Absolute Newbie

[melisem]

Hi everyone!

Just throwing out my situation to see if anyone would like to offer any advice:

I want to get started in property investing, but I have a bit of debt and no savings. Obviously the first step is to pay off debt and start saving for a deposit, right? I just have a fear of missing out on great opportunities and want to get started right now! Haha.

My end goal is to live off investments by 40 years old (13 years away) and I'm thinking about $100k/year would be OK (at current living costs).

I'd ideally like to do it myself (I recently got married, but a man is not a financial plan!!). However, my husband is a CA/Treasury Policy Analyst, so he is a great source of information on the financial side of things! I have a $5k cc debt and a $60k job. I also have HECS - not sure if that's relevant - do I need to try and pay that down ASAP?

I am thinking of getting $100k IP (Bathurst, Wagga, Bendigo, Ballarat?) that is close to positive geared, then after 12-18months, get a $200k IP, and build up that way. I'd love to get into commercial investments as well.

My husband and I are happy renting (Sydney house prices are ridiculous) to have a nice place to live in while I build up my investment portfolio.

The other thing is that we'd like to start a family in the next 1-3 years also..!

I'd love to hear any advice if anyone has a moment!
Thanks!

 

[Terry_w]

Yes you will need a deposit. Probably should aim for 10% deposit and 3 to 4% for costs. You may be able to get into a 95% loan though.

Think about the credit card. It may be best to pay it off asap or not - depending on the rate. You may be able to do a balance transfer to an interest free card, but this may impact your borrowing capacity so check with a broker first. if you pay it off quickly rate won't matter so much.

HECS - you are probably better off leaving it as is. I think it is linked to the CPI now and you only get a small discount by paying off early. Diverting funds to pay HECS will also delay the saving of a deposit.

Regonal properties - what is the idea behind this? Where would this get you in 5 or 10 years?

 

[melisem]

The cc is at 20.99% (insane) so I plan on consolidating that with perhaps a 12 month interest free cc and just paying it down ASAP.

Regional properties seem to be a great option for me as they have low purchase prices, high rent, and if the area is right, potential for growth. High rental return is more important to me for my first IP, but that is possibly just me being impatient.

I'm looking at places that have universities (aiming at student rental market) and a few different industries that will ensure the growth of the town (no mining towns!!).

How does transferring my CC impact my borrowing capacity?

 

[Rixter]

First off welcome to SS..

Back to basics first...

What is your total household income & debt?

Subtract your debt from income and that's your surplus income.

Next if you have enough surplus income and equity or savings for a deposit you're placed to start investing.

If you dont have enough surplus income & equity or savings for a deposit you need to increase it and/or reduce debt.

Ask yourselves -

What is it that you are wanting to ultimately achieve by purchasing property?

What time frame do you plan to achieve it in?

The answers to these 2 questions determines what property investment strategies are best for you to utilise.

You see, property investing is not about property. It's about taking you where you want to be in X years ahead. Property is merely the vehicle to that higher purpose.

In the mean time start educating yourself with the view to choosing an investment strategy that will get you to your ultimate goal.

You have at your finger tips the best resource available for educating yourselves here on the forum - and its free so dont discount for that reason. Others pay $thousands to attend so called 'guru'seminars to learn the same strategies/education you have access to here.

I hope this provides you some food for thought.

 

[LoneWolf]

Hi, welcome to the forum.

By the looks of things I will add my 2 cents

Buy what you can afford, and focus on cash flow
Deposit is king

 

[melisem]

Hi Rick, thanks for your reply - I have seen a similar reply in another thread, which led me to start my own thread to present my personal situation and hope for some advice specific to me.

As I said, what I'd like to do is have about $100k/pa income from investments within a 13 year time frame. Is that doable? Bearing in mind my income is $60k right now, it's not going to jump up to any crazy amounts anytime soon, and I also want to have babies in the next few years (hoping they'll be a great investment, not a horrible liability? Haha). But that will definitely throw a spanner in the works, i'm sure.

Total household income is about $180,000. Husband also has about $40k debt from 2008 crash, unfortunately. I'd love to help him out with that too. We still haven't worked out a way to merge our finances so that everyone's happy!!

 

[melisem]

LoneWolf, I like your style - simple and direct!

 

[LoneWolf]

LoneWolf, I like your style - simple and direct!

The reasoning behind my advice put it simply, you have too many unknowns at this stage, eg: having kids, as this will impact whatever plans you put in place now and later, also, are you going to keep renting for rest of your life in Sydney?

 

[Nemo30]

I have a similar goal and similar timeframe (although starting a few steps ahead, higher income and no kids planned). I think I'm being optimistic.

Work out where your income is going to come from.
Are you going to live off rent? If so, work out a rough calculation of how many properties you will need at what rental yield etc.

