with your intentions, and is it in character with the area? (e.g. if this is an area of 3 bedder family houses, how does a 2bedder “fit in”? Is it a bit lonely, like a shag on a rock?)
But wait, is it a 2bedder that is large enough to (fairly easily) be made into a 3 bedder? i.e. can you add value cheaply, thus lifting value, and rent? THAT could be a useful idea for the spare $25k, or some of it. But first, will it work?
2bedders can be hard to sell, depending where they are, and the surrounding demographics, so keep this in mind before looking to purchase one. Often they are hit hard when negotiating a purchase price, simply because they are NOT a 3bedder.
Good on you for making your first post. :) And don’t worry – its the questions you DON’T ask that are the silly ones, so go right ahead and ask away. That’s what we are here for – to help you come to grips with a complex subject.
Benny
Well that link to offset accounts led me to read more about them (which has been something I’ve been meaning to learn about). Sounds like a great idea! mmm yeah I think the area is predominantly 3 bedders too and there is no room for extensions to the building as it is adjoined to the one next door. The biggest thing i think it has going for it, is it’s proximity to the city. Anyway I’ll keep on searching and learning, thanks for the feedback Benny, greatly appreciate it!
PS do you know somewhere I could find information in “layman’s terms” on depreciation?
Hi Knox,
PS do you know somewhere I could find information in “layman’s terms” on depreciation?
Learn it from the man himself – here’s an Article written by Steve :-
https://www.propertyinvesting.com/depreciation/
There are lots of articles on all manner of subjects – great reading for all newcomers,
Benny
You must be logged in to reply to this topic. If you don't have an account, you can register here.
