Property Investment Plan

Hi,

I plan to have saved $50,000 by the end of this year, I have a full-time job earning approx 30k pre-tax. I'd like to buy a property for investment purposes and would feel most comfortable (after attending a John Fitzgerald seminar) buying in Perth.

After two years following the purchase I plan to move out (at the age of 23-24) and live in a shared unit/home. Hopefully by this time I lot of the house in Perth will be paid for and supporting my income at that stage).

I choose to do this at the beginning of next year in Perth because ..
1) I will have a good record of savings and employment history
2) A $50k deposit will make me feel very 'safe' about the investment as it will be my first, especially since the investment will cost $250k max. A 20% deposit would be great.

If you've ever read John's books or heard him speak he mainly stresses buying a house, because land appreciates not buildings. Craig Turnbull also has property workshops which i'll probably attend (in Perth) once i'm ready to buy.

John also suggests Perth because of the income to cost-of-house ratio.

Okay the idea I have is pretty radical but after thinking about shares and property (more property, especially after reading Dolf De Roos) for two years now I have to commit myself

Some of the ideas above may be quite silly by advanced property investing standards but please remember ..
1) I want my first investment to be cashflow positive to put me at ease
2) I have no assets or equity except for my $50,000 due at the end of this year
3) Sydney is very expensive and I hesitate to purchase anything where my deposit would only allow me to purchase a) a unit - going against the land appreciates, buildings depreciate philosophy b) a house/unit that is young enough to allow big depreciation benefits (again, rolf and john).

Am I missing something here ? Is this a sound plan ?

Originally posted by giraffe

Am I missing something here ? Is this a sound plan ?

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Hi giraffe

Any property investment plan is an excellent plan and yours is a good safe one. Go for it.

Regards

Investor

Hi Giraffe,
Sounds like a great plan!
May I just pass on some advice that one of my mentors (Les from this forum) gave to me before I purchased my first property 3 years ago.....
The best time to buy a property is.....
as soon as you can afford to!!!
Excellent advice that has worked very well for me.
Good Luck,
Crystal

250k seems a little expensive for a first purchase, why not look at something (a lot) cheaper?

Thanks everyone,

Lawjs - 250k would be my upper limit and I would prefer to purchase a property that is a bit cheaper (you're right - it is a bit expensive for ME).

However I have been trying to follow two of John Fitzgeralds criterias for purchasing property:

1) Purchase a House - ("Land Appreciate, Buildings Depreciate", John advises going with a property that has a lot of 'Land Content'). His strategy is capital growth.

2) Purchase a very recently made property to take advantage of the depreciation period (i'm not quite 100% on this idea, will need to brush up on my depreciation knowledge). But as many have found out - depreciation can REALLY affect your cashflow and bottom line.

Don't forget you still need some extra money for stamp duty, solicitors fees, rates adjustment, etc.

Albert

Hi Giraffe,
I would consider holding some of that $50k in reserve rather than putting it all down on deposit. It will give you a reserve to call on for things like lack of tenancy, maintenance, etc. Have you thought about maybe putting ~$30k down as deposit, keeping ~$20k aside as a 'slush fund'.
Incidentally I live in Perth and have four investment properties here, and they are doing quite well. The signs appear to be good for continued steady growth. Apparently the North-West industrial developments (mostly Woodside Petroleum) are the driving force in keeping the states economy on the up.
Regards,
Easy.

Thanks,

I have two further questions to ask ..

What percentage of a property purchase will usually be consumed by fees - solicitor, stamp duty etc ?

EasyMonet, I have never been to Perth but would like to know how much you might suggest I should spend for a new house to rent.

I like your idea of the slush fund however, I have few costs while living at home - after a deposit of $40k and $10k for fees, i'll still be earning an income of $350/w (after living expenses and tax) won't this be enough to support a tenant free period or maintenance ?

What I really meant was why not buy 3-4 40k-50k properties. Keep say 5k as a reno fund. When they each go up 30-40k you will get a nice quick kick along.

Originally posted by lawsjs
What I really meant was why not buy 3-4 40k-50k properties. Keep say 5k as a reno fund. When they each go up 30-40k you will get a nice quick kick along.

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Can you actually buy properties this cheap? Where?

I received recently an education in property investment from a 21yo unmarried mother of 2. She bought recently TWO properties for 26k. Regional area, but still 13k per property. They will never go up you might say. Any ideas of the rental? Would anyone have guessed $120 per week EACH? Help the cashflow somewhat wouldnt they?

