Hi to all. I am a 24 old guy and my cousin is 26. We both have a good job and earn very good money however we're tired of the 9-5 lifestyle and by our early/mid 30's really just want to get out of the grind because there are just too many things to try in life and too many places to visit in life so looking into property investment. Me and my cousin are thinking of saving 50k each to put down a total 100k deposit and find a loan for 400-500k in which we can buy land and build a house in an upcoming area in Perth. my parents for example bought land in Southern River and built our house for really cheap in about 2003-04 (250k got them a 4×2 house built on land around 600sqm) and our property was worth around 600k at one point because of the sheer development that went on in and around southern river/canningvale. I was wondering if there are any other suburbs in Perth that are developing similarly? I was driving up Nicholson Road and I saw lots of houses being built in Henron Park(i think that was the name), shopping centre and library etc being built there and the house and land packages were 350k. so what other suburbs are good to buy land and build a property on it (4×2) that would see a boom within the next 5-10 years. What I intend to do is get the loan for a period of 5-10 years pay the house off own it fully and then make it an IP and either build a new house again or buy an existing property. Or would it be better to buy established properties in not so great conditions in areas close to the city and then renovate? Or is it the wrong idea to pay off one property fully and buy another? I've been reading a lot about IO loans with 100% offsets and their tax benefits etc. I am not too familiar with them so if someone could explain in detail what those actually are (i.e. what interest only loans are and what offset accounts are what they do etc) it would be great
I am a first timer looking at getting into real estate and admittedly I do not know much so any help would be appreciated
Hi Sum,
Looks like your ideas are all over the place at the moment. So go slowly and one step at a time.
A few comments for your consideration.
Generally speaking most investors only pay interest only rather than P & I. This is mainly because I/O reduces monthly outgoings and, as the principle part of the loan is not deductible it means, expenses on the property are generally confined to those that are classified as tax deductible.
If you do pay your loan down early and want access to your advanced payments you can compromise the tax deductibility of the redrawn component of the loan. For this reason those people who want to reduce their monthly interest bill place surplus funds into an offset account.
You will also need to consider whether or not paying off a loan in 5 or 10 years is feasible. For example P & I repayments on a $350K loan over 25 yrs are approximately $2475/month. If you intend paying off the same loan in 10 yrs your monthly repayments increase to $4060 and in 5 yrs they increase to $6930/month. Note all repayments calculated at 7% interest and are only used to illustrate my point.
Your parents did property in Southern Lakes has performed well – but you also need to consider that in the period of ownership 2004 – 2012 included a period which included one year when Perth median house prices increased by 46%. So while your parents have done well this should not be considered a sign that similar results are achieved with 'any' house and land package.
By their very nature many house and land packages tend to be in areas which are often dominated by first home owners, particularly those areas more distant from the CBD. On this basis you can be extra exposed to neighbours who are interest rate sensitive. They often buy their first homes on minimal deposit and devote every spare cent to paying their mortgage.
Your original post indicated a desire to leave the rat race and 'live a little' – if this is your intention you will need to recognise that any negative gearing benefits you enjoy in the early years of ownership will lapse when you are travelling or off work. For this reason you may need to consider some sort of cashflow positive strategy so you continue to earn an income when travelling.
Hope this helps
Hi Derek,
Thanks for your reply. I know my mind is all over the place because I'm just like that, I like to find out everything about something that I'm interested in and learning new things just fascinates me and its just the fact that I don't have much experience with properties. Paying off the bank loan is definately no issue. Me and cousin are both earning $2k a week each easily and I'm thinking of opening a little business venture along the side to get a bit more income too!
Well i should have been a little more clearer. By leavin the "rat race" I simply mean no 9-5 job I am however interested in building a (hopefully profitable) real estate portfolio. I want to start small with houses and look into buying big blocks of land and building 5-10 units on them and owning a chain of strata properties. Admittedly I do not know if this is feasible or if there is a better option but its just to show that I am wanting to commit myself to playing the "property game" in about 5-10 years time (or sooner if possible!)
