Hi. We live on the Sunshine Coast in QLD. We are trying to decide which way to go on our first investment property. We can buy a holiday villa in a managed complex that will return about 8% after costs. Or we can buy a unit in town for twice the price for a slightly smaller return. I am sure that the banks don’t look favorably on the holiday villa but as a cash flow positive investment it seems to tick the boxes. We don’t need finance for this first deal but want to maximise our credentials with the banks for the next ones that we do. Any thoughts on which way we should go? Thanks Andrew
Hi. We live on the Sunshine Coast in QLD. We are trying to decide which way to go on our first investment property. We can buy a holiday villa in a managed complex that will return about 8% after costs. Or we can buy a unit in town for twice the price for a slightly smaller return. I am sure that the banks don’t look favorably on the holiday villa but as a cash flow positive investment it seems to tick the boxes. We don’t need finance for this first deal but want to maximise our credentials with the banks for the next ones that we do. Any thoughts on which way we should go? Thanks Andrew
Hey mate,
A few thoughts:
1. Cashflow is awesome but capital gains is where the big money is.
2. From a financial point of view, it is probably prudent to take finance on the IP (even if you don’t need it) and offset it with your funds. This way you’re not really paying the lender interest but your funds are available (to deploy at buying another IP down the line) instead of being stuck in the property (so you won’t be able to access them unless you sell).
3. These are both generals ideas, best speak with a pro about your specific situation 😊
Hope this helps? 👍😎
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Hi Andrew,
Welcome – you have come to a good place. ;) It is also good to see you asking questions. It is just this morning that an old (one could say “well-worn”) phrase jumped out at me, as it was explained from a quite different angle to its normal use.
And the phrase was – “Look both ways before you cross the road“.
How well-known and well-worn is that one? And yet, it became fresh again, BECAUSE the writer was reminding me that its sound common sense applies in a HOST of different situations.
Like you, as you are “thinking of buying an Investment Property”. Cool – good thinking. And it is good to see you haven’t stopped there, as that phrase conjures up a whole BOOK of thoughts:-
like – What should I buy, how should I pay for it, what risks are there to doing it, will it affect our lifestyle, who should I see, what advice do I need to get, etc, etc, etc……
In essence, we all don’t know just how much we don’t know in any new situation. Since you seem to be AWARE of how much you might not know, you are WAY AHEAD of many. Good for you.
Having an idea of your goals is a good start. After that, the question of WHAT to invest in to get you to those goals quickest comes next. Like, depending on your monetary situation, there may be SEVERAL choices of investment for you. Which of those is best “for you”?
And right there is where you need some help from people like Ethan (or one of the other Brokers on here) who spend their working lives helping investors to understand their financial situation, and are familiar with all of the traps and the gains that can be around in the world of finance. Having one of them on your side is a great start. They may not be able to advise on all aspects of everything, but you will learn heaps about financial things that become important when investing in property.
Since it is the weekend, you might be champing at the bit to get in touch with one of them – so, to keep your spirits up, do take a look here – there could be some useful learnings within this thread for you:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
Have a great day,
Benny
I’d rather avoid managed apartmnets/complexes like the plague. In general you’ll forfeit any/any reasonable chance at capital growth, hence why the yields are higher than norm. Likewise income growth over time can be stifled.
There’s very good reason why lenders don’t like to allow people to borrow for these ‘investments’, they’re generally duds which see the investor going nowhere over the long term.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Andrew, from your wording it sounds like both options are cash flow positive, although the normal residential unit slightly less so, is that correct?
I’d recommend searching the sales history for similar property types (same type of villa, comparable price range, size, location etc) on realestate.com.au and considering which option has greater historical growth. Also, if you have an experienced buyer’s agent in your area it may be worth giving them a call – most are willing to have a quick obligation free chat, and they may be able to give you some useful local insight.
Laura | Property Wizards
http://propertywizards.com.au/
Phone MeAndrew I am curious if you have any Finance advice from someone locally, the wealth of knowlege on here is unreal, truly there are great people but having an adviser who understands your exact situation holds great value as well.
But seems likes the real question is where you want to end up, because then that greatly impacts and designs the path of your direction and also this exact choice.
Jaxon | Jaxon Avery – Financial Adviser
http://www.jpafinancialservices.com.au
Email Me | Phone MeJPA Financial Services Pty Ltd
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