Dillema! What would you do in my shoes?

[tk79]

I am planning to buy an IP. My PPOR has accumulated enough equity for me to be able to use it as security for my IP purchase. However it gets a bit complicated as i am planning to head off to the UK to live, work and play for a few years around July. Once ive set myself up with a job and place to live my fiance will join me. I dont have a job lined up, but i have been led to believe that there are plenty of jobs in my field in London. I did a bit of calculation with very conservative figures and i could afford two IP's with british wages.

The way i see it i have two options and pros and cons of both, of the following two options which one would you experienced guys/gals choose:

1. Buy an IP before heading off
PROS:
* Prices are going up so sooner i buy the cheaper!
* I can inspect the property myself as ill be here
CONS
* I might not get a job in London within the first 2 months! (only a 10% chance IMHO)
* I wont be able to have as much fun as soon as i get there as ill have a very tight budget

2. Buy a property once im there and setup
PROS
* Less risky, Which means less stress
* I'll have a better idea of my budget
CONS
* It might be 3 months away and in this rising market (ACT) who knows how much prices will go up
* I'll have to choose a property online and then rely on my relatives/fiance/PM to go and have a look at the IP
* But i want an IP right now .....

Thnx in advance

 

[BV]

TK79
I would go for option 2
However, I would refinance and access the equity in the PPOR now
and have the money ready in case you need to move fast.
My 2c
Cheers

 

[MarkB]

I'd go for option 1.

You have the inclination and the means to buy now.

Who is to say what you'll feel when you are on the other side of the world.

M

 

[FrankGrimes]

Prices won't move much in 3 months. Hold off and wait until you know your salary, living expenses etc.. Then buy what you can afford, if thats 1, get 1, if thats 10, get 10.... No point speculating, just hold off 3 months

 

[Glebe]

Yeah I'd wait also. I'd be much more comfortable hitting the mortgage knowing there's a salary backing it up. So long as you have the discipline to still want to invest in IP's etc when the trappings of London greet you...

 

[Kristine..]

Hi tk79

Good luck on your great adventure. I have two of mine (and the main squeeze) OS at the moment and they are all thrilled to be visiting everything although they wish they had not bought (and filled) such large back packs!

Once you give up your day job then that's about it for borrowing until you have a steady job and have established a steady work history again.

This may not be until you return to Australia, so you may actually remove yourself from the buyer's market for a couple of years if you don't act now.

If you do get permanent work in UK, who will lend you the money? An Australian Bank might, but only if you are considered ex-pat and have a job to come back to.

If you are simply casting your fate to the wind then buy now, otherwise there may not be an apportunity to buy for a (long) while.

Regarding payment of a shortfall while you are away, well, this is why you plan and make sure you leave a reserve fund here to cover any rental vacancies, emergency repairs or simply the difference for, say, twelve months between the anticipated rental and the monthly interest only payments.

Contrary to popular believe, you can have it all! But it does take sensible planning, no airy fairy stuff, and it does take provision for a reasonable nest egg. In other words, do a budget!

Taken simplistically, if you plan and execute your plan appropriately, the property you buy now will, in effect, pay for your trip. Better to come back to an asset you can sell or refinance than to come back empty handed.

Have a lovely time, the streets of London are, so they say, paved with gold. Customers of mine have just returned from a Canal Tour - never mind the water, they are awash with good British Bitter and wonderful cheeses and are actually slightly tanned! But they have come back to a close settlement with plans drawn up for their next subdivision and development. Once this project is complete I'm sure they will be back on the plane for another long, lazy holiday - but not before they get the following project sorted out before they go.

Have a great time, and let your assets grow while you are away!

Cheers

Kristine

 

[MarkB]

If you are simply casting your fate to the wind then buy now, otherwise there may not be an apportunity to buy for a (long) while.

Thank you Kristine.

Imho when starting out in IPs you are best advised to buy what you can, when you can.

If novice investors spent their days trying to time the market or fretting over whether they can afford the future repayments - they'd never buy.

