Getting Started

[WebBoard]

From: Mike .



houses, units or wait?
From: JF
Date: 11/3/99
Time: 2:29:34 AM

Hi, I'm hoping to be able to make a start as an investor. I'm looking at borrowing around $100K which is pretty much all I can qualify for on my current income $42K since I am also paying out a car loan (balance is now around $10K)

I'm not sure that I would be able to get a house with much prospect of capital growth for only $100K (from what I've seen its only the outer 'undesirable' suburbs where these exist and I'm not sure there would be much of a rental market that far out from the CBD - wouldn't most folk wanting to live out there be buying too, or even building?) so I'm thinking maybe a unit or townhouse as near to Perth city as possible - I have seen some for around $65K to $80K, but I've read "don't buy units" etc because they have no land value. surely though they would have to increase in value over time?

My accountant says these units would be better at generating an income since the rent would pretty much cover the loan repayments, whereas on a house of that value the rent probably wouldn't and I'd be left with having to make up the shortfall

I guess my other option would be to put my savings into some kind of managed fund and wait till I have a larger deposit. Anyone have any ideas where I should start?

 

[WebBoard]

Les

Reply: 1
From: Mike .


Re: houses, units or wait?
From: Les
Date: 11/3/99
Time: 5:41:18 PM

G'day JF,

I ran your numbers (making a couple of assumptions) through the ewizard home loans calculators (available on the internet) Results are:-

ewizard will loan you (for investment) $150,000 as long as your car repayments are $500/month or less. OR, $285,000 if you had NO car loan, and were buying TWO properties for investment with rental income of $160/week each (and that is a VERY low rental for a $150k house).

So, given that $150,000 is a possibility for you, the questions you need to ask yourself are:- 1. Would I SELL this car to enable me to buy a property? 2. Can I refinance this car INTO the property loan (pay 6.5% Interest). Danger here, as you COULD end up spending many more $$'s for the car, unless you set up the mortgage as a cocktail loan with either an Offset a/c or Credit Line a/c along with the main IO Loan. 3. Do I have enough equity in the car to enable me to use IT as a deposit? 4. How much deposit do I need, and what other cash/equity resources do I have?

Re "how much deposit" - a figure of around 15% of total loan would be a reasonable estimate, assuming a 90% loan on the property, and borrowing an extra 5% to cover costs of purchase.

Many would say "Pay off your car first" - and I sort of agree .... but let's look at the 2 ways:-

Option 1 - Pay off car first: Assuming you pay 30% of your salary ($1000/month) into the car, you own it in 10 months - and you might save a bit by paying it out early. In that 10 months, prices could well have gone up another $10,000 (that's only another $1000 for a deposit, so don't panic) - but your mortgage also increases by the same amount. Paying it out gives you a guaranteed x% return (whatever rate you are paying for the car - probably 16%?). And NO risk 16% return after-Tax investments are hard to find!!

Option 2 - Find a lender who will refinance you into an investment loan of 90% of the property, and borrow an extra 15% (5% for costs). You buy at today's prices, the IO loan handles itself pretty much, and you continue to pay up to $1000 per month off your car - I say "up to" because you may need to put some $$'s into the pot for your investment property, depending on rent received, Tax deductions, etc. At the end of that same 10 months, your property has gained $10,000 in Equity (now worth $160,000) and you own your car outright. It's time to buy property #2 - and, with no car payments, you can do it!!!

Keep reading all those books, too, JF - your accountant makes some sense re the rent covering the loan repayments, but I agree with the bloke that said "land value is the key". Maybe (for you) a lower priced startup investment giving a positive cashflow (which helps to pay off the car even quicker) IS a good first move, though.

ewizard will loan you $180,000 NOW for TWO rentals (units up to $90k) bringing in $125/week each. And that's with the car loan repayment not exceeding $500 a month. So, it all swings on your equity/deposit available now.

Re the Mutual Funds - I'd be hard pressed believing any of them can guarantee you 16% return, so my thoughts would be to quit the car loan in preference. (Note: if a Mutual Fund returned 20%, would you still have to pay Tax on the profit?)

But hit that car loan HARD... and blow it away for this time next year. Ready for the next investment .... and good luck.

Les

 

[WebBoard]

Boyd

Reply: 1.1
From: Mike .


Re: houses, units or wait?
From: Boyd
Date: 11/6/99
Time: 10:21:23 PM

G'day JF

I think the question of a house or a unit is a very good one. I have both and they are equally as good. I would think it's very hard to qualify one as being better over the other as there's good and bad for both sides and you'd never get anyone to agree anyway. It comes down to personal preference and what makes YOU comfortable, I think. Something that generally goes unmentioned is that units can tend to be more tax effective. With houses, a large percentage of the price is the land. As the property value increases, it's generally the land content which is causing the increase. Land cannot be depreciated at tax time. This could make a big difference to your tax return, especially if you have several properties.

Units have no land content and are, therefore 100% depreciative. But then, add on the body corporate fees etc. And if you have a poor body corporate, it can be a huge pain in the bum. I'm sure there's plenty of readers on this forum who know more than I do about tax matters so I may stand corrected but that's one advantage I see in units.

As for Perth, I think Inglewood would be a good choice near the city.

Regards, Boyd.

 

[WebBoard]

Sue

Reply: 1.1.1
From: Mike .


Re: houses, units or wait?
From: Sue
Date: 11/21/99
Time: 12:57:00 PM

Hi JF You may know this already but have you heard of "Landlord's Advisory Service" in Perth. It is an organisation set up by Landlords for Landlords and is an excellent group to join if you are just starting out in investment prop. There is a regular newsletter, and you can phone up anytime for free advice on any matters relating to IP. Subs is about $50 per year, well worth it.

They lobby to the Govt on issues related to Landlords, offer information and discount rates on finance, tax, and property management for members. Check them out, they're very non-threatening. In fact if anyone knows of a similar org in Qld (or NQ) I would be eternally grateful.

Good luck with the unit/house thing. I have one of each in Perth. The unit is close to the city and the house is in the mortgage belt. You can go further out (not too far) as long as you stick close to a major shopping centre, schools etc. Don't forget not everyone works or even visits the city in large places like Perth. You can live near Mirrabooka or the Galleria and never have to go near the city EVER.

Good Luck and keep us posted.

 

[WebBoard]

Jim

Reply: 1.1.1.1
From: Mike .


Re: houses, units or wait?
From: Jim
Date: 12/19/99
Time: 11:51:53 PM

Hi Sue, Regarding your request for information on a property owners association in Qld. There is a group called the Property Owners Association of Qld. The membership is $60.00 pa + $10.00 joining fee The Info pack is available from PO Box 1984 Toowoong 4066 Phone 07 3378 7411.

I have the pack but not yet joined so I cannot give an assessment of them but they sounded effective and efficient on the phone and the pack came promptly. Kindest Regards

Jim.