Hi there,
After posting a few questions and reading through this forum, I've decided to take up Richard Taylor's advice to go and see a broker. I'll be seeing this broker next week and plan to ask him the same questions. But being new to all of this, I would also like to hear feedback from the experts on this forum.
I'm planning to buy a Melbourne CBD apartment and have 100K available (as a loan from my parents). With this 100K I will be borrowing a little under 80% of the loan. I've met with a few banks and was told my income will be more than enough to borrow this amount and I will comfortably be able to make the monthly IO repayments (the monthly repayments will roughly equal a fortnight's worth of pay).
I'm in a bit of a dilemma about which direction to aim for – positive or negative gearing. I know CBD apartments generally appreciate less and the way the market is going, it seems like properties are on their way down. If this is the case, is there any point in negative gearing?
On the otherhand, I've been told that rent will be predicted to increase and that CBD apartments have good rentability. Should I then aim to pay off as much as I can into the property to achieve positive gearing?
I have to make a decision whether to maximize the amount of interest I pay or dump as much $$$ as I can into an offset to the reduce the interest. Any feedback would be GREATLY appreciated!
Thanks
Wow, That is a very high leveraged loan your going to undertake, 50% of your income will be towards repayments, Im supprised the bank will lend you the money.
From what I know the banks work on around a maximum of 37% of income
Personally I totally disagree with the negative gearing philosophy, I would rather spend money on something that will make positive returns.
The whole negative gearing idea is based apon ever increasing property prices (booms) or speculation within the market that returns can be made by cashing in on the supposed future capital appreciation.
Your basically playing a betting game where your counting on the fact that you will be able to service the debt long enough to see the increased prices and eventually cash in on them.
Call me old fashioned but I would rather make money now and continually reinvest it to increase my profits then placing a bet on making money in the future with the risk of loosing the stake.
Oh I forgot to mention about the offset account, I don't know what's so smart about them when the interest you pay is only decreased by a pecentage point or so when you could make 10+% compounded on that same money a year
Have you looked into dumping your cash into shares that are currently paying 30%+ dividends a year ? I think Oil and Food company's are the way to go, they are the two most important aspects of the world ecconomy
Also you could look into holding onto precious metals for a few years, The current deflation we are seeing is creating fantastic opportunitys to make an absolute killing in this area.
I think there are so many different oportunitys out there at the moment, I don't see why the fuss with property at the moment, Let property crash before jumping into the market
Remember, to be succesfull you need to learn to do the opposite. buy when everyone is selling and sell when everyone is buying.
Think seriously about what your strategy would be if you are unemployed.
hi citybuyer
like you I am a newbie and had started looking to purchase an IP in different parts of Australia a couple of months ago. So went and read as much as I could, purchased investor magazines and visited forums like this one. The basic outcome was that a pasitive cash flow property is far superior to negative gearing – unless you are on Huge $$$ and need to reduce your tax. It is also a big ask to find a positive geared property unless you are going to put up most of the funds to purchase the IP yourself.
When I started I had a clear idea and used an 8 point basic guide
1] property had to be in lower third of market ( easier to rent, buy and sell later if you have to )
2] gross yield needed to be above 6.5%
3] property had be lees than 20 years old ( capital depreciation )
4] property needed little or no repairs ( less of my money going out )
5] property needed to be relatively close to schools, transport and hospitals ( infrastructure )
6] are property in need to have more than one main income driver ( economic diversity )
7] rates/body corp fees levels ( helps with ITWV from ATO )
8] what is the long term growth trend for the area the property is in. ( usually can find on Domain or realestate.com )A lot of the posts I have read here have been good – I even agree with a some of the things that hbbehrendorff has posted ( but would not be keen to use cash to buy into commodities shares on the promise of an ongoing income stream ).
Seeing a broker is a good option and always be prepared to revise your strategy. It may even mean sitting on sidelines for a couple of months – pretty much what I am going to be doing til mid Jan/Feb when things settle down a bit.
good luck
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