Hi I am looking or some advice on my current situation. I would really like to invest in property. My problem is the lack of equity/cash that I have. I bought my PPOR at the end of 2009 in Brisbane's south and since then the property market has been flat if not fallen in the area that I have bought. My wife and I earn approx 110 000 gross salary per year but after paying mortgage, bills and childcare costs there is very little left for savings. I have been using whatever is left to pay some bad debt from when I was younger (which is almost paid off
) and making cosmetic improvements to my house. My plan is to sell where I am once I can get enough to cover costs and build a house to lock up stage and finish it myself. I have the skills to be able to concrete, paint, tile and landscape and I also have a friend who will build for me and give me true savings for completing this work myself. I believe that I could make approx $50000 each time that I did this and could use it to to pay off my PPOR therefore giving me some equity to play with. I would stay in each property for 12 months to avoid CGT. I would love to hear your views on this strategy or if you have any other ideas for how else I can start to develop a property portfolio. I am only young (26) but I would like to make things happen rather than sit on my hands and wait for capital gains. Your advice will be appreciated.Michael.
Great to see that you are getting creative. Looks like you are in a tight spot because you can’t afford to own your own home PLUS an investment property. That is UNLESS you look at positive cash flow. Unless a property can pay for itself you are going to be stuck with a one property portfolio.
I can’t give advice because I am not a financial planner but here is something to think about.
1. Buy discounted property, renovate and rent – buy property that needs work so you can get it at a good price. Do the work yourself and then rent it out. This could give you higher returns and generate you a positive cash flow.
2. Dual Occupancy – again because you can do a lot of the work yourself you may want to look at properties that you could rent out for 2 incomes. A house with a granny flat or a 4 bedroom house turned into 2 x 2 bedroom houses.
It seems to me cashflow is always going to be an issue for you unless you look at property that increases your cash flow. Or if your income goes up significantly.
If you simply sell your home and buy a house to live in while doing it up are you going to expect your wife to live in a construction zone for years? It might be alright for you, but women have different needs.
Some food for thought
Ryan McLean | On Property
http://onproperty.com.au
Email MeThanks for your reply Ryan. Positive cashflow property is the eventual goal. The issue is getting there ie getting the banks to lend me the money as I have very little equity or deposit. I am just looking at a way of getting some equity from my PPOR as I see it I have 3 options.
1- Wait for capital growth (how long will this take)
2- Rent for a while to give myself more cashflow therefore being able to start creating positive cashflow property (wife not keen on this one)
3- Build and Sell after 12 months for a profit.Your right about my wife. She'll get sick of it so I was hoping that if I could get 2 or 3 done then that would be enough to get the banks to look at me for another property to renovate.
I like the idea of converting places for dual occupancy is this common?
Also will banks take into account the proposed income from rent after renovating and will they lend based on this? I'm assuming that they wouldn't? If anyone can explain to me how this works it would be greatly apprieciated.
Sorry about all the questions. Just trying to work out a way of getting into this.
Michael.
Hi Michael, I feel your frustration, I also bought a property in 2009 in Logan (Underwood) and just had it revalued. It came in $15k less than what I paid for which is disappointing but not surprising considering the property market in Brissy. It could be worse, lucky I didn't buy in some gold coast areas! At least the rent has gone up though.
Anyway, first thing I'll say is that your proposed strategy is not technically investing but is more of a flipping/development type strategy which is riskier than just buy and hold. The main reason is you can't really buy outside your local area, because you need to be closeby to do the renovations and this means you are tied into that market (which is currently in a downturn).
Even if you did more renovations on your PPOR, the fact that it's value has probably dropped might mean you spend all that money and the value is still not greater than what you paid for it.
The best thing that I can recommend if you are really keen to get into an investment property is to re-evaluate your family's budget, cut costs and put the extra savings into an offset account against the PPOR. This will reduce your mortgage payments in the short term (by offsetting the interest) allowing you to save even faster. Look for cheaper IP's around $200-$250k so you would need to have around $35k saved (10% deposit plus costs).
I know this option is not desireable because it will take you a while to save that much money when you currently don't have much to spare, but I don't see many other options at this stage.
Darren
) and making cosmetic improvements to my house. My plan is to sell where I am once I can get enough to cover costs and build a house to lock up stage and finish it myself. I have the skills to be able to concrete, paint, tile and landscape and I also have a friend who will build for me and give me true savings for completing this work myself. I believe that I could make approx $50000 each time that I did this and could use it to to pay off my PPOR therefore giving me some equity to play with. I would stay in each property for 12 months to avoid CGT. I would love to hear your views on this strategy or if you have any other ideas for how else I can start to develop a property portfolio. I am only young (26) but I would like to make things happen rather than sit on my hands and wait for capital gains. Your advice will be appreciated.
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