It finally happened!

I'm pleased to announce that I finally made the plunge after finding a property that was suitable to my lifestyle and future plans. I found a nice, well-positioned 3bedroom townhouse in Maylands, which is walking distance from the river and approximately 5-6km from the city.

The property came in under 500k, which allowed me to avoid paying any stamp duty whatsoever as I am a first home owner. I quite like the design of the house, however the current choice of colour scheme for the wall paint is quite average, and some fittings could do with replacing and a modern touch. Likewise the kitchen and bathroom are sufficient, and definitely will suffice for now, but a handymans touch and some ongoing renovations wouldn't go astray.

The real estate agent marketed the property as a "paint and profit" and I couldn't agree more. An identical townhouse in the complex went for $60k more only a few months ago and I am of the firm opinion that I could have the property I just purchased in a better condition than that one for approximately half that price, or maybe a bit more.

I have almost no experience renovating but I feel like this will be a good opportunity to learn and I expect to make some (okay many) mistakes along the way.

First home purchase down, next one to come soon (hopefully!)

Here we go.

Dan

Ok guys… just an update on the situation as it stands.

Have met with mortgage broker and they have advised me that due to my financial circumstance (good loan serviceability, stability in job/house, no debt etc.) that I could secure a mortgage of up to 800k for a first house! 800k!

I was shocked to figure it would be so much.

I plan on spending half of that (400k), or thereabouts, to secure a low maintenace PPOR and will be looking towards my first IP within 12 months when I've put a bit of equity into the offset.

Has anyone here used a buyers agent to find a house? With half of my time spent working away I'm not sure I will be able to find the right place, visit it and do all the communicating back and forward at the approrpriate times on my 3/3 roster. I've been quoted around $10k for a buyers agent fee on a 400k house, but told it was tax deductible and could be added to the final loan amount.

I really am flying solo on this one. I have no hesitations in doing this by myself. But, would is be a smart move to get someone like that on my side?

Other than – what are the next steps that take place in purchasing a property? I've been told I could, and should, bullshit a bit (excuse the language) in terms of having finance preapproved, even if I do not, as to speed things up and look more attractive to the seller.

Presuming I find a place that I like and contact the realtor to view it, how does it progress from there in terms of putting in an offer/ receiving a counter offer / getting finance etc?

Sorry for my ignorance. Just trying to get my head around this all for the first time.

Cheers

– Dan

Hey,

The loan structure makes sense now. I think it may cost me a bit more than I had earlier calculated, but it's still not going to be a huge cost to me at the moment. Thanks for the advice on the API mag data, I'll check that out shortly.

Will be heading to a broker in two weeks time, when I'm back in Perth. I'm thinking your idea of going for a double mortgage, one for a PPOR and one for an IP, ($700-$750k), is looking more viable at this point.

Currently, I could buy one of the apartments in the complex I am in at the moment which is exactly the same as I am renting only pay an extra $9500 p/a to own, instead of rent. I will barely notice the difference. It would be remiss of continue renting when buying is so affordable at this point.

And the leftover of the loan allows me to spend up to $375k on an IP. I've got several in mind with expected rental return around the $400 p/w mark or thereabouts, with the rental shortfall to be a manageable cost to myself. (Hopefully the broker/bank sees it this way too)

I do have my eyes on a corporate space (relatively small, but modern and <5km from CBD, near public transport etc.) that is going for $330k at the moment…… has anyone had experience with buying corporate real estate? I've heard from a friend that corporate rental returns tend to be higher, and you are able to lock businesses in for longer contracts as tenants. How does property maintenance and tenant sourcing compare to a residential IP? Is it practical as a first IP?

Also……… sorry for the gender assumption faux pa Merlin! I blame your male looking profile avatar

Cheers

– Dan

One last thing…

I've entered the calculations into a calculator and I'm getting pretty big differences here (based off 360k mortgage/6% interest/80% rent return of $400 pw). The shortfall I'm seeing between the mortgage repayments and 80% of the rent comes to $178 p/w.. or around $9256 p/a. This is significantly more than what you've mentioned? Can you tell me how you came to your calculations? 

Not to mention that I will be out of town for half the year, so I will definitely need to seek out property management to solve any tenant issues while I am away. I figure this will incur additional fees to the 80% rental return that is calculate, which would create an even greater disparity between mortgage repayments and income garnered from rental return. 

What percentage, or flat rates, would property management services charge to look after this type of IP?

Cheers

– Dan

Hey Merlin,

Very interesting idea. And it makes good sense. But how likely is it that I could secure a $700-800k loan with no collateral (no existing PPOR/IP's under my name)?

Sadly, I need somewhere to live too. And while I'm sure the divorcees would love me, I kind of like my living situation at the moment, albiet an expensive one.

I think pumping cash into an offset on a PPOR before selling or turning it into an IP is the best plan of attack for me at this stage. If I had somewhere else to live I would have no hesitation in using my earning power to go for two rentals at the same time, rather than just one. It is something I will probably look at doing in the not too distant future.

Your wealth of experience on the subject seems very relevant though. What kind of property should I be looking to get into now if I want the potential of a cashflow neutral/positive investment in the future?

Also – how much should I be expecting to pay a broker for the whole "first home" experience?

Regards,

– Dan

Hi Derek,

I could definitely sell the shares to shore up $25k and have some left over, which it sounds like I may need.

Could you provide an estimate for how much the extra fees (Loan establishment, valuation, solitors fees) would total? Is it under $10k? And are there any other fees or expenses in purchasing an established house that I should know about?

Cheers

– Dan

Gents, 

I'm very glad I asked you all this question. You've definitely shaped my decision to go with an interest only loan and seek out a broker who will accommodate this wish.

Armed with the new knowledge that stamp duty concessions are available to first home buyers making a  purchase under 500k, I think it stands to reason that I will limit my purchase to take advantage of this concession. 

How feasible is it to buy a 600+ sq.m property for a first house with the goal to subdivide? If I undertake an IO loan, and have 200-300k in the offset, will this count for anything when I finally look to subdivide and build?

Would it be preferable to go for a few high rental yield IP's, or CG IP's before looking to get into a subdevelopment IP?

Also, my current "savings" is invested in shares. I plan to sell these, place the money in a savings account and use this as a deposit. Will it go against me that I haven't had a steady period of saving, as I have been siphoning my money off monthly to purchase more shares? Surely I could show proof of a growing share portfolio to indicate that I have been saving money on a regular basis?

Cheers all

– Dan