Hi,
I’m new to this forum having just almost finished Steve’s book. My partner and I have been waiting to get into property for some time and have been busy saving before jumping on board. I’d appreciate any advice on our current strategy outlined below, particularly relating to the family trust structure question at the bottom of this post and the use of a first home grant.
We have about $115K in savings and are saving an additional $6K per month at present. We also have a property overseas (rented out) which we can release approx $200K from and remain cost neutral against the mortgage.
In about 6 months time we should therefore have $350K to start investing with.
We are proposing to buy cash positive properties on IO mortgages, and also do quick turn around minor renovations as we buy to increase rental price potential (and also increase sale price a couple of years on).
Our portfolio within 18 months is planned to be:
Property 1 – 35K deposit for a 160K flat
Property 2 – 60K deposit for a 300K house
Property 3 – 60K deposit for a 300K house
Property 4 – 70K deposit for a 350K house
Property 5 – 70K deposit for a 350K house
(Property 6 is the overseas house)
This leaves us with money in the bank for stamp duty, renos etc (we will be saving throughout the 18 months as we keen on purchasing and renovating to add to the total above)
The reason for a flat rather than a house is so we can use a first home loan grant under one of our names and the lower mortgage cost means the grant covers the 'would-be rent' over the 6 months we can’t lease it for (we would not be able to live in the suburbs we will buy in). This is the only property we would look to do more than surface renovations on to maximise the dollars we can make during the 6 months prior to renting it out. We will continue to rent for ourselves during the entire period as would prefer to use our money to make money rather than just pay off our PPOR mortgage.
We plan to keep selling selected properties on our portfolio when the prices in the areas appear to be up and reinvesting in more property as we go (but probably maintain the number of properties so we aren’t juggling too many balls!)
My questions are:
– Is this a sensible approach?
– Is there anything better we could do?
– Should we set up a family trust to manage this, particularly as one of us is unlikely to be working for a few years within the next couple of years to raise a family? Should we both be trustees?
– Should we be worried about a fall in the property market in the next year given
I should also say we are unmarried at the moment (though I don't think that makes a difference?)
Thanks for any advice.
Hi Achiever
Firstly welcome to the forum and i hope you enjoy your time with us.
Your approach is fairly typical and one i started on some 15 years ago.
Similar to yourself i was fortunate enough to arrive from the UK when the GB pound was extremely strong and purchased our first PPOR and 4 Ip's for cash and then geared off the equity with cash flow to where we are today holding our current portfolio.
Irrespective of the entity you use (and i am thinking dependant on where the properties are located a DFT maybe the way to go) to purchase the properties in the loan structure is going to be important especially with the first deal or two. Also choice of lender is going to be imperative to maximise your serviceability going forward.
If you don't intend to purchase a PPOR for a while then I don't see an issue at all with the strategy.
You are welcome to drop me an email and I will send you a copy of the API article i did outlining my strategy in building my portfolio.
On a separate note in regards to the FHOG which State will the property be in ?
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Thanks for your posting.
We live in NSW.
Thanks
It isd illegal to obtain the FHOG and not live in it. But people do take the risk. Many have been caught.
Are you planning on borrowing 80%. If so you will have no money left after stamp duty and legals. Not to mention the reno's you talk of. It's a good idea to have cash reserves for when things don't go according to plan (eg not renting straight away, hot water system breaking down etc.
Other than that it sounds feasiblee.
Thanks for your comment Catalyst. The above totals for the portfolio account only for $295 of our $350 budget plus we plan to keep saving $6k per month over our 18 month purchasing period. This is to cover the additional costs you mention.
We are not looking to do serious updates, just simple updates which we can do ourselves at minimal cost.
One of our biggest concerns is a fall in property prices in the short term as it will hinder our ability to sell and reinvest in higher yielding properties.
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