M

 

[HandyAndy888]

I would recommend waiting...its the smarter thing to do IMO...

 

[CairnsAgent]

I also would be waiting, but I'm fairly conservative too...
I would like to know my income level, if I have an income straight away etc, you may get OS and want to trip around for a month or 2, if you dont have tenants you have to find the shortfall funds and the holiday expenses!

Either way, there is no bad decision, in the market is always better than not in the market.

Cheers.

 

[tk79]

Ok thanks for the advice. If im in the UK earning twice as much as i do now and have been working for 3 months albeit as a contractor not as a permanent employee. would i still be able to borrow for my IP or do i have to have a work history at that place for 6, 12 months or more?

 

[Ahmad Azimi]

TK79
I would go for option 2
However, I would refinance and access the equity in the PPOR now
and have the money ready in case you need to move fast.
My 2c
Cheers

That's my opinion too. Option B is the better option.

Remember Property Investing is 95% mental and 5% physical. If the returns on the paper are good then most of the time there is no need to inspect the property. When people invest in shares they dont physicaly inspect it because there is nothing to inspect but they still make money.

I know afew people who have invested in property interstate yet never seen it in thier life but they stil made alot of money. So it's not always about the product. Make sure the area you are investing has a good potential for growth and the location of the property is also an X-Factor.

 

[slingshot]

Make sure you find yourself a good property manager. Worth thy're wieght in gold especially if your on the other side of the world.

Go for it on both accounts I say!

 

[joeExpat]

Ok thanks for the advice. If im in the UK earning twice as much as i do now and have been working for 3 months albeit as a contractor not as a permanent employee. would i still be able to borrow for my IP or do i have to have a work history at that place for 6, 12 months or more?

I did just that, was contracting in the UK & got an Australian loan to buy a property 6 years ago. They wanted to see my UK company accounts I was contracting through, I don't think 3 months would be enough, could be ok though with some Australian employment history also. They offered me 3 X what I needed.
My advice would be 'option 3' - buy nothing. The market has had a massive rise and is due for a fall. I expect this will happen fairly soon, it already has in a number of countries. This will be followed by many years of stagnation. Save your money for buying opportunities in 3+ years, I just sold one of my IPs.
Don't get sucked up in the boom hype and don't buy at the top.

 

[Don and Liz]

buy now. It is likely you will find a much better deal if you pick it yourself in person rather than online or through a buyers agent.

 

[AdRock]

Long time listener, first time caller

Hi TK,
I'm in the same boat - except that I'm heading to Copenhagen soon...
I've been trying to purchase an IP before I go, but having difficulty with the current market in Melbourne.
If you're okay with letting your fiance deal with the OFI's, building/pest inspections, solicitors, etc. then I'd recommend buying once you're in the UK and have a realistic indication of your salary & cost of living.

One point that I thought was worth mentioning (as was recently pointed out to me by my mortgage broker) is that while you're overseas you won't have the same tax benefits as you have here in Oz. That is, if your IP is negatively geared, you won't have an Australian salary to claim deductions against.
Instead you gain tax imputation credits that can be deducted once you're back here earning Aussie dollars again.

Good luck,
Adam.

 

[Arkay]

My advice would be 'option 3' - buy nothing. The market has had a massive rise and is due for a fall. I expect this will happen fairly soon, it already has in a number of countries. This will be followed by many years of stagnation. Save your money for buying opportunities in 3+ years, I just sold one of my IPs.
Don't get sucked up in the boom hype and don't buy at the top.

Now there's some "interesting" advice. I would like to know where that prediction comes from having just bought on Sat.

Personally. I think you need to evaluate your circumstances and get some professional advice.

You are in a better position to borrow now than you will be once you are in England. Job certainty is a factor in how the banks will look at you and history with a current employer is far more attractive than an "I think I'll have some job security this year in a foreign country" on an application.