They will have mortgages - will you pay down debt, will you sell some to pay off others? If you plan on selling, you will need to factor this into the plan.

Will you invest in only property or will you diversify?

Start to think through how you will actually get there. Play with some numbers on paper.

 

[TMNT]

$100k IP, wagga, bendigo, ballarat, bathurst!!!!

Where do you find these!!!!!!!!!!!!

 

[melisem]

http://www.realestate.com.au/property-unit-nsw-bathurst-117790699

I was looking at this one... except it's only 20/25m2. Probably not a great idea. But the allure of it only costing me $2/week is pretty good. Plus even if new unit developments pop up in Bathurst, surely the old studio apartment will be appealing to poor students?

Nemo30, I'm not sure where to begin on putting it all on paper (but I am a planner and love the idea of having it all clear cut). I don't know where to even source those figures or that information? I could probably do the rental yield thing... but if I plan on selling, do I just base that figure on property projections? I'd definitely look at diversifying into other investments - any suggestions? I'd love a few steady rentals, I'd love to try flipping property, I'd love to get into commercial real estate, I'm interested in art investment. Shares aren't super appealing to me, but they are to my husband.

LoneWolf, we may move back to Brisbane in 5 years or so and possibly purchase a house there to live in and renovate (improve value).

By the way, thanks everyone for showing interest!!! I'm so glad I've stumbled upon this forum!

 

[spludgey]

Hi everyone!

Just throwing out my situation to see if anyone would like to offer any advice:

I want to get started in property investing, but I have a bit of debt and no savings. Obviously the first step is to pay off debt and start saving for a deposit, right? I just have a fear of missing out on great opportunities and want to get started right now! Haha.

My end goal is to live off investments by 40 years old (13 years away) and I'm thinking about $100k/year would be OK (at current living costs).

I'd ideally like to do it myself (I recently got married, but a man is not a financial plan!!). However, my husband is a CA/Treasury Policy Analyst, so he is a great source of information on the financial side of things! I have a $5k cc debt and a $60k job. I also have HECS - not sure if that's relevant - do I need to try and pay that down ASAP?

I am thinking of getting $100k IP (Bathurst, Wagga, Bendigo, Ballarat?) that is close to positive geared, then after 12-18months, get a $200k IP, and build up that way. I'd love to get into commercial investments as well.

My husband and I are happy renting (Sydney house prices are ridiculous) to have a nice place to live in while I build up my investment portfolio.

The other thing is that we'd like to start a family in the next 1-3 years also..!

I'd love to hear any advice if anyone has a moment!
Thanks!

That sounds strangely familiar. My goal is to have $100k(2010 dollars) of passive income by the time I?m 40 and I started down that road when I was 27 while renting and with a wage a little bit less than yours. The difference is that I didn?t have a partner at the time and I didn?t have any debt besides HECS, in fact, I had a deposit of around $50k.

That was just over four years ago and since then I?ve managed to purchase five investment properties and currently have 6, 7 and 8 under contract as well.
My passive income isn?t anywhere close to my goal yet, but time should take care of that.

In my opinion, you should be able to save at least half of your net salary, which means that you should be able to pay off your credit cards within a month or two and have a deposit within six.
It?s not that fun or that easy, but it?s not extremely difficult either.

 

[melisem]

spludgey, your story is very inspiring!! However, $50k deposit is VERY impressive and I'm not even close to that.

was your first purchase around $500k then? can you share roughly what sort of properties/areas you have in your portfolio?

I'm ok with it not being fun - I'm ready to knuckle down and make some sacrifices for a better future.

 

[z611143]

Just in relations to this, will a HECS debt prevent you from getting a loan or as much of a loan?

Id assume so, but a mate seemed to do okay with it when he first started out.

 

[spludgey]

spludgey, your story is very inspiring!! However, $50k deposit is VERY impressive and I'm not even close to that.

was your first purchase around $500k then? can you share roughly what sort of properties/areas you have in your portfolio?

I'm ok with it not being fun - I'm ready to knuckle down and make some sacrifices for a better future.

My first property cost $325k and I got an LVR of 95%, so didn?t use all my funds to buy this one. It?s a freestanding house on a large block in Umina and these days you?d pay at least $100k more for the same thing, so I?m very happy with it.
This was followed by: Woy Woy, Rockhampton, Rockhampton and Logan and soon to be Elizabeth, Elizabeth, Elizabeth.

So I?ve always gone for the high yield, lower socio economic areas.

And I said the saving might not be fun, but I myself am tons of fun!

Just in relations to this, will a HECS debt prevent you from getting a loan or as much of a loan?

Id assume so, but a mate seemed to do okay with it when he first started out.

I don?t think so. I thought (get a mortgage broker to confirm or refute this) that they simply took your net salary, so it?s only decreased by the actual amount of HECS that you?re paying per fortnight.

