Advice needed! First Investment property. Sydney Based.

[lenka]

Hi all!

I have been looking to buy an investment property in Sydney (mostly 2 bedroom units in Eastern Suburbs and Inner West). I am 28, own a PPOR outright and have about $300K saved up. My salary is $70K a year.

If this is your situation, what would you do?

• How many properties would you buy?
• New or old? I?ve been told to look for small block of units with low strata but it seems like the only option is to buy older unit, which means you don?t benefit from depreciation. Thoughts?
• Positive or negative cash flow? (I'm leaning towards high growth option)
• How to structure the loan, leveraging equity etc.?
• Which areas would you buy?
• Should I use a buyer agent?

I know I am late into the game and there is so much information out there which makes it quite overwhelming.

Interested to hear your thoughts and recommendations! Any advice would be really appreciated.

 

[Rolf Latham]

Xcellent work !

ppor paid off at 28 isnt late to the game: )

One question to toss staight back, whats your end game,your end financial goal.

Usually you can derive this by looking at your life goals and working backwards. From that and via various methodsyou can then build a strategy to get where youd like to go.

Very first financial thing I would usually suggest is borrow as much as you can using your equity and the new property portfolio and to park your tax paid cash against that debt with an Interest Inly loan and a 100 % offset.

this will give you much flexibility and capacity to respond to challenge and opportunity.

ta
rolf

 

[lenka]

Hi Rolf,

Thank you for your feedback.

Like most people, I would like to retire early and have flexibility to do what I want. I suppose my ideal goal is to build wealth as fast as I can and replace my salary with income through IPs in 5-10 years time so I can spend time with kids (a bit hard to imagine since I?m not at that stage yet) while still have a comfortable lifestyle (eating out, holidays etc.).

I am quite risk adverse so the question is if I use equity to borrow as much as I can (my property is value at $750K), how many properties should I be looking at buying and how much should I spend on each property?

 

[Terry_w]

You could possiblly buy 5 or more properties in close succession worth about $500k each.

Whether and how you would do this is the tricky part. You would need careful planning on land tax as well as structuring the loans - this would be relatively simple.

 

[DaveM]

Sydney market may have a bit more to go but my gut tells me that its near its peak. Leveraging into a near peak market is not without its issues.

Are you looking for long term or short term CG bursts?

 

[MarkC]

Advice

Maximum salary sacrifice to super. Buy positively geared growth shares like Australian banks, Telstra, Wesfarmers and Woolworths.

 

[bobby85]

You could possiblly buy 5 or more properties in close succession worth about $500k each.

Whether and how you would do this is the tricky part. You would need careful planning on land tax as well as structuring the loans - this would be relatively simple.

I don't have my head around 'structuring loans'.
Do you mean making sure not to cross collateralise, mix of different lenders, P+I, I/O etc?

 

[Terry_w]

I don't have my head around 'structuring loans'.
Do you mean making sure not to cross collateralise, mix of different lenders, P+I, I/O etc?

There is a bit more to it that that. Where the deposit should come from, what sort of loan this should be, whether to use cash or borrow this, if you have a spouse which names on titles, which names on loans, private loans between parties including related entities, how to structure the loan on the new purchase, what LVR, loan type, which lender, whether to pay LMI or not etc etc

 

[Rolf Latham]

I am quite risk adverse so the question is if I use equity to borrow as much as I can (my property is value at $750K), how many properties should I be looking at buying and how much should I spend on each property?

These are good questions.

Others have commented on capacity around your existing physical resources. Id like to focus on the personal resources,

There are no "shoulds"...............

You have identified that you are averse to risk...........I think we all are, I mean no one likes to lose money right ??

Over the last 15 years working in the cross over of finance and psych of money, I have found that risk profile is very much impacted by:

• education around the investments sought
• understanding of "risk managed " finance structures
• "worst case what if " analysis
• Small successes - dont spend all your portfolio $ in one go
• Understanding where your money values come from
• Association......... if you associate with succesful investors, your comfort will be greater, than if you listen to the negatve brother in law whohas zip recurring income, but wants to safeguard you from financial loss

If you address some of these areas you may have a different view on structured equity borrowing rather than spenidng your tax paid cash.

ta
rolf

 

[Rolf Latham]

Maximum salary sacrifice to super.

28 years old

long way to 65 ++

preservation age has to increase significantly from where we are now, would you not agree ?

I know peops think that Super is a holy grail and wont be affected much over time..........

All we need to do is look at the countries that are 20 years ahead of us in demographic terms.............previously tax free income streams are falling into the simialr regimes as normal earned income.........

ta
rolf

 

[D.T.]

Maximum salary sacrifice to super. Buy positively geared growth shares like Australian banks, Telstra, Wesfarmers and Woolworths.

Get out of town

 

[bez23]

Hi all!

I have been looking to buy an investment property in Sydney (mostly 2 bedroom units in Eastern Suburbs and Inner West). I am 28, own a PPOR outright and have about $300K saved up. My salary is $70K a year.

If this is your situation, what would you do?

• How many properties would you buy?
• New or old? I?ve been told to look for small block of units with low strata but it seems like the only option is to buy older unit, which means you don?t benefit from depreciation. Thoughts?
• Positive or negative cash flow? (I'm leaning towards high growth option)
• How to structure the loan, leveraging equity etc.?
• Which areas would you buy?
• Should I use a buyer agent?

I know I am late into the game and there is so much information out there which makes it quite overwhelming.

Interested to hear your thoughts and recommendations! Any advice would be really appreciated.

Can I ask how much is your PPoR worth? Is it a inheritance? I'm at the same age, have a few IPs, higher income but no where close to paying off my PPoR.. Something must be wrong with me?

