Treading carefully

Hi Charlie

Welcome to the forum.

What’s stopping you from purchasing your PPOR first? $40k on a 95% lend will get you something just over the $400k mark (pending borrowing capacity, etc), or is that not enough to secure the type of property in the area you’d like to live?

Cheers

Jamie

Hi charlie,

I would tend to agree with Jamie on this.  I'm sure the money you're paying for rent can't be sneezed at — knowing the Sydney rental market.  If the mortgage repayment for the PPOR is the same as the rent, why not rent to yourself?

I can almost see myself in you way back dinosaur years, although our circumstances weren't the same.  I can sense the same palpable desire to get ahead not only for yourself but for the kids.

You will get there eventually. 

Take care.

Angel

Have you ever considered a Shared Equity style loan?

You put in 10% of the purchase and borrow and pay interest on say 70% of the purchase price.
An investor puts in say 20% and you share a percentage of the Capital Gain down the track when you eventually sell the property.

In the meantime you get to live where you like and can afford although only end up paying a percentage of you would if you owned the full 100%.

Cheers

Yours in Finance

From reading it seems you cannot afford to buy in your area, you do not want to move, so you will have to continue paying rent. I know a lot of people are a bit turned off by rural areas because I guess they see less oppurtunity or growth in there, which I guess is a fair assumption, but provided you purchase in a steady rural town that has some sort of population growth over the years, or at least something to keep people there, I would imagine you would be fine, at least not lose out on an investment. For example Tamworth amd Armidale has universities. Bear in mind a lot of people are suggesting that Sydney prices will take a correction in the next couple years so there may not be much growth in the Sydney market either.

I am also looking into rural NSW for some positively geared property. Just something that can pay itself off with hardly any input from me and in 15 years or so, it is completely owned (I prefer to have a property paid outright rather than just always the bank owning it), without me having to put forward a dollar of my own money apart from the initial deposit.

Below is an example of something you could easily do.

http://www.realestate.com.au/property-house-nsw-tamworth-107250602

Property for $130,000, with your deposit loan of about $95,000. Interest only that would be $555 a month in interest (7% IR). Currently receiving $210 a week in rent, $910 a month. So a gross profit of $355 a month. If you put it all towards paying down the interest and principal, would take around 15 years to pay it off, as I said before, without really putting much of your own money into it.

Down the line you could always renovate, add rooms, sub-divide (was a decent amount of land), to increase some equity and then hopefully be able to purchase your PPOR in your desired area.

I was having a bit of a look at the numbers and comparing what sort of return you might need if you did invest in shares. Firstly the assumptions:

* Interest Rate of 7.0%
* Initial Net Rent of $610 a month (gross was $910)
* Capital Appreciation of 2%
* Rental Appreciation of 2%

After 10 years, property value was $158,500. Principal still owing would be around $65,000. So value would be $93,500 after 10 years and a profit of $93,500 – $40,000 (initial investment) = $53,500.

Obviously I have made a lot of assumptions but bare with me.

Investing in shares a year on year net return of around 9% would be required, $40,000 x (109%)^10 = $94,600.

I will be honest with you I do not know too much about shares. But that is the sort of return you would need to make shares viable. Also remember I did make a lot of assumptions in the property example, and used 66% of the gross income as the net income when maybe 50% would be more appropriate.

Sorry I made the mistake in my initial thing by not including capital gains in the property example. I guess the return for stocks would need to be GROSS returns of 9% not net returns.

I do not think property is that bad in towns like Tamworth, most likely the capital gains may not rival big cities, but it does not mean they still cannot increase. I guess I just am very keen on positively geared property and since that is very difficult to find in large cities, unless of course you do get creative and sub-divide, add rooms, renovate etc etc. Whereas plenty of rural properties are positively geared without having to do anything.

Hi Charlie

When it comes to buying your PPOR down the track, the bank will want to see you have a deposit (whether that be cash or equity from another property) and the ability to service the loan (and an impairment free credit file). Having owned a property isn’t going to put you in higher regard with them – they’ll simply look at it as another liability and the rent as another income.

It can be handy, to a certain degree, if you’re sourcing finance for your second property with the same lender as your first – because certain features (such as 95% loans) which are often only available to existing bank customers (that’s for some banks) can, in my experience, be a little easier to get across the line.

Cheers

Jamie

Hi Charlie_B,
So if not for tax deductibility reasons then perhaps consider getting PPOR now. Like what Qlds007 said, there are certainly strategies you can use to borrow up to value of what you are looking at. Another strategy i’ve used is a family guarantee (used as an “investor”). Say your parents or someone in your family has equity in their home you can use a portion to secure a property. Obviously, doesn’t matter whether you do deals with family, friends or not, make sure to always have business agreements in place so everything is clear and above board. Have used and seen this strategy used with great success. Besides, its more fun doing deals with other people. You get to leverage your time and money so that everyone wins! I’m sure the finance gurus on this page may be able to assist in explaining more about this. All the best!

Hi Charlie B,

Welcome to the forums. 
If you are looking at investing in regional areas, I would look at buying a house instead of a unit.  You can get something at roughly the price bracket you're after, and the advantage of a house is that it should have better capital appreciation potential.

Regarding regional areas, I looked at 2 areas recently – Wagga and Tamworth.  I bought at Tamworth because I prefer the town, and found exactly what I was after.

I think that a well-researched regional area is a good bet due to the following reasons –
1. Lower prices and good rental returns.
2. Government is starting to support regional areas more, and should give more infrastructure grants and assistance in these areas in the future.

I would look at the investment as a long-term prospect (10 yrs+ timeframe) – capital cities are becoming quite populated and I am sure that regional areas will continue to grow as people look for additional alternatives for both work and housing.

Cheers,
Ajay