I’m currently 18 years old and only in the past few months began learning about property investing, my goal is to be financially free.
I have been given an opportunity to buy a family investment property and can purchase it as soon as I have accumulated a $40k bank balance so that the bank will approve my loan, the property will be given to me at a cheaper cost($20k less), however the rental yield in the area although not negative, is very low. There is a chance of slight capital gains in the area.My question is should i purchase this property from my family or should I purchase a house at a higher cost but with a much higher rental yield?
I’m sorry this question may seem dumb but I am eager to get advice, as I am young and learning.
Hi Mark
Welcome :)
Low rental yield and a chance of slight capital gains doesn’t sound enticing to me. What is the definition of “low rental yield” and “slight capital gain” ?
On one hand $40k may not sound like much in the grand scheme of things, but I’m pegging it’ll take you ages to save that amount, so it would be a great shame if your $40k didn’t start earning its keep. That’s what investing is, ultimately. Getting the money you have to earn its keep. Help you into more assets sooner than you could otherwise save for, and/or produce income to assist with reducing your reliance on a job which is money in exchange for your labour.
It is unrealistic to expect one property purchase will ever make you financially free, let alone do so instantly. However it should be stepping you closer to your goal.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hello Jacqui, thank you for your reply.
I have given some thought over night and with what you have said i have decided that its best to purchase a property which i know can perform betterThe family property hasn’t risen in value over the 3 years we’ve had it and the est. cash flow is about $90/month
Thank you for your response
Mark
What do you mean by low? If It’s cashflow positive, that is NOT low. Are you basing this on 100% lend? or on 80% lend? Are you countin g all outgoings? or only interest?
The property not rising in 3 years can mean nothing. It may be ready to take off.
Take Sydney for example- There has been 100% growth in some areas in the last 4 years. Now based on your analysis this is a good place to buy.
The Sydney market didn’t move much between 2007 and 2010 either then KAPPOW!!!!Catalyst has a point (though Mark has pointed to both low yield and low growth). But in fairness, what is the definition of “low”? Mark can you share the numbers with us? ie value of property, its growth over say 3yrs, and how much it would rent for?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
The property was brought 3 years ago for $380,000 and would sell for at best the same rate today, however i’d be purchasing it from my family at $360,000
At the moment the property is being rented to our family friends (unsure of amount but i know it is negative due to helping family friends afford it)
I will get some further details of rental yield and repayments off of my family when i see them next and reply shortly after
I know by statistics in the area im looking at only a $90 positive cash-flow return from rent after repayments, i know its good that it is positive but i feel it is very low
The cash-flow is based on a 80% loan.
The area is good at the present time and does have potential to rise in value, how ever there is a bad area that is slowly building towards this area and may drag further “scum” into here, unknown what the future will hold
Can’t say it sounds enticing, and the “discount” you would be cancelled out by the lost stamp duty money buying into it and paying an agent to sell it if you wanted to offload it…
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Mark, do you know how the $90 per week is being calculated? If it is simply taking average rental income less interest expense (at 80% lvr and current market interest rates) the property could very well end up actually being negatively geared.
If it is not being accounted for above you may need to consider other holding costs such as insurance, rates, repairs & maintenance etc. Plus your interest repayments will obviously be higher since your lvr will be closer to 90%. You may also want to consider a scenario analysis with the impact an increase in the interest rates will have
I’m going to say it. It is not “advice” as to what you should or should not do. However I would not touch this property with a barge pole.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Mark,
Like others, I see several points made that would have me “looking elsewhere” for my investment. ;)One, it doesn’t sound like a great discount, and I wonder why the current owners are looking to move it to you?
Two, with “family friends” occupying it, this brings its own set of warnings with it. It is possible that any decisions you might wish to make might be “coloured” by other family members.
Three, the news about the suburb is not the best, though is not in itself a reason to fold. But it is certainly a reason to “dig a bit more” to understand more of what is planned by Council, etc.
Four, good on you to be accumulating a Deposit at your age. That is a feather in your cap already. While accumulating, do take the time to learn MUCH more about investing before dipping your toe in the water. There is much to know, but by simply giving yourself time to learn, your future will be bright.
For starters, try this thread –
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Regards,
BennyThank you so much to all who have replied, much appriacted. Its good to know people are out there to help :)
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