HELP - Investment Plan and Buying First IP

[me_melb]

Is that what the bank's willing to lend you? a $500k lend limit implys your gross annual salary is $75,000-90k.

How do you pay $83,333/year towards your mortgage. Don't you pay taxes?

There was additional income of my wife which helped to pay of the mortgage....which is not available as she is looking after the bub...

On my income bank is happy to lend me 500k and bit more if I go to some dodgy lenders....

I wish I don't pay taxes....how do I do that

 

[Kennyjaiz]

Love this one Kenny.............. it’s important to take action and avoid analysis paralysis. Opportunities are there for the people who seek it.

Although I'm still very inexperienced, take it from me that this business can be time consuming, frustrating and incredibly boring a lot of the time. It requires focus and drive.

The challenge is to be prepared, recognise the opportunity and pounce on it before other people has a chance. When you cannot find any organic opportunities, you create your own. And when you have made it, try to give back a little and make opportunities available for the new comers.

 

[The Donners]

I wish I don't pay taxes....how do I do that

Move to Bermuda!

 

[Kennyjaiz]

After reading M & M's and Kenny’s suggestions and doing my maths...I’ve come to conclusion that CG is the way to go...this is what I feel should be doing.. New Plan (very high level – must have flaws in figures)

2010/2011 - IP 1

Buy property around 400 k - loan Interest only
Rent ~ 20000 PA
Interest ~ 32000 @ 8 % PA
Expenses ~ 6000 PA

Out of Pocket ~ 18000 PA (not really after all the tax benefit on my income - need to speak with my accountant)

CG @ 5% will make the property 2015 ~ 510k and 2020 ~ 650K
If mortgage is paid rental income of 20k

2010/2011 - IP 2

Buy property around 400 k - loan Interest only
Rent ~ 20000 PA
Interest ~ 32000 @ 8 % PA
Expenses ~ 6000 PA

Out of Pocket ~ 18000 PA (not really after all the tax benefit on my income - need to speak with my accountant here)

CG @ 5% will make the property 2015 ~ 510k and 2020 ~ 650K


If mortgage is paid rental income of 40k (1st + 2nd IP)..with assets worth 1.3 million

With this plan I am thinking - I can concentrate to pay of 2 IPs in next 5-6 years and every year keep buying 1 (till 2015). So at the end of 2015 I've 6 properties negatively geared (goot for Tax purpose) but with good CG potential.


One thing which is coming to my mind and wondering about it....

If I buy a brand new apartment/unit/house
- I save on STAMP Duty
- Will not have any issues with maintenance for next few years (i believe builder provides 7 years guarantee)
- Manage the property by myself so no expenses of REA
- depreciation

What do you think about this? Is brand new - good thing?

Comments, suggestions, abuse...everything is welcome

Again, the Capital growth property approach is only superior if you have sufficient serviceability to sustain the investment properties. Being too negatively geared without sufficient serviceability means you may eventually run into a brick wall obtaining finance for future properties (via standard loans anyway). You are in a good position at the moment, but you need to keep that in mind.
This may be bit hard to judge given you are now back to single income. I don't mean to be rude, but i doubt you would be able to pay off 2 IPs in next 5-6 years and every year keep buying 1 (till 2015) in your proposed scenario.

Assuming your existing dual income gives you a disposal family income of 250k /3yrs = ~85Kp.a. Even assuming you keep the dual income in the next 6 years(which you indicate is no longer available):
85k (disposable family income) - 36k (2IP out of pocket expenses) = 49K
49k (residual disposable family income) x 6 years = 294K
That is probably not enough to cover to outstanding loan for IP 1 and 2 - compounded with future negatively geared properties with out of pocket expenses.

However, rent do tend to increase over time, and we have not taken into consideration of the tax deductions

Another question is - how do you intend to finance the future properties?

Brand new properties makes it easier to acquire at the start (no stamp duty), however the developers would have built in their premium when selling it to you, so you can probably expect a lower capital appreciation in the first 2-3 years (not that substantial a difference). So it is worth considering. You are right about the 7 years builder's warranty (provided they are qualified builders with insurance). They will provide higher depreciation and tax deductions.

