Hi All,
Thanks in adavance for reading my post. I'm going to try and give as much details as poss in the hope a few of your valued opinions can be shared.
Ok, I'm 26 year old guy who has traveled the world and now feel that its time to get my finances in order. Ive started reading a lot and Im infatuated with property however there is no-one in my family who has ever made property investing an active pursuit. As such, i have no one to fire my questions at and am hoping to find some 'Mentors'…haha!
I am the State manager of a sales company based in Sydney (surry hills). I recently moved down here from the Central Coast (about an hour north) to be close to work and save on travel costs. I live currently with my partner and 2 guys in te Mertion Apartments in Waterloo were we pay $700 per week in rent. My Partner and I pay $300 towards this having the largest bedroom with my contribution being $200.
I live quite well, spending a lot on going out eating and the like and would now like to direct this income into a more productive means. My annualised income (commission and ovveriides only, no basic wage) for 2008 was $150,000.
With the doubling of FHB's scheme and associated Stamp Duty removal, along with the bottoming of the market, I really feel like this is the best opportunity to enter the market. Having read a lot of the books such as Rich Dad, Poor Dad; 7 Steps to Wealth (john Fitz) and 1-130 Properties, I feel a little more perplexed than when I first started.
Basically, I want to enter the market now but am unsure what would be the best option for me. Firstly I need a place to live. I also see the FHB grant and STAMP DUTY removal as a huge incentive. So in considering that I need a place to live, Do i buy an IP and continue to rent as I am currently? Can buy something that I'd consider a home, be close to work but without being a poor buying option? I have spoken to some lenders who indicate that a loan of 350-400K is possible. Within 3 months and including FHB grant, I will have a total deposit of $50-60K. I have been looking on Domain and RealEastate.com at properties to the value of $350-$420K.
With the whole land appreciates, buildings depeciate thing, it appears impossible for me to buy something with LAND close to Sydney city (for capital growth later on) which I can live in which is in my affordability range. So what are the other options? In attempting to get into the market, I could look in other areas which show growth potential and continue to rent while leasing the IP out. That would also then mean that due to my need to be close to work, I would miss FHB grant.
So this has me favouring buying a unit, mostly likely in Sydney City outskirts or the Inner West. This suits me more in terms of being close to work and for the lifestyle I want. So, my idea is to look for something 2bedroom, live in one room with my partner who is happy to pay rent as current and rent the other room out. One of the guys I live with would love this option and is a very good tenant as per our current rent so in other words, I have people who could move in to fill the other room. Assumming the other room yields say $220 p/w and with repayments of somewhere between $520-$600 p/w, I would be left to cover the remaining $300-$380 not including my partner paying a portion (say$100).
I know the detail here is maybe insignificant and perhaps communicates my indecision but I'd love some general direction. I think this is one of the missing links in what a lot of advisors, gurus etc miss. There is no address of first home buying…
I'd really appreciate anycomments or help?? Jase
One consideration in whatever you decide will be the flexibility of the loan and the structure of the lending.
Remember what starts out as a PPOR so you can claim the FHOG and Stamp Duty concessions could end up being an IP and you both want to move on to bigger and better things in the way of a new home.
To many clients i have seen over the years put down a big deposit, utilise their FHOG, get sold some redraw feature on their loan product by their Bank manager and then a year later decide to rent out the house or unit and move to somewhere bigger as their PPOR. They realise that they need to access the equity in the first home and look to redraw the amount already repaid.
Shock horrow when they discover that the amount repaid of the original principal cannot be claimed as a Tax deduction even though it is secured against their IP.
They realise that the priceless information their Bank manager gave them was actually incorrect although had the loan been structured correctly they could have had the best of both worlds.
Interest savings as well as protecting the full deductability of the loan interest.
It isnt rocket science but after the loan has been established and set up it is too late to change and protect the deductability of the interest.
Make sure you deal with a mortgage broker who has some experience in investment structures rather one than merely processing loans for First Home Buyers.
