Hi guys,
My very first post on these forums after considerable research, reading and listening to Steve's great webinar yesterday (29/08/07).
I now feel I'm close to getting into the market but am still not 100% sure in what capacity. Can I ask, what are your possible recommendations given my/our financial and personal situation below:
- My G/F and I currently rent in Melbourne @ around $1000 per month
- We have a combined Gross Annual Income of around $110K
- Our combined fortnightly take home pay is around $3100 (im a shift worker so it varies!)
- Our monthly expenses are around (including rent) $2200-$2400
- We have $25K in savings for a deposit
- Possible access to additional equity from family members who fully own their property
Now the ultimate goal is the typical Aussie dream of 2.3 children, house in the burbs with a white picket fence a dog and all that, however we both realize that may be a while off yet and have accepted it to sacrifice a more secure future through building an investment portfolio.
My question to you is how would you guys recommend we get into the market?
We have been considering:
- Purchasing a place (unit/townhouse most likely due to cost) as close to the city as possible as a PPoR and qualify for the first HBG. Fulfill the requirements there and then move back out to rent and have it as an IP to reap the rewards – hopefully. In turn, wait for the equity to build with the better CG that can be ideally expected closer to the city and start the IP portfolio that way.
- Purchase a house further out from the city as a PPoR, do all the usual reno type things as you do to your own place and wait for the equity to more slowly build in it (due to lesser demand/CG further out) before starting the IP portfolio.
- Purchase an IP straight out in Melbourne and continue renting (we like the place we are in now).
- Purchase an IP elsewhere in the country (very seriously considering growth corridor b/w Bris and the Goldie) which will at face value be easier to achieve than the Melbourne option due to the lesser cost to get in to the market.
Also, what are your thoughts on the current state of affairs regarding the upcoming Federal Election, Stock Market Woes, Interest Rate Rises, America's predicted recession(?) and all the other happenings to make the marketplace an unknown quantity at the moment. Do you think we should hold off on purchasing a property, continue to study the market for opportunities and wait to see how things balance out in a few months or just dive on in and get the ball rolling?
I don't want to make any rash decisions, just a good one that will lay a solid foundation for our future.
Thanks for taking the time to read this and I look forward to any feedback you can offer.
Regards,
Craig (and Louise)
Option 1 could be the go;
- Purchasing a place (unit/townhouse most likely due to cost) as close to the city as possible as a PPoR and qualify for the first HBG. Fulfill the requirements there and then move back out to rent and have it as an IP to reap the rewards – hopefully. In turn, wait for the equity to build with the better CG that can be ideally expected closer to the city and start the IP portfolio that way.
This way, you get the F.H.O.G, and can then move out later on to convert the PPoR into an I.P and keep renting. And you can move back in at any point as your PPoR. If you move back in before 6 years has elapsed as an I.P, you are not liable for cap gains tax if you decide to sell.
There are numerous tax deductions associated with an I.P, but keep in mind you will probably be more neg geared if you are buying nearer the CBD.
The downside is you need to move in, stay for a short time to fulfill F.H.O.G obligations, then move out again so you can convert it to the rental.
Don't assume that buying nearer the CBD is an automatic cap growth train. Do some in-depth due diligence to select the right area and property. Many outer suburbs have out-performed the CBD in recent months.
As for the rest ;
-Fed Election; Just hope Johnny gets back in. Kev will give more handouts to the needy, they'll just spend it, the interest rates will have to go up to stop them. If in doubt; lock in the rate, but the flexibility may suffer.
– Stock market; who knows. It's up and down every day right now. The housing market over here is still going backwards according to the reports, sub-prime companies still struggling. If there are lots of packaged investments (mutual funds, property trusts etc) tied up in the housing market then they could be in for a bad year. Super funds may take a hit.
-Intertest rate rises; more to come I believe unless the consumers put the credit cards away (good luck).
-America's recession; despite what the Congress says, this country is already in a recession. Actually; the country is broken. The productivity is up, but all the cash is going to the CEO's and the wealthy 1 percent, with many middle-management jobs being exported to places like India, so unemployment is up. Healthcare, education, social security, all have terminal heamhorrages; 45 million people without private health insurance (that they know of). Housing and finance industry is in a tail-spin. Real wages haven't kept up with inflation for about 20 years. Middle-class has disappeared, homelessness, bankruptcy – all on the increase; mainly due to medical bills, but the housing woes will add to the new records being broken. How will this affect Aus? I think the weakening US economy and dollar will strengthen ours, improve overseas investment and keep our economy rolling along.
– Should you purchase property now or wait; buy as soon as you can afford it, but study the market and buy well. There have been many monumental world and local events that have rocked the economies, but the well selected areas and properties keep on increasing in value.Once again, Marc has some excellent advice (I sound like a cheerleader!). If you dont take advantage of the FHB grant, then you need to earn 30% more than that before tax to have the same amount.
For you to make the decision you need to think about what's important to you.
1) How important is your 'lifestyle' now?
2) How far out are you prepared to live?
3) How much do you want to change how you live now?
4) How much can you do yourself – i.e. are you a carpenter/builder who can reno easily with experience, trade discounts etc or are you an accountant/clerk type person who will need lots of (expensive) professional help to reno?
5) How comfortable are you reno'ing in another state?
6) How much debt are you comfortable with?
7) How much security do you need?I think that starting with a townhouse/unit within 12 k or so of the CBD of Melbourne is a winner at the moment. If you move in there, do some cosmetic improvements on something like this http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104255910&f=0&p=10&t=res&ty=&fmt=&header=&c=62153929&s=vic&snf=rbs&tm=1188525513 or http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104236185&f=0&p=10&t=res&ty=&fmt=&header=&c=31637324&s=vic&snf=ras&tm=1188525684 then you can stay in it, or rent it out as your earnings increase and the property increases in value.
My wife and I bought an undervalued apartment in a good area about 4 years ago, rented it out and then used the equity it gained as the deposit for our PPOR.
Good luck
Chris
Thanks for the feedback thus far guys. Every little bit really does help.
Please, keep it coming.
I'd say perhaps look at doing two of those things at a time. Buy your PPOR, AND an IP…you seem to have ample income for it, so take the plunge. Try to "think big", diversify your portfolio and be proactive. I am also a fan of buying out from the CBD and renovating, and waiting for equalisation. Regradless of what you do, I'd wait possibly 4 more weeks before people start seeing he increase in their repayments and put houses up onto the market. You may find a bargain!!! Also, don't wait too long to act…get in as early as possible…
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