hi.
ok, I'm pretty ignorant in this area, and I'm not even sure this is the right place for these questions. But anyway:
– I don't currently own any property
– I'm thinking about buying say a 1 bedroom inner-city apartment in Melbourne, which you seem to be able to pick up starting at around $170,000 to $190,000
– I looked at one deal: block of apartments; the cheapest 1 bedroom apartments were slightly less than $190,000. They guarantee $1,170 rental income per month for the 1st 12 months. I'm told that should about cover the mortgage repayments; I've been told mortgage repayments could be about $1,200 a month.
– the mortgage would be over about 25 to 30 years, which I gather is about the average period to pay off loans of about this size.
– I'm not clear on what sort of deposit would be required – on the one hand, I've been told 10% deposit would be needed. But then I'm also told that banks generally won't lend more than 80% of the property value, so wouldn't that mean at least a 20% deposit required?
– I'm over 40 now, so if I paid it off over 25 to 30 years, then I'm late 60s/70 before it's paid off. I'm on a pretty reasonable salary, and am single, so could afford to put a lot more towards the repayments. But would there be any point to me doing this? Maybe if I could pay it off in 10 years and hope to make a big capital gain when I sell? If I make repayments that exceed the rental income, then I get a tax advantage. But is that likely to make this worthwhile?I suppose I may need to see an accountant, but I just thought some of you maybe able to give me basic advice on whether there'd be any point at all in me investing in property, basically. And if so, why would I?
thank you to anyone with advice
Yep, 25 to 30 years is the standard.
Many banks will indeed demand a 20% deposit. But banks are not the only lenders. For instance, check out Bendigo Building Society, who I hear are offering a higher LVR (Loan to Value Ratio). Of course, for the higher risk, they will charge a higher interest rate.
Never pay off more than you have to. Just ensure your loan has an attached OFFSET account and park any extra cash there. It holds off the interest, but at the same time, you haven't handed over the cash, and as such can pull it out again at a moment's notice whenever you want.
Please promise me you'll think beyond buying a box in the CBD. They do not have the best capital gains. Consider houses in the suburbs, or even say, Ballarat – where demand is huge. Land goes up in value. Houses have it. Apartments do not.
While we're talking about the box in the CBD, what's all this about a guaranteed rental income? Is it a serviced apartment? If so, search serviced apartment on this site and you'll find you should steer well clear of them.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Sorry to invade your topic but might question might be relevant. As an investor should I consider an P & I loan or it’s best to stick with Interest only. Which would be more advantageous?
Always Interest Only… with an offset account. Put all spare cash in there.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Is there a strong reason why you want to buy in the city? do you work in there? It historically does not provide exceptional capital growth and rental return isnt a factor as you are going to live there yourself by the sounds of it. If you don't have a good reason to live right in the city, perhaps think about buying further out with more land content. Land APPRECIATES in value whereas buildings DEPRECIATE..so if you have a higher land content in your property then your likely to see more gains.
Amanda
Thanks JacM: if I understand you correctly:
– say the bank wants mortgage repayments of $1,100 a month minimum
– say I pay $1,200 a month
– you're saying that I should put the extra $100 in an 'offset' account, which reduces the interest on the loan, but is available to me at call?these are the apartments I looked at: http://www.ecosquare.com.au/
they're not serviced apartments: they gave me a list of the apartments, their purchase prices, and the rental income they'll guarantee for the first 12 months.
I have no particular reason to buy in or near the city: it's just that there seem to be these apartments available in this area that are relatively cheap, and with high rental demand and high rents in this area, it seemed it could be a good move.
and, no Amanda, I'm not buying to live in it: it's just for investment purposes
Thinking more about it (and this shows what a beginner I am): the point of me doing this seems to be that if I put a lot more towards the mortgage I could hopefully pay off a property within say 10 to 15 years, so after that (when I'd be in my 50s), the rent I get is just an income stream, which would help me out in retirement.
Though JacM says you should never pay off more than you have to. I also spoke to a mortgage broker about 3 months ago, who I recall saying that I shouldn't pay off capital, only interest. Though I'm not sure why it is that I should minimise my repayments?
I suppose the things to consider when looking at investment properties are:
– what is my likely rental income?
– what will my minimum repayments be?
– how much can I put towards the repayments in addition to what I get as monthly rental? (which determines how long it would take me to pay off the loan)
– capital gain counts too – so thanks to JacM and Amanda re advice to consider buying a property on land. Though it seems that an apartment near the city is going to get a higher rental returns than properties further out, though I could be wrong. On the other hand, it may be better in my case to look for maximum rental return at lowest possible purchase price so I can pay it off asap, and just have the rent as pure income. And not be so concerned about capital gain.
– I also need to consider tax implications, of course – whether I negatively or positively gear it.I probably need to seek financial advice, and that was another thing I wanted to ask, can anyone recommend someone who'd be good for someone in my position? I've looked around but it seems a mite difficult to find someone appropriate for my sort of questions. Northern suburbs or the city would be good, but will go further if necessary…
Thank you all.
To be honest you don't need to speak to someone face to face to get good advice. There are some very experienced property investors who are also financial planners on this site. My last three mortgages have been set up by mortgage brokers in Qld who i am yet to meet. ( I live in central NSW) If you find someone you trust you can email relevant facts and figures to them such as income, age, years until you wish to retire etc, ect and go from there.
