Any Starting Out Advice For a Newbie ?

From: Mark Frearson

Hello Everyone,

I'm very new at all this. In summary I have been doing some reading and lots of learning recently and decided to begin my property investment as soon as possible but am after some advice in this area. I'll need to provide the basics of the specific situation first though so you understand where I'm coming from.

I am a police officer working in Sydney. I have served 6 years and will be looking to be out of Sydney in about 3 - 4 years time. The ultimate aim is to end up living or down the NSW Coast (unfortunately every other copper wants to do the same thing). So in order to get where I want to it may require me taking what we call a disadvantaged posting out to the middle of no where like Broken Hill. If I do this I get preference on my next posting and should get where I want to go. Add to this equation the fact that I have serious girlfriend who will be out of the country travelling (not working) from June to October this year.

We plan to purchase property together (regardless of who's name it's in). So our initial thoughts were that we'd have to do that when she gets back. So basically I'd save some money while she's away and when she gets back we'll both save until we have a deposit. Then we'd buy the appropriate property (which would cost us at least $350 000 to $400 000) near where we live and I work in the eastern suburbs of Sydney. Although owner occupied this purchase would be made with the intention of holding and renting the property in about three years time when we leave Sydney.

So on purchase we would try and increase the value a bit with minor improvements and pay as much into the loan as we could over the next 2 years to try and bring the principal down. The idea of paying into the principal would be to lower the monthly repayments to level that would be closer to the projected rental returns and not leave as much of a gap between rent and cost when we move country. We would also be looking strongly at the possibility of declaring this Sydney property as part investment property from the start and renting out the spare bedroom.

When we went country we wouldn't be buying anything to live in at woop woop but would be on cheaper subsidised rent. There appears to be varying opinions as to whether this Sydney property could be then negatively geared when we left Sydney. After reading the ATO legal updates I would have thought it could be. Although there would be CGT payable if sold. What do you think?

The plan would then be to buy further investment properties with the equity in the initial Sydney Property as we went.

I should also mention that a relative has indicated they would offer their fully paid for house (about $250 000 in value) as security for our initial home loan.

The main problem with this option is that it would be minimum 6 months but more like 12 months before we would be able to buy this property. Due to my girlfriend being overseas and having to come back and start work again before we could start seriously looking (I couldn't buy a place to live in without her there she'd kill me). She'd obviously also need to be here and working to get the loan. And we'd need both incomes to get the loan I'd say. (Her on about 45 thousand and me about 50).

The other main option as I see it is that we buy an investment property almost immediately (if we find the appropriate one)and I just continue to rent ($150 a week). If the set up (price and repayments) on the property was right I could get the loan in my own right. Probably would be a property out of Sydney where the prices are lower and could afford the repayments if it was vacant. Somewhere like Wollongong (south coast an hour from Sydney) or Canberra. Mainly because I have some local knowledge of these areas.

Then when my gf gets back we could use any equity built up through appreciation and improvements combined with savings to get the loan for the property we would live in while in Sydney. Then we'd continue on a similar path to that I initially described.

A variation on either of these scenarios would be the sale of the owner occupied premises on leaving Sydney and then converting any profit into deposits on other loans / investment properties. I suppose this would be an option if the Sydney property was performing as well as I liked and I wasn't paying much capital gains tax because it was owner occupied (or 1/2 oo and 1/2 inv).

I tend to lean towards the second option if it's possibly because I hate sitting and waiting. What do you think? Let me know if there are any pros and cons for either situation that you think I should be considering. Or if you have a better idea.
I realise any suggestions would be exactly that, suggestions or advice, and rest assured I would check them out thoroughly before taking action on any. I'm just after some general advice and wondering if I'm missing anything?

Sorry it's so long. Thanks for your time.

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Reply: 1
From: Jeremy Laws

From what I have heard Broken Hill is a ripper suburb. If what I heard is true (and I haven't really checked it out myself) I would buy as much there as I could possibly get my grubby little hands on, then use the ensuing cashflow to buy wherever the hell you would like in Sydney! You would be able to afford it! Vaucluse harbour front would be unusual for a Kings X policeman! (actually probably not all that unusual, but at least the bad guys wouldnt be able to afford what you would consider by that stage a worthwhile bribe!) Theres a new Ryan/Costa esque catchphrase!! - "Honest policing through property investment...." Enough wealth to out buy the crims!

PS Probably a little simpler than you wanted, but thats what I'd do!
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Reply: 1.1
From: Simon and Julie M

Hi Mark
Welcome to the forum.
I would like to agree with Jeremy.
What better opportunity than to be getting paid while sourcing great little cash flow properties in regional areas.
Build up your capital and cashflow then the world's your oyster.
Kind regards
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