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From: Mike .


Our first investment property
From: Marc
Date: 1/28/00
Time: 6:41:40 PM

For the last hour I have read everybody's various commentaries and have found the forum and discussion to be very interesting. My wife and I are contemplating purchasing an investment property. We have both studied the readings and preachings of Robert Kiyosaki and have most recently read 2 of Jan's books.

We are quite accustomed to risk, provided it is managed and have within our investments a geared blue chip share portfolio and geared managed funds. We reside in Sydney and owe about $250k on a $450k family home. Our share portfolio has managed to contribute to our high stress levels and it is our opinion that we could do better with investment property.

We both currently earn six figure salaries, however we will be limited to one income come May 2000 as we are expecting our first child. Given our current mortgage payments, contribution to managed funds, loss of one income and child we do not think we will have much left over. We are hoping to secure an investment property that will require the minimum level of equity ie 10% or 20% and be almost cash flow neutral/positive (before negative gearing.)

Does anybody think it is possible to find something like this in Sydney or should we look at another state. We could however sustain a short term negative cashflow. We are looking at purchasing a property of about $150k to $200k. My calculations lead us to believe that we would need a 8 or 9% gross return to achieve this. Looking forward to your replies. Marc
 
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Les

Reply: 1
From: Mike .


Re: Our first investment property
From: Les
Date: 1/29/00
Time: 1:06:18 PM

G'day Marc,

Pleased to meet another Kiyosaki and Somers fan. You have certainly provided an interesting set of figures - now let's see if we can help your stress levels ....

First off, if you were to buy a new apartment rather than a house, you would trade-off income vs growth to some extent. But in your situation, it could be the intro to Real Estate that suits you best. The major reason is the predominance of building vs land in an apartment. The building can be a Tax deduction, but the lack of land can reduce the Capital Growth - so it's a trade-off.

To your situation - an apartment will attract a significant Building Allowance that you can use to attract a Tax deduction (helps in the short term, but affects CGT in the future). Of course, the Allowance also applies to a house, but the %age of building cost in the price is reduced because of the larger land component.

My figures tell me that you could likely afford a $300k apartment on 10% deposit (so long as it is new-ish and can claim the Building Allowance) with an Interest Only mortgage (7% - fixed if you prefer) for $270k returning $320/week in rent. With Tax benefits ($100k building, $15k fittings, $5k borrowing costs) it will effectively cost you around $10 per week IF you generate the Tax deductions via 221D and include those in the equation. Of course, there will be upfront costs not showing here, but with the equity in your home, that should be no problem to arrange.

In fact, you could easily be a candidate for 2 or 3 similar properties - but get settled into one first and take it from there.

In your case, you may kill two birds by selling your "high-stress" shares to provide the deposit on the investment property. This would save the costs associated with arranging a mortgage on your own home for the 10% deposit and the purchase costs.

Also, for your interest, the example quoted above shows as a Rental Rate of return of 6.2% so it sounds like 8 to 9% is not necessary if you feel happier investing in Sydney. But higher rates are available if you look for them. In your case, you don't need them to "do the deal" mainly because of your high Marginal rate of Tax.

Hope this helps. And, please note, I am NOT any kind of financial adviser, just an investor with an opinion - so check everything with the appropriate people.

Regards, Les
 
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Bill

Reply: 1.1
From: Mike .


Re: Our first investment property
From: Bill
Date: 1/30/00
Time: 10:05:07 AM

Hi Marc

Good advice from Les. As I've said to a couple of people (inc. Brett this morning) the Quest apartment group is a good option if you are looking for an apartment and are new to PI. I am in no way linked to Quest (except as an investor with an apartment in one of there complexes in Melb). It's just that I've found the deal to be really good and a relatively 'hassle free' first step into PI. Thought it may suit you given your circumstances. Worth checking out anyway

Cheers, Bill
 
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Marc

Reply: 1.1.1
From: Mike .


Re: Our first investment property
From: Marc
Date: 1/31/00
Time: 11:56:28 AM

Thanks to both Les and Bill for your advice.

As we are new to IP market, we were thinking of purchasing a one-bedroom in the inner city or close to the city and were hoping to pay around $200k. Our thoughts are that a one-bedroom may be easier a tenancy than a 2 bedder with a smaller initial capital outlay. There are also many studio apartments on the market, however we are steering clear of this as we think that greater growth will be achieved from a one bedder. Do you know if Quest has a website?

Thanks again Marc
 
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