Hi,
I am about to purchase my first property. Being unable to afford a house big enough for wife and 2 kids, we are looking at starting small and working up. Having saved a deposit and wanting to utilise the fhog, I am faced with a predicament.
Am I correct in thinking that to be eligible for the fhog, you need to commence living in the property at some point during the first year, and for a 6 month period?
If this is so, is the following out of the question…….
I buy the property on 6 month settlement terms, with the right to access (clause in contract) for renovations. During this period, it will be my ppor. When the 6 months is up, rennovated, I then rent it out. It will still be -ve…just. With the anticipated increase in value (approx $30k or 15%), can I then borrow against the increase for the next property?
The area that I'm investing in, apart from being my home suburb, is undergoing a facelift, with a lot of external investment. The prospects look above average accordingly.
Any thoughts welcome
"Jack"
“During this period, it will be my ppor.”
how can it be your ppr if its not even yours?
So even though the contract has been signed, the propoerty isn't legally mine yet? I was led to believe that, with the exception of payment, the property was legally mine. I could then use this period as being my ppr
As usual crashy; a compassionate response (not). Good of you to 'help'.
A few questions come to mind Rowester, and please forgive me if I am asking questions that you have already answered for yourself, but I want to make sure you have considered all the numbers.
1. Have you allowed for 6% for purchase costs.
2. Have you allowed for up to 20% of the rent to be swallowed up in the holding costs (including 4 weeks vacancy per year).
3. You can only access 80% of the properties value for redraw, L.O.C etc. If the property goes up by $30k, you won't be able to use all of it.
For example; buy a property worth $200k. Banks will let you use 80% of its value, less any outstanding loans. You can use only $160k less any loans (assume no loans, so can use all $160k). Then the property goes up by $30k. value is now $230k.
80% of $230k is $184k. So your useable equity has increased only $24k, even though your value has increased $30k.
4. Even though a fair portion of the rent is considered by the Bank for loan servicability (up to 80% in most cases), your personal income will factor into your ability to borrow for another property. You want to make sure that the combination of 2 properties (if they are neg cashflow) does not cripple your familie's lifestyle.Not trying to put a dampener on your plans; just trying to make sure your eyes are wide open.
With the ownership aspect; I think (stand corrected if wrong) that your ownership doesn't kick in until you are officially on the title.
I thought crashy's response was entirely appropriate. Rowester can't claim the property as his PPOR until the date he settles on it. It is illegal for him to claim FHOG on a property that isn't his.
Rowester, if you are serious about getting into property investment and this is the only way you can afford it, then consider getting a quick settlement, move into it, renovate it when you are living in it (difficult, I know, with two kids but not impossible) and then rent it out after six months.
Doing a reno on a place before settlement is common practice, but if for some reason things go horribly wrong and settlement falls through, you won't get back any of the money you have spent on renovating.
The Government is cracking down on misuse of the FHOG so beware of doing anything fraudulently with regard to the FHOG.
CHeers
K
yes, his response might have been appropriate, but the spirit and the wording of the response has some history.
he could have worded it in a manner such as yours; but didn't.
Good post by the way.
Hi,
Thanks for the posts…….
I have called the ATo to get 'official' clarification on the matter.
In some cases, the ATO are happy to look at the contract, and use the date from when you have 'eclusive right to the propertry" and not the settlement date. But this is only when settlement terms are spread over a significant period of time i.e 10 years.
In my case, and as quite rightly posted prior, it is from when settlement occurs. Only at this point is the name on the title allowed to be changed at the LTI (land title ….). The 6 month period to be eligible for the fhog can only start from this date.
Thanks for your replies, some kind, some to the point, but all good.
Hi LA Aussie
Just did a search on the forum and found the "history". Fair comment to you …
Rowester. If there is a will, there is a way. I have done it relatively tough over the last three years including:
– renovating with a 5 month old baby – in Darwin – with no airconditioning – during the wet season
– working fulltime to set up deals when Her Majesty sent my husband overseas for three months (baby was 8 months old)
– sacrificing just about every weekend for nearly two years to look for property, buy, sell, renovate, etc.But the hard work has paid off. We are now financially independent, live in our dream house and are raising our kids on the land (we have just had baby goats) and giving them all the attention that we weren't able to give them when we were setting ourselves up.
