Hi,
I am a 22 year old who has just finished university and am starting work as a scientist in the new year. I still live at home and plan to remain at home until my late twenties. I have barely any savings as I hardly worked through my degree and spent the little money I did earn on living/going out expenses.
Now having a full time job, I would like to invest with aims to build a large property portfolio over time. I would like to know suggestions where to start. Since I am working at home and have barely any living expenses, most or nearly all of my modest starting income ($50,000 before tax) can be put towards my investment. I also work for the government and can salary sacrifice on a house to avoid some tax. My parents have also kindly offered to guarantor for me when I apply for a loan to ensure my success in that regard. Since I won't have any money for a deposit to begin with, what is the best strategy to adopt (either saving for a while for a deposit or pull out a loan to get a house with my parents help)?
Coming from a scientific field, I am used to completely researching an area of interest before making any important decisions and as such would like to learn as much as I can before I begin to invest in property. There is a ridiculous amount of information out there; books, seminars and financial planners; all offering the best advice to achieve the same goals. What I would like to know is where anyone would suggest I start, and how would I go about it?
Thank you in advance.
Daniel
Start by reading as much as you can.
Then try to get into a modest house as soon as you can. Don't aim too high, you just will want something to get a foot in the market. I suggest you go for the FHOG and stamp duty concessions etc, live in it for 6 months (and do it up a bit while there), and then move out back to mum and dads. You can claim all expenses etc and still have this one CGT exempt for up to 6 years. Use a IO loan wiht a 100% offset account attached and plough all rent and salary into the offset. Be a tight arse for a year and save for a new deposit and hopefully some capital gains will kick in. from there it is smooth sailing!
To get into the first one try to borrow the 20% deposit from parents if you can. And keep on saving as much of your income as you can – look into the high interest savings accounts such as ING etc.
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
Is the book thats on this website (from 0 to 135 properties) a good place to start?
As for the deposit – Ideally I wouldn’t like to borrow any money from my parents. They can guarantor for me however. But I guess the time spent waiting around saving for a deposit is time that money could be on a house appreciating in value?
In terms of a ‘modest’ house, what price range do you think I should aim for?
Thanks.
Daniel
by being a guarantor that means they are putting their property on the line. It would be much safer if they could just lend you 20% – but this would all depend on their situation as well and may not be possible.
read as many books as you can including 0 to 35.
by modest, i mean as cheap as you can get for your area – but within reason.
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
Agree with Terry your parents would be far better off to take out a loan for the 20% deposit and then gift this to you (even if you pay them back at the same rate of interest) than offer their security up for a family pledge style loan.
If the loan is over an 80% LVR both the mortgage insurers will require evidence of genuine savings for a minimum of 3% of the purchase price over a 3-6 month period.
The saving with the Stamp Duty concession and the FHOG could be paid back directly to your parents on Settlement to reduce their loan.
Rule of thumb would be that you could probably borrow around 5 x annual income so if $250K equals 80% of the loan then they will need to come up with $60K + less FHOG.
Richard Taylor | Australia's leading private lender
Hi Daniel
Where is it that your parents live, and where will your job be located?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM,
They live (along with me) in the western suberbs around 15 minutes from Adelaide's city centre.
My new job is located at the Royal Adelaide Hospital in the City.Terry and Richard,
Thank you for your advice. I don't think it will be possible to borrow that amount of money from my parents. They are very old school; they bought one property, paid if off and remained living in it since. While they are living comfortably, it would probably be difficult for them to lend me the money without taking the loan out themselves, which, to be honest, I would prefer they didn't do. As a result, should I wait until I have saved the 20% deposit myself, or get them to garuntoor (which I get the impression many people are not in support of)?
Thanks again.
Daniel if they are "old school" and i understand their reasons why then they would not be wanting to put up their security for your property purchase.
If they have a loan on the property they would need to refinance to whichever lender you go with as you wont easily get a lender to take a 2nd mortgage behind someone else.
Sounds to me like you might have to save up to get the deposit which could be 10% plus costs and do the deal on your own.
Richard Taylor | Australia's leading private lender
Since they have paid their house off it may be easier for them to just give their property as security in addition to yours and then you borrow 105% of the purchase price of the new one.
But, this is extremely risky and they could lose their property if things go wrong. Imagine if your property drops slightly and you cannot pay the loan. The legal fees mount up and then bank eventually takes your property and sells it for a $10k loss. They will then go for the guarantors and may even sell the parents property to recoup the loss.
If you had borrowed from them then it is different. Their property would not be used as security so when the bank repossesses your property that is where it ends – you may be bankrupted and the parents may lose the money they lent you but their house is safe.
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
Terryw wrote:Start by reading as much as you can.Then try to get into a modest house as soon as you can. Don't aim too high, you just will want something to get a foot in the market. I suggest you go for the FHOG and stamp duty concessions etc, live in it for 6 months (and do it up a bit while there), and then move out back to mum and dads. You can claim all expenses etc and still have this one CGT exempt for up to 6 years. Use a IO loan wiht a 100% offset account attached and plough all rent and salary into the offset. Be a tight arse for a year and save for a new deposit and hopefully some capital gains will kick in. from there it is smooth sailing!
Terry,
Could you please elaborate on this a little?
What purpose does living in it for 6 months serve?
What expenses can you claim? Can these include reno's? interest payments? depreciation?
Why use IO loan and how will 100% offset acc. help?
I am not exactly sure how all this works.
Thankshi Grant
Please do a search for the IO loans and offset. I have been writing the same stuff over and over again almost daily for years now. I should write something in word and then just cut and paste.
Anyway, the 6 months will satisfy the requirements for the FHOG – but you have to check as each state is different. I think in QLD if you do not live in it for 12 months you need to repay part of the stamp duty which was exempt.
Also I think I forgot to mention fully above, but under s118-145 of the Income Tax Assessment Act you can actually be absent from your main residence and still treat it as your main residence for up to 6 years. So you can buy a place, live in it briefly, establish it as your main residence and then move back home with the parents (or anywhere actually). You can then claim all costs as a normal rental property (interest, rates, water, depreciation, loan costs, travel etc). If there is a loss this loss can be used to offset your other income. And best of all it is CGT exempt as long as it remains your main residence. Also if you were to move in and out again the 6 years starts again.
You can only have one main residence (whether single of between couples too) but it is a big help. Someone could use the years living with parents to save tax and really pay the loan down (or ideally into the offset) and then move in when the negative gearing benefits run out.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
