Basically, I’ve recently read that the rental market is slightly stronger in regional Vic. That a landlord there is less likely to have a vacant property. Yada yada yada…
I’ve have also seen quite a few properties for sale for approx $95,000-110,000 which claim to have a “solid” rental record of $150 pw. (realestate.com.au)
And I can currently save $30,000 per year no worries.So considering this I was thinking:
Save for 4 years. Buy one house ($110,000) outright and rent it out for $150pw.
At the same time, get a loan ($100,000 9% 10 years –> Repayments $292pw ) and buy another house outright. Also rent out for $150.
So combined rent income is $300pw, enough to cover the repayments.
Then sit back and wait 10 years while someone else pays off your mortgage. Then end up with 2 houses to: a) continue renting, b) sell, c) live in.
Now, of course there will be extra money needed for times the house is vacant, taxes, repairs etc, but considering I will still be earning and saving money separatley I will be able to cover any costs easily.
Seems quite good to me. All I have to do is save for a measly 4 years. Im obviously new to this kind of thig so I must be missing something. Can someone set me straight?
Cheers
Hi Trippsy
Welcome to the forum. I wouldn't say it was a dumb idea – nothing wrong with thinking outside the square a little.
However, one of of the most attractive things about property investing is being able to leverage – ie. using a small amount of money to purchase something of much greater value that hopefully appreciates over time.
Instead of saving for four years to purchase one property (which will probably have gone up in value over that time) you could use a 10% deposit ($11k) plus completion costs (roughly $5k) – total of $16k to purchase your property. You've then secured the house at todays prices and if the rental yield is high enough, it will be neutral/positively geared so you can almost set and forget about it.
If you're able to save $30k p.a – you could potentially purchase a couple of these bad boys each year (depending on your borrowing capacity, ect). Imagine that, in 4 years you could possibly own 8 properties which are hopefully all appreciating in value – or you could own one outright where all the rental income (because there is no mortgage on the property) gets added onto your taxable income.
I hope it makes sense.
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]
The other thing you might want to keep in mind is this:
If you buy a house outright, then the rental return is going to exceed the costs of the property (council rates, insurance etc). So it'd be making a profit. And what happens to profit? It gets taxed. Income tax.
Whereas if you buy two houses with a bit of a loan on them such that overall, they break even, then you are enjoying capital gains (ie growth in value of the houses) on two houses rather than on one house.
Be sure to check out expected capital gains on these regional properties. A property needs to go up in value.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Trippsy,
Welcome to the world of property investing. It seems you've found some properties with good rental returns and that's great. You might be able to save up, buy one (or two, or eight) and do quite well. The problem is that the properties you're looking at might be in a region which is undergoing a decline, and they won't hold their value. It might be fine for two or even five years, but then people will move out and you have a $100,000 investment that is worth less and less as the decline sets in.
I'm not saying that this is the case but it must be a consideration. As yourself a few questions like;
* what are the current industries around? (how permanent are they and how varied?)
* what is the population of the town and is this in growth or decline?
* how close are you to a major centre?
* what is the locality like in terms of infrastructure, transport, employment opportunities?
* what is the property valued at? (get an independent valuer out to have a look at it)Once you have answers to these questions you are in a better position to judge how permanent the good times will last for you if you invest there.
Good luck!
Tripsy … i'll give you an excellent idea of why the saving up to afford property fails.
In 1999 i was given 15k for investing. With my savings it amounted to 25k i could have invested
in 2000 I could purchase a 2br flat in Dandenong, Vic for about 65k the amount i had was a 30% interest (after stamp duty)
in 2004 similar 2 bedroom flats were trading in the 120k range. my amount would only have been 17%
in 2006 the 2br flats in the area were now 150k. my amount now buys barely 13% of the property value
in 2010 the 2br flats now trade around the 270k mark .. my 25k deposit wouldnt even buy 8%
To sum all that up .. i DID actually purchase in 2000 .. i got greedy and bought TWO. So now my asset base is half a million of investment money over and above what i paid. Oh yeh .. and it returns .. wait for it .. 25k per annum.
You move when the moving is good. In that time i've gone thru at least two actual booms .. the 2000-2001 boom and the 2006 boom. But there were times in 2004 when i could have kicked out on the basis of not feeling confident and a slowing of the market. If i was looking for investing .. i'd be putting my money into something ASAP. Something you can afford. And an investment not a live-in. Your tenant can help pay for your investment for you.
Money is about to move. And any figures you are used to now will look pitiful when its moved. So will any deposit you have waiting for property to come meet it halfway.
Trippsy25
Everyone has his own opinion and I agree on most of them if not all.
If you hear from some that there is a booming town or area and the rental yield is excellent blah..blah..blah. The first thingh I would do is conduct an immediate RESEARCH /DUE DILIGENCE of that particular area or town. Find out WHY that town is getting attractive for investors (e.g.., population growth, demographic, rental vacancy etc). I couldn't agree more with Den.
Then, if you are happy with your research outcome then make a move. I woudn't encourage you to wait for 4 years because by then the market would have changed which is a long time to want. Particularly, if that the town you are targeting is experience slow but steady growth, CG (capital growth) will rise due to DEMAND hence that $110,000 in 4 years, might not be enough to secure that property. Let say if that town is undergoing slow but steady growth (e.g. 5 per cent per annual). If you wait for 4 years, that property you are eying will be worth $133K hence you missed out on the CG plus you have to find 23K to make up the difference.
Conversely, the opposite could also happened (e.g., decline in population etc) hence insufficient renters to rent you property. Hence, there are a lot of things that is fueling that growth, JUST FIND OUT WHY!!!!!!
By doing DUE DILIGENCE will mitigate the risk in pursue in IP and could avoid you making costly mistakes.
All the best.
Cheers Leo
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