Hello!
First a quick background overview about me, I am a recent university graduate and I live in Sydney (recently moved here from Victoria).
I'd like to purchase my own apartment that has the potential for high growth and hence will give me in future a good return on investment (via renting or sale) after I have the required 20% deposit set up and am currently scouting around for decent suburbs around Sydney. My budget is no more than $300,000.
I spoke with the bank and they mentioned the maximum they can loan me is $300,000 however I have no interest in taking out the full loan. Perhaps take out only $250,000 and fund the remaining by myself to ease down the amount of monthly repayments I'll have to do. This will be coming around to about $1200-$1400 p/month. At this point I would like to mention I plan on doing fortnightly repayments and not monthly.
I've looked into a few places and have found fairly decent places (in my opinion) in Westmead, Wentworthville, Merrylands and North Parramatta. Prices ranging from $290,000 to $300,000 – well within my budget. Since this will be my first home I'll be eligible for the first home owners grant of $7000.
Now on to the questions:
1) After say, 2-3 years it's my wish to scout for some other apartment and rent out the one I would have stayed in. What are some good and safe suburbs for this in Sydney?
2) What are the bad and no-go suburbs in Sydney to stay away from in terms of investing? I've read up on how bad Blacktown, Redfern, Auburn and Kings Cross are.
3) I spoke with the loans manager in a bank and she said that once I've taken out a loan for a house they will not give me another loan for another apartment if I don't have enough equity (naturally). Does this mean I'll have to wait for the apartment or the land it's on to appreciate in value before trying to take up another loan for investment?
Say the current apartment I'm in (it would be the one I am currently scouting around for to gain knowledge), I bought it for $300,000. The apartment then appreciated in value to $350,000. This would mean I have $50,000 in equity + whatever amount I already paid off to have as the down-payment for another loan for the 2nd property. Correct me if I am wrong here please.4) I should *always* look for property that are close to along with easy access to schools, hospitals, train stations and shops whereever possible?
5) With monthy repayments projected to be around $1200-$1400 by the bank, would it be wise of me to look at places around the suburbs I have? For instance the weekly rent on the Studio apartments near the highway in Parramatta are $290 to $300 p/week. This does not exactly cover the whole monthly repayments I'll have to do.
Thanks for your time!
Hi Mr Jaydee !
Nice to see someone pepped and ready to go into an investing / living cycle ! Fresh from university .. thats a big goal to be exercising !!!
But you are looking from the DUNK MONEY approach to investing. First … any first home u purchase at this stage will be heading for the downturn and this may mean that either interest rates fly up around you .. making the investment hard to maintain .. or the PPOR easier to rent out rather than live in. Neither of these provide a good start to your property journey.
Second, why not think OUTSIDE the box? You are early 20s (i assume) just starting your major career moves .. why not gear up instead for .. an investment folio. As i keep telling people, once an investment property takes off .. its money YOU NEVER NEED TO WORK FOR AGAIN. And as a 20+ that would mean you would have a residual income at an earlier stage.
If I was 20+ again and getting going … at 300k I'd be looking for one or TWO properties that are reasonably nice that are good renters. At this stage you dont NEED either the income returns, or the debt whack to make your life a misery.
300k should be able to get you about 12-18k return (risk proportionate). At this stage .. for you .. the FHBG would be there to get you into the property cycle and THATS it.
Regardless .. whatever you do .. gear at least 80/20 (20 is your money). It may sound conservative but it also means you can weather a downturn. And with your first property you'll also need to budget for unexpecteds. Either allocate 20% (or 3k)of income for unexpecteds PER PROPERTY. Insure the contents of the property !
More importantly .. do your research as to current market conditions. Become your own analyst, as in the end .. you'll need to make your own recommendations.
Outside of that .. GIVE IT A GO ! The best insight for wealth building only comes with experience .. and the sooner the better !
Get an offset account, and rather than make "extra" repayments when you have spare cash, put the money in there. The result will be the same – it will save you interest. The difference is that later on when you want to pull that money out again for use in buying another place, it's a simple withdrawl. Whereas if you'd paid it onto the loan itself, you have to muck about getting your money back, and fees will apply.
