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From: Anonymous


Our first investment property
From: Richard
Date: 10/19/99
Time: 10:55:09 PM

Just under 5 years ago I read Building Wealth through investment property and was convinced of the merit of this strategy. I have subsequently read the following two books.

We bought our first home 3 years ago. My original intention was to pay it off completely prior to embarking on building a portfolio. However, with approximately 50% equity in our home now - I couldn't wait any longer!! I figured that the opportunity cost of waiting until our own home was paid off was too great - with prices rising in that time.

After all I calculated the after tax cost of an investment property could be as low as $40-50 per week and wouldn't extend the pay-out of own home too much.

We live in Campbelltown in outer Sydney. When looking for an investment we firstly spent a couple of months researching the inner city (older terraces etc) as we figured the capital growth would be best. We found most sold by auction (always well above the REA's estimate!). This meant going to the expense of building inspections, contract checks etc only to find the property would sell beyond our price range. This was too much stress for us!!

In addition the older properties did not benefit from depreciation tax relief and this made our contribution higher than we would feel comfortable with. Feeling a little disheartened I went back to Jan's advice and started looking in our own 'backyard'. I had previously assumed that everyone lived out here so they could afford to buy and as such the rental market would be weak. After some research (speaking to local agents and checking what type of property was most 'in demand' I was surprised to learn there was a strong demand for new larger homes. It seems that many people with high incomes do not want to commit to a mortgage preferring to rent a nice new home, lease a new car and borrow money for new furniture.

We have settled on buying land and building an investment property. Although the interest on the building loan (which I am capitalising until the property is tennantable) will be non-deductible for the six month period of construction, I only pay stamp duty on the unimproved land value (saving over $5000). I am under no illusions that the capital growth will be as strong as the inner city -but the rental returns are good and the itemised breakdown of building and fitting costs will make tax returns so simple! Most importantly, as I know the area well I feel far more comfortable.
 
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Boyd

Reply: 1
From: Anonymous


Re: Our first investment property
From: Boyd
Date: 10/20/99
Time: 11:07:54 PM

G'day Richard,

Sounds to me like you investigated your purchase quite thoroughly. I haven't bought property under quite the same circumstances as yourself but I just wanted to add my 2 cents worth about your mortgage insurance.

My belief is (and I may be wrong) that banks firmly believe in covering all bets and I can't blame them. They are financing your investment with their money and if the investment goes sour, they just covered themselves by having the asset insured (at no cost to them) to a price you were agreeable to. Even if the valuers price was lower and tipped you into a safer LVR, the bank wouldn't have the extra safety net of the insurance.

I think you were right in thinking that maybe your estimate may have cost you. Sorry to be negative but at least you have something set aside now and in 20 years time, the amount of the mortgage insurance payment will be nothing next to the capital growth of your new property.

Regards, Boyd.
 
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Richard

Reply: 1.1
From: Anonymous


Re: Our first investment property
From: Richard
Date: 10/22/99
Time: 8:57:52 PM

Thanks Boyd, you are quite right when you say the mortgage insurance will be insignificant in the long term. Nonetheless I'll put it down to "lessons learnt" for next time!
 
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Gee Cee

Reply: 2
From: Anonymous


Re: Our first investment property
From: Gee Cee
Date: 1/4/00
Time: 7:54:39 AM

Dear Richard

I really think that you have certainly done the right thing.

The area that you live in is growing very quickly and the infrastructure around is also improving. The fact that you have researched the area also gives you confidence in what you are doing.

You certainly did a lot better than just listening to some fancy seminar sales people & then buying a unit at a price over it's value at some far away place.

I myself have had older houses in the Camden area which were bought fairly cheaply about 12 years ago. They have recently been sold and the money put back into real estate.

What I am now doing is building new project houses to suit the wants & needs of the market.

As these are new they require little maintenance for quite a few years. With the older houses I was having to constantly spend money on repairs and maintenance. Owing to the fact I don't live near Camden the work always had to be done by someone else. At times at ridiculous prices. (eg $60 to change a tap washer)

Also you usually get a lot better class of tenant than for older houses. The building can as well be depreciated @ 2.5% per year for 40 years which is a bonus of holding newer property.

What I have found is that you do not need to go overboard with fancy extras but just make the home comfortable and suited to the needs of the particular market of renters. When the home is complete you will usually find that the home is worth somewhat more than you have outlaid.

This fact has led me to now have a development section for cashflow and a investment section for tax losses & ultimately future value growth.

I would be interested to know if anyone else has had similar experiences.

Regards Gee Cee

P.S.

I don't want to seem to nosey but would love to know if you used a private builder or had a project builder build your 1st investment home. What it cost roughly & what rental you should obtain.
 
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Richard

Reply: 2.1
From: Anonymous


Re: Our first investment property
From: Richard
Date: 7/9/00
Time: 11:29:49 PM

I don't want to seem to nosey but would love to..

Hi Gee Cee, have just been trawling through the posts and saw your response to my post of last year.

I am happy to share with you the information you sought. I used a private builder (land allocated to him by Landcom - but I bought the land direct from Landcom). Total price of house + land (with all fixtures to allow immediate occupation) was $193K.

House is located in Curran's Hill (Camden area as you probably know) and is 4BR, ensuite, Dbl garage, 640M2 block). Rental expected is $250-270. It is just being shown to potential tenants now as there is 2 weeks until handover from the builder.

Unfortunately there are a number of homes all finishing around the same time (due GST deadlines!) so there may be an oversupply - this should settle out in six months I hope.
 
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