I suggest you also look at the post-tax implication on different scenarios of capital growth, high yield and a combination (one capital growth and one high yield). Ultimately, that would be more realistic. With a young family, it is better to be prudent at the start and establish your comfort level before being too aggressive, imho. But having said that you do have a lot of contingency built in.

 

[mary&mat]

Nooo don't go brand new or off-the -plan....just my personal opinion/preference

I'm told, as Kennyjaiz has said, there is a built in premium.

There's not much opportunity to add value to them as with older apartments (& thus manufacture your own cap gains).

The more owner-occupiers in a complex the better. A lot of these off the plans have too may investors in them so there's a lot of competition for rentals.

Depreciation is good but I personally don't believe it's a reason to buy.

Others will have different opinions, this is only mine, but go with what feels right for you

 

[me_melb]

Another question is - how do you intend to finance the future properties?

Hummm....Valid question and will be a concerning factor I think after my 2nd IP, which I've not asked my self before

Few things I can consider but they might not be sufficient to get finance:
- Wife start earning
- Cross collateralize with PPOR (which I'm least likely to do)
- Consider buying something around 300k for 1st & 2nd IP
- Go countryside for future IPs
- Instead of every year buy an IP alternate year
- Assuming significant pay rise or contract

As....This are all assumptions I think I've to plan the first two IPs and think more after that, As I think I was going way too fast before even having a single IP

(one capital growth and one high yield). Ultimately, that would be more realistic.

This one sounds more doable and realistic.

Better ring the accountant now....but I think he'll have no time for planning & consultation at this time of the year

 

[me_melb]

Nooo don't go brand new or off-the -plan....just my personal opinion/preference

I'm told, as Kennyjaiz has said, there is a built in premium.

There's not much opportunity to add value to them as with older apartments (& thus manufacture your own cap gains).

M & M how about buying a new house? i.e. those house and land packages somewhere around Point Cook, Williams Landing, lyndhurst just to name a few..

 

[Lamingtons]

M & M how about buying a new house? i.e. those house and land packages somewhere around Point Cook, Williams Landing, lyndhurst just to name a few..

Hey me_melb .. were you intending to spend $200K on a house and land in those areas? I think 3x1x1s in Wyndham vale cost more than that. I heard Williams Landing is in the 1/2 million arena now - this is from someone who wanted to buy a PPOR there.

 

[Kennyjaiz]

Hummm....Valid question and will be a concerning factor I think after my 2nd IP, which I've not asked my self before

Few things I can consider but they might not be sufficient to get finance:
- Wife start earning
- Cross collateralize with PPOR (which I'm least likely to do)
- Consider buying something around 300k for 1st & 2nd IP
- Go countryside for future IPs
- Instead of every year buy an IP alternate year
- Assuming significant pay rise or contract

As....This are all assumptions I think I've to plan the first two IPs and think more after that, As I think I was going way too fast before even having a single IP

This one sounds more doable and realistic.

Better ring the accountant now....but I think he'll have no time for planning & consultation at this time of the year

Don't necessarily have to over think it - at least not for the first one. However, it's always go to have a general idea of how the plan is going to be executed up front, so you have the flexibility to adjust it as events unfold. I have/had a similar plan around 5 years ago when I started investing in properties (2005). The difference is, my intention was not to pay any loan down. As equity builds up, I pull it out to financial future properties (not x-collateral). Under this approach, it renders paying off any mortgage pointless because I will just pull it back out immediately. So i have an offsetting account ready to be redrawn for future properties.

You can also consider low doc and no doc loan later down the track provided the expected return is sufficient.

While ur speaking to your accountant, find out which structure you should hold your properties to optimise your return (eg individual, unit trust, discretionary trust, company, Joint tenant, tenant in common, etc). Make sure your accountant understands your objective and approach (e.g. when do you plan to sell the property)

 

[me_melb]

Hey me_melb .. were you intending to spend $200K on a house and land in those areas? I think 3x1x1s in Wyndham vale cost more than that. I heard Williams Landing is in the 1/2 million arena now - this is from someone who wanted to buy a PPOR there.

