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Thanks duckster. That was a good read.
The way I see it is there is really no difference. I'm very discipline with my cash. The money I pump directly into the loan won't be taken out again unless it is used as a deposit elsewhere which as you said, would still be tax deductible.
So, guess I should just go with the more basic loan and get the lower rate. It would be nice to have my income go directly into the account because as of now, as soon as it goes into my account, I split it. A separate amount for bills, separate amount for savings. The bills amount sits in an account and is direct debited so I don't have to worry about them from month to month. I guess that money would be better in an offset but it works and is only a small amount.
If I'm right, it should be this (a fictional example and say I have 30k spare).
A 300k loan at 8% = 24k in interest. With an offset, I pay inerest on 270k meaning 21.6k in interest.
Taking the same loan (300k) at 7% = 21k in interest and the 30k would still be available to use or pump into the loan lowering the interest again.
Is that right? Seems I'm a lot better off taking the lower rate and putting it directly into the loan.
Thanks. Yes but the banks take into account the current rental income and also the predicted rental income of a new place putting my annual income around 75k. I was told it’s all about being able to service the loan which I can even on a measly wage plus two IP’s.
But, I don’t intend to use what the bank has made available. I’d like to have the next one a lot smaller as to not risk putting myself in a bad way but right now, it’s comfortable. The current IP is costing me nothing to hold.
What is better when looking to buy another IP?
Is it better to have a deposit saved or to show equity? With that 30k, should I pump it into my current loan or leave it for when I purchase my next IP (hopefully with 8 weeks if I can find something)?
Thanks.
Anyone know of a good Accountant in the South Eastern suburbs (Melbourne) area? Even in the city as I work there.
I didn't list everything on purpose as I wanted to guage pure reactions so thanks for that.
Actually, this is irrelevant now because they've decided to onsell and take the 30k profit (that's a net profit) so no need to get into this discussion.
Thanks though.
Thanks Michael. Your help has been great.
I actually made a mistake. I took another look at the plans last night and realised that the difference in size is actually 80m2 and not 30m2 like I originally mentioned. Block 1 is 570m2 and block 2 is 650m2. The easement is 3m.
Would this change anything? As I've said above, main concern is that once a property is built, I'd want to access that equity as soon as possible so could the extra 80m2 possibly add more than $15,000 in equity?
Like you said though, this is a long term plan. I want to do this over and over again so long term, equity should be plentiful anyway. In the short term though, I need to weight up whether $15,000 in cash now is better than possibly double or more later on.
So again, does 80m2 extra change your advice at all?
Thanks Michael.
I'll be working on it so hopefully under the 150k mark. With the land valued at around 180k (smaller land), it should consist of more than 50% of the total cost.
I want to start again straight away. Whether that is going for a new rental again or purchasing an already established rental, the sooner the better so a re-valuation will happen as soon as I can get the next one.
I'd just hate to make a mistake and realise in 5-10 years that I blew a possible extra 100k in equity although even just typing that sounded a little far fetched. I even can't see the extra land giving anywhere near that much but wanted to post here to make sure.
Thanks Michael.
I should have mentioned this earlier but land is actually valued at about $30,000 more than those values. That's just my portion that I am taking but it's still $15,000 I suppose.
What you have said has all made sense so far. That extra 15k could effectively be a deposit elsewhere. You just don't see it like that when considering a loan because it is only an extra $1,400 or so annually at a 9.5% interest rate.
My biggest concern is property value. I know the average renter won't worry much about an easement or lack of 30-40m2 but when the property is valued, will those factors be taken into account? I'd spend an extra $15,000 now if it meant double that in equity. Like, put a house on the smaller block and have it valued at $400,000, I'd spend the extra if the bigger block was going to be valued at $430,000+.
Wouldn't that extra $30,000 in equity help me more in regards to a deposit on something else over $15,000 in cash?
Thanks Michael.
Smaller block with easement is $145,000. Larger with no easement is $160,000.
New Estate so all blcoks are vacant at the moment. They all went on the market (22 blocks) and sold out within a week so the popularity is there.
For the short term, no chance of dual occupancy so only single for now.
Thanks.
How about property value? Would it influence that because equity in this will play a big part in my next purchase.
As I said all along though, don't plan to sell for a while. Won't redevelop as units as it's an Estate and not allowed. Keeping long term as a 4 bedroom house as I know it will last.
I can't remember how big the easement is. I don't have the plan with me at the moment but I'm pretty sure it's not that big and only to the back of the block. It won't interfere with the house at all. Only if I wanted to throw a shed or something up for the tenants down back.
