Hi everyone,
I am 30yo and after years of sacrifice I have finally accumulated a good deal of cash savings (around $100.000) and want to start my property portfolio. The reason why I didn't buy before was a rocking marriage followed by an unpleasant divorce, but now it's all over and I can start anew.
My monthly income after tax is about $4.500.00. I am interested in a "buy and hold" strategy. Ideally I would hope for a good return on investment in terms of rent (at least 6%) and good medium term capital growth. I am undecided whether to buy 3-4 very cheap properties like in the country and attempt positive cashflow or maybe start with a brand new off the plan property below the $300.000 mark (even though I'm not a big fan of negative gearing). For the latter I have been looking in areas such as the municipality of Wyndham (Werribee, Point Cook, Seabrook, Wyndham Vale etc…). Does any of you seasoned investors can lead me toward a winning strategy/direction? Does any of you have any advice to give me, given the current economic situation and market in Melbourne/Victoria?
I would really appreciate your support in joining the world of property investors.
Cheers,
AndyHey Lisa,
Although I don't have investment properties yet. I believe that Defence Housing Authority is a good way to start. As you get guaranteed rental for 12 years I think it is now. And having worked with Defence personnel. I know they have very strict requirements on how they must look after your property. If you go to the Defence Housing website. They have all the information there. Hope this helps a little.
Oops sorry Andy. Major brain strain at the moment apologies.
Hey Andy
May I suggest that before you do anything, get some good advice from an accountant with a proven track record in Property investment. It will save you tens of thousands in the long run. Not to mention frustration and disinformation that comes from opinion and not fact.
I can recommend a group that is very passionate (they actually like accounting!) about helping all types of people investing in property.Thanks for your replies guys.
Happybronski, I heard about Defence housing and I am sure it is a good investment given the security involved with it however the houses are excellent quality but cashflow negative and there is a limited amount of flexibility with it. In saying that I'll keep looking into it more in depth.
Which group do you suggest Pendo?
Thanks again and keep bringing up new suggestions.
AndyCome on guys, I am counting (sort of ) on you for some wise advice!
Madeinitaly
I would like to know a few more details. Are you handy with renovations or rejuvinations.
Do you want to buy your own house soon or in the near future,
Would you feel confident in identifying a block of land, negotiating with a builder and sub contractors,
are you interested in doing subdivisions.
Don
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
Thanks for adding your comments, i really appreciate that.
– Okkamooie the answers for you:When it comes to be handy im not a very handy person although i give anything a go, for example to my ex father in law house i installed 12sq m of raw parquetry, then sanded and polished it. I can do with a bit of painting, replace gutters…nothing major though.
About my own property i am not sure as I am happy to rent as long as i can establish my IP. In other words investing comes first, at the cost of renting a unit for years on end.
The third question is probaby my weakness. I can negotiate a deal no problem but when it comes to assessing a piece of land, a building, a development and all the legalities, contracts etc… I am at a loss and worst thing I trust NOBODY! This is probably why
a) I haven't bought a property yet
b) I joined this site to communicate with passionate and genuine people like you and exchange support and wisdom.
Hope this provides you with a clearer picture.Lalibella
I am sure that NG works for many and probably is my ignorance about this whole thing that makes me seeing NG as a Negative thing (pardon my pun). But you are right it is definitely limited by your income. As far as marital status im single and about my age i am still relatively young (30yo) although when i read in IP magazines that there are people as young as 23 with already 15 properties in their portfolio my heart drops into my socks. Im not familiar with 1515 tax variation. I am also aware I should have clearer goal and also like you did, create a business plan. DON"T KNOW WHERE TO START. Probably being clear about what you want to buy (as you mentioned only free standing properties) helps!Thanks for your comments though.
Of one thing I am sure I am sick of chickening out whilst the market goes up and others get rich!
With a $100k cash you can do a few things. It will depend how aggressive you want to be, but given that you have a fair amount of after tax income, being aggressive may not be such a problem or a danger for you, as opposed to someone on less income, family etc.
Option1; More aggressive;
use the $100k to leverage into as much cap growth property s you can. These days, you can borrow up to 95% (some lenders even go 100%) of the purchase price, so technically, you could buy property worth around $900k. The $100k would be used to cover the deposit of 5% plus purchase costs and Mortgage Insurance. Property purchase costs are approx 6% of purchase price.
The price point of the properties will have an impact on how much rent return you get ususally. For example, 5 x $200k properties will usually return more rent that 2 x $500k properties. Or you may even get a small block of units for this amount somewhere.
