Hi all,
Would love a bit of advice if possible.
We're a young couple, no dependents and ready to buy a house in 2011. No property yet, and on low rent of about $800/month combined. My partner wants to buy a nice first property around $600k to live in and rent the spare room out. By 'nice' I mean no reno needed, and in a good area, bayside Melbourne.
I'm just concerned we'll use up all our borrowing power in our PPOR and paralyse ourselves from being able to start the property acquisition game. As another option, we're considering buying an IP in the USA or Brazil to capitalise on some fast (hopefully) growth and sell within 3 years, bring the money back here and then buy a PPOR. Perhaps by then we'll have had a fairly decent housing correction in Melbourne?! I think we'd all agree the property-to-income growth ratio is unsustainable, something will have to give at some point.
Combined income $110k net
$50k worth of shares (we're quite agressive high risk investors so we expect to bring this to $100k in the next 12 months)
Car loan $24k
Rent $800 combined
Not afraid of risk, just want to buy positive properties and make as much $$ as possible in the next 5-7 years before the 'no dependents' status changesThanks in advance!
Hi newinvestor
Welcome to the forum.
A large $600k PPOR debt will effect your borrowing capacity in the future (as will the $24k car loan).
Instead of buying something "new" – have you thought about purchasing something that you could add value to? You might find something that could do with a few cosmetic reno's that will add some equity. IMO, this would be a safer option then investing o/s in the states or Brazil in the hope of capitalising on some fast growth.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you for both of your responses
The goal is to begin acquiring as many properties as possible, hopefully all (or most) bringing in enough rent to be self-sufficient, just to completely cover the repayments, and then go for growth. The only reason we thought one property in the states would be a good idea to start off with, is the low entry cost (would aim for something between about $50-80k), and the obvious potential growth.
Definitely not opposed to doing a reno, have great contacts within the industry to be able to do one. Our only limitation is we don't want to reduce our working hours at all as it would obviously affect our income and borrowing power. Ultimately I want property to be our primary income, and at that point (when we can free ourselves of our jobs) we would switch to a buy, reno, sell strategy. But until we can get to that stage, we need to keep working full time.
I suppose my main question is, 'is $600k too much to invest in our first property if our bigger picture aim is to acquire as much property as possible?' Should we be shooting lower?
I hope I've answered your questions…. thanks so much for the advice, it's most appreciated!
Cheers
LivHi!
If it were me, I don't think I'd be keen to put all my eggs in the one $600k basket. Imagine if something went wrong. For instance, sometimes tenants decide to stop paying rent, and then do not leave the property when ordered to do so. This situation could be financially cripplying for you. Perhaps you might be better off looking at a property of lesser value, and keeping some emergency money on hand in case "something" happens. Then you'd be able to ride out the storm for a few months until the problem was sorted, without being forced to sell in a panic. Then when you feel you can do so comfortably, get another property and add it to your wealth pile
Sleep at night money. That's all I'm suggesting. Don't put your back so far against the wall you're really stressed out all the time. Mortgages tend to be of the 25 year nature. That's a long time to be stressed and without the odd fun night out or little luxury because you can't afford it.Not to dampen the spirits, but the stamp duty alone on a $600k property is going to be in the order of about $30k. That leaves rather a small deposit….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Liv … we met on my other thread
I would say, as Ryan suggested, get a little clearer on your goals. Then these sorts of questions become easier to answer.
For example, my aim is to become financially "secure" in the next three years. I have defined what that meant for me … car value, house value, clothes, living, holidays .. etc. And put a monetary value on each. And then I knew what amount of money I needed to be "secure" and so then I could work out which investments and so on I should be looking at over the next three years … and how many of them. Now I know, I have been able to make a plan to achieve it.
Nothing so motivating as knowing where you are going
Thanks Martha
Hmm I suppose when you put it that way…. may as well have a bit of fun with this. Bare with me, thinking out loud!
What do we actually want ultimately?
– By 2020 we'd like to be making $20k/month passive income through property.In the shorter term:
– By 2015 we want to replace my income of $4,500/month net.
(FYI – I got my partner's net income wrong earlier, he nets $6k/month, almost completely passive which is great).So in order to achieve this, I think what we need right now is a fast-profit buy & sell strategy that doesn't consume so much time I have to leave my job. Although I am willing to reduce my hours slightly if that's what it would take. I'm even thinking about a career change into real estate/property development so my work hours contribute to our personal invesments, and also to build up all the necessary contacts.
I'm very interested in options/flips, subdivisions, off-the-plan buying, and anything fast basically.
One thing I need to better understand is borrowing power – for example, once we already have a couple of properties and want to buy a third (say), but of course our disposible income will probably be down to $50k/year since we'll occupy one of the properties. If the 3rd property will provide positive cash flow, does that necessarily mean I will get the loan? From what I understand, banks only take a portion of rental income into account when assessing risk.
Thanks again for everyone's help. These forums are fantastic, wish I knew about them a long time ago!