 

[nhg]

Something must be wrong with me?

Dangerous words. Even when made as a passing comment about yourself.

Nothing wrong, we are all walking different paths as I'm sure you know anyways.

I'm the same age too. Few IPs and had a much higher salary. I've met people our age who will be banking $4M this year. No point feeling bad about it. Learn what you can and move on with your own plan.

 

[redwing]

Hi all!

I have been looking to buy an investment property in Sydney (mostly 2 bedroom units in Eastern Suburbs and Inner West). I am 28, own a PPOR outright and have about $300K saved up. My salary is $70K a year.

If this is your situation, what would you do?

• How many properties would you buy?
• New or old? I?ve been told to look for small block of units with low strata but it seems like the only option is to buy older unit, which means you don?t benefit from depreciation. Thoughts?
• Positive or negative cash flow? (I'm leaning towards high growth option)
• How to structure the loan, leveraging equity etc.?
• Which areas would you buy?
• Should I use a buyer agent?

I know I am late into the game and there is so much information out there which makes it quite overwhelming.

Interested to hear your thoughts and recommendations! Any advice would be really appreciated.

Hi Rolf,

Thank you for your feedback.

Like most people, I would like to retire early and have flexibility to do what I want. I suppose my ideal goal is to build wealth as fast as I can and replace my salary with income through IPs in 5-10 years time so I can spend time with kids (a bit hard to imagine since I?m not at that stage yet) while still have a comfortable lifestyle (eating out, holidays etc.).

I am quite risk adverse so the question is if I use equity to borrow as much as I can (my property is value at $750K), how many properties should I be looking at buying and how much should I spend on each property?

Awesome, you certainly have a few options available

Total Loans $0.00
Total Savings $300,000.00
Total PPOR Value $750,000.00
Total Value $1,050,000.00

And no leverage yet

Re: The block of units and depreciation, you could always renovate them, increase their value and get some depreciation to boot

 

[tess85]

Can I ask how much is your PPoR worth? Is it a inheritance? I'm at the same age, have a few IPs, higher income but no where close to paying off my PPoR.. Something must be wrong with me?

Would you have paid off your PPOR if you hadn't bought IPs, though? We're in a similar situation to you with IPs but not having paid off the PPOR because we spent the $$ on IP deposits...

 

[Propertunity]

If this is your situation, what would you do?
[*]How many properties would you buy?

As many as I could - see a good mortgage broker.

[*]New or old? I?ve been told to look for small block of units with low strata

Older in an established area that can be renovated at some point for a value-add and increased equity.

....but it seems like the only option is to buy older unit, which means you don?t benefit from depreciation. Thoughts?

Earning $70K pa means you are not paying much tax anyway, so depreciation is not too much of a concern.

[*]Positive or negative cash flow? (I'm leaning towards high growth option)

High growth almost necessarily means you will be negatively geared. How about a mix of high CG, low yield combined with average CG and neutral to positive cash flow.

[*]Which areas should I buy?

Mix of capital cities or large regionals. This avoids land tax and helps your portfolio diversification. One city will be rising while another falls or flatlines. But one or more of your IPs will be making money you can draw on.

[*]Should I use a buyer agent?

Yes definitely
But seriously, if you don't have the time, or expertise (selection and negotiation skills), or the agent contacts, consider using a BA.

 

[lenka]

Can I ask how much is your PPoR worth? Is it a inheritance? I'm at the same age, have a few IPs, higher income but no where close to paying off my PPoR.. Something must be wrong with me?

My PPOR is currently around $750K. I received inheritance which helped however the property value also increases from when I bought it 6 years ago.

And I agree with nhg, there's nothing wrong with what you're doing. I certainly feel behind that I didn't invest in IP earlier!

 

[Jacque]

Hi Ienka

What a wonderful position to be in financially so well done! Some great advice so far from the oldies on the forum including Rolf, Prop and Terry. First stop for me would be your accountant to discuss structure (as per Terry's post) then a good mortgage broker (lots who are highly experienced here on the forum including Rolf!). Knowing how much you want/have to spend and how to set up loans/entities correctly first up should be a priority.

As to what and where, I'd suggest you engage in some reading here and elsewhere to work out what suits your end goals best. It can be overwhelming in knowing where to start however baby steps and lots of research along the way will assist. Remember too, to factor in ALL YOUR COSTS as, if buying several properties in the one state, there's also land tax to consider (a cost that a lot of investors seem to overlook) and depreciation benefits can be overrated, depending on your income position here as well.

Best of luck with it all and remember to keep returning to the forum when you have any other questions- this place can be a wealth of information!

 

[lenka]

As many as I could - see a good mortgage broker.

Older in an established area that can be renovated at some point for a value-add and increased equity.

Earning $70K pa means you are not paying much tax anyway, so depreciation is not too much of a concern.

High growth almost necessarily means you will be negatively geared. How about a mix of high CG, low yield combined with average CG and neutral to positive cash flow.

Mix of capital cities or large regionals. This avoids land tax and helps your portfolio diversification. One city will be rising while another falls or flatlines. But one or more of your IPs will be making money you can draw on.

Yes definitely
But seriously, if you don't have the time, or expertise (selection and negotiation skills), or the agent contacts, consider using a BA.

Thank you. Your feedback helps a lot. My mortgage broker didn't really give me advice on how to strategise or how to structure the loan etc. Maybe I need to sit down with a financial planner to work this out...

 

[Propertunity]

Thank you. Your feedback helps a lot. My mortgage broker didn't really give me advice on how to strategise or how to structure the loan etc. Maybe I need to sit down with a financial planner to work this out...

Again, as per Jacque's post, Rolf on the forum here can assist with that too.