Hi!

Who is "we" ? Is it you and your partner, or are there others living in the house?  In other words, do you actually require this extra space, or do you just want it?  If you just want it, ask yourself what the reason is.

You'll need to work out what the cost of living will be upon your retirement.  Also you'll need to work out how much per year your super will pay you.  That will tell you what the shortfall is that property is proposed to come up with for you.

I've been running some calcs.  My assumptions have been :

That I own my own home and it has no mortgage on it.
That my cost of living, provided I don't take an overseas holiday each year, is about $30k.
That the cost of living will go up about 8% a year.
That my super fund will produce 8% growth a year (I'll be pretty ticked off if it doesn't, and am keeping a close eye on it).
That rental return will increase between 5% and 8% per year.
That there shall be at least 2 weeks per year allowed for vacancies in my rentals.
That 3% of all return shall be spent on property maintenance.
That 7% of all return is spent on property management.

I figured out that my super is pretty pathetic, and the only way for it not to be is to shovel overwhelming amounts of money into it and hope the fund manager manages it well.  And frankly, I don't wish to work lots and lots till I am 65.  So this for me is not an option.  I have decided to keep my super fund, but do the rest with property.  That way I do not have all my eggs in one basket.

Take a close look at the performance of the super fund you're in.  You might find that all your cash is in a "Balanced Growth" fund and that the performance is dismal.  Talk to your super fund about whether you can have your cash allocated in a different way in order to achieve a higher performance. 

The general idea in property seems to be buy and hold.  In other words, buy, add some value (eg renovation, or spruce the place up a bit), and rent it out.  You are on a massive salary and therefore you will absolutely be in the top tax bracket.  You  will be able to negative gear any losses on investment properties against your income.  (eg income = rent, costs = council rates, insurance, mortgage interest etc… sadly income does not exceed costs, so you make a loss, and declare it on your tax return and get some money back off your day job tax).  Also if you get a quantity surveyor to do a depreciation schedule on the property, you'll get a tax refund for that too, because your asset is depreciating in value. 

Take a look on the property websites (eg http://www.domain.com.au) to see what certain kinds of properties cost, and what they command in rent.  You will be surprised.  For instance, the rental return is often higher on a house in the suburbs, than it would have been on a townhouse on the city fringe.  This, together with the vacancy rate stats in the magazines (eg Australian Property Investor) will help you select a town to invest in.

You might work out that in addition to the super you have, you might require a rental return from properties totalling say, $500 per week, after expenses (ie insurance, council rates etc).

Sorry, I think I just gave you even more to think about!

Always have an offset account against each loan.  Put all money in there instead of on the loan.  Then you can pull the money out when you want.  And in the meantime, it holds off the interest.

Hm Docklands.  There has been a massive oversupply there.

Right well yes extra money in the pot changes things!

Obviously you guys need to work out whether you want to buy in joint names or what.  Relationships can break down, and it can cost a lot of money splitting up the assets.

That said, if you proceed, it is probably best to put the investment property in your name, simply because you are the higher income earner and therefore there are more tax breaks to be had negative gearing on your salary.

How about an I.P. unit in Northcote, and at the same time, plunging lots of money into your own mortgage?  (well, not onto the mortgage – into an offset account instead so you can pull the money out later if you want to)

Hi jackyngew

The overriding factor is going to be your ability to service (ie pay back) your home loan and also an investment loan.  The banks tend to only count 80% of potential rent as likely income.  It looks to me like you're on a principal and interest loan, and are paying almost $2k per month towards your home, does that sound about right?  If that is the case, you've realistically got about $900 a month to spare for investments.  Does that sound about right to you?

Some people will take the opinion you should knock your home loan down more first (as the interest is not deductible).  Others will have the opinion that you should get an investment property.  I don't have an opinion in this regard. 

If I were in your shoes and had decided to get an investment property, I'd probably want to be a bit conservative.  You don't want to back yourself into a corner financially and be unable to afford the situation if you have a vacancy, or a tenant that doesn't pay rent.

Perhaps take a look at a property in Melton, or perhaps a unit in Ballarat?

Hi propertyboy

I actually don't know the answer to your question, but know that a quick call to the council planning department would answer your questions

If looking in the West, Tarneit.  Due to receive a new train station on the Werribee Line at Williams Landing.  Due to receive another new station on a new section of line in Tarneit itself.  Expansion of Werribee Plaza on the horizon.  Loads of schools…

Or you could take a punt on Laverton.  It is indeed going up in value due to its train station upgrade, and proximity to city.  It's still got a way to go in terms of cleaning itself up, however developers have already moved in and started work on building units and townhouses, so that is all underway…

Follow the infrastructure is a good one.  ie look at where freeways, new train stations and train lines are being built.  Also look at shopping complexes.  People cluster around Westfield

Hi dreamerman.

Hm yes, dilemma.  What are your wife's concerns?  Sounds like you have enough cash to put down a 20% deposit and also pay for the stamp duty on a property, without having to offer up your home as security.  Perhaps your wife needs to hear what the backup plan is if something goes wrong (eg you get zero tenants – unlikely).  If you've put down a beefy deposit, you could always sell the IP.  Your home would not be at risk.

Your money in the bank may not be keeping up with inflation.  Inflation runs at about 8%.  Your bank account might be paying a similar rate of interest, however your interest is being taxed.  So your money is actually depreciating.  Each year it will be capable of buying less and less stuff.

Perhaps take your wife along to a few seminars?  Might be helpful to have her hear the message from people with similar goals..

I got a quote for such a service recently.  Pretty sure it was around the AUD$400 mark.