Looking at Options for Getting on the Property Ladder

[norwoodman]

Hi all,

Got some options I'm currently looking at to get into the property market in the next year or two which is when I will have enough saved for a 5-10% deposit.

My situation. I'm a single 23 year old who relocated to Gladstone for work after living in Adelaide pretty much my entire life. I currently earn just under $80k (gross) p.a, live in shared accomodation, and there's a good chance that my company will relocate me again to Melbourne or Brisbane (where the company's main offices are) within the next couple of years.

In the longer term, I am looking to establish a balanced property portfolio with a good mix of property types, location, capital growth and cash flow.

However, to get started on property uno I am currently looking at the following options:

1. Purchasing a property as a PPOR, claiming the FHOG and taking on lodgers for the spare bedrooms.

2. Forgoing the FHOG and going straight into buying an IP before purchasing a place as a PPOR.

Buying in Gladstone will quite possibly be out of my price range by the time the next year or two comes around. I have, however, been watching the markets in the Mackay and Townsville regions over the past few months.

Are there any other options that I may have missed that could be suitable for my situation? What are the pros and cons of each option that I have mentioned or anything I should be aware of? I realise that taking on lodgers will have implications on the tax deductibility of interest payments and CGT, and that undertaking option 2 will probably require me to have more saved up and take longer to do.

Thanks!

 

[Aaron_C]

If you buy an IP first you don't lose the entitlement to the FHOG. You can get it later once you actually buy your first home to live in.

 

[matto_]

there are an infinite number of options to work through.

You have come to the right place to investigate/explore those options.

23. Awesome time to start.

 

[Propertunity]

....I realise that taking on lodgers will have implications on the tax deductibility of interest payments and CGT, ....

Taking on lodgers won't need to be declared as income (according to the ATO if they are considered to be merely contributing to the running of the household expenses). Neither will expenses be available to be claimed and CGT is therefore unaffected.

 

[alexlee]

Considering you might move for your job (and being a single 23yo who knows where you'll go?), does it make sense to buy a PPOR now? Anything you buy as a PPOR, even if you rent out rooms, will be coloured by your preferences. It might be better to learn to assess property purely as investments, without the restriction of 'it needs to be something I'm willing to live in'. What you want to live in now is unlikely to be something you want to live in long term as you get older, have a family, etc.

As others have said, the FHOG can be preserved for later.

Another important thing is get your finances under control now. If you never develop a huge spending habit, investing will be so much easier, and in a few years you can ramp up the spending without slowing the investing.

 

[norwoodman]

I suppose this is one of those things where I really need to crunch some numbers for each scenario on an equivalent property and really evaluate my priorities.

As it stands right now, no, it doesn't make sense for me to purchase a PPOR while I'm still living in Gladstone. My preference of the two options that I mentioned above would be the second one to allow me to maintain flexibility in my lifestyle, but my concern is how much longer it would take to get going versus option 1. Maybe I should take FHOG out of consideration at this stage since it isn't really a key factor in whether an investment is good or not.

I understand the concept of the comfort zone and that places where you'd want to live are not necessarily good investment locations and certainly am open to investing in a different city.

This is useful info, keep it firing away.

 

[Angel]

My thoughts

My immediate thoughts when reading this are to forget about the FHOG and instead think about the stamp duty savings if you buy a PPOR using IP criteria to choose it. Then the FHOG becomes another bonus.

If you already live in G'stone and can bear to live in a lower-priced home there, with boarders, it will most likely make a good investment if and when you relocate in the future, as you bought it for a fair price compared to what I believe they will be in a few more year's time.

I recall some comments in the Gladstone threads suggesting prices there are unaffordable. However to someone from a capital city, I have to disagree. We pay $400K for a "renovators dream" an hour's drive from the CBD, you can buy a house in perfect condition for $400K five minute's drive from the CBD. Your $400K house rents out for $600 a week, our $400K houses 20 klm from the CBD rent out for $400 a week. We call a $400K house affordable. Which makes for the better investment? Once you move to the big cities, you'll never bemoan housing prices in industrial towns again, and you can rent here for far less than the mortgage cost. I'm not talking about Adelaide - I can drive across Adelaide in half an hour which compares to Toowoomba and Townsville.

If you find yourself a livable house with development potential you will make even more cash down the track - another bonus. Of couse it wont necessarily have caesarstone benchtops and stainless steel European appliances.

 

[Angel]

I read in today's newspaper that the government is now chasing people who got stamp duty exemption as FHB if they subsequently take in boarders. Would they find out? Something to contradict what i wrote last night.

 

[M.Investigator]

I read in today's newspaper that the government is now chasing people who got stamp duty exemption as FHB if they subsequently take in boarders. Would they find out? Something to contradict what i wrote last night.

Angel, Do you have a link to the article about the govt chasing FHBs with boarders? From my understanding, it should be okay as long as you live in it too for at least 6 months.

Norwoodman - I would also think that using the First Home Benefits as soon as you can would be a good idea. The reason being that you don't know how long the government will have that available. For example, the NSW Gov't has removed the FHOG for purchasers of existing homes. So, there's no guarantee that the First Home Benefits will be available to you later on. But if you use it (and you can live in it for at least 6 months), you'll get better returns on the property later on, especially if you use an investor's criteria for buying that first home. That's my personal opinion