Does that make a difference? For $15,000 and knowing that it'll only be used as a rental, should I save that $15,000, put a house up and be done with it or will that extra 40m2 plus no easement have benefits in regards to equity and value, which is more what I'm concerned about.
Yeah, thanks.
Personally, I'm not in it for a quick buck. This property will be kept for a long time (hopefully) because I know how good the builder so I know this property will be very sound and not have the associated problems that come with a cheaply built property.
I guess everyone is right in regards to that if it works financially, why not do it. It will be negatively geared early on but I haven't factored in the tax savings yet on a new property so I might even be able to make it a positive cash flow after not too long. Another benefit is that the area where the property will be built is putting in a multi-million dollar water feature so I'm pretty positive. It will be tough early on but what first property isn't I suppose.
I always just thought that first time investors started off small and wasn't sure if it was the right move, etc. Hopefully it works out.
Thanks everyone for the comments.
Oh yeah, I'm very positive. If all goes according to plan, I should be able to go right into buying another property based on the instant equity the property will give me. I got a discount on the land and a relative is a builder and I'll behelping so the house should be a lot cheaper to erect also.
My main concern was I was wondering if anyone had swallowed something big in their first go. I mean, no experience or nothing. Then again, I reckon a small purchase (200-250k) would make any first time investor think the same thing, etc.
I'm thinking that is the way I need to go. Look for the cheapest property just to get me started. I know once I start I'll be hooked and it'll get easier and easier.
What do people think of Pakenham? 1 hour East of Melbourne.
I've been told that I might be able to get a cheaper property down there and with the new Pakenham bypass opened, maybe that is a good option.
Richard, thanks for the offer. I have sent an email off to you.
Thank you everyone for your insights. I guess I'm having trouble because like everyone says, the first one is the hardest.
I just want to make the most of moving back into home. My biggest hurdle now which I have to work through myself is what is feasible for my situation. How much I want to spend? What type of loan can I service, etc.
Up until now I've only been looking at houses and apartments right in the CDB but it seems a lot of people get started with a unit which is a little cheaper.
I might have a look around at these types of properties now to widen my net. I just need to decide where to look and where to buy now. Melbourne and the suburbs surrounding are very pricey so I'm going to have to try and find an area where the cost isn't too big for me.
Thanks for the replies.
I do tend to agree with the sentiments above. After posting I just did a bit of research on the internet and I've been reading the same thing so I've kind of cooled on the student accommodation.
Also, not jumping into PI just because. It's all a long term goal and something I've been looking at for over a year now. I plan to buy and hold. No real turnover unless really needed and either look at cash flow (eventually) or capital growth.
I'm just having a hard time getting started. I'm only doing this myself. Not married or with a joint income or anything. I don't earn a massive amount but I'm a very good saver and have saved reasonable deposit and continue to save until I purchase. I have no debts and moved back in with my parents only recently for this purchase so I won't be paying rent.
Problem is the cost of property these days makes it very hard. I could look to regional areas (I actually grew up in Gippsland so I know a few regional areas). As always, I always wonder whether that's worth it or spending that little bit extra to get something in the suburbs wih more capital growth potential.
I'm going to start a new thread just to see how people got started in the game. That's my biggest problem. Just the initial move because I know once I get going, I won't be able to stop.
Thank you for the replies.
My biggest problem is the initial outlay. I'd love to buy a house on land around the suburbs but the cost of doing that for someone like me is too great. The reason I was looking at apartments was because of the smaller inital outlay.
I understand that these inner suburban apartments/student apartments may not appreciate in growth but I wouldn't be buying them for that purpose. The whole purpose would be the high yield and with that high yield, the money that I put into the loan and other investment opportunities I will take on, I'd hope to own it outright in the near future and then I wouldn't have to worry about selling it. Just live off the rentals. If the rental demand is there, can someone tell me why that's a bad idea? Instead of buying for CG, buy for yield and build up a sizeable annual income.
On the topic of my Dad, I've thought of that before. Main obstacle I guess is the price of land at the moment but given that's the case and the fact I can help my Dad build them when I have free time, you'd think it'd cost us less to put a property on the land. I could easily move in for 6 months and save on the tax too.
On that as a whole, I noticed you mentioned that it could be done a couple of times before it would be considered a business. What did you mean by this? What business would it be? I'm only asking because I've always had the dream of going into business with my Dad and using his skills and my skills to create a business. If it's a viable option, I'd really like to look into it.
Thanks
