Mates,
This is my first post in this forum which i fortunately chanced upon. I am glad that there are so many people here with heaps of experience and knowledge and willing to point newbies in the right direction. I hoping to get some advice to make an informed decision about my first IP purchase.
My background – A telecom professional employed for last 2 years with an income of 55k. I have put up a savings of $35k over the last 2 years with a bit of an assistance from my folks. I am currently renting out with my mates in the CBD (Melbourne) and have never owned a residential property before.
I have decided to avail the service of a mortgage broker for the loan and also looking at seeking advice from property specialists in the coming weeks. But I am having these doubts that I am trying to get clarified before meeting up the professionals.
My key concerns are:
1. Considering this to be my fist-time venture in IP, what budget should I limit myself to (Supposing the banks are approving a loan of 300k).2. What sort of investment options do I have (apartments/units/houses) for a budget of 250k including stamp duty and other costs.
3. Do houses generally have a higher capital growth against apartments? Do apartments still qualify for a sound investment option?.
4. Which is better – An apartment in the zone 1 melbourne or a house in a zone 2 suburb.
5. What are some of the growth suburbs of the future?.
My plan is to keep renting for another 5-6 years until i build up a considerable equity in the property and also let the rental yield (and/or tax rebates) pay for my rent and part of bank interest , eventually sell-off the property to fund a better house for myself and my family.
Any advice on the questions will help me get closer to making a wise decision.
Thanks
kris.
Krisco, I'm going to be very biased with my investing since i've done it from a similar level. On my first invest I was told i could borrow only about 200k max (i was on a sales commision job). I went around looking (bear in mind my scenario is 2006) for what i could buy for a suitable investment. There were 3 suitable items that were directly available on the market at the time, a cheapy 3br house (230k), a 3 br unit close to shops (210k), and a single townhouse (260k). now doing the calc on these i worked out i could put 60k from my own pocket into the deal. However a FOURTH option came up which was 2 x 2BR units close to transport (at the time listed at 135k a piece). Put in a bid for the units at 131k and it was accepted. Total invest 262k
Fast forward to 2011 and how are these investments doing? The 3br house is now (360k) +130k The 3br unit resold last year at (290k) +80k . A similar townhouse in the same block sold for (350k) +90k ….. and my units?
Well from street observations on the same street with nearly identical units, my units are now worth 270k EACH a pop, which rounds up to a nice (540k) +278k from initial purchase, and the return is now 25k (was 15k), and yes .. i've already dipped into my pot of luscious capital for more investing.
The reason i write these all together is because when given the choice of a whole batch of options, i chose the path of least resistance and it turned out the path of most return. Could it happen to you? Most likely.
Buy property you can handle, buy property thats easy to maintain (less expense) and buy as much property as you can buy for your buck. Time and again thats been proven to be a winning solution.
I will also mention that my investment area was the Greater Dandenong area .. which just experienced a secondary boom over the last 5 years. But its also a market i have extended expertise in, which allowed me to recognise a deal when it was available.
See my responses below:
1. Considering this to be my fist-time venture in IP, what budget should I limit myself to (Supposing the banks are approving a loan of 300k).
[DHCP] Is more important on how much you can afford to service the loan rather than what the bank will be willing to lend you maximum amount. Stick to what you can afford.2. What sort of investment options do I have (apartments/units/houses) for a budget of 250k including stamp duty and other costs.
[DHCP] It depends what is being sought after by the tents. ALWAYS look for the needs of the tenant point of view…remember they are the one who will pay for your mortgage mostly if not all (e.g. positive cash flow or negative geared).
3. Do houses generally have a higher capital growth against apartments? Do apartments still qualify for a sound investment option?.
[DHCP] It depends on the area. For instance, if you are investing over looking the beach and the area has historical good capital growth, apartment or townhouse is almost has equal if not good CG compare with a house. It s really depends where the market and the demand of the tenant.
4. Which is better – An apartment in the zone 1 melbourne or a house in a zone 2 suburb.
[DHCP] This comes down to CG vs Positive Cashflow hence which strategy you adopt.
5. What are some of the growth suburbs of the future?.
[DHCP] You need to buy for such info (e.g. http://www.residex.com.au, API magazine etc).
Hope this helps
Cheers Leo
Xdrew,
For a minute, I wished I could have been in your shoes. What an amazing ROI for those those 2 sweet little cherries
and plus a ongoing explosion of rental yield. Nothing short of impressive mate…Well done!!!!From reading your post, I think there is every reason to buy an apartment. Just a few releavant Qs if dont mind answering.
The units you mentioned in your reply ,
> Were they individual block of units or high rise apartments?
> Did you buy them off the plan / Newly built or was it a few years old?
> our views on New apartments vs established apartments with good tenant occupancy?.
> Given a scenario woud you mind buying an apartment in the CBD for 320k?.Thanks,
Kris.
krisco84 wrote:The units you mentioned in your reply ,
> Were they individual block of units or high rise apartments?
> Did you buy them off the plan / Newly built or was it a few years old?
> our views on New apartments vs established apartments with good tenant occupancy?.