With properties like that you have to be careful with tenants, but what a start!! Especially with the 7k FHOG. Deal got better, because the houses were on the same lot.....

Originally posted by giraffe
What percentage of a property purchase will usually be consumed by fees - solicitor, stamp duty etc ?

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7% fees allowance is close to the mark. Some may allow 10% to get a bit of cash out as well at the same time.

bundy

Dear Giraffe

I think your plan is sound and I envy you, starting out at such a young age.

However, I have a question for you. Why are you considering Perth instead of say Brisbane? I would think Brisbane would have higher capital growth (correct me if I am wrong anybody) and Perth is such a distance from Sydney. Are you planning on buying sight unseen?

I live in Sydney and don't feel uncomfortable buying in a place I don't know. At least with Brisbane we can drive up there if need be? We are planning on adding some time in Brisbane to a trip we have planned in March to the Gold Coast.

Can anyone else tell me the advantages Perth may have over other capita cities?

Thanks
Ally

Originally posted by ally
Dear Giraffe

I think your plan is sound and I envy you, starting out at such a young age.

However, I have a question for you. Why are you considering Perth instead of say Brisbane? I would think Brisbane would have higher capital growth (correct me if I am wrong anybody) and Perth is such a distance from Sydney. Are you planning on buying sight unseen?

I live in Sydney and don't feel uncomfortable buying in a place I don't know. At least with Brisbane we can drive up there if need be? We are planning on adding some time in Brisbane to a trip we have planned in March to the Gold Coast.

Can anyone else tell me the advantages Perth may have over other capita cities?

Thanks
Ally

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I would have to agree with Ally, I would recommend buying closer to home. Brisbane would be better than Perth, but as John McGrath says in his book You don't have to be born brilliant, "only buy property that you can drive past whenever you want to".

I'd suggest getting some experience first before looking so far away, but at the end of the day as Nike says "Just do it".

Good luck with it.

Kev

www.nundahrealestate.com.au

Originally posted by Kevin Hockey
I would have to agree with Ally, I would recommend buying closer to home. Brisbane would be better than Perth, but as John McGrath says in his book You don't have to be born brilliant, "only buy property that you can drive past whenever you want to".

I'd suggest getting some experience first before looking so far away, but at the end of the day as Nike says "Just do it".

Good luck with it.

Kev

www.nundahrealestate.com.au

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you kind of limit your market if you only buy property thay you can drive past whenever you want to

just a thought

but you can also drive past a property anywhere whenever you want to depending on your circumstances

just cause its a flight first or long drive doesnt stop you

Hi all.

Hi had a brief stint working with John and Custodian.
I have also purchased a few up north through them. So far so good.

John advocates affordability, and as such Brisbane has had significant growth over the last year or two and the "affordable properties are becoming scarcer. Others that came in after me in some inner city locations have seen spectacular growth.

John also follows the cycle, hence Perth. It's a bit like a nationwide ripple effect.

The best advice is to do as much independant research as possible. Whilst I have a lot of time for John, always remember that he does have a vested interest in selling you into his developments. Mind you, hindsight has proved him correct so far.

Stick to your plan and well done for having a go.

Cheers,
Sam.

Hi Giraffe,

For a first time, I'd be inclined to stay at home. Then at least you have the chance to see how it is, what sort of things happen, and how much they cost.

We had a home in England. We left in 1990. PM's reports were all good. But when I visited in 1999 the place was really run down. It was really disappointing (it was the first house MrsW and I lived in). If I'd had a bit of experience before, I would have known a lot more of what to expect.

To answer you other question about other outgoings.

Legals- perhaps $600. Disbursements (council fees, search fees etc) a few hundred extra. Stamp duty- varies hugely- but, for a sample for WA, see http://www.srd.wa.gov.au/forms/stamp/SD_Rates.pdf - say $8,425 on $250,000. Do a google search to check this out.

Land tax may be applicable if you own a lot or property (or a little expensive property) in a state.

You should really have building/prest inspections- $500 to $800 (guesstimate)- and, after you've bought, a Quantity Survey- Say $400 to $500. You may need to pay some rates/water/body corporate in advance.

Just a few things to be aware of- you can be caught out badly if you haven't allowed for them.