With regards to my parents I am aware that a boom occured and I shouldn't be expecting such a profit margin but I had always been told that buying land and building a house is ideal since the house increases its value as soon as it is built not to mention the fact that stamp duty is paid only on the value of the land(of course this comes from people such as friends and family and by no means a professional so I do no know how much it holds true but I had thought this up until now)
If house and land packages tend to be in areas which are a "gamble" so to speak would it be more beneficial to buy land in established suburbs(if available) and build on it or you think buying older properties and reno'ing might be the better way to go
regards
Hi Sum,
Your friends are correct about only having to pay stamp duty on the land when you buy a block and build a house on it. Stamp duty is levied on the purchase and not the improvements created by adding a house onto the block.
As a bonus the interest on the land will be deductible if you have bought it with intention of building an investment property onto it.
From an overall strategy what you are planning makes reasonable sense. Start small and take a series of small steps, learn the ropes as you go, don't over extend yourself and start building a team of trusted, experienced people around you.
With all due respects to your friends and family seek the advice and guidance of people who have done what you are planning to do. They will be able to keep you one the rails and heading in the right direction and keep your friends and family for 'social events'
If you are committed to house and land type strategies you are better off looking for pockets of infill where the developers are coming through and build mini estates. Wattle Grove would be example of what I mean by pockets. It isn't at the extremities of Perth, has reasonable proximity to infrastructure, service provision is sound and so on. To me these types of areas make more sense from an investment point of view than 'Southern Armadale' or 'North Butler'
Another option worth considering is buying undervalued, sub-dividable blocks in the inner. medium rings from Perth. At the moment banks are wary of most developers so this would be a big step especially early in your journey. Having said that I do know people who have taken this route and succeeded. They do tend to achieve the goals they set for themselves and remain quite focused along the way.
Hi Derek
thank you again for the ever so wise words and advice. I always seem to learn a lot whenever I read a post from you. With regards to starting I am just learning that interest is tax deductible if land is bought with intention for an IP. just wanted to know your opinion if you think its smarter to make your first property buy a PPOR or start straight from an IP (or as I've read in a couple of other threads go interest only and go both). Me and my cousin are quite frustrated of renting really. Our current property manager has been nothing but a pain in the ass and the renting process is a pain to go through every 6 months-1 year so we're really eager to move into a house of our own and avoid all the hassles
Well even the chain of strata properties is a very small stepping stone. I eventually want to go into commercial perhaps start buying/leasing office space all the way upto buying huge land for shopping centres etc. Is it worth it to make the switch from residential to commercial? I've read in a couple of threads that if you have a lot of properties that you should put them under a trust. Just wanted to know if that was true and the advantages/disadvantages of putting them under a trust as opposed to not putting them under a trust (i.e. in my name)
I will definately look into wattle grove and the deals there but, forgive me for my ignorance, but what do you mean by building mini estates? you mean like 5-10 units? or is it something else entirely?
I will also consider your idea of buying sub dividable blocks in perth but I just had a couple of questions. Isn't just buying land by itself not as profitable as you are seeing no returns on your land (till you decide to build on it or sell it) or are you tying this in with my strategy of buying land in established suburbs and building homes on them? also I'm assuming (from what I've heard) that each land has a different zoning and that is the thing which determines weather your land is sub-dividable or not. Firstly is that correct? secondly what zoning (or otherwise) should the land be to be able to be sub-divided. what sort of restrictions can be placed on such blocks. is there anything other than area to consider when buying land?
regards
Thanks for the compliments Sum – they are appreciated.
To help your learning I would see if you can grab a book or two: Margaret Lomas, Jan Somers, Steve McKnight, Michael Yardney and Peter Spann all have useful overview type books. While each of them has a slightly different perspective on how to invest they do give a pretty good perspective on property.
PPOR V IP first? People can make good cases for both and this is where knowing the rough outline of your grand plan is helpful. In many respects I believe the PPOR V IP debate comes down to emotion V economic. Both types of property have pluses and minuses in both of these fields.
I know people who have gonme down the IP road first and would not have it any other way. Equally I know people who have gone down the PPOR road first and wouldn't have it any other way. Then there are those people who make sure they fulfill the requirements of the FHOG and turn their new PPOR into an IP as soon as they can in an effort to get the best of both worlds.
The process you are wanting to follow: simple IP, small scale developments for cashflow in the north and capital profits in Perth, and eventually commercial is the same route we will offer our clients. Long journey with many small steps to be taken along the way. Fortunately we have built a team around us who can provide the necessary expertise. For what it is worth I am of the opinion that simply buying and holding in today's market is a very slow road – need to look for value adding strategies at the moment.
