Forum Replies Created
Corey got it in one :-
Reports which aren’t based on reality get quite boring. Fact is that most first home buyers do not necessarily NEED to buy a median property for their initial purchase.
When DID it happen that any couple’s first home HAD to be a McMansion with 4bd, 2ba, 2g ? What happened to sitting on orange boxes in a humble little “below median” first home until your wage (and equity in that first home) allowed you to move on.
A friend, back when we were doing this, had urged “First, get on the train – you can always change carriages later!” He maintained that we needed to get onto the equity growth train that hauls even the most humble of properties along. So we did.
Our first home was purchased in 1973 via a Sale by Agreement, and certainly below median for the area. A year later, we refinanced (as per the purchase conditions) with another lender. Ten years later, we sold it for two-and-a-half times what we had purchased it for. That equity boost (along with a wages boost) allowed us to move up a rung or two.
Of course, that was then – but is it really so much different today? Sure, the prices are way higher, but so too are wages.
Benny
Hi Liam,
Does this mean for first time buyers like me, purchasing investments as PPOR and using these new benefits is becoming more relevant. If i bought a place for 200k and moved in for 6 months, renovated, then sold and repeated, i could take advantage of lower interest rates and slashed CGT?
That has been a time-honoured way of bettering your personal accommodation for decades. Even if you only move every year or so, if you sell no CGT to pay, and the equity that you have created while living there is cash in your hand. That provides a better deposit on a “next-level-up” home.
Probably a good way to go while still single, or while two of you still have no kids. It gets a bit harder after that, but not impossible. This way is still a good way to go without a lot of the stress of being a landlord.
Benny
Hi Gaurav,
As others have said, you can do way better. Do a Search for Coomera on here and you will find lots of words that will paint a rather dull picture. Here is one post as an example – scroll up/down to read more :-
https://www.propertyinvesting.com/topic/4405022-coomera-qld-investment-property/#post-4657842I see Coomera as an areaa that will have its day – but probably in ten or more years time when any new developments are OFF the main Highway, and on even smaller blocks than they are today.
There is PLENTY of land at Coomera, so the major selling point is “These are NEW” (but you pay a premium to buy them). Buy older, where developers or marketeers have no involvement. You might buy a 20 year old home in good shape on a 800m2 block for a comparable price (all garages built, fenced, concrete in place, etc – and a settled area).
Benny
Hi Steve,
first post on here so please go easy on me!
Welcome aboard !! Don’t worry, we don’t bite unless you ask nicely !! :p
I’m looking for 10 year+ hold but early growth for equity would be a bonus.
OK – that is a start, but do put some more detail around what type of property you want. I say this, because some suburbs/towns may suit positive gearing, while others suit “buy and hold”.
Have you sourced finance yet? If not, don’t go looking for a suburb yet. No use in looking in a $500k area if you can only manage $350k pricetag.
In your case, you mention buy and hold – but is that OK for you if negative geared, or do you need some income from your purchse?
Are you able to add value by doing a renovation, or a sub-division? If yes, is that only in your area (to do it yourself) or would you be up to handling a remote reno?
Steve, do come back with more detail – if you aren’t sure yet, that is OK. Especially with your first purchase, take your time to get it “as right as possible” so that you can accelerate into the next one. And do check out this link – there might be some pretty neat ideas in there :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Benny
Hi Coalfinger,
You and your nephew will be showing on contract as “jointly and severally liable” (read that as “jointly and separately liable” – it makes more sense that way). So, in a nutshell, you are each separately liable for the WHOLE AMOUNT of the mortgage, and for payments to it.Be sure this doesn’t screw up any proposed borrowings you might be planning – e.g. if you are wanting a personal loan for something – that loan might be out of reach after taking on this one !!!!!
Yes, the Bank can come to you if your nephew doesn’t make payments – and yes, foreclosure will be one option the Bank has.
Benny
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Benny.
Hi MDD,
May I ask why cant we refinancing our original loan to a larger amount?
Oh, you CAN do that, no problem. It is HOW you do it that can be a problem.
Initially we have $400k loan on our PPOR with A bank, we now are going to refinance this loan to $600k with B bank, so we can use the $200k equity for deposit.
Bank A won’t be allowing Bank B to provide you with $200k, so I assume you must be moving ALL of your borrowings to Bank B, yes?
When you do, keep $400k for your PPOR as one account, and take a separate account for $200k (also borrowed against your PPOR) for the IP Deposit. As I said before :-
just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart.