The more you borrow, the more neg geared you will be, and will need to use some of your personal income to hold the properties.Option 2; More safe;
use the $100k as deposits on property, but borrow only 80% of the property price including purchase costs. This will limit you to around $400k or so; probably only 2 properties worth $200k each, or 1 property. Again, the higher price point doesn't always produce the better rent return. the bigger deposit will improve the cashflow and lessen the burden on your after tax income.In both options, you can select property that are cap growth focus, or go for better rent returns and hopefully cap growth as well. I would also suggest looking at properties with good depreciation as well to help with the tax return.
Option 2 is the option that I would suggest; it is safer, you have more protection from vacancies and bad rent returns which can impact on your cashflow, and if well selected, and have add value potential the properties can still deliver excellent cap growth.
Thanks L.A.
Thats what i am talking about!
I need something like that, however all the comments and advices are highly appreciated.
Cheers again
Andythat is a good advice from Marc
thanksYep, Mark is on the money. You could also play even safer – buying at the lower end of the market and with even lower LVR of 70% borowings or less. Essentially the world is your oyster with what you have achieved – mate congratulations. I seem to have a lot of 'ex divorcees' etc I run into with finance or refi's (purely chance, it seems to be a higher percnetage than I would have thought sadly) and if I may say not many are in the financial postion you are. Hope everything else is ok. All the best with your 'journey'. ….you're 3/4 of the way there!. Cheers
PS And give the 'investor groups' and 'property sales groups' and 'of the plan crud' a wide berth….IMHO
Well I can assure you V8ghia it has not been easy. I have worked hard hours 3-4 different jobs at the time.
Lower end of the market is a good idea putting a big deposit. however it depends what is your perception of lower end in Melbourne, giving the fact that I would like to do just like Mark buy free standing properties and in Melbourne there is nothing below $200K semi-decent. Otherwise I will need to go to the country but as first time investor I am not that sure about that specific market. Also how come many people advice against buying units or in general strata title like apartments. I figured that if they were a good investment I could buy 5 or 6 of them. Some of them especially in Melbourne CBD or neutrally geared or even offer positive cashflow. I am sure they have a bunch of reasons not to buy them I 'd love if they could share them with me. My ultimate goal is to create a monthly income based on rentals (as many people i can imagine) a little bit Kiosaky style.
CiaoHi 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 Lalibella,
i have thought a lot about what you said and i definitely agree with you.
I think i will start with an off-the-plan-mid-200k 3 bdr 20 kms radius of Melbourne. I figured given the rippling effect emanating from the city outward those areas are bound to grow in few years. Then not long after I ll spend more time searching growth area in regional Victoria or maybe if possible even interstate. Something low 100k neutrally geared to enrich portfolio.These are good advices and stop me from being tempted by these $105k 1 bedroom CBD apartment rented for $250pw.
which in a not long future will easily cause trouble
thanks again
andyHi Andy
With a $100K 'cash', you're in a very good position. Problem is grappling with the options and your view of risk and comfort zone. The trick is probably just to get into the marketplace as soon as you can with a low risk plan first.
As a 1st-time investor, maybe you could consider a low-entry level investment for your first (until you build up some experience and confidence) in a regional area such as a two bedroom unit. Looking at something about 300km out, you could look at Albury/Wodonga or somewhere in the Latrobe Valley. Aiming for something as close to positive or neutral as possible would set the platform for future portfolio purchases:
– a track record with a lender of being an investor (before you go for your next one);
– not severely negatively geared so it doesn't impact on your serviceability too much (to go for further loans);
– some spread of risk with other unit owners under a body corporate;
– if you make a 'mistake', have a period of vacancy; or some other issue; an initially smaller mortgage will be easier to service;
– the learning experience inclusive of developing your 'property investment team' both for purchases and for ongoing maintenance.Best of luck
I must admit 888Abundance…
You have made some invaluable points, most important I suppose is starting slowly/safely and then grow my experience knowledge in the field. I believe I have a good platform to stand on and especially passion and will however I wouldn't want to dampen my enthusiasm with big mistakes which are usually made at the beginning of something. Probably I''ll start with a unit or something bigger but in the country. What is your view on strata title?
Thanks for your support
AndyHi Pendo i was wondering if i could prevail on you to supply the name of the reputable accounting group you mentioned earlier.
thanks
Cheers
lostie
I was looking at Latrobe Valley. Prices are quite affordable and the ROI appear to be around 6% However I am not sure about the vacancy rate over there. It seems you can purchase a "decent" 3b for around 130K
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