hi Everyone,
I’m living in Sydney Ryde area, in a market for my first property, don’t really have a budget(under $500,000) .. my annual salary is $110,000 before tax, renting $250 per week, no car loan or debt. with $100,000 cash for deposit.
For a first home, should i buy a house to move in or buy an investment property (2 bedroom unit in Auburn or Blacktown with high rental income)? i need some advice from you guys. Thanks
Jason
Hi Jason,
I think, first of all, you REALLY need to know what your goal is.
without a goal, it's very hard to help or comment on anything.
wether is buy a house or unit, i guess it's second question.for example a goal can be achieving $110,000 passive income in 20 years time, or own 10 properties in 10 years time. or even you just want to buy a house to live in and pay off your mortgage in next 10 years …….
once you have a goal
then it's easy to help you on how to achieve your goal wether is Auburn unit or Blacktown house…….etc…so I encourage you to explore yourself what you want to achieve.
Taylor
My Plan A was to buy a free standing house to live in with my partner. With our current income we together can put in $7000 per month towards the mortgage. We have figured that if we get something just under $600K mark, with stamp duty and related costs, we’ll have to borrow around $500K. Under 7% interest rate, 25yr loan term, principal & interest, the minimal repayment will cost $3500 per month. If we set up an offset account and consistently put in $7000 per month in the offset account, we should pay it off in 8 years or so, according the bank’s repayment calculator. (if interest rate stays the same)
The problem with Plan A is that I am not comfortable with putting in ALL my savings towards my PPoR. I am not comfortable with putting all the eggs in one basket if u know what I mean. The other problem is that after 6 months of searching, my partner and I have not been able to find something that we both like and within our budget. Note: As our PPoR we definitely do not want to live in a townhouse/apartment, as we do not like high density living. Clearly we have to do something different.
Hence I came up with Plan B, which is to buy a few investment properties (in the $250K mark) and start building up the equity rather than wasting time looking for our dream home. We are both happy keep renting wherever we like to live in, as long as we keep building up the equity elsewhere.
I do not know whether property price will still rise as sharply as it has been for the past 10-15 yrs – it may not happen again – I do not know. But what I do know is I do not want to be priced out by the market, having no asset and passive income by the time I retire. I personally do not believe that I can make a great fortune from residential property alone while working in a full time job. But I have decided to go down this path just to spread out the risk, and not to be priced out by the market in case property price takes off in the future.
I have also spoken to a financial planner a few months ago. She assessed that I should be capable of buying 3 investment properties in 10 years. Her advice was that my goal should be to get something that will be CF neutral within 2 years of purchase, and let it pay off by itself from then on. If I can achieve that I should be safe for my retirement. That also means I will only be buying my PPoR later in my life.
So that’s pretty much about my self exploration after a few months of searching for my first property…
Back to the original questions:
1) With my budget of $250-280K, 2 BR, I found myself limited to the apartments in the western suburbs, e.g. merrylands, blacktown, auburn (prob not that likely now), while I have no problem buying in those areas as long as it makes money, I am worried that the gap between the affluent, fancy suburbs and the boring westies suburbs will widen in the long run. I did notice that in the last 3 yrs or so this gap has narrowed a bit. Can anyone advise?
2) Is it likely that the gap between houses and apartments will widen in the years to come? I guess my investment goal is to keep up with the market.
3) I have noticed a few 3-10 years old apartments blocks in Merrylands, blacktown and Auburn where the current asking price is lower than the price when new. Can anyone explain why? What should I look out for to determine whether they are good deal?
4) My sources of historical prices are mainly onthehouse.com.au. How good is it? Is historical prices worth considering when it comes to assessing whether the deal is good?
Sorry for the long post. I would appreciate any feedback.
Jason
Hi Jason and All,
I think you should make a decision to do both.
How can you have a property which is a Home and an Investments Property ?.
By using a special structure which can accommodate both positions, and can also include your super balances and forward contributions.
The set up fee is around $5,000 plus Gst.
$5,000 set up cost is reduced by tax deductible portions. In any case $5,000 amortised over 5 years is just $20 per week.
The taxation treatment is supported by a tax case which the ATO lost and supplemented by an old Public Tax Ruling which is still in force
Some quick calcs.
The tax due on $110,000 gross income is a bit over $32,000 or 28.5% Average Tax rate.
$7,000 PCM = $84,000 p.a.
Tax due on $84,000 from 0 – $84,000 is $21,000
The tax differential is $32,000 – $21,000 = $11,000, that's an extra $900 PCM to go into debt reduction.
I estimate that this will pay off the debt during year 6 or 7.
When the debt is almost gone you can use the structure to buy the next property or use the equity to buy a home but why would you when you can use the structure again ?
Comments invited.Anthony K at A4companies
Hi Jason
Welcome to the forum.
Why not do both? Purchase a PPOR and then an IP afterwards.
I've had many clients purchase their first home and then use it as a stepping stone towards investing. A lot of these guys have purchased properties that are in need of basic, cosmetic renovations. Upon completion, they generally value up a bit higher than the initial purchase price. We then access this equity which is used as the deposit/costs on their first IP. They often then repeat the process.
Whatever you decide to do – it would be worth consulting with a decent broker about the structure of your finances. It's important to get this correct from the start. They'll also be able to run some scenarios for you.
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]
Hi Jason!
Many people in this thread have highlighted the important question you need to ask;
Where do you want to be? Do you want a home now or would you prefer to wait a while until the right property becomes available?
You could continue renting and invest in a property to rent out or renovate if possible?
I agree with Jamie; gaining some financial advice so you know what your options are is a good idea.
There are Government initiatives available for each state that might be worth noting:
http://bit.ly/JaCuZc
Both options allow you to build equity as the value of your property appreciates; it’s definitely worth doing your research so you have a full understanding what your best options are financially.As Jamie mentioned. The best and easiest strategy is to buy a run down property cheap. Renovate and increase the value, refinance pull out the equity and us ther equity for another purchase. If you find a really good deal you could be positively or neutraly geared after you have pulled out the equity.
Regards,
EngeloJamie M wrote:Hi JasonWelcome to the forum.
Why not do both? Purchase a PPOR and then an IP afterwards.
I've had many clients purchase their first home and then use it as a stepping stone towards investing. A lot of these guys have purchased properties that are in need of basic, cosmetic renovations. Upon completion, they generally value up a bit higher than the initial purchase price. We then access this equity which is used as the deposit/costs on their first IP. They often then repeat the process.
Whatever you decide to do – it would be worth consulting with a decent broker about the structure of your finances. It's important to get this correct from the start. They'll also be able to run some scenarios for you.
Cheers
Jamie
EngeloRumora | Ohio Cashflow
http://ohiocashflow.com/
Email Me | Phone MeF@#$ THE REST WORK WITH OHIO CASHFLOW TO INVEST
And please make interest only payments and put any extra money into an offset account so you dont have the same problem as thousands of other people on this forum with needing to redraw money from the loan to buy an upgraded PPOR in five years time.
Luke.
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