> Given a scenario woud you mind buying an apartment in the CBD for 320k?.The units i purchased were 2br units .. with ample kitchen and living space .. with easy access to both transport and local shopping, single undercover carpark each on title. They were slightly neglected for paint .. but that meant they LOOKED bad. I gotta tell ya .. for a 1k paintjob .. i ended up buying 14k under market. The two are part of a block of 12 (it also lowers community costs) and the block is 1970s
I will make a recommendation however, if you go with apartments .. go 2br plus. People are more likely to stay in a place longer if they have a place they can move, grow or change with. And since u want long term consistent rentals .. you want them to stay.
I will however add the most important word context you will ever come across with investing.
PEOPLE WHO HAVE MONEY CAN AFFORD TO BE FUSSY.
It means that as your sliding scale for investment goes up .. people expect more from what they get. And as the quality of a property gets better .. people wont settle for less.
Oh yeah .. the other thing .. look for value, or value adding potential. Where others dont see it .. you just may.
Now with a CBD property .. here is my question .. supply vs demand .. do you think there are enough apartments for each person who wants to rent in the city? How is demand for your property going to increase? (and with that .. rentals) Will your property look outdated in a couple of years time and be harder to let? And finally, what sort of city property would you possibly get now at 320k?
These are questions you should be asking whether its in the city or in outer Mongolia (no valid Section 32 supplied in Mongolia). Regardless of what u think of it, property is always a market. And you have to check whether your property holds a strong position in that market, or will continue to be sought after .. in years to come.
Xdrew , DHCP thanks for enlightening me.
Is there a mortgage broker that you guys know of in melbourne who will help me find a home loan that does not require a 5% genuine savings. The savings that i mentioned above comes majorly from my parents and my genuine savings is less than 5%. The few of the brokers I called up have advised me to wait and save that 5% before applying for home loan, and one even referred me to go to NAB or Suncorp as they do not do home loans less than 300k.
Am I left with no options here but to wait and save another 5 -6k?. Thats going to take me another 3-4 months.
Kindly throw some wisdom
Thanks.
Hey Krisco84
What is the rush? There is always plenty of fish in the sea mate. It is better to be financial ready rather than leaving on baked beans mate. Not to mentioned, you are applying for high LVR which banks don't like…80% of LVR is good. Above 90% banks start to get worry. Some banks would lend LVR of 95%…if the market is booming banks will lend up to 100% LVR but in this kind of market some banks expect to receive LVR of 95%.
Cheers Leo
I agree with DHCP. At the moment you are running a little short, so persist with your saving plan for the moment. I have the feeling you've got the buying bug. The big mistake, especially after a boom is the scenario to sort of rush in .. grab any block that isnt already hammered down and think its a way to make money. It happens and it burns people's investment strategies badly. The overall property market isnt rushing ahead at the moment so even for the experienced investor its a moment of debt consolidation. Dont have any debt yet? Then its time to learn your market.
Study real estate agent's windows, watch what is selling .. and whats in demand. Dont be afraid to ask questions. Investigate, go to a couple of auctions .. do some open house to see presentation. Learn your market so when you make the move into your first investment its a move you dont have to guess.
Hi mate
If this is your first time investing i would start small and build your knowlege. Cash flow is so important, i have seen too many people over borrow and have to end up selling the portfolio that they were trying to build.
With regards to lending there are some great rates out there at the moment and a few of the banks are price matching the smaller lenders. If you have a plan to build a port folio look at the loan structure also as this could save you money in the long run.Cheers
1. Considering this to be my fist-time venture in IP, what budget should I limit myself to (Supposing the banks are approving a loan of 300k).
Stick to low budget to begin with and invest for a positive cashflow rather than looking at places with a high capital gain. This way you can begin to pay for the expense of renting with the money from the investment property. This will come in handy when you purchase your own house and are able to use the extra income to pay down your residence.2. What sort of investment options do I have (apartments/units/houses) for a budget of 250k including stamp duty and other costs.
Apartments and units are generally what will be available, houses for this price you may find need some value add to get a decent yield.3. Do houses generally have a higher capital growth against apartments? Do apartments still qualify for a sound investment option?.
Houses will have a higher capital growth generally because land appreciates in value. Buildings only appreciate in value when there is increase demand for them.When looking for good places to invest, I normally go looking for suburbs on rp data and invest smart that have experienced the biggest decline in value on a year on year basis. From then on it is matter of understanding why there was decline in value. If the reason seems temporary then you are more likely to bag a bargain. Remember – if you get a good deal on a property, pay under the value – this increases your rental yield. It brings you closer interest coverage.
WIth regards to borrowing at 95%, you will have to end up paying lenders mortgage insurance of around 3%+
The rate with Non Genuine savings is also slightly higher as a general rule. WIth these 2 combined factors it si definitly better to save as much as you can.
To answer your question however "Bank West" will generally lend 95% with non genuine savings.
It is expensive and i would avoid.Martin
and plus a ongoing explosion of rental yield. Nothing short of impressive mate…Well done!!!!
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