So, don’t just borrow $600k as ONE loan – make it two loans – one for $400k and one for $200k – THAT is very important.
Benny
Hi Ronnie,
If I were to just have a principle and interest loan and no offset account and had dumped the $100,000 to my repayments nothing would change, my repayments would still be $2000 per month the only thing would change would be the loan term reduced in years, is this correct?
Sounds right to me !! And, if you wanted to get it out again, a whole new application, etc…..
I think I am getting the idea of it now, why doesn’t everyone use offset accounts when setting up there mortgage?
Why indeed? But then, this stuff is not taught in school, and, if your parents were not involved in IP’s, where would you learn it?
A good question for the Mortgage Brokers might be “Why don’t Banks promote Offset? Is there more in it for them by pushing people toward Redraw?”
Benny
Hi Adnie,
Just an overall “common pitfall” (not from any subdivision experience at all) – and that is to ensure you retain sufficient Cashflow, or at least cash to tide you over any rough times. The words “tied up capital-wise” sound a bit like it could be a struggle (??)To that end, I would suggest erring on the side of caution, depending of course on just how much free-board your business has. If nervous about maintaining cashflow, go the “quick cash” route. You can always make your big money on the next one.
Benny
Hi MDD,
I guess there is not much choice for us to go with different banks, only limited banks would consider our case.
Good on you for asking, rather than just guessing – a much smarter move !! ;) I think you will find (possibly today, from a Broker or two on here) that there may be less limits than you thought. At the same time though, what I used to know has changed recently, so I will leave further comment to those who KNOW.
Our broker’s strategy is refinancing our PPOR loan to a larger amount, so we will have a PPOR loan and the extra cash for deposit of our first IP…. Park the cash into an offset account then using it as the deposit for our first IP.
Your Broker maybe already has this in mind, but just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart. DO NOT just “refinance your PPOR loan to a larger amount” on the original loan (as your words infer is about to happen).
It is very important that your finance setup is done correctly, so if your Broker is thinking of doing what I am warning against, I would recommend that you consider cutting them adrift, as it sounds like they do not know what is best for you – and that WON’T help you.
I am pretty sure one or more of our resident MBs will pop up to add their assistance with these questions. I, for one, am very glad you ASKED THEM. Give yourself a high-five !!
Benny
Hi Ronnie,
What Corey means is this :-
You have a $480k mortgage on a property. Mortgage is Interest Only, and you have an Offset account against the Loan. Loan repayment is 5%, so $24k per year or $2000 per month in Interest to be paid.You put your salary into the Offset, live off your Credit card for the month, then square up with cc once a month (thus pay no Interest on the cc). A fair chunk of your salary remains in the Offset for much of the month, reducing your interest somewhat, and thus reducing your Interest payments.
THEN, you get a $100k windfall. Put THAT into Offset, and immediately the $480k loan is “offset” by $100k, bringing the amount you pay interest on down to $380k. From that point on, Interest is $19k pa, or $1584 per month instead of $2000. Sound like what you want, Ronnie?
All these Broker guys on here know and love Offsets. Just have to make sure they get set up RIGHT when starting out.
Benny
Hi ROnnie,
Mate, you need to read up about “Offset Accounts” (the greatest thing since sliced bread :p ) In a nutshell, if you get a windfall, pop it into the Offset. While it sits in that account, it reduces your Interest Bill by the amount in Offset (effectively “paying” you Interest of 5% WITHOUT it being taxable – cf savings account).Once you decide what to do with that windfall, just withdraw it (no bank application, as per redraw – no drama, it is YOUR cash). The property mortgage that was being Offset now charges you more Interest again – and, if an IP, the mortgage IS deductible.
There is a reference within THIS link :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Go check it out (look for a post about “Offsets”)
Benny
Hi all,
Aside from all of the number crunching, fact-finding, pavement pounding, and deal finding related to property investing, there is another HUGE side of the equation – the emotional side of property investing.For those starting out, it is COMMON for well-meaning family and friends to WARN against something that is foreign to them, or of which they have heard bad stories. Who HASN’T heard of marketeers who fly potential buyers from Sydney or Melbourne to the Gold Coast for FREE – yer, right – to buy the “deal of a lifetime”, only to have them unload an over-priced, poorly built, new house in the back of beyond – and then call “Next!” while that buyer licks their wounds?
Emotional responses can help keep you out of trouble, but then they can also take the wind out of your sails as you endeavour to chart your own property investing course. Not their fault, nor yours – but this emotional side of things deserves a whole new look.
