Young investors - tell all

[MishMash]

I am 19 and I bought a 3 bedroom house in Campbelltown (South-Western Sydney) in February, it settled on March 22. I have a $228,000 loan-the house was $249,000. I had $21,000 saved as my deposit and the FHOG covered my LMI and other costs. I will be 20 in June & hope to buy another one soon but am yet to work out how as i have no $$$

I am currently earning $40k but expect to be earning $48k by the end of the year. I am undecided whether i want to buy my next property with my boyfriend or by myself. My inclination at this point is to continue by myself, if i can afford it. Our combined income at the moment is about $113k so if we do decide to purchase together we should be able to afford it comfortably.

My boyfriend of 2.5yrs bought his first house in November. He will be 33 later this year and this was his 'starting again' house as he had a messy separation a few years earlier and financially he had to start from scratch.

I think we have different views on investing-I would like to build my wealth as fast as i can while i am still young so that i won't be struggling when i have kids & don't have to work until i'm 65. I think my boyfriend would prefer a slower approach, but having said that he is slowly becoming more interested in property purchase #2.

 

[Glebe]

What inspirational stories, congratulations people

 

[lizzie]

wow mishmash ... want to talk to my 19yr old stepdaughter!! i agree with you, when you're on such a good income at a young age then make the most of your opportunities.

is there any what you can increase the value of the property you've just bought?

 

[FrankGrimes]

Mish - Congrats on a great start!

 

[alexlee]

by the way, i forgot to add - this forum can also act as an indicator of the top or bottom of the market. When I see less and less posts in this forum (ie people losing interest in property) and more and more people bearish about the property market and slagging it then I know that I am getting close to the bottom. At the moment, many people in this forum are still bullish about property.

I think the indicators will be reversed. When you hear the bearish experienced investors (I'm bearish but wouldn't call myself that experienced) posting excitedly about how they just bought a great house in a mid-ring suburb and got the vendor to finance half the purchase price at zero interest, THAT's the bottom. On the other hand, when you hear them saying it's time to be careful (as some are now about WA) it is at or near the top. Almost everyone on this forum believes in the long term growth trend of property.
Alex

 

[alexlee]

Mish, absolutely wonderful achievement! Even if you just buy 1 IP now and don't buy another for 10 years, you'll still be way ahead of your peers (and most people older than you).
Of course, I'm sure you'll buy more as soon as you're able, and do even better in the long run. Good work!
Alex

 

[gooram]

I think the indicators will be reversed. When you hear the bearish experienced investors (I'm bearish but wouldn't call myself that experienced) posting excitedly about how they just bought a great house in a mid-ring suburb and got the vendor to finance half the purchase price at zero interest, THAT's the bottom. On the other hand, when you hear them saying it's time to be careful (as some are now about WA) it is at or near the top. Almost everyone on this forum believes in the long term growth trend of property.
Alex

I thinks that's the key Alex... "be careful". There's still capital growth to be found in a flat or even falling market. Some Sydney suburbs have recorded over 10% growth in the last 12 months, granted one of them is Mosman.
So if get back to your fundamentals of scarcity, land content, high demand areas and all that good stuff, then there's no reason why you can't continue to do well post-boom.

 

[FrankGrimes]

I thinks that's the key Alex... "be careful". There's still capital growth to be found in a flat or even falling market. Some Sydney suburbs have recorded over 10% growth in the last 12 months, granted one of them is Mosman.
So if get back to your fundamentals of scarcity, land content, high demand areas and all that good stuff, then there's no reason why you can't continue to do well post-boom.

I read somewhere that prestige suburbs have been growing nicely post boom, I think the hardest hit are/will be the middle class and upper middle class areas. Sutherland Shire is a good example, you can pickup some great places for 500-600K which would have been 750K in 2002-2003. (I know a few people that are selling or have sold recently at a loss)

Not that I can afford a 600K house

 

[alexlee]

I read somewhere that prestige suburbs have been growing nicely post boom, I think the hardest hit are/will be the middle class and upper middle class areas. Sutherland Shire is a good example, you can pickup some great places for 500-600K which would have been 750K in 2002-2003. (I know a few people that are selling or have sold recently at a loss)

Not that I can afford a 600K house

My own view on affordability is that most people can only afford $500k+ properties because banks are willing to offer 95%, 100%, 105% LVR loans. When interest rates go up, the market falls further and the banks rein in their lending, people will no longer be able to get those sorts of loans. That will depress the price further.

