Hi,
Ive been following a few of the forums now and basically would like some feedback on my personal situation if anyone would care to oblige.Basically my family background is in real estate, My grandfather began a company in a residential town, which took off. My father and uncle eventually took over the business and made it flourish even further, to make it the most well known and respected real estate company in the town, Now after more than 50 years of operation in the town, my brother has taken over the business and continues to keep it up to date with everything new and looks at ways of improving the business at all times. Now the smart thing for me would have been to get into it with my brother, but at an early age I decided my passion led me to a different direction, towards production in media.. Now whilst my job can be somewhat exciting at times, I feel as though it is going to be difficult to get an outstanding income in what I do within the next 5-10 years..
I want to get into property investment as I see this is not only an interesting way to build wealth but also a tried and proven method. I have begun my research into property investment about three months ago, reading reading reading, as knowledge is power, definitely in this area. I am now 26 years old and want to get into the market ASAP, the only thing that is holding me back at the moment would be my income. My base salary is approx $42,000 and with bonuses, penalties and overtime bringing me up to around $60,000 at the end of the year. I have approximately $15,000 in savings currently and zero debt (which should help my cause i suspect). My partner is on around $55,000 with minimal savings but also with minimal debt. I should also note that my parents own multiple properties also. (Can they act as guarantors?)
We are currently paying $450 in rent living in Sydney Northern Beaches (wouldn’t want to be anywhere else!!) and I feel as though investing before buying may be appropriate in my situation as real estate is so damned expensive in Sydney!
I basically wanted to just get some advice or maybe someone has been in the same situation in the past that they might like to share their story. I’m not looking for a get rich quick situation, just an insight maybe into some strategies around getting started.
Thanks guys!
Hi Pat, I’m not a mortgage broker, they would be best to answer your finance question. But I believe it would be achievable to invest in property based on your incomes. I think the deposit will probably be the biggest hurdle to start. Traditionally people invest with 10% – 20% down. So on a $500k property this would be around $50k (some LMI) – $100k. Maybe to start ask your family in real estate or parents if they wanted to either invest with you or as you mentioned, be a guarantor for the investment.
Hey Pat,
Welcome aboard! As i say in all my posts i myself am new to property and like yourself have been spending extensive time researching. The reason I mention that is because any advice i give is just my opinion and may not be the right advice for you, but i like to offer it anyways as it helps me as well :)Firstly I think you are in an o.k position, you have a combined salary of around $115,000 and debt free. The only thing i would say holding you back at this stage is your deposit which you mentioned is only 15k. You did however say your parents have several properties and can act as a guarantor? I would discuss this in detail with your parents so they fully understand what a guarantor is as there is some risk to them if this is the path you take. But given your small savings then if you needed to save your own deposit you may still be a couple of years off being able to make a purchase. A guarantor will get you in the market now.
Let us say they do act as guarantor then the next thing would be the decision on whether to purchase an IP or a PPOR. Unfortunately as I do not know much about Sydney and the northern beaches it is hard for me to offer any advice here, i did a quick search though of some areas and the prices are staggering! It would seem as though a PPOR or an IP would be out of reach in these areas though. Also as i do not know your expenses it is hard to know your borrowing capacity, using a rough figure of $500 combined a week then I would guess you would be looking around the 400-450k mark (Happy for more experienced people to be more precise here)
So the decision then becomes do you compromise on where you are willing to settle (for now) and look for a PPOR outside of the northern beaches or do you stay put and buy an IP again outside of the northern beaches where you can afford. If you go down the road of an IP then my only advice would be to research long and hard and find a property that is positively or neutrally geared so your cash flow is not affected and it allows you to continue to build your savings.
If however you want my honest advice then I would personally be making a compromise on where you live and looking for a PPOR. It is great you know an area you love and that should be your goal, but you are still so young and for now its about building up to that goal. If you do not mind a bit of hard work I would be looking at other areas you do like that are in your price range and for a house you can renovate and add instant equity to. From my personal experience the sense of achievement you get when you see your run down home becoming something amazing and the equity builds is the best feeling.
Good luck :)
Hey Guys,
Thanks for the insight and reply. I really appreciate ANY feedback. I should have said earlier, I have been looking at investing in rural areas where the prices are cheaper. I’m not looking at a palace straight up, just something that would hopefully be positively geared (I know, easier said than done and what everyone is always looking for!!). Something like a cheap small unit or possibly house, between the 100k and 200k max. I plan to start small and work up from there. I just want to get into it as soon as possible as you know the sooner you buy, the sooner its paid off and the sooner you are making money to buy more. I am aware that I should also be wary of what the market is doing also and to not just buy for the sake of it I should not.
Thanks guys!
Hey Pat,
I really think you should be looking for a properties you can make quick capital gains on as opposed to a buy and hold strategy. Are you handy with the tools or have access to others that could help at the fraction of the cost on a renovation?
Given you have 0 equity and your combined income is only o.k then you need to look at other options to accelerate your income. You said you worked in media, I would imagine there would be a fair bit of freelance work that could earn you extra money on the side?
But wouldn’t I be building equity effortlessly if a tenant is paying the mortgage of a place off, whilst I am still saving my own money in an effort to get a second IP asap, eventually doubling, tripling, quadrupling etc the more that are bought and paid off over time. The only thing that worries me about flipping property is Property gains tax, where the amount of profit you make might not be worth the effort?
