I have only just started to consider Real Estate investing and although I may be new to the idea, I find it intriguing and it is very quickly becoming a passion. I am spending all my spare time in Real Estate offices looking for bargains and driving around to inspect properties. Although I havent purchased my first property yet, I would like to know of any current feedback or tips in the best way to invest my money. What price rang should i be looking at for a $10,000 deposit and what sort of properties should I be on the lookout for?
Hi Derek,
Welcome aboard. You have come to the right place, my friend. It is great to see one so young (looking at your picture there) getting interested in the world of Real Estate investing. I hope you stick around and do lots of reading, as the amount of knowledge here is outstanding.
As well as that, do find and read some good books from different authors to get a rounded view. And go to Meetups that are often posted here (usually monthly) to meet with others who are already a year or ten ahead of you. For now, by all means start to get familiar with RE agents and "what's out there", but it really seems a bit early in the piece for you to be "looking for a bargain to buy".
For now, take the time to learn, meet up with others, save more, keep reading, go to seminars, ask more questions, etc. Your enthusiasm is there, so channel it into doing the important first steps (buying a property comes later…) In my case, I took nearly a year to do all those things, so that once I had it all together I really was "ready to go" and bought 3 IP's in the next year.
I hope these words haven't "put you off", as RE investing is a GREAT way to build your wealth over time. There are lots of strategies to consider, some of which might get you started for just a few $k's too, But these really need to be understood before embarking upon them.
I'll step back now and let others have a go – but again, WELCOME !!
Benny
Thanks for the advice Benny I appreciate your support. I think going to a group meeting may be very informative and really help me out in the long run. However I'm sure there are opportunities at some level and if anyone else may have any advice I would very much appreciate any feedback.
Hi Derek
Welcome aboard.
In terms of the minimum required funds – you need at least a 5% deposit and enough to cover costs such as stamp duty, legal fees, etc. All up, I'd allow another 5% for costs.
Some states have concessions for FHB's such as the first home owners grant and/or concessional stamp duty which can help lower the costs.
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]
Hi Jamie,
Thanks for the info. would you say that I then need roughly $40K in order to start investing on to avoid the LMI in most cases if I was to aim at a property between $150K-$200K?
If not $10K is still over 5% of $150K plus the mortgage insurance costs. Would you advise to invest in this way or to save more money first ?
Hi Derek
Personally – I don't see an issue with LMI. Younger investors can use it to buy more with less.
Here's an article I wrote explaining how LMI can be leveraged.
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]
Agree with Jamie.
Nothing wrong with LMI, especially if it allows you to enter the property market quicker +if it's an IP, you can claim this over 5 years in your tax returns.
LMI would cost you around $6,500 for a 95% $200,000 purchase and all you need for a $200,000 purchase is $15,803 in total ( incudes 5% deposit + stamp duty) as the LMI cost can be added to the loan as well depending on the lender.
The question is;
1. How long would it take you to save up $40,000? VS extra $5,803?? and would the property price go up by more than $6,500 during this time? + benefit of rental yield/rental return.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Interesting… Thanks Jamie and thank you Michael for your input in backing up Jamie's comment. What if I found a 3 bedroom property for $150K and it was currently being rented out at $200 per week? Would you say that woud still be a smart investment even with a $10k deposit?
DerekLangan wrote:Interesting… Thanks Jamie and thank you Michael for your input in backing up Jamie's comment. What if I found a 3 bedroom property for $150K and it was currently being rented out at $200 per week? Would you say that woud still be a smart investment even with a $10k deposit?Smart decision on not – depends on your overall long term plan and where the property is located..
But working on the numbers.
1. Purchase $150,000- loan of 95% + LMI = loan of $142,500 ( your total cash outlay = $11,553)
2. Repayment of around 5.30% variable per month say ( rate can be lower or higher, just using an average based on loan size) = $142,500 x 5.30% = $7,552 interest paid for that year
3. Rent for one year = $200 x 52 = $10,400 per year
4. Maintenance + strata ( presume it's a unit; small block with strata at $400 p/q??? ) + council rate ( depends on the area, just gonna use a average ) = $3,000 per year
Overall result = Property is just neutral, tenants pays for mortgage and most Maintenance— but potential for rental increase and capital growth? hence why i open t he reply with depends on the area and what you want to achieve in the long term.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Well I was thinking after a year of doing some small renovations to bring the place up closer to the median price in that particular area which is around $220K and then getting it re-evaluated to loan off the equity and invest in a more expensive property. Would you suggest this to still be a bad idea?