You are correct that when a property grows in value, the "equity" can be utilised for a deposit on another place. But you must remember that the bank will still only lend you 80% of the TOTAL PORTFOLIO value. So let's say at the time you go to buy the second place, apartment #1 (which you purchased for $300k) is now worth $350k. And let's say property #2 is worth $400k. That's a total portfolio of $750k. So the bank will loan you 80% of that… $600k. So you have to leave $150k in it. So let's say when you originally bought apartment #1, and you put your 20% in. When you bought apartment #1, you put in your 20% deposit which was $60k. There has been an equity growth of $50k. Total of that is $60k+$50k which equals $110k. But you need to leave $150k in to cover the entire portfolio, which means you need to pitch in $40k (well, it'll be less because you will have reduced the principal on apartment #1 but you get the idea). But $40k is less than $80k which is what 20% of $400k is, so you're winning. The equity has helped. Does this make sense?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
PS yes, if you are going with an apartment, positioning it near the train station and shops is a must. This is because apartment dwellers are more likely to have lower incomes and thus no car. I'm not convinced an apartment needs to be near a school, but a house does. Think about what you'd want if you lived in a place. You would not want it to be an epic getting to work, the shops etc. Better again if there is a nice park for you to sit in when you feel like it.
I really do not think you should write off the likes of Blacktown. You could get a house on a big block in Blacktown or Seven Hills, subdivide off the backyard and sell it, thus reducing your debt. Or, you could not subdivide… just hang onto the land and later build a second dwelling on it. Sure Blacktown is not Leichardt. But the people stay there. They grow up there and they stay. That means a supply of tenants is available to you. And also, remember that dodgy suburbs polish up eventually when the neighbouring suburbs become too expensive.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I've got a basic equation that works for me. Local shop (milk bar or seven eleven – NOT petrolsupermarket). Walk to a bus stop, short walk to a train. Shopping Centre within 5 mins drive. The area must have at least 5 major industries active within the local area. I know thats a lot but it prevents me getting stuck in a dying country town or suburb unless it meets that criteria. That prevents me from relying on a one horse town – where they rely on a single market for the whole towns income. And of course .. three major working roadways to get into and from the area. Sounds like a lot but its proven valid for the long term. Think of roadways like arteries .. they keep the transport lifeblood flowing.
JacM wrote:PS yes, if you are going with an apartment, positioning it near the train station and shops is a must. This is because apartment dwellers are more likely to have lower incomes and thus no car. I'm not convinced an apartment needs to be near a school, but a house does. Think about what you'd want if you lived in a place. You would not want it to be an epic getting to work, the shops etc. Better again if there is a nice park for you to sit in when you feel like it.I think Jac is right on a couple of issues. Think about this place as if its your own home. It helps you look at it properly. For instance I wont invest in less than a 4.0 x 4.0 (roughly) bedroom. Its got to be big enough to get the queen sized bed in plus legroom. And confrontational hallways (bedrooms open to other bedrooms or direct into the lounge) are bad ideas. The other thing is having moving room in the bathroom. If you have to step across the toilet to get to the shower .. or worse .. the first thought that enters your mind is .. I WANT TO BE SOMEWHERE ELSE. And guess what .. thats what a tenant thinks too.
Fixtures can be changed. Laundry and sink can become eurolaundry (this saves space majorly in bathrooms). Lack of cupboards in either bathroom or bedroom can be solved. But major structural failiures cant be remedied.
look @ the ‘meads north or west. Close to Parramatta, transport & m2/m4, uni of western sydney. Not rough areas at all.
Hi Jaydee,
Just a question, is this property you're looking to purchase one you are going to be living in?
If it is just for investment purposes I would be interested to see how you will be getting the home buyers grant as I thought that was only for homes that one lives in.
@ Alex P
I am renting right now in Sydney. Since I wish to avoid paying the rent all together I am after my own place to stay (PPOR) where I'll be paying off my own mortgage via the repayments. For this, I am eligbile for the $7000 first home owners grant.As I understand it I'll have to stay at the PPOR for 6 months to be eligible for this grant.
Or would it be better I forgo the grant and go for an investment property as my first home all together and whilst paying off the mortgage via the repayments I'll have tenants as house mates with me at the same time also paying their share of the rent?
As xdrew mentioned earlier about the downturn and interests rates I am not quite too sure which path I should take.
As I am also a recent uni grad and having the same situation like you, I am quite keen to see any other suggestions.
I prefer to get an apartment as it might be easier to rent out later. However, strata varies and interest rate keeps raising is also another concern.
I was in a similar position to you about a year ago now, just finished uni and was looking at purchasing my first property. Which I did in Seven Hills, obviously it is not Vaucluse or anything, but it is a fairly nice area, I grew up just down the road in Carlingford so I know the area well. Have been there for over a year now and have had no problems. It is close to the train station and shops and schools (not that schools concern me at the moment).