No you would not be making money effortlessly because as far as i am aware (happy to be proved wrong) in this day and age there is pretty much no such thing as positive geared property on a principle and interest loan. What that means is if you do find a positively geared property your loan would be interest only. Your tenants would not be paying down any of the principle just the interest component which means the only way the property will be gaining equity is through capital gains which can take a long time (without things like renovations, development) OR by you putting your savings into an offset account so it brings down your interest payments as your money builds in that account.
To answer your other question then YES absolutely there is a CGT component but that is only activated when you sell. What i am saying is you buy a property lets say 210k after closing costs and its valued at 200k. You then renovate the property for 20k, so so far you have spent 230k (200k purchase, 10k closing, 20k renovate). You then get the property revalued and because you did such a good job on the reno :) the valuer says your property is now worth 260k. You now have equity in your property that you can access for your next purchase whilst you still rent it out.
Obviously during renos you have no tenant so that needs to be considered. I have not tried this strategy yet but you can do things like occupy during settlement to get around this problem i believe. From my understanding this means you purchase the property with your 10% deposit and whilst it settles you have access to the property to begin renovations. If your settlement is long enough you should be able to complete it and get a tenant straight in.
Also you have the added benefit of requesting more rent because the place is new :)Hi Pat
have a look at a thread I started where I list positive cash flow properties that are currently for sale.
https://www.propertyinvesting.com/topic/4989954-positive-cash-flow-properties-real-world-examples/
What that means is if you do find a positively geared property your loan would be interest only.
This is not correct. Depending on the investors situation, but in general Interest Only loans should be used when negative gearing to maximise your interest deduction. In this case you don’t want to pay down your mortgage as that would lower your Interest deduction.
A positively geared (positive cash flow) property has a higher rent than your loan payments and hence will provide you with cash surplus. This surplus can be used to pay off the mortgage and thus reduce your interest payments and increase the cash surplus and your equity in the property.
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auHey SuperAndrew,
As i said in my initial post I am new to this myself so only offer advice on my understanding so definitely appreciate any fixes to my incorrect statements :)
That being said i am hoping you could help clarify something. In your thread there is a property listed for 23/460Ann St for $250,000 currently renting at $360 per week. On an interest and principle loan at 5.3% that equates to $347 per week so $13 positive cashflow. That however does not take into account any holding off the property which from my little understanding is around 20% of the rental yield? Which would mean the rental would be more like $290 per week and then negatively geared?
Here is a quick summary:
Price: $250,000
Loan Amount: $200,000 (80%)
Cash: $50,000
Loan Payments (P+I): $257 per week (@ 5.3% interest for 30 years)
Rent: $290 (as per your assumption including expenses etc)Cash Flow: $290 – $257 = $33 (This amount can also be contributed towards the mortgage payments)
If the investor wants to spend this money now and not pay of the mortgage.
Loan Payments (interest only): $204 per week (@ 5.3% interest for 30 years)
Cash Flow: $290 – $204 = $86
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auThanks Super
I did not calculate the deposit component but also did not add the closing costs which on that amount in QLD would be $7700. This changes it to cash flow positive $25.And i do apologise for my brash statement that “in this day and age there is pretty much no such thing as positive geared property on a principle and interest loan” I was not taking into consideration having the 20% deposit when i made this statement.
That being said that was kind of by design because my thinking has been geared towards buying as many properties as possible and as fast as possible (Thanks 0-130) so my focus has been around much higher LVR to purchase more property.
No worries Ben.
The best thing to do is to read as much as you can and talk to people and ask questions. And over time, without noticing it, you will get better. You’re on the right track.
The best thing to do as a starting investor, who is ready to invest, is to dip your feet in the pool before you jump in it. No matter how many books you read about swimming, you won’t know how to swim without slowly and safely trying it yourself at the shallow end of the pool. The same goes with anything in life, including property investing.
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auHey Ben and Everyone,
That does actually sound like a pretty smart strategy about increasing the value and therefore gaining equity. I didn’t really think about it like that! The only problem is I’m sort of looking for a property where I can set and forget it as I’m likely to buy at a place that will be a fair travel distance away so would make it difficult to reno it over a short amount of time.I really appreciate everyone’s replies as doing a ton of reading is one thing but gaining a person’s perspectives is very very helpful.
Regards.
Your most welcome Pat :)
As i continually keep saying I myself am like you and just starting out and things such as this forum are absolutely invaluable. Forum users like SuperAndrew and Richard Taylor will be much more educated and informed to give you the right advice.I always like to offer out suggestions though as i find it the best way to interact as opposed to sitting on the sidelines. If the advice I give is incorrect and a more educated member is able to amend the statement, i think it helps everyone and adds to the beauty of the forum :)
In regards to your situation I totally understand where you are coming from. You are looking to lock something away and get it working for you and as Super pointed out with enough deposit you can make this happen to have it cashflow positive. Perhaps its worth speaking to someone like Richard Taylor who can help you get on the way :)
Good luck! I wish I had the passion I have now when I was 26. You have 6 years on me and sounds as though you have your head screwed on right.
Hi Everyone,
This is my first post so feel free to direct me to the right place if needed.I’m new to the property investing world and understand that knowledge and your mind is ur biggest asset so any advise/correction is appreiated.
A simple question to get the ball rolling;
I’m wanting to know how I should set up my investing structure (thinking long term of having multiple properties).
I understand that using a limited company or trust is safe for your personnal assets so I’d like to go down that road.
My wife and I are starting our own business, would creating a trust for the properties, then using our business as the director be something I should be thinking towards?It would be good to know how some people on here have done it too.
Cheers
Hi Karl
Speak to a good solicitor about your options. New investors often quickly jump into overly complex structures that don’t always suit their situation. Terry Waugh (Terry W) from this forum would be a great starting point.
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]
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