The reason I am telling you this is because it is possible to get ahead IF you are prepared to make some sacrifices. You just need to get started. I go to many seminars/investor groups and I am constantly astounded at the amount of people who spend so much money on all these courses and they are still saying "I'm just about to get started …"
The scariest thing for us was to buy that first property 3 1/2 years ago.
Good luck
Cheers
K
Linar wrote:Rowester, if you are serious about getting into property investment and this is the only way you can afford it, then consider getting a quick settlement, move into it, renovate it when you are living in it (difficult, I know, with two kids but not impossible) and then rent it out after six months.
Growing this was half of my life. My parents had 4 sons & quite often, to make things easier in the long run, we'd move in to renovate shifting furniture here & there when we got to that part of the house. I believe it's a good experience for kids & helps them in the future. I mean look at myself, 20yrs old & buying my 3rd property. If you let your children help they won't be one of those spoilt kids who demand everything from their parents because they'll know that working towards something can be rewarding.
Macros
Thanks Linar and Macros for sharing those personal experiences – that is the sort of stuff that helps and motorvates others, and puts things in perspective – what the forum should be all about! Cheers.
Just to paint a clearer picture in regards to my situation……
Myself, wife and 2 children share a split level property with the in-laws. Our rent is calculated at 30% of the mortgage, as this is the total area we occupy.When we move out, we will get 30% of the rise in price. So our rent at the moment is very reasonable, and there is no imminent reason to move out.
Where we live, on the Northern beaches in Sydney, is quite expensive if we were to buy a place that we could live in. Houses start at around $650k, and would need pretty much demolishing, or 3-bed units from $500k.
We have a deposit of $15k saved. I have available $250 extra income each week which can go towards an investment. If my calculations serve me correct, I am able to afford to buy an investment (around $300k), rent it out, and be able to cover it with my disposable income.
The problem is, to get a first home owners grant, I have to live in the property for 6 months.
a: I can only afford a 1 bedroom unit, which isn't big enough to fit the family in.
b: I cannot afford to pay rent aswell as mortgage payments for that 6 month period when the property isn't being rented out.I apreciate that looking at the fhog is a very micro point of view, and that looking at the bigger picture is more important. That I shouldn't necessarily base every decision on me getting the fhog.
I would be happy to forgo the fhog, and go for a "investment" loan, but I believe that currently I will need a minimum 20% deposit ($60k), which isn't going to happen for 5 years!
I am very keen to invest in a specific suburb so I can renovate to add value, plus the outlook is very good. Prices start from $260k upwards. The intention os to keep hold of the unit for 10 years plus.
If any of you have additional thoughts on this info, then I welcome them.
I would be happy to forgo the fhog, and go for a "investment" loan, but I believe that currently I will need a minimum 20% deposit ($60k), which isn't going to happen for 5 years!
No, you will have no drama doing a homeloan for an investment property with only 5 % deposit, if you have stable employment and can 'serivce the loan'. That includes 'rental' income too.If you get 30% of the rise in price when you move out, can't you put that money towards a deposit?
Further, v8ghia is correct in that you can get a loan with only a 5% deposit. You will have to pay LMI but it will be a small amount in the scheme of things. I am a big fan of LMI. If I have 50,000 to use for a deposit, I can either put it towards a deposit on one $200,000 house (20% plus costs) or I can put down 10% on two $200,000 house and pay about $5000 LMI, which is added to the loan so I don't need to pay the LMI up front. A meagre 5% increase in value over one year will mean an increase of $10,000 PER house, as opposed to the $10,000 if I only bought one house. So the LMI more than pays for itself.
I suggest sitting down with a mortgage broker and finding out exactly what you can do. You would be surprised at what the banks will lend these days. Just last month my brother in law tried to buy a place and every mortgage broker he went to said that no bank would lend him money. He then called my mortgage broker who arranged a 106% loan which settled within 4 weeks.
One of the things that really propelled my investing forward was to change my thinking from "I can't do this" to "how can I do this?"
Cheers
K
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