An opinion please

[Zeddy]

I am somewhat uneducated still in the ways of property investment, but my partner and I are interested in an apartment in Melbourne. I need an opinion because I have been told that financial advisors tend to hawk their own products, leaving me at a loss really as to who to ask for advice.

I own one investment apartment in the Adelaide CBD. The value is $278k and I owe $200k. It is a declared investment property, and overall has a positive cashflow of around $5 a week. However I have yet to arrange landlord's insurance, which I believe will bump me into slightly negative territory.

The apartment in question is located in Southbank, Vic. The property value is $500k and we're thinking about cutting the costs in half. Assuming a very conservative 10% purchase costs, this means I require a loan for $275k.

My current LVR for the Adelaide apartment is 72%. If I purchase this apartment, my LVR will go to 90%

My partner and I are both around 25. I would consider myself quite conservative an investor.

My question is, if this LVR considered high? I realise I am simplifying things a lot, but from a personal perspective it helps me work out where I stand.

Thanks all for your help.

 

[ianvestor]

I was happy with 97% LVR until recently, and I'm 29. My LVR is now 80% but that's more to do with 'no doc' requirements than my own preference.

I guess you should ask yourself, are you prepared to start all over again if things go bad? At 25 my guess is yes, but that's entirely up to you.

 

[Dave Hooper]

Hi Zeddy. Sorry, but I too am a novice, and cannot give you much help with your questions. But his worried me;

I have yet to arrange landlord's insurance...

I would address that immediately.

 

[Twitch]

I'd be worrying much more about your cashflow and your ability to absorb 'bumps in the road' (job loss, interest rate hikes, vacancy etc) rather than worrying about whether 90% LVR is too much.

 

[The Y-man]

The property value is $500k....

Is that a bank val?

Cheers,

The Y-man

 

[josko]

First of all Financial Advisers don't recommend free standing property, only because it is not something they can sell. (After all they are there to sell something.)

Banks would consider 90% LVR high, yes.
Doesn't mean that should stop you.

I personally don't care what the LVR is if it gets me what I want, but that has come after a few of investing.

God If I were 25 again and knew what I know now, I'd go for it . . . and I think every investor out there would agree with me.

 

[Zeddy]

I was happy with 97% LVR until recently, and I'm 29. My LVR is now 80% but that's more to do with 'no doc' requirements than my own preference.

I guess you should ask yourself, are you prepared to start all over again if things go bad? At 25 my guess is yes, but that's entirely up to you.

Thanks ian - that's exactly why I included our ages. I figured that would put it in this perspective. It is reassuring to hear this.

I would address that immediately.

Working on it!

I'd be worrying much more about your cashflow and your ability to absorb 'bumps in the road' (job loss, interest rate hikes, vacancy etc) rather than worrying about whether 90% LVR is too much.

Thanks Twitch, I was starting to think along those lines. I have begun to do a few rough calcs to figure out how much breathing room I have with around a month vacancy in both properties per year and a few interest rate hikes. However I must ask, I have not considered job loss - how can one really factor that in? Or are you saying I need to build a significant buffer amount for this?

Sorry if I sound clueless - I am very new at this! My knowledge is limited to reading a few Margarent Lomas books, and that's it.

Is that a bank val?

Very good point. No, those figures were based on the purchase and asking prices. If I contact my lender, will they release the valuation price to me?

 

[BayView]

I am somewhat uneducated still in the ways of property investment, but my partner and I are interested in an apartment in Melbourne. I need an opinion because I have been told that financial advisors tend to hawk their own products, leaving me at a loss really as to who to ask for advice.

I own one investment apartment in the Adelaide CBD. The value is $278k and I owe $200k. It is a declared investment property, and overall has a positive cashflow of around $5 a week. However I have yet to arrange landlord's insurance, which I believe will bump me into slightly negative territory.

The apartment in question is located in Southbank, Vic. The property value is $500k and we're thinking about cutting the costs in half. Assuming a very conservative 10% purchase costs, this means I require a loan for $275k.

My current LVR for the Adelaide apartment is 72%. If I purchase this apartment, my LVR will go to 90%

My partner and I are both around 25. I would consider myself quite conservative an investor.

My question is, if this LVR considered high? I realise I am simplifying things a lot, but from a personal perspective it helps me work out where I stand.

Thanks all for your help.

