I am looking for some advice to put my first step into property market. I have limited knowledge of investment, therefore i am not sure what is the best way and timing to place my money, and what are the possibilities or strategies to make my asset growth.
I am currently single and renting a place for about $750 per mth. My aim is to find a way to invest a residential property near Melbourne and hopefully in the short future it will be paying off itself (by renting out) with some capital growth, so i can save and re-montage to buy second property for invest or live in (if i have a family).
personal details
- 28yo
- income 72000
- saving 75000(cash) + 10000 (share)
- regular monthly saving $~2500
I have try to ask some banks about home loan before, and they all saying for the money that i have got, i can only do very limited things (ie, buy a apartment for less than 400k and rent it out), unless i get more saving n better income, otherwise dont think about strategy like renovate ..etc.
From my calculation, an old one bedroom walk-up apartment around 380k can only rent out for ~$300-350wk, which means i still need to pay additional ~$800 for home loan each mth, which i feel uncomforted of making a loss every month rather than saving more money.
Please correct my thinking if i am wrong, also give me some advices if any expert in my circumstance, so i won't make a wrong step.
Thanks in advance !!
Hi EW
Good on you! Finally someone that sees it is a bad idea to make a loss every month!
Have you looked at Ballarat? It is a regional city with a pretty fast train to Melbourne. It has a university and a hospital and local industry (so plenty of available tenants) and you can have a whole house for less than $250k, and rent it out for an amount that you would not be making a loss.
Take a look!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi EW,
If you are looking from a property, on the whole it is better to look for a house than an apartment. They generally have better growth potential.
As JacM suggests, regional areas might be something to look at, or have a look at some Melbourne suburbs that might be lowly priced, but are up and coming suburbs. Just need to do a bit of research.
In regards to borrowing, I don't know what the banks told you, but with the information you have given you would definitely be able to borrow much more than $400K if you wanted to. You just need to make sure that the loan is structured correctly to maximise your future deductibility.
Cheers
Tom
EW
In my view if you are going to invest you need to look at properties that provide capital growth. Country areas like Ballaret do not provide positive cash flow so the advice is buy in regional areas where you receive no capital growth. As for buy a hose over an apartment. If you do your research you will find that a good apartment in an inner city area will perform better than a house in a regional area.
Do you research carefully before making a decision as a bad choice will restrict your future investing
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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A quick flick through the statistical pages at the rear of the Australian Property Investor Magazine is most definitely not reporting "no capital growth" for Ballarat. Regardless of where you invest, you can look at the viability of forcing your own capital growth through value add projects such as renovation.
I'm most certainly not "advising" you to go out and buy in Ballarat, or anywhere for that matter, without figuring out for yourself if it is appropriate for you. It's our job here on pi.com to suggest ideas for you to consider. Not to flat out tell you to do it.
All that said, EW – there are lots of investors out there with their own opinions and strategies that are suited to their own circumstances. It's your job to extract knowledge from loads of people and pick and choose the ideas you like to form a plan that suits your own personal situation and goals.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi EW,
I am not a broker but I agree with Tom's comments. I think you should be able to borrow more than the banks have indicated in your original post. Grab yourself a broker who can work with you over the long haul and one who understands property investing. They will be able to work with you to make sure your borrowings are maximised and structured correctly for the short and long term.
Sound like you have a 'small plan' in mind. This is important because any property you purchase should fit your plan and not the aspirations of the saleperson you end up talking to.
Recent reports for Melbourne property haven't been terribly positive so you may wish to look for something you can add value to – on this note a one bedroom apartment is probably not the best point for you to start as your capacity to add value and equity is somewhat limited.
Hope this helps
"loan is structured correctly to maximise your future deductibility."
can someone explain to me what is loan structure means ?
Thanks JacM,
personally i am thinking metropolitan area (even better if it is close to train station), and i am a bit worry about regional area, do you think regional city will be less flexible in the future and harder to manage if i wanna rent it out or sell it ?
EW wrote:"loan is structured correctly to maximise your future deductibility."can someone explain to me what is loan structure means ?
As an example, you will want to work out :
– Whether it is best to buy the property in your own name, or under a trust structure (or other setup) .
– How the assets you already have can be utilised properly to help you borrow as much as possible to buy the next Investment Property. That way, cash you have is left free for you to spend on yourself, and mortgage interest on the investment property becomes a tax deduction.
– You might decide you don't want to spend all your free cash on a deposit on just one IP… but rather split it in two and get two IPs.
These are examples of things you would talk about with a really good mortgage broker. There are three really well respected brokers on these forums: Qlds007 (Richard Taylor), Jamie M (Jamie Moore) and Terryw. Terry is also a lawyer as it happens.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks Derek, still learning to make the small plan works.
what type of property/suburb you would suggest which can add value in the current market ?
Hi EW,
The first steps are always the hardest and asking questions, as you are, will help you clarify your thinking.
By asking questions you will get to understand some of the 'ins & outs' of property. Bear in mind you will, from time to time, get contradictory advice and comment (see above comments as an example) the challenge for you will be to work out what makes the most sense for you.
I don't live in Melbourne but as a rule of thumb I would be looking at suburbs reasonably close to major transport nodes and then look to be within proximity to schools, shops, employment zones and so on. Try and stay in suburbs where home owner proportions are reasonably high.
Once you have a small list of suburbs then start to prune the list & I would steer clear of those suburbs out west which were heavily marketed to investor groups.
Then start getting to know your chosen suburb so you can identify an opportunity when it presents itself.
Nobody said this stuff was easy – and it will take some of your time. Having said that the rewards are well worth the work.
Hi EW
Must admit undoubtedly the lack of a correct loan structure is the biggest single problem i come across for new investors who have been poorly advised by their Bank / Broker and this causes them issues long term when they want to buy another property for their own occupation.
When you start you ideally want to ensure that the structure you put in place in order to maximise your interest deductions as well as keeping your own cash funds as liquid as possible.
Putting all of you funds down as deposit will not achieve this is and is something i can going to start running presentations on in Melbourne and Sydney in early 2013.
Get it wrong and it will be costly, get it right and it will help you grow your ongoing portfolio.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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