Is this a good purchase

[jewell]

Thoughts on some figures if you could please

if you purchase a property at $205,000 including borrowing costs (borrowed a little much)
eg built house and land

purchase in Regional Victoria
Loan $205,000 at 5.90% principle and interest - or should it be a interest only loan?
in salary tax bracket up to $50,000

house $161,000 built to walk in includ carpets, curtains, landscaping etc.
Land $36,000

Rent $250.00 per week
Property management $6% per week
Rates council/Water $1,500 pa
Insurance total $600 pa

would this be a reasonable purchase ?? your input would be appreciated.

 

[Rolf Latham]

Hiya

Ill leave the others to dissect the deal.

The finance at 5.90 ongoing is great BUT I dont think P&I is the way to go if you still have or will have a home loan. Go for a product that gives you an interest only period of say 5 years.

Why, the principal you pay is better directed at paying off your home loan or saving for your PPOR deposit.


Ta

rolf

 

[jewell]

Hi Rolf

We don't owe anything on our home - paid off in full


jewel

 

[geoffw]

Just my own thought- fwiw.

If it's not worth while to direct extra to your house, it will be worth while to keep that extra income towards your next property- as long as yo can be disciplined enough to keep that money set aside. If you use it to pay off the IP- you can only use 80% of what you've paid off (+ 80% of growth) to finance your next property.

From a quick sense check- it seems neutral to slightly positive.

So it's regional Victoria. That could be in the centre of a major town/city, or a farmhouse in the sticks. That could make a big difference.You need capital growth to make the equation worth while. That's a lot more likely in a major centre, with growth prospects and a history of growth of at least 5 years. Recent growth has been widespread, and should not be relied on for a future indication.

 

[Bill.L]

Hi jewell,

Just a comment on land value that you are looking to purchase. It seems very cheap, which could indicate low growth. Remember that land appreciates while buildings depreciate. If the land goes up in value 50% in X years and the building depreciates 50% in X years then the investment may not be looking to flash.

I'm in regional vic and the blocks of land that are in desirable areas in the local town(Colac) are more than double the $36,000.

Also the rent figure you give could be difficult to obtain in the longer term( again depending where you are).

good luck

bye

 

[Mike]

would this be a reasonable purchase ?? - jewell

Hi Jewell,

After deducting PM fees, insurance and rates from the rent your net yield is 5.1% which is less than the interest rate making it a negatively geared property before tax. Tax benefits may make it close to neutral.

I think the important question every investor should ask themselves in relation to any property purchase is, "If I buy this property how soon can I reasonably expect to buy the next property?" If the answer is more than a couple of years then I would seriously question how good this deal actually is.

I can only think of two ways to increase your equity to enable you to buy again within two years:

1) Buy at 10-15% below market.
2) Buy in the growth phase of the property cycle.

Does this property fit either scenario?

Regards, Mike

 

[jewell]

Bill

The land content is low - but land in the area has now increased and you are unable to buy a block under $60,000, the builder had purchased the land 12 months earlier and sold it to us at his purchase price - most blocks are around the $90,000. The area we are talking about is Wodonga - lots of new industry going in and plenty of growth happening. So hopefully things will keep improving!


appreciate your comments

jewel

 

[Brenda Irwin]

I purchased my 1st ip 5yrs ago for $125k & startout rent was $125pw with P&I rates of around 7.5%.

Yes, the investment lost money, around $20 total but hasn't stopped my buying more ips (mostly +ve cashflow).

Recently sold ip1 for $185k to further improve cashflow & purchase more ips. Even though ip1 lost $20k in 5yrs the growth made an extra $40k for me. Was an average profit of $8k per year worth it? Possibly not but as my 1st ip the learning of how growth, tax etc work was priceless.

Cheers Brenda