Richard Taylor | Australia's leading private lender
sorry mate, i got stopped at you earning 150,000 at 26 years old. holy cow. nice work mate!
Anyhow, Im 18 and have just about put enough money away between me and my girlfriend to buy an investment property in Melbourne (15-20k). As we still live with our parents, this is an excellent buy opportunity, no bills wotsoever, and if you dont start young, you'll be living 40k out of the city, and really, the majority doesn't want that in Melbourne! As im currently studying Banking and Finance, i love the stock market for short term boost, then plan to have property in the long term. Thats just a background check out of the way haha. Btw Rich Dad Poor Dad = TOP BOOK! took me 2 days to read it haha.
Buying a unit close to the city ( <10-15k) is an excellent choice, i believe, history shows us that they have excellent long term growth, are easily rentable, and finding a run down one, and spening say 5-7k fixing it up adds huge value and excellent potential.
Buying a two bedroom is an excellent idea, and renting out the other room (providing the missus is fine with it haha), this gives you the opportunity to rent it out to a broad variety of people. Also, i;d go with something close to where you work and live (well you'll be living in the same house) that way if any work needs to be done, you can be the electrician, plumber, painter or whatever it may be. I'd also recommend pumping in as much money into the principal as possible, this allows you to pay down the loan quicker, and while interest rates are low (and will continue to go low) this is an excellent opportunity to do so. I say this because while you a paying down the loan, this also (providing you go variable) it decreases your interest repayments, so whilst that is happening, and your rent is rising over the years, your winning!
However, im no mortage broker, or planner, but you stated that you want the FHOG, now this only applies to you if it is your principal place of resident, so im not sure how you would go in terms of allowing other to rent it off you and what not, maybe the government see's this as ok, maybe not, good to check it out. But i like the second idea!
Also, don't buy at auction, big mistake, and always find out why the owner is selling! Death of family member is a plus
lolWith that price range in mind i wouldnt consider buying a house, sub-dividing then building a town house, so the whole land concept is not applicable at this stage. That comes next!
Anyway mate, hope i helped you, even if it was the slightest bit. Cheers
John.
On that income you could borrow a lot more than you have been told – if you needed to.
I would look at getting something to live in and get the grant. Get a highest LVR loan as possible, IO with a 100% offset account. Live in it for 6 months and then move out and rent it. Under s145-118 of the tax act you can still treat it as you main residence and keep it CGT free. On your income you could save a bit of tax and it would work out to be cheaper to rent.
Keep saving into your offset account and then when you are ready for the next one re-assess your situation.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
why not put money into the the home loan if he was to buy a unit and rent it out, it would help reduce the loan drastically, and its not like he wont be able to access the equity in later years.
im not the type that pays off one, then moves to another, and accumulates three in a lifetime, dont get me wrong, but putting money into the loan, the using equity later on is acceptable? no?
also i agree, the negatively geared property will help you when it comes down to tax, something far from the city thats giving you money wont!.
wealthyjvd wrote:why not put money into the the home loan if he was to buy a unit and rent it out, it would help reduce the loan drastically, and its not like he wont be able to access the equity in later years.im not the type that pays off one, then moves to another, and accumulates three in a lifetime, dont get me wrong, but putting money into the loan, the using equity later on is acceptable? no?
also i agree, the negatively geared property will help you when it comes down to tax, something far from the city thats giving you money wont!.
What if he pays down the loan and then decides to buy a new property to live in? He would have a low deductible loan with a high non-deductible loan. Keeping things IO with an offset will save the same interest, but gives more flexibility to save tax.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hello wealthyjvd
Maybe reading the following thread will help explain.
https://www.propertyinvesting.com/forums/getting-technical/finance/4325393?#comment-177325
Cheers
ElkaTerryw wrote:What if he pays down the loan and then decides to buy a new property to live in? He would have a low deductible loan with a high non-deductible loan. Keeping things IO with an offset will save the same interest, but gives more flexibility to save tax.what do you mean, one low deductible loan with a high non detuctable loan? can you exaplin this is leimans terms
ahaha.
thanks for the website mate.!!
lol
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