Just because a property has fallen 20% doesn't necessarily mean it's a good buy, if the fundamentals don't support even that lower figure. I can't believe in a market where people making $100k+ cannot afford upper-middle class houses in Sydney (which right now would cost $600k).
Alex

 

[Trogdor]

alex,

How can a person earning 100K+ not afford a 600k home?

(Generally speaking).

If you are on this level of income for a little while (a few years) and its your second place, it is quite affordable imo.

 

[alexlee]

alex,
How can a person earning 100K+ not afford a 600k home?

(Generally speaking).

If you are on this level of income for a little while (a few years) and its your second place, it is quite affordable imo.

Because they would need 90k minimum to borrow 90% LVR. Most people don't save: a lot of my friends are on $100k and they wouldn't have $100k cash even if they sold both kidneys. Too much consumption. They lived well (are living well) during their 20's, didn't bother saving and aren't willing to start on a cheap place (probably because they're used to renting nice apartments). Seems to be fairly common amongst young professionals, I've noticed.

If you borrow $540k you'd have to pay back maybe $46k in repayments (6.5% P&I). That's more than 65% of a $100k package after taxes.

During this last boom saving has gone out the window. Which is part of the reason why I think the recession will REALLY bite.
Alex

 

[DCA]

100K is not a lot of money when you borrow 600K, it only takes you a few months out of a job and the bank will come knocking. And can you keep 100K job for 10 years or for the period of a loan?

There is no margin of safety there, if someone on a 100K they may need to borrow 300K or less today.. rather 600K.

When I'm on a 100K you know how much I'm willing to borrow even the bank will lend me 3 or 4 times that much.. I set a target of 150K max.... I aint going to let the bank eating into my capital when something go wrong .. I eat my own capital thankyou very much
Oh I never regret that decision, best decision I have ever made and to my true testament on margin of safety.

 

[FrankGrimes]

Because they would need 90k minimum to borrow 90% LVR. Most people don't save: a lot of my friends are on $100k and they wouldn't have $100k cash even if they sold both kidneys. Too much consumption. They lived well (are living well) during their 20's, didn't bother saving and aren't willing to start on a cheap place (probably because they're used to renting nice apartments). Seems to be fairly common amongst young professionals, I've noticed.

If you borrow $540k you'd have to pay back maybe $46k in repayments (6.5% P&I). That's more than 65% of a $100k package after taxes.

During this last boom saving has gone out the window. Which is part of the reason why I think the recession will REALLY bite.
Alex

I doubt anyone would be spending 600K on their first home and if they will not settle for less they are just being unreasonable and will rent for their whole lives. I would suggest 300-450K is more the first home owner market.

The people buying 600K houses are usually 35 + and have had previous property so they would not be borrowing the entire amount, perhaps 400K which isn't a problem on a 100K + which most couples would be on. Friends of mine that have sold recently in the 500-600K range were young families looking to upgrade their townhouse/unit/whatever.

I think some of your friends have unrealistic expectations.. But I'm sure you know that !

PS - Check your PM

 

[kmdj11]

Hi guys!

I'm a bit late in the post but thought I'd share our journey so far............

I am 23, girlfriend 22 and we started out about 1.5yrs ago with a 3 bedroom house in Maddington, Perth, for 120k. This house is worth around the 250k mark (after a reno) and by using the equity we have just purchased another in Armadale for 215k.

I have been researching for about a year now and have finally opened my partners eyes as to the possibilities.
Up until recently, I had been very confused as every book I read had a different strategy but the procrastination has stopped and we have decided to simply jump in!

We are by no means high income earners (combined income 65k) but do not see this as being a drawback in our portfolio development.

With Maddington nearly finished we are about a month off from moving into Armadale and completing a similar reno. With both properties renting we will search for the next deal.

Reading the above stories inspires me to go harder and reach for the stars............THANKYOU!!!!!!!!!!

 

[alexlee]

I doubt anyone would be spending 600K on their first home and if they will not settle for less they are just being unreasonable and will rent for their whole lives. I would suggest 300-450K is more the first home owner market.

The people buying 600K houses are usually 35 + and have had previous property so they would not be borrowing the entire amount, perhaps 400K which isn't a problem on a 100K + which most couples would be on. Friends of mine that have sold recently in the 500-600K range were young families looking to upgrade their townhouse/unit/whatever.

I think some of your friends have unrealistic expectations.. But I'm sure you know that !

