Hi everyone,
Thank you for taking the time to read this post. I apologise for the length but I thought it best to disclose details for efficiency. I’ve been reading posts on the forum for some time and wish to thank all of the mentors for their wealth of knowledge, time and patience. I hope that one day I can do the same for others.
I’ve been trying to make the plunge into property investing for over 5 months with no success. I’ve put in two offers on properties, but due to poor building quality and unanswered questions from vendor solicitors I’ve pulled out on each potential purchase. I’ve been looking, researching, engaging investors and real estate agents, reading and learning and now am confused more than ever but need to take my first leap!
Situation –
- My career is taking me overseas for approximately 2 years to a country whereby my earnings in comparison to the AUD will be comparatively low.
- Would like to purchase a property now and when I return back to Australia I would like to use equity from this property to purchase another.
- I require a property whereby the holding costs need to be near neutral or in the positive.
- Currently have $100 000 in savings and finance is organised (which will cease once I leave the country). Rental yield dependent, I believe my first purchase should be under $350 000.
- Moving early July and running out of time. Will need to settle by mid June at latest.
Problem –
- Can’t decide on areas for my first purchase.
- Currently have been looking in the Wollongong region but am weighing up the option of using a buyers agent in Brisbane.
- Why Wollongong? – Although not from Wollongong (from Sydney), I know the region well and the family know trades people in the region. But I can’t find a balance between areas where there is the potential for capital growth and achieving holding costs near neutral or potentially cash flow positive.
- I’ve recently had the opportunity (since last two flops) to purchase a friends mothers townhouse near Warrawong Westfields (fairly close to Wollongong CBD – but renowned for being a bit dodgy). A small complex of 6 and she’d like to rent it back from me until she relocates back to her original hometown. I’m concerned that this region will not give me the opportunity for capital gain over the next few years. On the positive side it is cheap enough so that I can put extra cash into an offset account to cover the holding costs while I’m away. Is this a sensible option?. I've got the background on the pty and all seems fine except it has a low sinking fund.
- My ambition is to purchase 5 properties in the next 8 years with the ultimate ambition to achieve financial freedom with subsequent investments.
- Although I have a rewarding career the perks do not come with a high-flying income or permanency (at this stage), thus I do not need tax breaks.
- Would suburbs near Brisbane CBD as my first investment, be a better option for my future? I’ve spent some time visiting potential suburbs near Brisbane and even jumped on a property tour bus more recently. I’ve also gotten in touch with a buyers agent, thanks to suggestions from a prior post. Although I’d like to do the on-ground work myself I’m concerned that I’ll buy a dud, and with Brisbane I no longer have the time to do the leg work.
- Or should I focus on completely different suburbs?
Any suggestions? Where should I start…yet… Again….
Also thank you kindly in advance for any advise.
Regards,
K
Hi K
Firstly welcome to the forum and i hope you enjoy your time with us.
Must admit i am not sure whether i would be buying in Brisbane if you are looking for longer term growth and cash flow in the meantime.
All of 40 properties are here in SE Qld and whilst activity from forum clients is at an unpresedented level talking to valuers all day long activity does not neccesarily result in opportunity.
You have already identified a few points in regards to your relocation overseas and your reduction in your income level so i would be focusing on yield first and the property not costing you a fortune to hold whilst you are away.
In my opinion i would not buy a single Townhouse due to the body corporate expenses and i can think of hundred and one areas where you money could be leveraged more effectively.
There is nothing to stop you using a variety of cash flow generating techniques to build your portfolio and these could involved combining a buy and hold strategy with a Vendor finance or development model where one can be used to generate income to pay down the other.
Of course getting the right property is paramount here.
I would using a lender that specialises in Non resident lending so they are used to such anamolies.
You may even decide to combine a fixed rate with an offset account (Yes some lenders offer such a product) so that you can get the best of both worlds especially when you are not here to monitor the market on a daily or weekly basis.
I had a forum client only this morning who Skyped from the UK who we manage their mail, Council rates payments etc who asked us to recommend someone to source a property for them and we are using their existing equity on their Australian property to buy a couple more.
With the right team behind you this is possible wherever in the world you are working and living.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Whats your strategy? cashflow, CG, development?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks Shahin for responding.
Many apologies for the funny symbol thing everyone. Won't happen again!
Well picking a strategy is somewhat the hard part. Initially I thought I should go for a property that can be immediately cash flow positive. Then I got concerned that in a couple of years time when I return to Australia I may not have significant savings for another deposit. Hence I thought it more sensible to strike a balance between finding a property in a location that is likely to have good capital growth but one that I would not need to negatively gear. The key question is where? No I'm not looking into development as a strategy at this stage.
