Forum Replies Created
Some fantastic advice on here already and good to see so many investors starting young.
In response to TK Line's fears – it's a fair observation but people in the market have been making similar observation on the mining boom for decades. Property prices won't come crashing down out of the blue without some form of catalyst. In my view, major CBD properties will continue rising based on the supply / demand dynamics until the next financial crisis.
The key to any form of investment is to not pay more than you can afford. Do the numbers, understand your repayment requirements, understand your returns. If you're dipping your toes into the market for the first time, it could be difficult and take advantage of free property investment calculators that will help make you a smarter investor.
Good luck!
Jase
Hi Skyes,
Good on you for being proactive. I bought my first property immediately after graduating from uni and before I even started my graduate job so it's definitely achievable. Here are my steps:
1. Worked my bum off during uni to save up a reasonable deposit. Part time jobs, internships, scholarships etc. It's not easy, but it's possible.
2. After finishing uni, found a full-time job with a steady income. You don't necessary need to work there for an extended period of time but you'll need to show the bank your employment contract. The bank needs to get comfortable that you can pay off your mortgage
3. Obtained preapproval – go to a mortgage broker or talk to as many banks as possible. Take advantage of the first home owners grant!
4. Ask you parents / family for a guarantee if possible if you're short on your deposit
5. Search for properties that you can realistically afford. Use a free online property investment calculator to do the maths. Never pay more than you can afford so this is probably the most critical step
6. Spend a lot of time talking to real estate agents for areas that you want to invest in to ensure you're front of mind when they have a new property to sell. Although historical prices are no reflection of future prices, generally speaking, property prices don't inflate as quickly as shares. If you find an area that is affordable, chances are, property will come to market sooner than laterGood luck and let me know if you need a hand.
JaseWow, sorry to hear that Been Spruiked.
Let this be a lesson for everyone. If it's too good to be true, it's probably too good to be true. Do your research, analyse the numbers, get professional conflict-free advice and don't put all your eggs in one basket.
As a general rule, a lot of these Property Investor Seminars end up trying to sell you a property. If that's the case, they're not trying to help you, they're trying to sell you a property. I.e. they're making money, not you.
Good luck everyone. Keep a level head, don't be afraid to ask stupid questions and make educated investment decisions.
Cheers,
JaseOne of my colleagues actually advised the federal government on NRAS. Generally speaking, it's a good initiative but although the developer / manager benefits from the tax scheme, a lot of these properties are actually not based in good capital growth areas. Fundamentally, NRAS is in the interest of society rather than for investors. You'll invest in NRAS properties for the purpose of net yield + the intangible social benefits. Your total financial returns aren't going to be fantastic if capital gains are low.
Obviously there are exceptions like anything else.
alan1237 wrote:Hi guys, I'm a newbie…I've a PPOR with $600k with loan around $450k and an IP with $520k with loan around $300k, currently renting at $320pw.
I just signed the contract of an off-the-plan new PPOR and I'm going to sell my existing PPOR to settle the new one.
I'm not sure if I would have to sell my IP or not…otherwise the monthly repayment will be very high with both new PPOR & IP…
Please advise…
Hi Alan,
Interesting question.
Why don't you turn your first PPOR into an investment property by renting it out? Given that you've already created some equity in the first property, you can convert your mortgage for all of your properties into interest only loan with an offset account. This will reduce your repayments significantly given that you've got rental cash inflow, potentially over time your interest payments will reduce as your offset account increases, some negative gearing tax benefit and a lower repayment rate.
I wouldn't ever recommend taking equity out of your property and investing it into shares. Recipe for disaster if you're only starting out in the investment game. Plenty of professional hedge fund managers who geared up their funds to invest in equity have gone bankrupt over the last couple of years.
You can try one of the free suggested calculators to see if this solution could work for you.
Let me know if you need a hand.
All the best,
JaseHi Maxi80
The deposit is always the first step. Unfortunately, you need to go through the boring process of actually creating a budget to understand what you're savings situation is and if you can cut back on your spending.
There's some free websites out there that helps you do this but a good one that I've seen can be found on the NAB website.
http://www.nab.com.au/wps/wcm/connect/nab/nab/home/personal_finance/1/4/7
Whilst it's boring, it's pretty important if you find that savings is difficult and you're serious about property investment.
Second step, are your parents willing to guarantee your mortgage? Some banks won't even require much of a deposit if your parents are willing to guarantee you. I'm not suggesting this as the best option to go with but it's a potential solution assuming your parents have some equity in their property.
