Investment Strategy

[AVS]

Hi All,

I have been looking at investing for my first property in Perth. I had look at few suburbs in Perth but I am rethinking my strategy and need your help.

I have approx 150k deposit saved, currently renting. Earning is well(above 100k before tax) and will be able to cope up with some -ve gearing. My plan was to buy a house around 500k-550k and use all deposit to create neutral cash flow. I am looking for balance between rental yield and capital growth with capital growth as ultimate aim.

Should I buy a unit around 400k-450k and put 100k deposit and buy second property sooner or should I use all my deposit in first property and try to make it neutral?

Should I be paying capital + interest in loan for while until neutral and then start saving for second property?

Thanks for your advice.
AVS

 

[Singo]

There is no point paying more than 20% to buy a property. If you have excess funds after buying, park it in the offset to minimise interest you pay.

Whether you should buy a house or unit depends on your strategy. You better decide what exactly you should buy to suit your strategy.

No point worrying in future about what you should have bought because the entry and exit costs are high.

 

[HD_ACE]

Depends on your strategy.
But from where im siting thats a good base to get 2, possibly 3 ips to get your asset base started. But obviously depends on your risk profile, sanf and long term goals.

Cheers

 

[D.T.]

You're in Adelaide with 150k ?
Go buy 7 places there with 10% deposits.

 

[Corey Batt]

It is always amusing seeing interstaters flocking to Adelaide, and Adelaider's flocking interstate.

Do you believe that Perth has a lot of steam in it left after its current run, in comparison to say Brisbane? Most of the WA deals I've seen are 5% at best.

Personally I'd suggest going as hard early on as possible, because if you truly believe that you are buying into a market with strong capital appreciation potential, you will want as much exposure as possible.

 

[AVS]

There is no point paying more than 20% to buy a property. If you have excess funds after buying, park it in the offset to minimise interest you pay.

Thanks Singo. I am thinking having offset account for sure, but agreed, doesn't make much sense paying more than 20% deposit.

 

[AVS]

It is always amusing seeing interstaters flocking to Adelaide, and Adelaider's flocking interstate.

Do you believe that Perth has a lot of steam in it left after its current run, in comparison to say Brisbane? Most of the WA deals I've seen are 5% at best.

Thanks CJay.I was looking at Brisbane earlier before few months but my knowledge for Brisbane market is very limited so risk factor is more hence was leaning more towards Perth though it has gone up so much.

I have seen few examples of Adelaide where people have been stuck with property with no capital growth hence bit sceptic for Adelaide.

 

[AVS]

You're in Adelaide with 150k ?
Go buy 7 places there with 10% deposits.

I dont see much growth in Adelaide so not currently.

 

[superAndrew]

If your tax is high you could use negative gearing. If you do then you don't want to pay down the principal but use an interest only loan.

But that would all depend on your investment strategy and your goals.

Should I buy a unit around 400k-450k and put 100k deposit and buy second property sooner or should I use all my deposit in first property and try to make it neutral?

If you just started investing then I wouldn't put all my eggs in one basket. Start small and learn all the different property investment strategies first. It will save you a lot of time and money later on.

Should I be paying capital + interest in loan for while until neutral and then start saving for second property?

It's impossible to give you a yes or no answer since it depends on many factors.

Personally if you are just starting out go with the option that would give you the most options in the future.

Andrew

 

[AVS]

Thanks Andrew. That was really helpful.

 

[D.T.]

If your tax is high you could use negative gearing. If you do then you don't want to pay down the principal but use an interest only loan.

It should *always* be an interest only loan.

 

[superAndrew]

It should *always* be an interest only loan.

Yes D.T. that's right. I didn't clarify it properly.

So Interest Only or Interest Only with an offset account if you want to lower your interest.

Andrew

 

[D.T.]

Andy
I was referring to you emphasizing negative gearing in previous post. I was ensuring you understood the best way is IO regardless of whether its negative / positive

 

[superAndrew]

Andy
I was referring to you emphasizing negative gearing in previous post. I was ensuring you understood the best way is IO regardless of whether its negative / positive

Yes got it

Hence the reply

So Interest Only or Interest Only with an offset account if you want to lower your interest.

 

[D.T.]

What a piker, thats the opposite opinion to your post on the other forums.

 

[superAndrew]

What a piker, thats the opposite opinion to your post on the other forums.

AVS suggested negative gearing as a strategy. There is nothing wrong with negative gearing. It all depends on your strategy.

Personally I prefer the majority of my properties to be positively geared. So I have promoted that on other forums.

So just to make things clear and not confuse other starting investors that just started learning.

Negative gearing - Interest only. The goal is not to reduce your interest if you want to stay negatively geared. Personally I would only recommend this strategy if you are paying high taxes.

Positively geared - Interest only + offset account. Here you want to reduce to your interest to increase your cash flow.

Andrew

 

[Aaron Sice]

Pfff @ neg gearing. Paying a dollar to save 30c is shoe-sale logic.

If it costs you more than a carton a week then forget it. Growth is not assured.

 

[nhg]

I dont see much growth in Adelaide so not currently.

That's the best time to do the Kansas City Shuffle.

"They look right... ...and you... go left."

Aka buy when everyone is selling and sell when everyone is buying.

 

[superAndrew]

Pfff @ neg gearing. Paying a dollar to save 30c is shoe-sale logic.

If it costs you more than a carton a week then forget it. Growth is not assured.

I'm with you on this one. Negative gearing might work theoretically if there is growth but in reality that is not always the case.

Andrew

 

[neK]

Negative gearing - Interest only. The goal is not to reduce your interest if you want to stay negatively geared. Personally I would only recommend this strategy if you are paying high taxes.

Positively geared - Interest only + offset account. Here you want to reduce to your interest to increase your cash flow.

Andrew

Why wouldn't have an offset account in both circumstances?

Say you had a negatively geared property, what happens if you get a large windfall which you intend to use the funds to buy a property with, but the one you are after isnt available yet. The funds need to be parked somewhere - where better than an offset account?