First investment – what would you do in this situation to create a sol

I have about $100,000 for a deposit and am eligible for a first home buyers grant.
I also earn around the 70k p.a working as a contract carpenter.

That’s a good start there, will give you a few options. Depending on the entry point and LVR you want to go you could even leverage that $100k for more than 1 IP.

Preferably I want to make my first purchase a solid base to grow my property portfolio on.

What would you recommend as the best way to get the snowball rolling?

Depending on your level of month to month savings, generally an equity play is the way to go so you can either manufacture capital growth or wait for it and use that to leverage to purchase the next properties. Cash flow is important too where you will need to find the balance as your income is still healthy but may start to limit you in terms of serviceability once you get in the thick of it.

Im thinking along the lines of purchasing a run down house (around 350k) as a first home buyer and living in it for 1 year then refinancing the property as an investment property and spending around 80k on lifting and renovating the property and renting it out as two flats/dual living

Get your finance right from the start as it saves you having to do an unnecessary refinance and another hit to your credit file. If you plan on making your PPOR and IP then start off with the mortgage being an interest only loan with an offset account to put your additional cash in. The interest only loan will also help with your cash flow whilst doing the renos.

Do your due diligence before purchasing the property to ensure you’re able to make the property dual occ and what is involved and whether it is worth it or not. It can sometimes be easy to over-capitalise with those sorts of things but it looks like you’ve researched your figures – always good to run some various scenarios and projections.

does this sound feasible and would it be best to sell and take the profit for the next project? or rent the property and borrow against it?

I’m usually a fan of buy, reno, hold and rent (and drawing on equity against the prop) as the buying and selling costs eat too much into the profits. I would only consider selling if there was an opportunity cost by holding or there was more $$$ in it than what there was holding over the long term.

even thought about building a spec home

You’ve got the skillset to do this and there could be some decent money to be gained from this as (I would assume) materials and labour would be cheap BUT there are also the pitfalls of this as you would be working for yourself and not deriving a wage from working on other projects then there’s the hurdle of owner builder finance too.

or buying a block of flats or small commercial even splitter block subdivision.

All these have their upside and pitfalls too. It’s a good idea to work out a strategy and work from that and find the properties that suit the strategy rather than being overwhelmed by options and purchasing something then trying to fit a strategy around it to suit your purchase.

I’m a fan of reverse engineering so set the end goal which (for arguments sake) is $5m portfolio with a 50% LVR in 10 years. So in order to obtain that I need to purchase X $300k properties that average X% capital growth p/a and have a rental return of X% per year. That’s just the big picture view but the details need to be worked out as well.

No worries.

Re the LVR and LMI – all it really comes down to is your risk profile and how aggressive you want to be as that will determine which strategy will fit best.

The 95% lend world is getting tough, particularly for investments.

There’s a LMI sweet spot around the 88% mark. In your example (with some big assumptions here) LMI on an 88% lend for a $350k prop would be ~$3900 whereas a 90% lend would be ~$6400 (but keep in mind these are very rough figures only to give you an idea of difference of 88% vs 90% would make). A portion of that would be tax deductible too depending on the time spent as PPOR to when it becomes and IP.

If you do an 80% lend then want to bump it up to 90% down the track you should be able to but depending on the bank they may impose extra conditions on you that they wouldn’t should you go in a LMI territory to begin with and preserve your cash. BUT if you do get an LMI loan to begin with then you’re tied to that particular bank in the sense that if you refinance to another bank and want to go over 80% again then you will be up for new LMI charges.

There’s a lot of variables at play so difficult to give a definitive answer.

Some things I have learnt along the way are to borrow money when you don’t really need it and maximise your deductible debt and minimise your non-deductible.

Hi Macard

Perhaps attack the figures the other way around.

You mentioned you were hopeful of the following scenario:
– I’m thinking along the lines of purchasing a run down house (around 350k)
– Spending around 80k on lifting and renovating the property
– Property be worth around the 470k-510k mark once complete.
– And if property rented would be rented for approx $570-$620 p/w

Perhaps instead look at it in the following way. It will help you eliminate a lot of suburbs and properties that do not fit the goal:

Is a rental return of $570-$620pw on a $470k-$510k property sufficient for your needs, and what would this return do? Would it cover the bills? Would there be money left over after paying the bills, and if so, what do you intend to utilise that income for?

Is there any such thing in our target suburb as properties priced at $470k-$510k which return $570-$620 per week in rent?

Is the suburb you are looking at offering properties priced at $470k-$510k in a renovated condition, and if so, does this same suburb offer un-renovated properties priced at $350k that would require no more than $80k to renovate to a standard of being worth $470k-$510k?

Hope this helps!