How did you find out about the apartments in Southbank?
What is the rent return on them?
Was $500k your budget before you heard about these apartments?
Are there plans for many more complexes like these in the near future?

As others have said; increasing your LVR to 90% or more with the predictions for up-coming slow-downs or even contractions in the market could be a very exposed position.

I'm tipping the cashflow on a Southbank apartment would be very negative, so it may not be a good selection at this time.

 

[Aaron Sice]

i found AON really good for landlords insurance.

 

[Zeddy]

How did you find out about the apartments in Southbank?
What is the rent return on them?
Was $500k your budget before you heard about these apartments?
Are there plans for many more complexes like these in the near future?

As others have said; increasing your LVR to 90% or more with the predictions for up-coming slow-downs or even contractions in the market could be a very exposed position.

I'm tipping the cashflow on a Southbank apartment would be very negative, so it may not be a good selection at this time.

We have been leafing through advertisements on realestate.com.au and local real estate agent adverts in the paper, etc.

I have not fully researched everything yet, as we are in the intial stages. We were actually aiming to just familiarise ourselves with the market when we saw this apartment. Realistically, this particular apartment is not likely to be the one we pick up. Time constraints due to obtaining finance, setting up how the loan is structured for the two of us, etc will prevent it. However we are keen to enter the Melbourne property market sometime this year if possible.

Ball park figures only, I would guess the rent to be around $180 to $200 pw for each room. My gf is renting a room in a southbank townhouse for around $200 pw with similar facilities (gym, pool, etc). It will be an owner-occupier arrangement, as we are intending to use one room and lease out the other two. Our rationale for this was to rely more on capital gains to make it worthwhile. It is definitely a mix of lifestyle and investment, not just investment.

These figures have yet to be backed up by nosing around for similar rental apartments.

To be honest, setting the budget was very loose. I was previously pre-approved for around $300k when I bought my Adelaide apartment. Since it's neutral to slightly positive cash flow, I guessed $275k would be bearable. I checked yesterday with the same lender (though I do not intend to go through them) and I was given a prelim figure of $640k total. I still owe 200k on the Adelaide apartment, so that's around $440k they are willing to lend (which does not indicate what is acceptable by my cash flow, of course).

In terms of plans for more apartments - it's in an area where it's mostly townhouse and apartments. The nearby Docklands developments I understand will also be similar.

 

[Zeddy]

i found AON really good for landlords insurance.

Thanks Blue Card. I have been recommended CGU by a loss adjustor and a property developer. I will probably go with CGU on that basis, unless someone can give me a reason not to.

 

[Twitch]

It seems you have a blind spot for risk management, IMHO risk management is extremely important in property investing. First, LLI is a must.

As far as job loss/illness goes you need to work out
1) how likely it is that you might lose your job and how likely if that happened would it be to pick up another one paying as much
2) how long could you continue to keep the lights on and meet all your debt obligations if you lost your job?

IMHO it would be risky to be in a position where you would start defaulting within 3 months of a job loss. I prefer to have 6+months of buffer to be in place. That buffer might be savings, or in my case is a chunk of money in an offset.

 

[simonjulie]

I agree with Twitch's cautious approach to property investing.
Property investing is a cash guzzler!
I have found that you need to have a big bag of money to throw at the properties when the need arises. Having said that they will keep filling that bag for you again and again over time when you get with how to play the game. Only bet on sure things and the trick in this game is recognising what a sure thing is.
Simon

 

[Mr. Fabulous]

First of all Financial Advisers don't recommend free standing property, only because it is not something they can sell.

Correction: the large majority of planners don't recommend free standing property. There are some that do (I can name at least one, *wink*).

(After all they are there to sell something.)

Again, the large majority are like this. There are a small group who *gasp* put the clients needs before their own. Amazing but true!

Mark

 

[Zeddy]

Thanks all for your comments. They are very enlightening to a newbie like me.

We have decided to forgo this apartment. Factoring in a few rate rises and a month of non-occupancy in the properties, I felt the cashflow was not comfortable enough for my liking.

I will concentrate on lowering my LVR for a while and keep a lookout for future opportunities.

In the meantime, I'll lurk around here and learn as much as possible!

Once again, thanks all.

 

[want2bewealthy]

Remember, a higher LVR can be a good thing as long as you can afford to hold,
you have other peoples money working harder for you.