I would reiterate previous posts to avoid inner city small units. Even though they may ahve high rental yields it is often difficult to secure finance for them, be wary of rental guarantees and the extra costs such as body corporate costs etc that all eat into your income.
good luck
Sonya
Hi,
If I was in your situation I'd consider opening a self managed super fund and rolling over all of your superanuation into it. You can purchase properties in a self managed super fud, either outright – if you have enough cash, or by setting up a unit trust and taking out a loan with a bank. The benefit to doing this, considering your age, would be that all profits in your super are currently taxed at 15% as apposed to your marginal tax rate which may be 30% – 46.5% depending on your income.
At 65 you can then sell and I think the capital gains tax in a super fund are also only 15% and then draw down the proceeds as an income stream tax free. Or you can collect the rent as an income stream – tax free. The beauty of this strategy is that the tenant and your super fund pay off the loan.
The down side is, you can never move into the property, and any profits cannot be accessed until retirement, but it looks like you are doing this for your retirement so that should not be an issue. Have a chat to your accountant to see if this is an option for you.
As for your investing strategy, I agree with JACM. We don't invest in cities due to the price tag and negative gearing. We invest in country areas with a higher yield and we still get good capital growth.
I like to invest in old properties at a cheaper price and fix them up. Some people do sub divisions. Have a think about what can be done with property and find a strategy that appeals to you. (One bedders with rental guarantees may not be good – what happens when the guarantee runs out?)
If you need to get a loan, banks like it to be 80% LVR, although they will go as high as 90% if you pay lender's mortgage insurance – which protects the bank, not you. We like to keep our LVR below 80% the higher the loan, the more interest you pay.
A good way to get an idea of what a property might rent for is to have a look on realestate.com.au type in the suburb in the rent section and browse. Then you can also see what properties are selling for in the same suburb. It's a good place to start your research. Hope this helps.Hi
Hoping someone can help me. I am a single mum who has been paying off my home for the last 10yrs my kids and I dont get to go on holidays and I am stuggling week to week now. I usually rent out a room which helps a little. But I am not getting anywhere. I am actually putting my house on the market tomorrow but have been told that I should rent it out as this would be better. The market sucks at the moment and I am not sure I will get what I want for my house $470000 which will leave me $130000 roughly. This is after paying out all my other debts. I dont really want to sell but I dont see another way out my loan is a principle only one at the moment and I cant refinance.
Should I sell or rent my house out???
If you need more information to help me out let me know
Hope someone can
Cheers
Molly
Hi Miss Molly, i am also a single mum with three children so i know how hard it is to do this on your own. If i were you I would look into renting another, possible smaller house and leasing your own house out. The reason this may benefit you is as a single mum you may be entitled to rental assistance to offset your own rental costs. The rental income from your property may be enough to cover the costs associated with holding it. Without more detailed info it is difficult to know this for sure. It is a bad time to be selling and rental demand is strong. Where are you living at the moment? Can you find a suitable property to rent? feel free to PM me if you want I rented for a while whilst getting on my feet after my marriage broke down.
Good luck
Thanks Sonyasal. Yeah I know about the rent assistance which is a positive and thanks for your help. I love my house and it has so much potential but there is also so much to do to it. I tthink I will have to cut my losses and sell I was going to to try and rent it out for 6-12ths but unless I move in with my parents which is not an option at this time then it is really not worth it cause I would still have to top up the mortgage … unless I get another job. which is hard to come by. If I sell then at least I will ahve no debt and over $100000 in the bank and maybe start again in a year or 2. Who knows what or who is around the corner.
Cheers
hi,
thanks to sonya and littleaussie for further advice, and good food for thought. It's getting pretty clear that I need an adviser. Can anyone provide contact details for someone good? If you'd rather not do that publicly, you can send me a private message on here, or email to [email protected].
I'd be most appreciative.
missmolly72 wrote:If I sell then at least I will ahve no debt and over $100000 in the bank and maybe start again in a year or 2.The only problem with that plan is that houses will go up in value during that 2 years, and as such you will require an even larger deposit and stamp duty contribution to get back in…
I'd hang on if I were you.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
If you are looking for capital gains, another idea would be, if you look for someone else to jointly purchase a IP with you. You buy a house in the outer suburb for approx $300k to $400k. Rental yield should be higher and you can together pay it off quicker but then again risk is also abit higher, in that you'll need to find someone who is trust worthy.
MissMolly why can't you refinance the loan? Is i locked in to a certain rate or is it a relatively new loan? have you spoken to your lender about other options such as extending the length of the loan or similar, this would reduce your payments for now, when you get on your feet or as more cash becomes available you can increase your repayments.
The oher thing i just thought of is, look into the possibility of leasing to international students, they generally pay a lot more for their room and can stay anywhere from a few weeks to months or even years. They are screened by an agency and it may also be a nice wat for your chidlren to learn more about different cultures.
Good luck
Sonya
MissMolly – I'm with sonyasal on this one! International students are a great idea. I had a friend who rented out 3 rooms of his 4 room house as 'home stay'. He just needed to provide breakfast and dinner each day…..and I did the english tutoring so it was loads of fun!
That is of course assuming that you're in an area with high demand for student accomodation.
Holiday rentals could be another thing – not ideal but you would just need to bunk down somewhere during the 'holiday season'…again this depends on the area you're in.
There are also a couple of financial guru's on this site. Perhaps you could begin your own thread asking them for advice on your situation – can't hurt!
In the meantime, try to get through and don't give up!
Once you sell, you could be out of property forever. getting a loan is not what it used to be. They are gold at the moment. While you have a loan, do what you can to hold it and pass it in if you have exhausted all options. The ladies are absolutely correct….
I am happy to have a chat with you offline- nil cost of course.
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