Much appreciated,
Liv
PS – crossing fingers for stamp duty reform!! bloody great.Hey Liv .. yeah forums are a great source of info and leads.
Ok… well, two things worth thinking about… one is capital gains tax, which is very high, so don't forget if you are going to buy and sell (which is really trading), then you have to take into account the dint that tax will make.
The second is, what exactly are you going to do to value add? In other words, what part of the development process are you going to specialise in, get to know well, to make your money. You mentioned subdivision – that is one part. I just met a guy a couple of weeks ago who subdivides large blocks and builds townhouses which retail for around $700k each…
You also mentioned about borrowing power and buying multiple houses… well, if you are trading, that is not such a problem … you buy, you sell. But if you are buying for cashflow, that is a different matter, and as such you wouldn't be trading.
There is a bit of anecdotal evidence to say that after you have a few properties (usually more like 5-10), that banks start getting a bit edgy about loaning more, even if they are cashflow positive. This seems weird to me, but apparently some people have encountered it. So this is where you either get creative (not sure if it was Steve McKnight or another investor I remember saying they went to the bank with a business plan for 14 houses, and got financed for 8 or something, rather than one at a time), or find private money, which is around… or do a Robert Kiyosaki and "trade 4 red houses for a green hotel" … in other words, sell a few houses, and buy a larger property – apartments, commercial space, whatever. Obviously you will still have to factor in capital gains tax.
I hope that gets you thinking
Thanks Martha,
I've put a 10 year plan into a spreadsheet basing all the variables (like interest rates etc) on worst case scenarios, and have accounted for cap gains tax. I hate it already and haven't even been hit with it yet!
To value add – yes exactly that sort of thing, subdivide, build and sell. Actually just last night we were advised of a new syndicate opportunity coming up for a development in Melbourne's northern suburbs. Same sort of thing – townhouse or unit development, just small to start with.
Very quick question – I'm also considering making a quick buck buying an off-the-plan property and selling off after the build. Do you know if the 12 months for capital gains tax starts from project completion date? I suppose it would…
Thanks for sharing the info about borrowing power… the situation doesn't seem quite as grim as I thought. I'll look into it further.
I really appreciate your time and advice, thank you! Are you going to send me some info on your US opps?
Cheers<br /
;)” title=”>;)” class=”bbcode_smiley” />Hi Liv,
I am in a similar position to you, trying to figure out how to make as much money as I can to try and set myself up for the future to hopefully have a comfortable and financially secure life.
I have been looking a lot at the US property market due to the low level entry prices, as well as high rental yields and potential for high capital gains, if they reach the prices they were just 4 years ago saw one property for sale for $40,000 which was sold for $180,000 in 2007. The property is exactly the same as it was 3 years ago. Seeing this sort of thing gets me very interested over there.
As for capital gains regarding buying off the plan, seeing as you do not settle on the property until the project is complete, unless the completion date gets pushed back, I would assume that you do not hold the asset so the 12 month concession period would not start until the settlement date, which most of the time is the project completion date.
Spreadsheets and dicussions with accountants and financial planners are always good, accoutants and financial planners are normally able to tell you what you can and can't do, whether obtaining finance in a certain position, or paying certain taxes etc. And spreadsheets are obviously good so you can compare different scenarios and see what expected returns you can achieve, I know myself I make a whole lot of spreadsheets regarding my investment future, and I am getting excited about putting them into practice.
Hope everything works out well for you
Cheers
James
Hi James
Yep I agree with you RE cap gains tax on off the plan purchases. I'll check it out.. need to speak with the bank soon I think!
Super keen on US property for growth potential, but I'm nervous about the state of their economy, and how long it will take them to get out of the absolute mess they're in. What an extraordinary time in global economics…. europe's future's another big question mark!!
We certainly are the lucky country, but we're also living in an undeniably inflated property market and an economy that is defying historic odds having not receded for nearly 20 years…
So while the US market seems/is fraught with problems… there's a lot less to lose investing over there! Provided you tread carefully and get the right advice.
Good luck to you also, it's good to know others are going through the same journey!
Cheers
LivHi Liv
Sorry I didn't reply – I forgot this forum doesn't automatically subscribe me to threads I have participated in.
I will certainly send you some details as soon as I have them – negotiating with a US based investor at the moment.
Martha
Martha- you can set your account up so it automatically subscribes to threads you comment on. But seeing as you have not set that up you may not be subscribed to this thread so won't see my message!!
Just go to 'My Account on the right toolbar, then under the 'Edit' tab check the Auto Subscribe box which is right at the bottom of the page.
Cheers,
LukeNew Investor 01 wrote:Hi all,Would love a bit of advice if possible.
We're a young couple, no dependents and ready to buy a house in 2011. No property yet, and on low rent of about $800/month combined. My partner wants to buy a nice first property around $600k to live in and rent the spare room out. By 'nice' I mean no reno needed, and in a good area, bayside Melbourne.
