Forum Replies Created
Hi Dan –
Just checking in to see how you are getting on
Regards
Merlin
Hey Dan –
Yep, lots of people have lots of different ideas in this game (myself included!). Some good, some not so good! I find the trick is to listen to them all but at the end of the day make my own choice. Over the years I have been told by a financial planner to sell all my properties and buy shares, I was told at the end of 2003 that the boom was over in Perth and that I was crazy to invest etc etc. With the benefit of hindsight these two pearls of wisdom would have cost me hundreds of thousands.
At the end of the day we are the ones that have to live with the consequences of our own decisions so it is very important that you seek advice but then choose a path that you are happy with (and lets you sleep at night!)
***
Finding out how much you can borrow will help you answer the first question you posted on the thread:
"Should I be looking at a cheap entry to the market?(around $350k for something simple). Or should I use my higher salary to purchase something of more value? ($500,000 and above)"
If there is a possibility of a second property now or down the track then the value of your PPOR purchase will be an important decision.
All the best for the meeting with your broker.
Merlin
Hi Dan –
Hee hee – yes I did look for a girly avatar alas to no avail!
Good luck with the broker – I hope the news is good.
Another possible option to investigate may be to buy a property inside your super. If you have money in super it may be worth thinking about too. It is possible to borrow to buy property inside a self managed super fund (SMSF). You need a 30% deposit and I believe that the bank will lend as long as the rent from the property plus your SGC contributions will cover the loan repayments.
ESuperfund is an SMSF provider and they have a section on their website about buying property inside super:
http://www.esuperfund.com.au/property/HowitWorks.aspx
Re corporate space do you mean commercial real estate – ie office/shop type thing or do you mean renting a residential property to a corporate tenant for their staff or do you mean buying an apartment that is part of a hotel complex and renting it back to them?
Merlin
Hi Dan –
If you are looking to compare suburbs for rental yields consider buying a copy of Australian Property Investor. Towards the back it has a section called Databank. If you look up Market Watch: House Prices and Rental Yields you can see which suburbs in WA have the highest Gross Rental Yield %s. If you are chasing cash flow the higher the number the better.
Re the 5.8% loan. All my investment loans are interest only variable loans. IO keeps the repayments lower and means that all repayments are tax deductible. I don't really want to pay off the loans as the properties would become more profitable and that would mean I would pay more tax!
I have variable loans as I think interest rates have further to fall. That said, rates aren't far off their all time lows so I can understand why some people may want to fix. If in doubt just look what the banks are offering. If their fixed rate is less than their variable rate then they think rates will go down.
I would think the next step would be for you to go a broker and ask them how much you can borrow. You would be able to ask about the impact of any expenses you have and see what they say re the timing/order/number of possible IP/PPOR purchases. I agree with Derek – a broker is in a better position to be able to help you work through your options.
Once you know this you will be in a much better position to know how much is appropriate to spend on each purchase. This in turn will determine where you could go hunting.
Merlin
PS – property is a girl's best friend – I'm a she!
Hi Dan –
Banks want two things to let you borrow – Security and Serviceability.
The bank would use the properties that you are purchasing as security. With a 5% deposit they would need you to take lender's mortgage insurance – but they don't require additional security beyond that (much as they like it!)
Then you need serviceability – ie enough income to pay back the loan. Before I posted the first time I just plugged your numbers into a "how much I can borrow" calculator on a bank website but I didn't know your expenses. The calculators are pretty simple but will give you an idea of what the bank may lend you. I am sure there are folks on this thread that could give you a more accurate idea.
Last time I did a loan the bank added up all our earnings and then added 80% of our property rental income to get to our total income. For example if you bought 2 x $375K houses and rented them for $400pw your income would be $130K + $33,280 = $163,280.
Though I am currently paying around 5.8% for loans I think that banks will run your numbers on a rate a bit higher to see that you can cope if interest rates were to go up.
If you purchased 2 x $375K houses and rented them for $400pw the difference between the loan repayments at 5.8% and the rent would be -$1900 a year! Then you need pay for rates and any maintenance etc but you also get the benefits of depreciation. So after tax it isn't going to use up much of your $130K salary.
You don't need to live on a couch to do this!
– it is just that minimising your expenses will help with your serviceability and will allow you to get further ahead. Us folk with kids and school fees etc etc don't have the great financial freedom you have at the moment. Was just thinking that now is the best time for you to take advantage of it!Re PPOR or rental. The decision would determine the type of property you should buy. It is an age old debate in investment circles whether to buy a house that is better for cash flow or for growth. I have bought houses for growth and they have been outperformed by houses I bought for cashflow. That said I believe is very important – especially at the beginning of your portfolio that you buy properties that do well for cashflow. If you don't it will very quickly hamper your serviceability and stop you from buying more properties – which in turn hampers your growth.
If, however, you are just going to buy one PPOR it doesn't matter what the cashflow is as you won't be renting it. Then you would be looking for strong capital growth.
My latest choices have been East Perth – the market is so tight for hotel rooms that the apartment market is crazy. Though I rent the studio for $500pw – there is one property manager trying their luck to get $900pw for them at the moment! I have also picked Alkimos – partly as I live nearby – but mainly due to the future train and freeways going in. Also, Alkimos will be Perth's next regional centre like Joondalup. It is on the edge of the suburbs but the rental market is still strong. There are people turning out in droves for rental open houses in any of the suburbs up around this area. The market has started to move. Land prices in Alkimos were $236K since 2010 and went to $242K in 2.5 years. I bought six weeks ago and since then they have gone up by $5K three times. $15K x 2 = $30K – not a bad effort in 6 weeks!
For a PPOR I wouldn't have the same feel. Hit the RPdata type websites and read the Australian Property Investor type magazines and see what they say.
Have fun!
