Advice for first property

[jayars]

Hi all, and happy new year!

I'm currently looking to buy my first property, but would like some advice before proceeding.

I've read Jan Somers' More Wealth book, and I think I get it: Buy first home, pay off asap, use its equity to borrow and buy residential investment properties.

I would like to know if this strategy is still viable today? Or are there other books that are more applicable today?

Also, I've come across a house that I really like. It ticks a lot of boxes that I look for in a home (eg, Green title, newly built, in a suburb that I like), and is asking for 550 (suburb median: 590).

But I could also find other houses (ie, not as new, another suburb, strata) for less (400-450).

Should I go for a cheaper first home, and stick with Somers' strategy? Or should I go for the more expensive home (which I really like)?

Thanks
Jayars

 

[Rolf Latham]

Hi Jay

A lot would depend on your resources and goals.

if 550 will stretch you then there may very will be a wise space to not spend as much on a PPOR

have a chat with a decent broker as to what lending options you have now and for the next few IPs

ta
rolf

 

[J_aco]

Hi Jayars,

First property - PPOR or IP?

 

[jerryparker]

Jayers,

Go for the one that will get an early capital gain. It does not happen by accident.

some clues are:
Is a new major road under construction nearby?
Is there a large development happening nearby - shopping centre? Bunnings...those guys do a lot of research

are there schools nearby?...private schools?

how close to a major highway, train , airport?

What is the frontage of the lot?, is it in a culdesac?
How much land and each house?

How this helps.

Jerry Parker

 

[jayars]

Thanks for the replies guys.


@Rolf Latham
The first step of my plan is as detailed by Somers: Buy my PPOR, and pay it off asap.

The 550 property is within my affordability, but buying a cheaper PPOR would make more sense, as it'll be faster to pay it off.

But on the other hand, this property! From the moment I walked in, loved it. This is the kind of house I see myself settling into after gaining financial security/freedom.


@J_aco
I'm looking to buy my PPOR

@jerryparker
Thanks for the tips. What about an area that has already been established , probably peaked? The property I am considering has everything you mentioned, except an airport nearby. It's not a cul-de-sac, but is on a fairly quiet road. When I was talking to the agent, she mentioned that a land, of similar size, down the street sold for 450+.

 

[jerryparker]

Jayars,

Buying in established areas is a great strategy. Yes prices are higher and yields are lower. However it is safer capital investment than a new subdivision because there is established neighbourhoods and ready infrastructure for the renters. It is for conservative investors who are cashed up when others are not, and good at buying at a low price, or understand development values .
negatives are:
1. the price you have to pay
2. the amount of capital R&M you may have to do

To get the price right there needs to be a special reason, mortgagee sale, desperate sellers, or even a zoning change to higher density for instance. You are after the worst house on the best street.

Buying new is excellent for investors because:
1. No capital maintenance costs
2. higher rents, easy to rent
3. wholesale price
4. more tax advantage early on (fast depreciation expenses)

Listening to your comments, It sound like you have not completely separated your heart from your head. This can be costly.

You have this kill two birds with on purchase rhetoric happening. Where you want to live vs purely making money.

You may be susceptible to "falling in love" with a property and it costing you in overall return.

The other problem this dilemma is giving you is procrastination, failure to act? not sure on this one , but this is perhaps worse than the first one.

So what kind of investor are you?
What do you require most?
high yield? or tax deductions?

What is you appetite for risk?

Are you comfortable managing bank loans over property? Do you have the financial discipline?

Some people need the security of home ownership to sleep at night. Is that you?

These factors drive the property market and work to the advantage of pure investors. Those who thinking with there head and ultimately sell to the emotional buyers for maximum profit at that time.

It sound like that house that looks so nice has been well prepped for the market to be sold at a maximum price, not a mortgage sale, or desperate vendor.
I don't know, but the only way to find out is, to make an offer.

Value the property based on 15-20% lower than your best take the current value after speaking to your team and make a strong offer. In writing preferably. And find out. People who take action get the deals. (be proactive a speak to your team first).

There is the art of the negotiation, however well leave that fro another post.


To answer these questions you need to first build a team
accountant- find out where you are in the caash flow tax area
lawyer- advise on structure fro asset protection
Bank/ Broker- to manage the finance side of the translations
Property professional for research
Property professional for transactions

Hope this helps. Feel free to pm me if you need to.

Jerry Parker

 

[jayars]

Hi Jerry. I really appreciate your answer.

So what kind of investor are you?
What do you require most?
high yield? or tax deductions?

I have no experience in property investment.
I am simply in a position where I can now afford to buy a house.
But I don't want to just buy the nicest home I can afford and settling in.
I've been reading Jan Somers' More Wealth, and have started on Steve McKnight's books.
But am still trying to figure out a long term strategy that would help me achieve financial freedom.
I would prefer high yield over tax deductions.

What is you appetite for risk?
Are you comfortable managing bank loans over property? Do you have the financial discipline?
Some people need the security of home ownership to sleep at night. Is that you?

I'm fairly conservative when it comes to risk.
In terms of financial discipline, 3/4 of my wage currently goes into savings.
I do prefer the security of owning a home.

To answer these questions you need to first build a team
accountant- find out where you are in the caash flow tax area
lawyer- advise on structure fro asset protection
Bank/ Broker- to manage the finance side of the translations
Property professional for research
Property professional for transactions

Now this is something that I can do now.
I'm currently in contact with a mortgage broker, and will be talking to a local buyers agent.

Would you recommend a financial advisor too? I've spoken to a few in the past, but they were more interested in selling me insurance and investment products.

 

[Terry_w]

Jan Somers strategy still works, but since her first book there have been some developments in finance with offset accounts, LOCs etc. In the early stages I would suggest you consider putting the excess funds into an offset account rather than the loan as this makes things more flexible if you move out later.

 

[Brady]

You're purchasing an PPOR, which in most cases will result in you becoming emotionally attached... by the sounds of it could of already happened.

this property! From the moment I walked in, loved it

You mentioned that this is the kind of house you see yourself in once you have found financial freedom

This is the kind of house I see myself settling into after gaining financial security/freedom

Then is this the type of house that will assist you in gaining financial freedom or assist. Unfortunately it's a question that's asked all so often around PPOR or IP, which should you concentrate on. IP in most cases going to give you the better financial freedom and gains, but a PPOR doesn't give you the same emotional feeling of ownership. A PPOR can also have good growth and be a anchoring asset that you can use to invest and gain financial freedom.