 

[marty998]

Hi everyone!
My end goal is to live off investments by 40 years old (13 years away) and I'm thinking about $100k/year would be OK (at current living costs).

Wow. Go hard or go home lol.

No criticism from me for setting a lofty goal. You now need to figure out how to get there - $2.5 million in net assets give or take several hundred thousand.

You may find that after 13 years of not spending 100k a year you may not need as much in the end.

Good luck

 

[westminster]

http://www.realestate.com.au/property-unit-nsw-bathurst-117790699

I was looking at this one... except it's only 20/25m2. Probably not a great idea. But the allure of it only costing me $2/week is pretty good. Plus even if new unit developments pop up in Bathurst, surely the old studio apartment will be appealing to poor students?

Nemo30, I'm not sure where to begin on putting it all on paper (but I am a planner and love the idea of having it all clear cut). I don't know where to even source those figures or that information? I could probably do the rental yield thing... but if I plan on selling, do I just base that figure on property projections? I'd definitely look at diversifying into other investments - any suggestions? I'd love a few steady rentals, I'd love to try flipping property, I'd love to get into commercial real estate, I'm interested in art investment. Shares aren't super appealing to me, but they are to my husband.

LoneWolf, we may move back to Brisbane in 5 years or so and possibly purchase a house there to live in and renovate (improve value).

By the way, thanks everyone for showing interest!!! I'm so glad I've stumbled upon this forum!

Welcome.

You have to watch out for those cheapies as banks do NOT like them. Anything under 40sqm and they start having risk kittens. They will want 30-40% deposit which defeats the purpose of buying something cheap.

Don't rush in. Go see a broker, see how transfering your debt to a 0% card will help pay it off sooner and reduce spending ASAP to get it done soonest. This will be good practise for when you have kids,

Kids will slow down your investment rate (and impact how much you can borrow) especially if you return to work part time etc.

However a goal is a goal and it's good to work to it.

 

[melisem]

Thanks, marty998, I was actually wondering what the ball park figure would be for net assets generating $100k income. $2.5m.... doable, I think??

And yes, Westminster, I did think that banks would shy away from tiny studios. I know the old argument of houses vs units is as old as the hills, but is buying a cheap unit (say over 40m2) as your first IP that bad?? Or should I aim for a cheap house in a growing regional area?

I think I'll just get on top of my CC, save a decent deposit and in the mean time, keep updated with this forum - there's such a wealth of knowledge here, it's fantastic!

 

[Peter_Tersteeg]

You've made it fairly clear that your first challenge is deposit. Realistically is a 40sqm apartment going to to help you with this? I'm concerned that there will be little to no capital growth in this type of property, which means you'll have to keep saving for deposits. This will cripple your investment strategy.

The banks don't like small apartments because of their limited resale market. If the banks don't like them with all there analysis and institutional experience, then I think they might be on to something.

A credit card debt will reduce your affordability by about 3 times its limit, it doesn't matter if it's interest free or not, but take advantage of the interest free period to get rid of it. HECS does reduce your borrowing capacity, but it's usually not a problem for the first property or two, this probably isn't a priority to get rid of.

I'd suggest to start by discussing your situation and your goals with one of the brokers from the forum. Whilst you might not be in a position to proceed yet, it should be fairly easy to identify specific things that you can do to improve your situation to give you the quickest way forward.

 

[albanga]

I feel I can relate well to these topics because I was (sort of still am) in a very similar boat. 6 months ago I wanted to start right NOW! Don't want to miss the boat and so on and so on. I then spoke to 2 mates who "invested" a few years ago and now needed to sell. Listening to them I thought "wow you really did no research, you just bought an IP because it's the thing to do".

I then went to a seminar and learnt the statistics on how many investors own a single property and realized probably 90% of people are not investors, they simply buy A property because someone tells them they should. These same people probably spend countless hours researching the next holiday destination but put absolutely zero time and thought into a life changing decision. Usually they buy in the suburb they live because "it's a good suburb" not taking into account anything that matters with an investment.

Anyway it was at that point that I knew what I needed to do, spend the next year educating myself! I'm about 6 books in, number of seminars, countless hours on here reading and contributing (a lot of misinformed info but one of the experts soon puts you in your place and you learn ), countless website subscriptions, stack of investment magazines. Facebook got deleted and instead of wasting time seeing what Jenny ate for dinner I now read something.

It's been 6 months and I've come a long way but you know what, I still am not comfortable with what I know and won't buy an IP yet. Honestly what is the hurry? And more so what is the hurry if you do not know what your doing? I know the excitement you have but learning should be just as exciting! There are so many things I have learnt and thought "wow if I did not know that I could have really stuffed up".

I know this is a huge post so sorry but you have a number of debts so why not pay those down, start saving a deposit and in between educate yourself. Because when you have saved a deposit you will be so much wiser and can then confidently make the right decision!

Good Luck