Personally… the rental yield is way to low for my investing style- even thought it's a >6% yeild..the return in $$$ figures is to low for my liking. UNLESS your buying the property below market value and there's a good chance for capital growth or to create capital growth + higher rental yield.
4 main strategy that i follow, that you may or may not agree to;
1. Positive rental yield form day 1 – the $$$ figure needs to be >+$1,000 per year
2. Buy below market value…so that i can re-value the property 6 month later and draw my deposit back and go again in a short period of time
3. Ability to create capital growth- subdividing/ structural renovation
4. Ability to increase rental yield – rented below market value ?renovation ? dual occupancy? granny flats?
Every investor is slightly different….but it all comes down too " what will this property do for me financially" now and into the future- don't buy just because you can or because it's cheap….
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
DerekLangan wrote:Well I was thinking after a year of doing some small renovations to bring the place up closer to the median price in that particular area which is around $220K and then getting it re-evaluated to loan off the equity and invest in a more expensive property. Would you suggest this to still be a bad idea?If the market is $220,000 that's all good- ticks the box of "revalue + buying under the market" , however how much do you need to spend to bring the property value up from the current $150,000 to $220,000?? and do you have the funds and if not when will you have the funds to execute this strategy…plan ahead- but based on what you have given it's a good idea overall.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
do you think it would be worth paying a professional to give me there exact opinion on cost to renovate, or is there another way to evaluate the property to find out how much needs to be spent?
DerekLangan wrote:do you think it would be worth paying a professional to give me there exact opinion on cost to renovate, or is there another way to evaluate the property to find out how much needs to be spent?^ easiest option is to get a quote from a builder/handyman etc…
But it doesn't hurt to do some of your own research on cost as well- The internet + ringing around will work wonders
Either way, make sure you have a buffer.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks Michael, your very helpful. I was wondering can you give me an honest opinion on this particular scenario. Say if renovations come to roughly $10k to increase the market value and I leave a bit of extra money to buffer so all together it may cost me $25K including stamp duty and LMI etc. Do you think it would be better to take the loan out on interest only and pay into an offset account and use an interest free credit card or do you think just stick with repayments on a principal and interest loan?
DerekLangan wrote:Thanks Michael, your very helpful. I was wondering can you give me an honest opinion on this particular scenario. Say if renovations come to roughly $10k to increase the market value and I leave a bit of extra money to buffer so all together it may cost me $25K including stamp duty and LMI etc. Do you think it would be better to take the loan out on interest only and pay into an offset account and use an interest free credit card or do you think just stick with repayments on a principal and interest loan?Interest only + offset is always suggested in 9/10 of the time.
however, With a 95% + LMI loan, you will find;
1. It's not an easy loan to get approved, your file needs to be strong
2. It must be a p/I set up at such a high LVR
So really you have no choice but to go down the P/I path due to your LVR, which is fine and workable.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Cheers Michael, might seem like basic info but for me its really valuable. So what do you suggest in this scenario? Would you save more money and try to reach the 20% mark and look for a similar deal later down the track. Because I also didn't take into account the loan being approved because 95% of the money is being loaned.
Derek there are a couple of blended loan products that might be able to give your cake and eat it.
Still as the boys have said financing a 95% lvr on an IP without a good veda score is going to be difficult.
If the property is investment then there will be no stamp duty exemption so you are going to need to cover this.
Again this maybe possible with a blended loan subject to a few other facts.
We did one for a forum client week before last where we sourced the property and managed to structure the loan so they borrowed their reno / acquisition costs in one.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Derek,
Just for a bit on info, I'm about to by my 3rd property and I've paid LMI on all of them and I definitely don't regret it. The reason is that in the time it would take me to earn (via income or equity) enough money to get the 20% deposit the value of the house would have gone up significantly more than the LMI. Since you'll be looking at houses with decent capital growth you're going to be in this situation as well, for example:
$200000 property, with a 6% capital growth mean it's going up ~ $12000 a year.
Approximate LMI on 95% LVR for $200000 is $5000.
If you find a good deal you want to be able to move, if that means paying LMI then I wouldn't worry about it. Obviously with only $10000 you'll now need to find an additional $5000 just for the LMI on top of the other costs. FYI – Stamp Duty in VIC for a First home buyer @ $200000 is $7800. So you'll still need a bit more cash.
The guys who've answered above might be able to figure out some loan options for you.
Hey new guy thanks for your input. It makes my decision seem a lot clearer now that I take that into account. I appreciate your help and I might start up a new thread to help me with the intil borrowing process
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