However I have no plans on renting this place out, and see it as more as a home compared to an investment property. Currently am on track to paying it off within 7 years or so and am looking forward to that, however I am currently looking at investment properties to try and get me some passive income as well as hopefully setting myself up for early retirement, or at least only choosing to work, not being forced to.
The best advice I can give you is to just make sure you are comfortable with what you purchase and do not buy above your means. When I went to borrow I think the limit was around 550k or in that ballpark. Ended up borrowing around 280k so there is a lot less stress when it comes to mortgage repayments.
Also when you do budget, plan for some pretty severe increases in interest rates, they may not occur of course, but the last thing you want is to be on the brink with current interest rates and then see them rise even slightly and all of a sudden you are left with baked beans for dinner every night.
JayDee,
I was in pretty much exactly the same position as you a few years ago. I was new to Sydney, graduated uni about 18 months ago and wanted to buy my first property. I bought a one bedroom apartment for $315k in a good area and it has acheived about 20% growth since. I am not in a position where I am looking at an IP with my partner using a LOC secured against my apartment as a deposit.
Firstly- if you are intending on living in this apartment for a few years and then renting it out, set up your loan as interest only with an offset acocunt attached. pay any excess money into this offset account. This has been discussed at length in these forums and it is the best way to maximise tax deductability should you purchase another PPOR down the track. DO NOT USE A PRINCIPLE AND INTEREST LOAN WITH REDRAW!!!!!!!
Secondly- the $7k FHOB is a minor thing. The biggest advantage for a first home buyer is the stamp duty exemption (I am assuming that this is still running).
Thirdly- I did not save the 20% deposit for my first apartment. I used a 10% deposit and paid LMI to establish myself in the market which has been a good strategy for me.
Fourthly- I agree that a property needs to be close to shops, transport and employment in order to acheive above average growth. Walking distance to a train station is a great selling point for a property in a climate where rising fuel costs and increased traffic congestion are becoming more of a problem in Sydney.
And finally, (this is just my opinion)- It doesnt matter whether you would like to live in the property, it matters whether your target market would enjoy living in the property. I personally do not like large 4 bedroom houses with a big backyard and a huge lawn. But that doesnt mean that no-one likes this type of property and that it is a bad investment. You need to buy a property that the people in the area you are buying in (your target market) would like to live in. You are buying an investment property for the tenants to live, not for you to live. In summary I disagree with xdrew.
Sorry for writing such a long post (it is my longest post I have ever written on here!!!), hope you found something here useful.
Cheers,
Lukesorry, in the my first paragraph I meant to say "I am now in a position where I am looking at an IP with my partner using a LOC secured against my apartment as a deposit.
Luke
Hey JayDee,
Here are some opinions for you…
1. I think you should be careful when you select suburbs. If it is somewhere you'd like to live, then pick an area you'd like to live in; if it's for investment, choose an area that gives you the investment numbers and prospects you want. I have blurred this distinction in the past (bought a property to live in and then thought I'd rent it out) and not only is it not the greatest performer of my properties, but it caused tax headaches as well.
2. I'm surprised you have suburbs like Blacktown listed as a no-go suburb for investing. There are considerable infrastructure developments there, it figures prominently in greater Sydney's future development and the returns can be pretty appealing. Sure, you might not want to live there but that doesn't mean it won't make a decent investment. Have a good, unemotional look at the suburbs which look like they might increase in value (there are a few criteria to look at which would indicate potentially decent capital growth) and then see what properties give you the numbers you want.
3. I think JacM has answered this one.
4. For sure, location is important. I always look at whereis or google maps (if I haven't actually been there) to get a good feel for where the property is and how well it's serviced by public transport, shops, schools and the like.
5. Again, look at the figures and see if there is a way you can find properties that give positive cash-flow. They are harder to find but they do exist. Remember, for your investment properties, do the numbers!
I hope this helps.
Good luck with your investing!
Den
JayDee26,
You can also use Keystart Home Loans, it’s a government agency which helps to buy your first home. I used it 8 years ago. You only need 6% deposit and the FHOG can be used as deposit. You have limitations, but could be a good option if you can apply.
Mosqui
Thanks everyone.
Also just a question, what does it mean by rental yield? For instance I see in some advertisements text like “this property has high rental yield of 8%.”
Hi Jaydee
It's calculated by taking the rent you receive per annum and dividing it by the purchase price of the property. It's a measure of the percentage of income return you receive from the asset.
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]
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