Can you add to this conversation where a poster asks about that very thing? Post your reply in that thread….
https://www.propertyinvesting.com/topic/5013926-fear-2/Benny
Hi Curtis,
Just in case you didn’t find this oneA common question when investing is, “Why use IO loans and not P&I loans?” Click below to read on….
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697976Benny
Cool, Savannah – do drop in to tell us all how it goes !! Good luck,
Benny
Hi Suzy,
Some good thoughtss already – here’s mine too…. Keep the “numbers” in mind. What if you might need to wait 3 weeks to get someone to rent it at $420/wk? Or, opposed to that, what if someone will pay you $400 straight away?Using those numbers as an example:-
Run the numbers, and you will see that you will lose $420 x 3 = $1260 by holding out. But if you take $400 and it is taken straight up, then you are only “losing” $20 a week based on what you “might” have got. Now divide $1260 by $20 – you get 63 weeks that it takes before you “lose” $1260. But, you might have signed a 6 month lease with your $400/wk renter, and can put the rent to $420 after 6 months. Then, you have only “lost” 26 x $20 = $520. And your mortgage will be mostly covered in all of those weeks.Benny
This has been the most interesting poll thus far.
Even at the time of creation, I wondered if we should have an “All of the above” button. As of right now, four out of the five options are ranking between 22% and 28%.
Certainly several things are having (or could have) a major impact on real estate values. Perhaps it depends on which headline is screaming loudest that day?
For the record, here are the values as of today:-
Which of the following most threatens the future of Australian real estate values?Government regulation …….. 25%, 58 votes
An oversupply of housing …. 22%, 52 votes
Higher interest rates ………… 22%, 51 vote
Economic trouble overseas . 28%, 65 votes
International war ………………. 3%, 8 votesBenny
Hi cs_rlewis,
Re this:-As for the westnblue story, do you think his high rental yields are constant year in year out? If he’s bought in a mining town then perhaps the rental yields will decrease once a boom has finished – hence why hes only fixed his rates for 2-5 years.
A quick look at what he has bought, and I see some exposure to mining towns (Broken Hill e.g.) but then the purchase prices and returns are such a tiny part of the overall portfolio that I would think he has little to worry about.
Re fixing his rates, there could be multiple reasons :-
1. A 3 year term is often the cheapest.
2. If rates generally appear to be going DOWN, why would you fix for a long period at a higher rate?
3. Darren has stated he wants to lower his overall LVR – many Fixed Rate loans limit the amount you can pay off them.
4. A Fixed Rate can be a major road-block if wanting to SELL properties to re-engineer a portfolio so having loans short-term prevents long-term headaches.You seem to be getting the idea that there are lots of ways to do things to maximise the benefits to oneself – that starts with knowledge, and a great team can provide a large chunk of that.
Benny
One more recent read is a succinct post by BuyersAgent. In it, he talks of HOW to keep a portfolio growing. Useful comments re DSR, LVR and the balancing of the two.
https://www.propertyinvesting.com/topic/5014274-how-do-people-buy-multiple-properties/#post-5014359
Here is a teaser from it:-
Overall it is a balancing act between LVR and DSR. You want growing equity (LVR goes down) and growing income (DSR goes up).
If you can balance these two with every purchase, you maximise how many you can buy.More in there, and all good – go click the link. In fact, the whole thread is called “How do people buy Multiple Properties?” so there are other useful snippets sprinkled throughout.
Benny
PS – for the newer reader –
LVR is the Loan to Value Ratio (how much you owe on a property divided by its value) e.g. Owe $300k on a property worth $400k and the LVR is 75%
DSR is the Debt Servicing Ratio (the percentage of a borrowers income that is available to cover loans). Note that DSR includes car loans, credit cards, as well – over-use those and a house loan might be hard to get. Talk to your Broker for more detailed information.Hi ZC,
is there any lenders out there that will be more generous?
From what I read from the Brokers on here, “Yes, some lenders are more generous.” More generous than yours? Well, that depends on who you are banking with. Share more information upfront, ZC, and you will likely get more useful information back to you.
And me? No, I am not a Broker, but let’s see who else replies – they may the answer you are looking for…..
Benny
Hi Christina,
Does anyone have any advice on financing your first ip with nothing but cash in the bank and no income? We will have (roughly) 30k USD.
Since I gather from your words that you will be buying in the USA, I would suggest you check out the forum called “Overseas Deals”. In there, a few people are discussing the USA property market (mainly for Australian Investors) but you will likely glean some useful information just by reading the posts in there.
Benny
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