If it's possible I would access the equity in the PPOR now. Buy a property before you go making sure that there is enough equity left over to service the loan on the new purchase for 12 months, set everything up re property manager, payments, banking etc and then trek off in the knowledge that you're in a good position.

That then takes the pressure off and you can get yourself established OS without the worry.

Again though you have to weigh it all up as it's dependent on your situation and how much equity you have and I would speak to a property savvy accountant about it before hand to cover all the bases.

Cheers,

Arkay.

 

[tk79]

Some new updates on my circumstances. I had an idea of getting a pre-approval here then once im over there and secure with jobwise then buying a property. Well looks like i wont be able to pull the wool over the banks eyes, my broker is telling me that if i get a pre-approval and when it is time to exchange my job situation has changed the bank will tell me to go and jump.

So looks like it will have to be option one, im a bit worried but my fiance will be living with her parents and working in Aus, so she will be able to get cover the mortgage after rent on her own. I also work in IT and apparently i have been told by a lot of ppl in the industry that there are plenty of well paying jobs in London in this field. Also as im buying in the ACT i can claim stamp duty in my tax return, im going to do my tax return just bfore heading off to the UK. The tax return can help my fiance pay the mortgage if she needs until i start earning some pounds. Really simple and easy (god help me )

I think now is the right time to buy joeExpat, i think the canberra market will peak around 2009/2010 and currently is just at the beginning of the growth. Also rental yields in Cbr are excellent at the moment. I know im taking a bit of a risk but i guess you have to in this game.

 

[joeExpat]

Global property markets have gone through a massive boom, not just in Australia. Some of these have turned already and dropped by up to 20% (US & Spain for example). Australia is not immune, in fact the OECD proclaimed Australian property as one of the most overvalued in the world, pushed up by rampant speculation and historically low interest rates.

I just sold (touch wood not exchanged yet) a property in London. It has gone up 140% in 8 years. Thats too much, too fast. Ratios are all out of wack with long term averages.

I don't know about the Canberra market maybe you've found a small niche of value left. Personally I'm not comfortable holding too much property at the moment. I could be wrong of course, maybe the boom in Australia will last longer. The only market I might consider buying at the moment is here in Switzerland. Prices haven't gone up as much and interest rates are only 3.5 - 4.0% & no stamp duty. Buying property here for investment is virtually unheard of so there hasn't been the investor driven bubbles seen in other countries.

 

[ggumpshots]

You should buy before you go.
Doing things from a distance and getting a high LVR with foreign income can be a real frustrating experience if you need everything done asap.

However its better you buy what you see in front of you , not from a description or photos.for example how happy would you be to buy a place in London now from photos or from chatting to an agent?.........they are all so willing to help you
You can easily chat to agents and neighbours before you leave and get second opinions from lots of people.

Also getting a reliable PM once you leave may or may not bean issue
You wont comfortably be able to do that from O/s.
If you don't get a job, your equity from your property can cover the short fall, for how many months ?If you don't have commitments you may not be so intense in getting a job.
if you have commitments you will get a job ....believe me.

I think if you do option 1 , then option 2 will never happen.
The safe thing to do is option 1.
How risk adverse are you?

 

[tk79]

I went ahead and bought an IP yesterday. THanks for the advice everyone.
First i did a budget on spreadsheet where i factored in the lowest wage i would get in my field in the UK and very high entertainment and rental expenses. My partner will be here living with her parents and working her current for at least 6 months and i will be getting rent from my current PPOR and new IP and these were enough to service the two loans comfortably

Nevertheless im taking a risk, some people will probably think im a bit stupid but i wanted to buy something because once i get there it is a bit harder/lots of hassles to get banks to finance you, decide what is the right property etc. Also the canberra market is going crazy atm and buying now as opposed to in another 6 months could mean an additional 15k-20k-30k-who nows how much more.

And lastly after reading posts all day for the last month (i should really work more ) one thing that seems to be universal is dont put off investing. Just go and do it if it isnt beyond your means. Oh well, i guess ill find out soon enough if ive done the right thing or made a mistake.