Hi guys,
Like many, I wanted to achieve financial security and have committed to property as my vehicle for getting there. I am new to the game many of you's have succeeded in and would like your advice in what my next step should be to getting financially free quicker.
About myself. I'm 22, an electrical engineer by qualification on $67k pa. I purchased my first property in June this year and renting it out as a student accomodation. The reason I chose a rental property over a development property was for tax claimable purposes. The property details are as follows:
Price: $411,500
Loan: $385,000
Location: Coopers Plains, QLD 4108
Beds,Baths,Car: 7,2,1
Renovation Budget: $30,000 (kitchen, bathroom, flooring, paint)
Expected Valuation: $500,000
Rental Yield (5 max tenants) before reno: 8.75% ($720pw, 50weeks income)
Rental Yield (5 max tenants) after reno: 7.20% ($720pw, 50weeks income)
Usable Equity (80% loan) = $92,000 (not including reno costs, settling costs etc)
After my renovation is complete and I have usable equity, what should be my next step? Should it be to purchase a quick cash property (eg. splitters) or would I be better off buying an undervalued property, adding value and repeating the same process? Unless I can sell the property for more than what it's going to cost me to sell and settle on another property with better return, selling is out of my mind at the moment. I also wish to maintain one rental property for parking my savings, claiming tax purposes i.e. travel etc.
And is there a way I can legally have more than 5 unrelated persons in a house under Brisbane City Council rules? Eg. Could I have 4 unrelated individuals and one family?
Sorry for the long narrative but I hope that you guys can point me in the best direction in working towards my financial security.
Cheers,
Dao
Hi Dao
Not sure if your working out your usable equity there correctly. Currently property worth 411k with a loan of 385k. You wish to spend 30k increasing the value to your expected 500k. Your usable equity on a 80% loan is only $15,000. (500k x 0.8 = 400k… 100 k must remain in the property as security. therefore you only have 15k of usable equity afterwards.
I would look first to increase your salary ie. to work in the mines, being a electrical engineer you would get paid top dollar easily 100k a year, to begin with and upwards of a 150k in a couple years if you went towards a management position. FIFO work might not be the greatest lifestyle but the pay is excellent and you only have to do it for a couple of years before the results and hard work pay off.
Its all very good to be interested in property for financial security. But a lot of people focus to much on the property investing side and instead if they focused on themselves or their business first investing in property with greater cash/equity and income tends to be a lot easier later.
Thanks wilko1. You are right, I had calculated my usable equity wrongly. Unfortunately FIFO is not an option for me as I have family responsibility requiring me to be based locally, however, as you have suggested, I am looking at expanding my yearly salary with local companies which do not require relocation.
In terms of moving forward, would you be able to suggest whether the next property should be a quick cash or cash flow property in reaching financial security quicker?
Cheers,
Dao
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