Richard has a good point, the $25k won't stretch very far, unless this is your first property in which case you can get the first home owners grant and an exemption on stamp duty.  Have you ever bought a property before?

Whilst I like your idea to invest in Logan (I currently have a townhouse there and I previously made a good gain on a house in slacks creek approx 60% in 6 years), you can still buy cheaper property in Sydney.  Check out some posts by Nathan Birsch in the "General Property" forum, he has demonstrated buying properties for this price range in the Mt Druitt area and making a decent yield (after renovations). 

Areas such as Penrith, Cambelltown, Blacktown are also worth a look in this price range.

As for your plan to buy investment properties now and leverage off them later to buy your own home, I think that is fine.  Unless you want to claim the FHOG (in which case you need to live in the property 6 months out of the first 12) then that will be a different scenario.

Bare in mind also that Brisbane's property market is a good time to buy, but it's possible it could fall further.

Let us know what you decide.

Darren.

Hi Brandira,

You're situation looks pretty good to me.  Since the house is your home and not an investment property, do not stress too much about the capital gain.  If you like living there, then that is the main point of owning the house.  How long have you owned it for?

I would not spend the savings on paying off the car loan in one lump sum, because it is good to have that $20k there for emergencies.  However, now that you have that buffer in place, stop saving more and put all extra income into paying off the car loan.  Alternatively you could dig in to your savings a bit (say $5k) and put that on the car loan and then pay the rest of ASAP.

Personal debt (such as car loans and credit cards) will always work against you when it comes time to buying an investment property.  If you are going to buy an investment property soon (eg. for $350k) you will probably need a 10% deposit, plus stamp duty of approximately $10k to $15k depending on the state which means you'll need to save another $50k.

If you want to get into an investment property sooner, maybe start looking for cheaper properties around $200k to $250k.

If you are planning to use equity in your home to purchase an IP you may need to wait another couple of years for it to appreciate (assuming there is potential for growth in the short term).

Cheers,

Darren.

Ahh no worries, I haven't looked in the Mt Druitt area before.  That's much cheaper than the outer areas of Brisbane and Logan and they are supposed to be in a backwards market!

Hi Melzey,

Will you be buying near the end of the lease?  Eg. Once the house settles, there may be less than 6 months left on the lease?

My recollection of the FHOG rules are that you must live in it for 6 months out of the first 12 months.  This might mean you could rent it for the first 6 months and then live in it for the 2nd 6 months and still qualify.

As for the stamp duty concession, I'm not sure as I think the rules vary by state.

Good question though! 

Darren.

I was in a similar situation.  I had taken out an equity loan on one property for the intention of using it for personal reasons (eg. buy car, furniture etc).  After a while I decided to use it as a deposit on another property.

I was not able to claim any of the interest on the equity loan, regardless if I sold the first property (which I eventually did) or not.

I'm pretty sure that it is the original purpose of the loan determines if it's tax deductible.  If you took out the equity loan and told the lender it would be used for investment, you should be fine. 

Darren.

Hey PJ,

I don't follow exactly what you are trying to do.  Are you trying to find properties that require renovation and then you will hire a developer to do the renovations?

Or are you trying to find properties that you can on-sell to property developers?

Darren.

Hi gimlee,

I say go with what Buffet says, get in when others are fearful…otherwise what sets you apart?

As long as you do your research in the area and make sure the fundamentals are right, then you can be confident.

Examples of fundamentals:

– Is the population increasing in this area?
– Is there infrastructure being developed that will draw people to the area in the future?
– Is there public transport nearby?
– Is the vacancy rate low enough that I will get tenants easily enough for the expected rental rate?

Also, what is the definition of a property crash?  Is it a fall of 10%?  20%?  QLD prices have come back about 5-6% in the past year…is that a crash?

Check out the past performance of property in Australia over say 20 to 30 years.  You will probably see a steady trend upwards with a couple of points where property has dropped.  But how long did that drop last? 

I'm not saying a crash can't happen, but the economy generally has to crash too.  Eg.  Unemployment starts to increase, increase of foreclosures.

As long as you are looking at the long term of 7+ years, you can be pretty confident that any crash will be ironed out with time.

Cheers   I will try to disagree with you next time so we can at least get some tension going!

Hi ATurner,

I agree with JamieM you should not be buying property to reduce your tax bill.  Negative gearing only helps to lessen the cash LOSS that you make.  If you buy a property and it costs you $100 a week to hold, that is a loss, negative cashflow.  You would only accept this loss if the future capital gains for the property outweighed this! 

Then with the benefit of deducting your loss, you may only be paying $60-$70/week to hold instead of $100…but it's still a loss!

You should always try to get neutral or positive cash flow from your property, but don't do it at the sacrifice of buying in an area that has short and long term capital gain potential.

Also, instead of doing more reading, I would recommend that you take the plunge and go for it sooner rather than later.

As you may or may not have heard before, Australia is not one property market, it is made up of many smaller markets.  For example, last year when Sydney was doing well, Brisbane was falling and Melbourne was booming.  There is normally somewhere in the country that has brighter short term prospects.

I think for your first property, look at the lower price range (eg. 250k to 400k), an area that will be in demand in the future and concentrate on minimising risk.  You're first property you want to be safe so that you've got a solid foundation to build on.  I would avoid commercial property for your first property unless you know someone with alot of experience in that area (the banks require a higher LVR and you can experience extended periods of vacancy – no rental income).

If you want to research where to buy, try Terry Ryder's "ryder report" which gives you good recommendations about up and coming areas and why they should experience growth in the near future.  It's only about $90 to get the top 10 suburbs for a particular state.

One last thing to consider is that if your first property is soley for investment purposes, you will not quality for the FHOG and therefore miss out on free government money.  However, if you are willing/able to live in the property for the first 6 months, then you can claim it.

Hope this helps!

Darren.

Hi Saqib,

Have you considered Logan which is further north of Coomera?  With your budget of $250k, you can still buy a house in some parts of Logan.

I sold my 3 BR, 2 BTH high-set house last year for $292,000 which was in Slacks Creek.  The house was on 670m2 of land and in a quiet street, I think it was renting for $310/week at the time I sold it. 

I had purchased the property in 2003 for $185,000 so I made a nice 57% in 6 years.

That house may be worth less now, considering the market, so you may be able to buy a full house for your budget, but definately you could buy a good apartment or townhouse with that money in that area.

Other areas nearby such as Woodridge and Kingston are in that price range as well.  These areas were traditionally run-down and higher crime rates but they have become much better in recent years (I lived there and had no problems).  They are surrounded by nicer suburbs too such as Underwood, Springwood and Loganlea which have significantly higher values.

The advantage of Logan too is that it is only 30km from Brisbane CBD and if you want rental demand, it's better to be close to the main source of jobs (Brisbane).  Anyway, hope this helps!

Darren.