PS - Check your PM

I agree that my friends aren’t realistic. They’re used to renting $400+ apartments, so when they’re looking for a house, they want something similar in value. However, their attitude is fairly common. Reality will set in soon, I’m sure.
Alex

 

[alexlee]

Hi guys!

I'm a bit late in the post but thought I'd share our journey so far............

I am 23, girlfriend 22 and we started out about 1.5yrs ago with a 3 bedroom house in Maddington, Perth, for 120k. This house is worth around the 250k mark (after a reno) and by using the equity we have just purchased another in Armadale for 215k.

I have been researching for about a year now and have finally opened my partners eyes as to the possibilities.
Up until recently, I had been very confused as every book I read had a different strategy but the procrastination has stopped and we have decided to simply jump in!

We are by no means high income earners (combined income 65k) but do not see this as being a drawback in our portfolio development.

With Maddington nearly finished we are about a month off from moving into Armadale and completing a similar reno. With both properties renting we will search for the next deal.

Reading the above stories inspires me to go harder and reach for the stars............THANKYOU!!!!!!!!!!

Great work, kmdj11. It’s great to have your first property work out, especially as well as yours has. That gives you a great base to build on and buy more IPs. The market helped you but it was you who saved the money, went out and got the loan, bought the place and did the reno. All this at an age when most of your peers are just thinking about their next beer. Congratulations!

As for the different strategies, you’ll find people who become rich (and poor) doing all of those strategies. There’s no right strategy, just the right one for you based on your circumstances, personality, etc. Just keep at it!
Alex

 

[doozer]

A little late to join this thread but thought I'd add my two cents. I still consider ourselves 'beginners' in that you learn something valuable everyday. I would love to get involved in a small development project next. Who knows...
I am 29 and my wife is 30. We are both salary 'slaves'. A summary of our position is below:
1st IP: 3br house Bundaberg Qld 2002
Purchased: $89500
Now worth: $220k
2nd IP: 3br townhouse off the plan Nerang Qld 2003
Purchased: $189500
Now worth: $250-260k
3rd IP: 3br house Bundaberg Qld 2004
Purchased: $195k
Now worth: $220k
4th IP: 3br villa off the plan Springfield Qld 2005
Purchased: $239500
Now worth: $250-$260k
5th IP: 3br duplex off the plan Burpengary Qld 2006
Purchased: $249k
Settles in July 06

A lot of people perceive 'off the plan' as a dirty term, but in reality if you select high growth locations that are positioned correctly in the investment cycle ie slump or just about to turn, that will rent easily coupled with buying from a reputable developer/builder then you can rest easy.

All our loans are interest only & we have continued to purchase by accessing equity. Recently we have used some of this equity to venture into managed funds with a margin loan of 50%, total value of investment around $45k. We also have $10k in a commercial property trust.

Advice to newbies is, contrary to some of our portfolio, buy for capital growth if you can afford to. If you can't invest in or near a capital city then look at a regional centre that has population 50 000 or more with low vacancy rates & strong industries. Seek out a good broker, use a quantity surveyor and employ the best property manager you can find (don't manage it yourself!) and use Landlords Insurance. Read as many books as you can on the subject e.g. Michael Yardney's new book is excellent and go to seminars when able. And of course learn from the wonderful people that contribute on this forum.
Finally don't compromise an enjoyable lifestyle by overcommitting especially if you're young!

 

[alexlee]

Great work, Doozer. If I may ask, what's your cashflow like and what is your LVR?
Alex

 

[doozer]

Thanks alexlee.
Our cashflow is good at present given that we are both working and we are in government subsidised housing so we are lucky not to have to pay rent. We also realise this won't be the case forever. LVR sits around 70% which I would like to lower & hopefully the managed fund investment may assist with this in the medium term. Rent received from property investments- gross is $45600 per year. Our portfolio is negatively geared but we squeeze every last cent out of our properties through tax deductions by using BMT quantity surveyors for schedules.

 

[gooram]

Doozer,

May I ask why you recommend property managers vs managing yourself, have you had a bad experience?
It's just that I manage both of my IPs and so far it's been nothing but smooth sailing, and even a little rewarding. I suppose it involves some effort, not much, and some may not have the time. Especially with 5 properties to manage like yourself.
I guess I'll continue to manage our IPs unless somehow I get burnt... but until then I can't justify the expense.
I know others will whole-heartedly disagree.
Gooram