Alternatively, find more work and earn more income if possible.
Final step, talk to a mortgage broker or bank. Find out how much you can borrow based on the savings that you have and the guarantees you have in place.
Good luck!
Jase
Hi Scotty,
It's fairly daunting and not easy to get up to speed with the many strategies that's available.
If you're starting out and you really want to just make money off property investment, I would typically go for a positive gearing strategy with the hope of making good capital gains. Now that's easier said than done – depending with where you live, rental yields in Australia are pretty low and often lower than interest rates. That means that you're likely to be negatively geared anyway.
The money you'll ultimately make especially when you're first starting out is from capital gains – so look for high growth areas.Ask the real estate agent for as much details as possible.
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Good luck and let me know if you need a hand.
Jase
Hi Jake,
Good on you for taking the first step in securing your future. I bought my first property when I was 21 with a lot less in savings, so you're already ahead of me when I first took the plunge!
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My second suggestion, find yourself a mentor. Talk to your friends, family and others who you trust that have made some money from property investing. You'll be surprised by how willing people will be in mentoring a young and ambitious person like yourself.
My final suggestion, never pay more than you can afford. This comes down to knowing what mortgage is appropriate and running the numbers. Again, use the website to help you in this process.
Good luck and let me know if you need any help.
All the best,
JaseHi bullet46,
Welcome to the forum! Congratulations on your property flip – $100K in 12 months must feel good.
Good question. What are your goals? Either strategy, you will most likely need a mortgage.
What I can suggest to you is to understand the numbers back to front. Calculate what your mortgage repayments will be, what your cashflow will be based on the rental yield of Toowoomba, look at the historical CG in Toowoomba to get a feel of how much equity you will create based on your strategy. Be aggressive in the analysis to leave yourself some room for error.
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Generally speaking, rental yield in Toowoomba is around 4.5%. You will most likely be negatively geared given that interest rates are much higher so you're more likely to get a tax relief like Anthony suggested rather than burden. I would sit down with your accountant if you're worried about this issue though.If the investment is negatively geared, you will need to inject more out of pocket cash to maintain the property investment. This also means that you will ultimately only really make good money from the capital gains when you eventually sell the property rather than the cashflow because you're renting it out. Historical capital gains has been quite low over the last couple of years in Toowoomba so you need to be comfortable with the future of the suburb (are there catalysts for capital gains? New infrastructure maybe?).
Therefore, it depends on your goals:
– If you want to finally settle down in a nice home and can afford the burden of mortgage repayments based on the numbers, then either the first or the second strategy could work.
– If you want to live off the cashflow of the property, either strategy is unlikely to be able to achieve this for you.
– If you want to do this for tax relief purposes, then either strategy could work since you'll probably be negatively geared on both (but it also means more financial pressure).
– But if you believe in the capital gains story of Toowoomba and want a place to live but also an investment property to sell, then the first strategy could work depending on the numbers
– Finally, if you want to property flip again and believe in the capital gains story of Toowoomba, then the second option would likely be more profitable if you eventually sell the property
Apologies, I know the above is a little vague but hopefully it gives you food for thought.
Good luck and let me know if have any questions.
Jase
Hi BigTeddy
If you're after property data, a good alternative to RPData is the real estate instute of australia property data website (http://www.realestateview.com.au/propertydata/) or InvestSmart (http://www.investsmart.com.au/property-research/NSW/2038/Annandale.asp.)
Furthermore, MID has an innovation patent awarded wizard which walks you through a range of property databases as you use it. It's 100% free and quick to sign up. http://www.myinvestmentdecision.com.au
Let me know if you need help.
Jase
Hi Jeff,
Good on you for being proactive and doing the research! Try MID – it's a free property investment analysis calculator at http://www.myinvestmentdecision.com.au
It's completely free. Takes a few minutes to sign up and easy to use.
The website's been awarded an Innovation Patent. It's actually much easier / less prone to errors than excel. Should be able to answer all of your questions.
Let me know if you need a hand.
Hope this helps!
Jase
Hey 4jojo,
I actually just went to a property tax seminar last week. They confirmed to me that a typical company, ie an activity run with the intention to make a profit, does not have access to the capital gains tax discount. I can’t comment on a discretionary trust, sorry wasn’t looking into that area.
I can tell you where you can find such information though –
Register for this seminar: http://www.ato.gov.au/individuals/content.asp?doc=/content/00154616.htm
It’s free and you can ask the tax office rep yourself.Good luck!
