Basically I'm 23yo and working on getting my own home, I want to do this to prepare for a brighter future for myself (and my family if I have one) so figured investments are the best way to stay comfortable. So I guess this is what I had in mind:
– Buy a house in a good area with not too many rentals available (by asking various real estate agents)
– Move in for a year so I can adjust to mortgage life but also take advantage of the government grant
– After that year I rent it out and try have it atleast match my mortgage repayments
– Do the same to the next house and so on and so fourthCan anyone give me any suggestions or information about my plans, maybe something I should change? I don't have any friends that have invested into property so just trying to work out my best options. Thanks a lot guys!
Good on you for thinking ahead.
1) a house in a "good" area won't necessarily give you a good yield.It's virtually impossible (in a good area) to just buy a house and have it cover your payments. Don'rt forget all the other costs (rates, insurance etc). If you need a good yielding property search for areas that fit that need. You need to know what rent you'll get BEFORE you buy (not TRY to get high rent).
Do a lot more reasearch. Read magazines (go to the library). Get books etc.
I'm time poor at the moment so can't halp more, sorry. Others will though. Good luck.
Hi IDV8
Welcome to the forum.
What you've described is quite common and can be a handy way to take advantage of Govt. concessions whilst kick starting your portfolio.
From a finance perspective, if this property is going to become an investment then I'd consider a couple of things.
Firstly, I wouldn't pour too much of your own money into the deposit. Why? Because you'll be reducing the loan amount on a debt that will become deductible in the future. It may also allow you to keep some cash as a buffer.
Secondly, I'd set up the loan as interest only with an offset account as opposed to principle and interest. Instead of paying down the principle, you'd place your savings into your offset account which basically provides the same result. When this property becomes an investment and you purchase your next PPOR, you can withdraw the funds from the IP offset account (which boosts your deductible debt back to its original level) and move it onto your PPOR debt (which is non tax deductible).
It's a difficult concept to understand when starting out – but read it a couple of times and it should become clearer.
Hope that helps.
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]
Thanks for the replies! I was hoping to buy my first property in the Norwest area (Sydney) as personally I'd like to live there but also because it seems that rental prices are a bit higher without the purchase price being pretty much impossible like somewhere such as Sydneys eastern suburbs. I currently live in the South West and rental prices are a bit lower but would consider buying somewhere such as Cecil Hills/Carnes Hill/Hoxton Park where the houses are a bit more affordable for what you get compared to Norwest.
Are there certain companies that aim to help you create a successful investment in these situations? In terms of the different loans and what Jamie has stated above? Or would I simply pick a home loan company and tell them what I'm trying to do and they'd have plans for that?
I keep an eye on house prices but mainly in areas I'd like to live so if things take a little more time than I planned atleast I'd be living in a comfortable and safe area that I knew – that being said I think I'd be more comfortable taking on my 2nd or 3rd investment that was in an 'upcoming' area. Thanks again!
IDV8 wrote:Are there certain companies that aim to help you create a successful investment in these situations? In terms of the different loans and what Jamie has stated above? Or would I simply pick a home loan company and tell them what I'm trying to do and they'd have plans for that?Hi again
Your best bet is to speak with a mortgage broker that specialises in investment properties. They will explain how to structure the loan and will also find your the best product to suit your needs. Most of us don't charge a fee for our service – instead we are paid a commission from the lender you end up going with.
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]
Jamie M wrote:Hi IDV8Welcome to the forum.
What you've described is quite common and can be a handy way to take advantage of Govt. concessions whilst kick starting your portfolio.
From a finance perspective, if this property is going to become an investment then I'd consider a couple of things.
Firstly, I wouldn't pour too much of your own money into the deposit. Why? Because you'll be reducing the loan amount on a debt that will become deductible in the future. It may also allow you to keep some cash as a buffer.
Secondly, I'd set up the loan as interest only with an offset account as opposed to principle and interest. Instead of paying down the principle, you'd place your savings into your offset account which basically provides the same result. When this property becomes an investment and you purchase your next PPOR, you can withdraw the funds from the IP offset account (which boosts your deductible debt back to its original level) and move it onto your PPOR debt (which is non tax deductible).
It's a difficult concept to understand when starting out – but read it a couple of times and it should become clearer.
Hope that helps.
Cheers
Jamie
I'd follow Jamie's advice above.
With your capital, and depending on the type of property you buy, you may want to consider doing some cosmetic reno work on the property you buy. This may help in increasing the rental return and also the value of the property. I turned a $240/week rental into a $315/week rental by doing this exact thing. You can do these reno's over the year in which you will be living in it??
Thanks again for the replies
How would I figure out exactly how much cash I should be prepared to part with before buying – or what could I expect a mortgage broker to advise me? I guess thats the first step and thats what I'm trying to do now, get enough $$ together to get things started.@heath06 That'd be a great idea – I've seen simple things turn a not so nice place into a really comfortable or cosy place to live by just doing things like a new and vibrant paint job, new carpet or polished floorboards, adding an aircon system in or ducted air. I'm guessing the more expensive parts would be turning a classic bathroom and kitchen into a very modern kitchen/bathroom – was that the most expensive part for you if thats what you did?
I like the sound of doing renos as well, especially while you are living in it (might as well).
Even simple renos like the flooring and painting as you suggested can help to increase the "perceived" value of the place, to then help you increase rents
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