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Hi Anthony, good on you both for starting so young. Firstly I assume the property was built after 1985 and therefore you would have a depreciation schedule prepared.
According to an online loan calculator the repayments for your loan would be:
Assuming 10% deposit of $40,000$360,000 @ 7.6% = $526 per week (interest only)
Less $360 week and you have a shortfall of $166 per week.
Is the interest fixed?
You have lots to consider, your combined income, is your employment secure, any children or planned soon, current personal loans/debts? Obviously the answers are not for this forum but are crucial for the big picture.
Do you intend to manage the property or have a property manger handle it for you?
Have you spoken to your Mortgage Broker, Accountant, Solicitor?
It does sound like a good deal, though many dont believe in Neg geared property. ( a mix is fine, if your income can support the shortfall) It would obviously take a while for it to become CP.
Do you own or rent now?
Can you afford an extra $166 per week, (for a protracted time) plus rates, insurance, vacancies, managers fees, blown water heaters, repaint, replacing floor coverings?A line of credit is a great idea.
%18 growth is impressive , however it isnt set in concrete.
Borrowing nearly 400 big ones for your first property may be a big call, depending on your income and not to be taken lightly.
Good luck guys and dont rush it…Hi Chris, looks like your in a great position, good for you. One thing I would correct you on and that is the fact you are no longer a 'beginner' and I'm sure you dont think like one. You have reached the minority of investors by having more than 2 IP's. Is the new unit the ones adjacent to the old bus depot / markets? They look beautiful, great spot. Personally I dont go for units / town houses / villas as they have minimal land content and less depreciation. Do you have a good mortgage broker? It can get a little complex and I agree with going interest only. Good luck….
I highly recommend "Real Estate without agents" by Terry Ryder. 2004 ISBN0 9586517 5 2. A great read unless your a real estate agent. Its also referenced so it doesn't rely on opinion or subjective bias. Good luck.
Chill Andrew, its called sense of humor, thanks for enlightening me though. Hey, will you really teach me something if I open my mind, just like you say? Is this where you want me to apologise for being so ''negative''. Lighten up fella. Since you didnt get it, my point is renovating isn't for everyone and clearly not every house is worth renovating. I have renovated plenty and my portfolio is chugging away nicely thanks. I have nothing but respect and admiration for full time renovators, such as the previous, mature, thoughtful people who responded prior to your inane comment. I live in world of reality and accept that renovating is time consuming, difficult and requires considerable skill. Have a great weekend.
My post should have read ''renovating isn't a good idea" thanks for all the comments. I'm well aware of the principles of renovating and have done my fair share. We are currently doing a bathroom in our PPOR. Oh joy… However I'm not totally convinced that renovating any property is either time or cost effective. Our 2 IPs have gone up in value significantly over the previous 2 years with only a coat of paint and the odd bit of carpet. Yes, they are in good growth areas. A fellow investor proved this theory in buying 7 IP's and doing minimal work to them. In time they all went up in value by a factor of 2 and 3. So my rhetorical question is 'do we renovate for the right reasons? I guess it comes down to personal preference but time is precious and I would much rather spend it with my family then sucking in dust for days on end and going deaf via power tools. Clearly there are many, many varying factors in property investing and with the lack of tradesman in many areas being a significant issue. Many tradesman I contacted recently were reluctant to take on any new work until the new year. If you can renovate by a phone and yellow pages, then great, thats the way to go. What does amaze me is non tradies attempting to do complex building / reno work. Surely these people would object if a tradie came into their place of employment and attempted to do their job. I have been into 1000's of homes in the past decade as part of my employment and have seen a plethora of dodgy tiling, fencing, plumbing, painting, wall removal, electrical work etc and the list goes on. Life is great !
Hi Shel, why would you sell? Most property experts promote the "never sell" principle. Your in a great position with considerable equity in your first property. Phorsha is correct in that banks will lend you a considerable amount based on your income and existing equity. Its the way most people, including us have continued to buy property, ie borrow against the equity of existing property etc. Dont forget a Depreciation schedule, particularly if your property was built after 1985. Talk to anyone and everyone who has been there and read heaps of different Australian authors. Good luck and dont rush your decision……
Change property managers…….yesterday. A good property manager is worth their weight in gold, this one isnt. We changed after 2 years of very average service and the new one is outstanding, tough though fair. No it isn't normal to be treated in that manner and its highly unprofessional and rude. One of our rules is there is no excuse for poor communication with texting, email, mobile,fax etc. Good luck……..
Hi Andy, apologies, the previously mentioned 1515 is actually the 221D as described below. Taken from the ATO website. Very useful to enhance your cashflow if you are a PAYE tax payer. Enthralling reading….
TAXATION RULING NO. IT 2583
IT 2583
INCOME TAX : VARIATION OF TAX INSTALMENT DEDUCTIONS ALLOWANCES PAID UNDER INDUSTRIAL INSTRUMENTS
PREAMBLE
This Ruling supersedes Taxation Ruling No. IT 2487 and updates the guidelines for exercising the discretion available in section 221D in relation to employees in receipt of allowances paid under an "industrial instrument" as defined in section 82KT (i.e., a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law).
2. Section 221D of the Income Tax Assessment Act provides the Commissioner of Taxation with the authority to vary the amount of tax instalments to be deducted from the salary or wages of an employee, or class of employees, in order to meet the special circumstances of any case or class of cases.
RE: units / townhouses / villas. Its very simple – land value. Buildings depreciate, land value goes up over time. The cost / value of U / V / TH's has a small land value component. As they say, buy land as there not making anymore of it. On a personal business perspective, I want total control over my property. I dont want a body corporate telling me that the fence / roof / driveway needs replacing and you have a month to come up with X amount. Its just a personal preference that I have which my Solicitor, Mortgage Broker and Accountant who are all PI's share.
Also I'm not thrilled with paying body corporate fees, sinking funds etc. If there is a gym, lift, pool in a block of units then someone has to pay for the upkeep. No thanks, pools and gyms dont make money.
Yes they can be PG, however your Building Depreciation schedule will be minimal compared to a free standing house and its much more difficult to add real value to a unit. Try asking a body corporate that you would like to move a few walls….
Do you want to invest for growth / capital gains / cash flow. Older rural / regional houses are more likely to be Pos CF, however they may not have the same growth as their more expensive, newer cousins. Personally I think a mix of the two is the way to go. Have you checked on Domain.com and gone to property reports and typed in a particular area. Its interesting to see projected growth rates, median house and unit prices etc. All for free…..
Finally, have you read Margaret Lomas, Neil Jenman, Bradley Sugars and Jan Somers? All offer different perspectives.
Your in a great position, but do it when your ready.Hi Andy, your in a great position, good for you. Personally I dont think there is anything wrong with negative gearing, it all depends on the property you buy, your income, employment history, (banks love Joe stable) star sign, tax bracket, your age, partners consent, goals etc. Its all part of the big picture and we have a mix of both pos and neg. It works for us, however your income will dictate how any many NG properties one can buy. NG properties often relate to newer properties and they (should/may) have less maintenance, attract tenants in a higher tax bracket and be able to take advantage of a depreciation schedule. We chose to complete the 1515 tax variation and pay less tax per fortnight and have greater cash flow. Personally I dont see it as losing money from day one. Property is long term, buy and hold. We have a great team, Accountant, Solicitor, Property Manager and Mortgage Broker (i love you guys/gals). We have clear goals and a business plan eg; only free standing houses, no villas,units and no financial involvement with family or friends. Ciao
We pay $200 each, 2 IP's and are employees. Usually takes 2 hours. Sounds kind of steep. Was he in an inner city office with huge overheads?