G'day Giraffe,

First off, I want to say "Fantastic!!" to what you are proposing - at the age you are - I wish I had as much foresight as you are displaying when I was your age....

You said -

"After two years following the purchase I plan to move out (at the age of 23-24) and live in a shared unit/home. Hopefully by this time I lot of the house in Perth will be paid for and supporting my income at that stage)."

All I would say to that is "Why?" Have you thought long and hard about this? With you doing as well as you have by staying at home, do you REALLY want to leave it, just as you are starting to ROCK'N'ROLL with IP's?? How would you be if you were able to buy two IP's in quick succession by staying at home....??

In a real early post on the original forum (don't know if I can find it again) I quoted "somebody" who had said "You pay a HUGE premium for wanting to live in your own home" - and, here, you are wanting to buy, live in, then move out .... Is this part of a plan?? (it might be, Giraffe - no matter what you think, I am NOT putting you down on this one - I just want to get inside your head here...) Do you have a PLAN that says "I will buy a PPOR, live in it for two years, then move out .... - and by doing that I will ....... " (please fill in the remaining words here, Giraffe -maybe something to do with selling with no CGT - or whatever ..) - in the end, it all comes down to "what is your plan for this property...."

(Edited in later) This was sounding a bit like an interrogation so let me explain further - I figure that you (Giraffe) have thought long and hard about something like this (possibly over a number of years), and been very committed to have accumulated that amount by the age of 21 or 22. As such, I imagine you have had many thoughts about HOW to utilise this deposit, and what is best for you from your current perspective. You are obviously a committed person, and I am interested to hear more of "what are your plans" rather than me stepping in and saying "Do it THIS way" - so let me retract my above paragraph starting... "All I would say to that is "Why?" In hindsight, I think I would rather have you tell me!!

(Now, back to the original reply) Forgetting everything else, I do want to say "Congratulations" for being so far ahead of where I was at your age. Do come back and share more with us.

Regards,

Hi giraffe,

This calculator allows you to estimate the total cost of purchasing a property including all those nasty hidden costs.

http://www.yourmortgage.com.au/calculators/home_cost

Cheers,
Crystal

Thanks for the support everyone !

Crystal, thanks for the link to the Your Mortgage calculator, it's just what I was looking for ! However it does not seem to cover all costs such as legal charges ? I'm just trying to work out what it is missing .. as it seems quite comprehensive.

Les, thanks for your inquiry as to why i'm looking to move out in a few years. I think to summarise - it would be guilt and freedom

I've been reading personal finance books for probably close to two years and I do often take a good look at costs of living and stuff like that. I realise that as soon as I move out, i'll be paying for everything - bonds, food, electricity, water, furniture, repair costs, rent. It's true that it will be a lot more expensive to live on my own but as everyone young adult knows there are obvious advantages to living on your own, I think the greatest is the freedom, to invite people over at any hour, to choose who you live with.

For me there's also the guilt factor, i'll be buying investment properties (making money) while living off at home, supported by someone else's money ! My savings will build my future, but will hinder the future of my parents.

You might suggest that we should work something out together. My parents are insulted when I offer them good investment (property) books to read. So if I can't help them by offering them good books to read, or ideas of investment (and even savings) I feel I can only help them by moving out as soon as possible - that way I will be less of a financial burden. I see no other way, and would feel terrible if I owned 3 properties at the age of 25, while they are still paying of their first home !!! If they were very financially stable I would consider the option of staying at home a little longer !

Why Perth Revisited:

I understand that Brisbane has been experiencing good internal migration and this has resulted in good growth over the past years. I also understand that Brisbane is more expensive than Perth.

I would like to invest in Brisbane but have been steered towards Perth because ...

1) John Fitzgerald could not stop recommending it in his seminar

2) It's cheaper which allows me to purchase a newer house (to take advantage of depreciation laws) with a lower LVR to feel more secure

3) Craig Turnbull, author of Property Millionaire has affordable 'Boot Camps' in Perth which I feel would be just right for me in a years time, as I have no other property buying experience. I'm actually hoping to buy a property during the the bootcamp period (and i'm hoping with Craig's guidance and knowledge of Perth - his hometown) this will be possible, my first property !

4) It's propably not going to be in my own city, Sydney because a) I can't buy a NEW HOUSE with that kind of deposit (40k dep, 10k costs - or even 35/15, or worse).

Correct me if i'm wrong here