Hey; I was thinking house and land for around 350 TO 400 which is still possible around that area.
I live in Point Cook and don't think WL is around 500k mark..

 

[mary&mat]

M & M how about buying a new house? i.e. those house and land packages somewhere around Point Cook, Williams Landing, lyndhurst just to name a few..

Hi me melb,

Once again, just my preference, but I don't believe places like this will have significant cap gains. There are a few threads on here about these places & it turned me off them.

I think buying there for me would be speculating. I like to stick to suburbs that have solid proven growth. I don't know enough about these suburbs to take a punt there. I like the inner city blue chips b/c to me, they're a safer bet.

I don't think there's much of a shortage of land out there & all the houses look the same to me...therefore no scarcity factor. Also, what is infrastructure like out there? Transport, shopping centres, schools, parks, freeway access? Who would your eventual rental market be there. I feel that in places like that, it's more people who want to own their home rather than rent.

Try & find a place that will appeal to as much of the rental market as you can...once again this is why I like inner city.

I believe the so called 'discounts' you get when buying new shouldn't be an overriding factor in why to buy it. Look at the long term...who will your renters be, (as above) etc.

Keep us updated!

Regards,
M&M

 

[me_melb]

Syndicate Project

Folks,

Your views on this (shown by one of the Buyers Agent)

1 Ogden Street, Glenroy (6 units in block)

315k for 2 Bedroom Villa Unit (courtyard and car space)
12.5K external Renovation (Compulsory)
25k internal renovation (Optional)
12.5 k agent fees

Expected rent after reno is 300/week

705 Barkly St, West Footscray (16 two bedroom apt.)

300k for 2 bedroom apt (car space + Balcony)
12.5K external Renovation (Compulsory)
25k internal renovation (Optional)
12.5 k agent fees

Expected rent after reno is 270/week


Thanks in advance

 

[Gordon Farkus]

My immediate impressions are that 3.97% and 4.17% BA commissions are high and what's with the $37.5K renovations at the outset for both with 1/3 "compulsory"?
My expectations of using a BA would be that they would find a property ready to go, nothing further to do, and they'd charge well less than 4% for the effort.

 

[jingo]

Have a read of some property investment books

Hi Me_Melb,

If you haven't done so already, I'd pick up a couple of property investment books. Jan Somer's books are great on giving ideas for building up a portfolio of residential investment properties. Stuart Wemyss's book entitled the Property Puzzle is a good read. It compares a number of methods used to build up a property portfolio. He goes through the capital growth -ve geared model as well as the +ve geared model. His conclusions are interesting, but essentially if you choose the -ve geared model less properties are required to fund retirement than the +ve geared model.

I like the idea of paying off a property at a time - and some people manage to do that. It's safe, but may not be tax effective, and it may be difficult to keep up with rising property prices.

Regards Jason.

 

[me_melb]

My immediate impressions are that 3.97% and 4.17% BA commissions are high and what's with the $37.5K renovations at the outset for both with 1/3 "compulsory"?
My expectations of using a BA would be that they would find a property ready to go, nothing further to do, and they'd charge well less than 4% for the effort.

Agree it is too much _ below is the link of their properties.

http://www.advantageproperty.com.au/current-investment-opportunities

 

[me_melb]

Hi Me_Melb,

If you haven't done so already, I'd pick up a couple of property investment books. Jan Somer's books are great on giving ideas for building up a portfolio of residential investment properties. Stuart Wemyss's book entitled the Property Puzzle is a good read. It compares a number of methods used to build up a property portfolio. He goes through the capital growth -ve geared model as well as the +ve geared model. His conclusions are interesting, but essentially if you choose the -ve geared model less properties are required to fund retirement than the +ve geared model.

I like the idea of paying off a property at a time - and some people manage to do that. It's safe, but may not be tax effective, and it may be difficult to keep up with rising property prices.

Regards Jason.

Thanks Jason.. off to A & R tomorrow