Hi all, I'm a newbie here and have been reading these forums heaps as of late. I think I'm much more educated about property investing now but it seems like for each answer I get I have another three questions.
I am 24 and interested in buying my first property which will initially be used as PPOR (for the minimum 6 months) and then become an IP so that I can take advantage of the FHOG. The bank said it can loan me up to $450K. I have $20,000 for a deposit which I have saved over 2 years. In that time I have also payed off $25,000 in credit card debt (from a very fun year long trip around europe) and am confident I am capable of saving between $25,000 and $30,000 each year. I have a gross income of about $75,000. I'm living at home at the moment so don't really have any living expenses as everything is covered.
I am uncertain about whether I should buy a newer unit for around $320K that won't really need any work done to it, or spend a little bit more at about $400K and buy an older house with a sizeable block of land that can be sub-divided at a later date and used to develop townhouses. I have been looking in Melbournes's Inner West.
The rent that I would get for a unit would probably be slightly more ($350) due to the newer condition but there isn't the possibility to develop on the land and I suspect the capital growth will be less than a house with sizeable land. Older houses rent for about $300 in the area I have been looking at. Is it too risky to borrow close to my maximum and then receive lower rent while having higher repayments?
Also, I am planning on getting a standard variable rate home loan during the first 6 months while the property is my PPOR and then reverting to an interest only loan. I have been advised that this is better for invetment properties but isn't it also good to actually be paying off the principle so that I can eventually wholly own a few properties while building my portfolio?
If anyone can give me advic it'd be much appreciated. I don't wanna bite off more than I can chew but would really love to buy a houe instead of a unit. I am also thinking that the interest rate could also increase in the coming years so I don't want to risk borrowing too much money and then not being able to make repayments.
hi Skuz
Run the numbers on a spreadsheet so you can really compare what you are looking at. If you have the cashflow to do it then why not. Remember to work in the worst case senarios such as interest rates increasing etc. If you can survive the worst case senario then it doesn't look so scary.That's a really good idea! Thanks islandgirl.
I found the home loan formulas on the net and have generated a spreadsheet.
(http://www.datadynamica.com/FinCalc/Fin3.htm)Is a maximum interest rate of 10% bleak enough for the next few years?
Also, can anyone explain what the advantage of paying an interest only loan on an investment property is? If I pay off the principle I will also own the property. With an interest only I will never own it. I'm hoping to acquire as much investment property as possible but don't see interest only loans as a way of achieving this.
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