Re: Wattle Grove. It wasn't a plug for Wattle Grove. More just to show that some infill areas (mini-suburbs and estates – house and land packages in areas closer to Perth) can be secured closer to the city rather than confining your search in the burbs a long way from the city. If you want to pursue this type of strategy recognise that Joondalup, Fremantle, Midland etc are becoming mini city centres in their own rights. Proximity to Perth centre or one of these centres would be a useful consideration to have.
Sub-dividable blocks – my bad. Look for a block of land that has a house located at the front and which can have the back subdivided to create space for a new villa/townhouse/small house. This way you can add value by adding an extra property to the one you bought. Many councils and the state government are actively promoting 'in-fill' and would be happy to assist you with this strategy.
A word of caution though – finance can be an issue so it would pay to have a really good broker on board who can help you with the financing of such projects. A number of banks like to see pre-sales and this can be problematic without experience.
R Codes determine whether or not a block is sub-dividable and how many properties can be fitted onto a block of land. The State Planning Department has a really useful website at http://www.planning.wa.gov.au/publications/1172.asp
I havn't read the enture thread because it is so long, but will read the rest this afternoon at some stage. I just would like to point out that anyone who bought a ouse in Perth in 2003 and 2004 at leat doubled their money due to general increases in property prices in Perth. I do not want to offend anyone, but lots of people who do not know the slightest about investing made a lot of money in this time but this does not mean that they are property gurus, they just happened to buy at the right time. Of course there are lots of people who are very knowledgable in regards to property who made money in this time.
My point is, is just becuase someone made money by buying a house and land package in 2003-2004 in Southern River does not mean that you shoudl do something similar. I personally would not buy an investment proeprty in Southern River- there is lots of land around, lots of new estates going in, and hardly a shortage of property in the area. You might find that people who bought property in more inner ring suburbs such as Mount Lawley, South Perth, Vic Park, Floreat etc have seen their properties increase by mroe than those in Southern river (as a % of the value), and find that the price decrease from the peak is less in these areas compared to Southern River.
Anyway, those were just my thoughts and I thought I would jot them down, will try to read the rest of the thread soon.
Cheers,
LukeHi luke
I think there is a general misunderstanding with the EXAMPLE i gave of my parents. Like I said I used those figures simply as an example and I am in no way, shape or form expecting to make the kind of profit they did. the only point reason i used that example was to ask generally weather land and house packages are more profitable than other options. I am not thinking of buying into Southern River or anything like that but.
Thank you for the thoughts about the inner ring suburbs though. Seems to be the general consensus of everyone going into property to buy as close to the city as possible. Only problem that I have with suburbs such as Vic park is just the general feeling of an "unsafe" suburb and a lot of old houses being there. your suggestions do seem quite accurate though same as what I've read or been suggested before. I hope you can take the time to read the rest of my plans and come up with a few ideas
regards
omg luke86 you hit the nail on the head and I 200% agree.
Someone I know purchased property in this time, now is obvioualy very well off. But this does not make that person a guru, in fact, I think the opposite of this person, even though I respect their opinion.
A guru who wanted to free up as much cash would not go P&I, pay them down and cross colataralise security. Generally, when someone spruiks themselves to me and wants to talk investing I ask how they have structured their loans, that weeds out the first lot of sheep.
Just shows you how important timing is, the Perth boom started in 2001 peaked at 2006.
What I think is the icing on the cake is if you also chase the cycles, when Perth peaked it was not too long after that the Melb market had a little mini boom jumping over 20%.
WI
Paulie and Luke,
That is so right.
Roy Morgan/ASIC did a survey of investors a few years ago and (Report 121) and two key findings for me were a number of people got their advise from family and friends and ‘media’ sources including daily newspapers and the internet.
You can imagine the scenario being played out – media reports 'houses up' – friends at BBQ 'bought house last year and price has jumped' – individual thinks 'I better do that too' and so a herd is created.
A number of people bought at the end of the 'Perth Boom' and many of them, I am sure, are now sitting on negative/neutral equity despite the intervening years. Clearly these people bought following the herd.
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