Hey Karen,
That update has gone through. There is now a question you can use to disable the loan features. Try out the helpers on the right hand side if you need help filling in items. The tool works best when you can give us all the inputs, but the helpers are there to assist you in estimating the value.
Have a nice day.
Jason
Hey Karen,
Thank you so much for your feedback. Definitely a problem there so cheers for pointing it out. I’ll get our dev team working on it asap.
Do you have any other curve balls you’d like to see the system do? If you have the time shoot me an email – jason at myinvestmentdecision.com.au. I’d been keen to hear it if you have the time.
Regards
Jason
Good to hear Nicole. Let me know if you need any assistance, or you can shoot a message through the feedback form’s that are located on the bottom of every page.
Understanding growth isn’t easy – 10 year growth rates are a great start/ Use the CG chart that you provided to find a suburb that has had decent 10 year growth, then look at the reason why it has had that growth. Don’t discount suburbs that don’t meet the 10% though,
Consider this: perhaps a suburb has had excellent growth in the past 9 years, and then in the 10th year had a massive decline. That decline could signal that there are fantastic deals available in that suburb. So in this case you would investigate the reason for the decline. Perhaps it is a once off issue that has occurred, and perhaps dozens of properties in the area are undervalued because of it.Overall I must agree with Leo – growth is important. But you need to tie it into your investment strategy and work out your long term goals.
Good luck!
my 2 cents – you can negotiate with the banks. If not on interest rates, then at the very least on establishment fees etc. If you go with a mortgage broker, it costs you nothing out of your own pocket, but the banks need to pay the broker. There are a lot of brokers on the forums who i am sure can get you a better deal with the big 4 banks than the advertised rate. I guess when you talk to a broker they’ll likely give you the best deal they have to offer, but with the banks, the only deals on offer are the ones from that bank.
Good luck!
Just to reaffirm what the others have been saying –
If you are looking for capital gains, the more land, the better. Land appreciates in value. Property does not appreciate very much. You can always build a fresh property to unlock the value of the land, but you can’t create new land
If you are interested in comparing the long term financial views of the investments, run them through myinvestmentdecision.com.au. You’ll be able to see a long term view of investment from a financial point of view, which will hopefully further the case of one out of the two properties. Just as Nicole said, you really need to work out your goals in order to choose between the two properties.
Just a note, I’m assuming that you are buying this property for investment purposes.
Hey Mick,
First of all – excellent effort looking into this strategy for investment. Alot of the 23 yo’s I know aren’t even that interested in property. We all know the earlier you do it the more years you’ll have.
I totally agree with Leo on this topic that while advisors are going to be essential, you really need to start learning about the topic yourself first. I’m sure you have already done some good research and coming to this website is also a great step forward. Keep reading and make sure you bias new and fresh information.
As for a specific advisor, an accountant will be essential, but always remember that they are your accountant and they will not provide you with the means to say whether you should make an investment or not. They will only tell you whether you can afford it. From this point of view I would recommend you try to find more than just one advisor, and take on a property mentor. Perhaps you have an uncle, or a friend who is a seasoned property investor. They might help you out if you simply buy them a coffee or lunch.
When purchasing through a company, don’t forget that there is no capital gains tax discount, however, since you are looking for a positively geared property, this may imply that you are alot more interested in cashflow then in capital gain. I would closely consider the tax implications of this, and in which case a tax advisor would be a good choice of person to talk too.
Good luck with your strategy!
1. Considering this to be my fist-time venture in IP, what budget should I limit myself to (Supposing the banks are approving a loan of 300k).
Stick to low budget to begin with and invest for a positive cashflow rather than looking at places with a high capital gain. This way you can begin to pay for the expense of renting with the money from the investment property. This will come in handy when you purchase your own house and are able to use the extra income to pay down your residence.2. What sort of investment options do I have (apartments/units/houses) for a budget of 250k including stamp duty and other costs.
Apartments and units are generally what will be available, houses for this price you may find need some value add to get a decent yield.3. Do houses generally have a higher capital growth against apartments? Do apartments still qualify for a sound investment option?.
Houses will have a higher capital growth generally because land appreciates in value. Buildings only appreciate in value when there is increase demand for them.When looking for good places to invest, I normally go looking for suburbs on rp data and invest smart that have experienced the biggest decline in value on a year on year basis. From then on it is matter of understanding why there was decline in value. If the reason seems temporary then you are more likely to bag a bargain. Remember – if you get a good deal on a property, pay under the value – this increases your rental yield. It brings you closer interest coverage.
