Hi, do not really post much on the forum just been reading alot and preparing myself.
Deciding on my 1st investment property. I would like to run through a few numbers. Please let me know your thoughts and if i have missed anything out.
I have my eye on a brand new development in a pretty good area. Roughly 10 mins drive to the city. Has excellent transport etc. close to universities.. a hospital nearby parks.. shops shopping mall closeby.
1 bedroom apartment. Sized at about 70 sqm interior. I have seen many other 1 bedders and they do not seem to come in such large sizes. Partly furnished already. Is this a unsually large 1 bedder or are they usually the case? Going for roughly 600k – 630k.
Correctly me if I'm wrong. I will qualify for the 1st home owner's grant which is now 15k and free stamp duty which on a property like that will come to about 24k?
I really like the notion on these forums being a +ve positive gearing approach. To my understanding in order for that to happen because I would be quite uncomfortable with risk at this stage; i would required quite a bit of initial deposit?
I have saved and saved and saved and have around 200k as a deposit – with the remaining 410k on a 30 year loan.
Expected rental from that property is 550 pw. (Not exactly sure if this is a good thing – as i always thought a 600k property "should" be netting in around 600 pw)
strata i have been told is roughly 520 pq water around 120 and gas i am assuming 50? Insurance from what i have been reading would be something around 200 pa?
From my calculations my repayments/incurred ongoing costs would then be roughly $3200 per month (bank repayments & rates/levies) rental will bring in $2383 so i will be out of pocket about 800 per month? of coz this set up would mean the rental incoming is more than the interest and would be positive geared.
I have not accounted for depreciation because i am unsure of how exactly it would work and how it would affect the investment. I think the info i have given should… be sufficient? As title goes any help would be greatly appreciated.
Hi Julz,
I assume you are in Sydney yes?
Coupled of points; 70sqm is big for a 1 bedder however I think that they are not good investment vehicles. The body corporate looks a bit high (if I understood the above correctly) however with new developments, the strata generally tends to rapidly increase one the development has finished. The rental income is also a bit weak. I say this due to the yield and also due to the fact that I wouldn't expect strong CG over the upcoming years. The only positive with this IP vehicle is depreciation benefits and thats about it. If the development is off the plan then there are a huge amount of risk associated with OTP which you need to understand.
Which area is this?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Julz
Welcome aboard.
Be careful with off the plan – there are pros and cons to consider (probably more associated with the latter).
If you do a search for OTP or off the plan – you'll find a lot of information.
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]
You need to be aware that if you are applying for the FHOG, you will need to live in the property for a period of at least 6 months commencing with the first year, so no rental will be coming in during that time, and needs to be budgeted for.
Cheers
Tom
I personally don’t like any of those numbers and wouldn’t even consider it. You could buy several properties with that sort of deposit.
Also;
‘From my calculations my repayments/incurred ongoing costs would then be roughly $3200 per month (bank repayments & rates/levies) rental will bring in $2383 so i will be out of pocket about 800 per month? of coz this set up would mean the rental incoming is more than the interest and would be positive geared.’If you’re out of pocket 800 a month you’re negatively geared not positive. I wouldn’t put more than a 20% deposit down which is 120k on a 600k property and for that you should be able to find something that costs a lot less to hold. Could always put the extra 80k in an offset account so it serves the same purpose but doesn’t cost you tax wise.
I could be wrong but In WA I think to qualify for first home owners grant you need to live in the property for a certain amount of time within the first year and stamp duty concession only applies up to 500k. Check those in your state?
Also tenant will be responsible for paying the gas bill.
What are established apartments going for at least with one of those you could negotiate the price down and even get some furniture/appliances thrown in?
Thanks for all the feedback guys.
Yeh i have to live in the property for the first 6 months… i calculated as follows. The expected rental is 550 pw which in 26 weeks is 14300. (before tax – if +ve geared); seeing as the FHOG is roughly the same – 15k i was planning on putting the 15k in an offset account. and perhaps using it to aid the repayments – the same way as a rental would. Just from a different form. The grant is available for up till new properties up to 650k in NSW.
It is not off the plan; the property is already completed and ready to move in. That still counts at brand new correct? I will have to check this with a solicitor/conveyor i think. It is a brand newly developed set of apartments. Just completed. I apologize i should have mentioned this earlier it would have made quite a difference.
By reading your feedback it seems like it would be a better idea to have 100k as an initial deposit; and dump the other 100k in an offset account. Bring the interest down but benefit from tax. And gives me the freedom to perhaps use it on another property in the future? also that would incur more risk which i am not that comfortable with (at the moment)
If its new and completed then yes it is still a new purchase and you will be eligible for the grant. Having said all that I still don't think the numbers on the IP is strong. It is currently a buyers market in almost all parts of Sydney (from Western Suburbs to Eastern Suburbs). I really think you should compare the numbers on this property against say older stock. Sorry in advance for the negative post but I just don't like the numbers hopefully I missing something.
RE your question about the tax – do you have a PPOR? If so then you need to be looking at putting all your funds against that debt which is the 'bad debt' instead of the IP which is the 'good debt'.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I hate the numbers also. It'll take you forever to get this mortgage under control before you could even consider getting on with buying subsequent properties and building wealth.
Why not look at second-hand property that you can renovate to add value… or houses on large blocks futher out?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I prefer not to invest in 1 bedroom apartments. I usually target families and think that 2-3 bedrooms is the best investment to get a high Cash Flow.
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