I'm just concerned we'll use up all our borrowing power in our PPOR and paralyse ourselves from being able to start the property acquisition game. As another option, we're considering buying an IP in the USA or Brazil to capitalise on some fast (hopefully) growth and sell within 3 years, bring the money back here and then buy a PPOR. Perhaps by then we'll have had a fairly decent housing correction in Melbourne?! I think we'd all agree the property-to-income growth ratio is unsustainable, something will have to give at some point.
Combined income $110k net
$50k worth of shares (we're quite agressive high risk investors so we expect to bring this to $100k in the next 12 months)
Car loan $24k
Rent $800 combined
Not afraid of risk, just want to buy positive properties and make as much $$ as possible in the next 5-7 years before the 'no dependents' status changesThanks in advance!<br /
;)” title=”>;)” class=”bbcode_smiley” />Hi,
I am also new to the investing game and this forum, still learning allot abd trying to make the right choices.
So this is not me tryig to give you advice because Property is not my game. But I was interested in what drew you to Brazil??
I have bought there, and am surprised to read you guys were considering it.
Did someone recommend that to you? Are you going ahead with it?
I to am a risky investor, apparently it isn't the smartest way but it's fun.
goodluck with your choicesJames2118 wrote:Hi Liv,I am in a similar position to you, trying to figure out how to make as much money as I can to try and set myself up for the future to hopefully have a comfortable and financially secure life.
I have been looking a lot at the US property market due to the low level entry prices, as well as high rental yields and potential for high capital gains, if they reach the prices they were just 4 years ago saw one property for sale for $40,000 which was sold for $180,000 in 2007. The property is exactly the same as it was 3 years ago. Seeing this sort of thing gets me very interested over there.
As for capital gains regarding buying off the plan, seeing as you do not settle on the property until the project is complete, unless the completion date gets pushed back, I would assume that you do not hold the asset so the 12 month concession period would not start until the settlement date, which most of the time is the project completion date.
Spreadsheets and dicussions with accountants and financial planners are always good, accoutants and financial planners are normally able to tell you what you can and can't do, whether obtaining finance in a certain position, or paying certain taxes etc. And spreadsheets are obviously good so you can compare different scenarios and see what expected returns you can achieve, I know myself I make a whole lot of spreadsheets regarding my investment future, and I am getting excited about putting them into practice.
Hope everything works out well for you
Cheers
James
Hi James,
Are the spreadsheets you mentioned accessible on the NET, or is it possible for you to send me a copy. I have tried constructing my own spreadsheet with formulas etc but it got too hard and gave me a headache. I would sooner be working on the reno.
Regards,
Craigluke86 wrote:Martha- you can set your account up so it automatically subscribes to threads you comment on. But seeing as you have not set that up you may not be subscribed to this thread so won't see my message!!Just go to 'My Account on the right toolbar, then under the 'Edit' tab check the Auto Subscribe box which is right at the bottom of the page.
Thanks!
Been looking for that New Investor 01 wrote:One thing I need to better understand is borrowing power – for example, once we already have a couple of properties and want to buy a third (say), but of course our disposible income will probably be down to $50k/year since we'll occupy one of the properties. If the 3rd property will provide positive cash flow, does that necessarily mean I will get the loan? From what I understand, banks only take a portion of rental income into account when assessing risk.
Liv,
Just because a property is CF+ does not mean you will get the loan. The banks will only take 70-75% of the rent into account. If they are still CF+ after only accounting for 75% of the rent then you are doing really well and they may just say sure have some money.
My girlie and I have just bought property #6 and although most of our properties are CF neutral we are basically maxed out. We know we can afford more but unless the banks change their lending criteria, we sell a property or find some equity we basically cannot borrow any more money. You mentioned that your disposable income will decrease and this will make your situation worse.
If you want to become full time investors you need to be generating income through your property investing. One of the easiest ways to achieve this is through adding value/reno's. It is not beyond anybody to be able to complete 2-3 reno's within a year and once you get up and rolling with all the right systems in place you can be doing multiple renos simultaneously. Before you know it you will be finding properties that have development potential and if you want to make serious coin from property then developing is where you want to get to.Corie
Corie,
Not all lenders are the same- some lenders take 75 percent of rental income into account when determining servicability, some take 80-85 percent and some take 100 percent. Of course this all depends on the individual property and the risk profile of the lender. But I am certain that if you shop around and use a good broker you will find one that will consider more than 75 percent of rental income as this is very low.
Cheers.
LukeHi Like,
Cant believe I am sitting around at this hour on Christmas eve talking property with strangers. Come to think about it, its not christmas eve anymore!
We have a good relationship with our bank manager and we have spoken with the guys down at Acceptance Finance and have basically got the same answer. Im sure there are some lenders out there that would lend us some money but at the same time we want good service(sounds like a contradiction when talking about banks) and competitive rate. I think patience is going to our best friend at the moment.
Corie
Corie
Sounds like you want to get your hands on someone who has some money floating around – perhaps you could do the hard yards of the investing work and they can finance the deal – it will mean a profit share but at least you are still in the market.
Property number 6 and all neutrally geared?! Fantastic.
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