K
Wow cheers "Yours in Finance" for such a detailed response and taking the time to do so.
I'm rather surprised that purchasing in Brisbane would not be good for long term growth and cash flow. Any suggestions where I should target? thank you for your insight.
" i can think of hundred and one areas where you money could be leveraged more effectively." – Like where? Or should I potentially be asking to recommend someone to source a property for me if too far out of Sydney?
"There is nothing to stop you using a variety of cash flow generating techniques to build your portfolio and these could involved combining a buy and hold strategy with a Vendor finance or development model where one can be used to generate income to pay down the other." – A development model would suit me better at this stage. That's what I've been thinking I just didn't know the terminology! and well I'm just starting with the one for the time being.
I'm fairly certain that I'm on the right path with my lender. I shopped around and funnily enough ended back at my own bank with a better outcome. I've discussed with them my arrangements over the next few years and they indicated that I'm best to proceed asap. I'm now certain that I need to act now before leaving the country considering I will be moving to a developing country for my work. I'm fairly certain I won't be financed based on my earnings overseas.
No my lender does not offer a fixed rate with 100% offset account (but the credit union Australia does – my original choice – before i changed my mind). However, my lender offers a combination of a fixed and variable rate packages. This works out better for me as the fixed rate is lower than CUA (although that was a few months back I should recheck) and the variable is ok with a 100% offset. I'm able to leverage a 0.9% discount off the variable rate when refinancing once the fixed term is up (2 years) through a combined package as opposed to just a fixed rate. I've done the calculations (using several property examples) and generally doing a 50:50 split with 100% offset on the variable rate overall works out better for me. I really like the idea of having an offset account for cash availability.
Once again thanks for your time. I'm very grateful for the feedback.
cheers
K
Ok you have a few options but it comes down to the strategy that you are confortable with. When I mentioned development – I will give you a quick example. I purchased a property 2 months ago in Newcastle near the uni. It was for $330k and it was a 1000sqm block. The rent is $370 per week. It is negatively geared by quite a bit however i am in the process of getting DA to build 3 additional dwelling which will turn the property into a positively geared investment. Again it comes down to what you are comfortable with and how much time you are willing to put in. Getting this DA has been a massive headache.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Very clever Shahin.
I've discussed this kind of investment with a friend to potentially source large blocks in Brissy. I would like to consider this in the future and may pick your brain about this sometime in the distant future.
cheers and thanks for the info.
Good luck with your new development!
K
Hi kjmh
It's a common thing we see – the selection of the suburb followed by the frustration in trying to make it fit the end goal (and it often doesn't). Best to do things the other way around – define the end goal and then determine which suburbs can help you get there. If you cannot do this yourself for whatever reason (lack of time, lack of confidence in doing due diligence or negotiating offers etc) then outsourcing of such things is an option.
Most importantly as has already been alluded to by the other posters is that yield is important. Wipe out the concept that you must buy in pretty and prestigious suburbs – you want to buy a property that has appropriate numbers, that's what you want.
You are approximately correct in saying your budget would be below $350k. If you were moving overseas and were stuck with 80% LVR then that'd be about your budget, allowing for keeping some money in the emergency fund and such. That said, some lenders go higher for Aussies working overseas. Richard Taylor who has already responded above could assist you further on this.
I'm not a fan of handing over money to the bank unnecessarily as it is then annoying and not without expense to get it back. In this regard, if I had available to me $100k for investment, I'd be looking to contribute as little as possible towards the acquisition and borrow as much as I could…. but have a giant pile of money in the offset account. This gives you options later on if you want to redirect those funds to a different purpose.
Something else you need to determine is whether there will be any spare money from your overseas salary after paying your living costs. This will determine whether you'll be accumulating money for further property investment whilst you are working overseas, or whether the acquisition of your second investment property will have to wait till you return to a role with a higher salary.
Hope this helps
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Good on you Jacqui,
Thanks I'm feeling more confident. That's my plan. make a deposit as little as possible and chuck the rest in offset. End goal (good yield).
No there won't be any spare money from my overseas salary for the acquisition of a second investment. I will have to wait until I return home with a higher salary. That's why I was trying to strike a balance of growth and a good yield. That being said after several comments on the forum I now believe that a strong yield will help me sleep at night.
Back to square one for me. Number crunching is easy but nows the time to find an appropriate suburb and property in under a month! or potentially utilize the knowledge and skill of a buyers agent! Any suburb ideas? I originally put an offer in at Rutherford. then I started looking in the Illawarra.
cheers and thanks for helping me see through the frustration.
K
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