My First IP?

[Sunder]

Hey guys and girls.

Long time lurker, first time poster (Okay, I've only been lurking a week or so...)

I've read through most the faqs, a lot of threads, and wanted to introduce myself and my situation.

Basically, I turned 30 last week. I owned an investment property from 21 to 25, and made a tidy 130k on it. I sold it to start a free lance business, which didn't succeed, so now I have 200k in crystalised losses I can claim.

I'm on a moderately high salary, I won't tell you since it's considered rude, but my borrowing capacity is about 750k-1 million, depending on who you ask. Realistically, I'd like to borrow about 600k, as I can still enjoy life with repayments at that level. I currently rent at $1300 a month basically 500m from my work, and live alone, though I am considering moving back with my parents for the first year after I buy my property to pay it off as quick as possible.

I know on places like this, people generally don't like to give investment advice, (Which I'm REALLY surprised part of the T&Cs weren't that you couldn't solicit or offer advice!) so I'd like to tell you my plan, and get people to pick flaws in it, or confirm my analysis.

I originally lived in Sydney's South West, and that's where I'd eventually like to live again. I also think as the mortgage belt, the last 11 IR rises have really hurt the people out there. For sales signs are popping up like mushrooms after rain, and I've noticed that although the average price hasn't dropped a lot, a small number of "under priced" houses are appearing.

I want to sit on my hands for 6-9 months to let the latest and most severe rate rises (and possibly the 50bp rise next month) really hit home and start going to mortgagee in possession sales. A friend of mine is a property lawyer and said he could see if he could get court records for a mortagee in possession sale in that area.

Because of my crystalised loss and a relatively high income, I want to focus more on capital gains, rather than immediate yield. In fact, negative gearing for the first 5 years would be ideal.

When I'm ready to buy, I'm thinking maybe a 3br house on a 600-700sqm block, and a 2br apartment near the train station. Both of those seem to have historically good capital gains. I'd live with my parents for a year or two, paying off every red cent I could, and when the negative gearing is gone, move into it, and buy another property.

How does this strategy sound? Can anyone pick flaws in it?

 

[alexlee]

What have you got in savings and how much are you saving from your net salary?

Is that loss sitting in a company or trust?
Alex

 

[Sunder]

What have you got in savings and how much are you saving from your net salary?

Is that loss sitting in a company or trust?
Alex

I have about 80k in savings, and I'm putting
away about 3500 a month, except December and January (Christmas and time away) where I'm lucky if I don't dip into my savings.

That amount should increase by at LEAST 1500 a month, if I move back to my parent's house.

The loss has been crystalised in my name. Thankfully, the accountant had the foresight, for me to "buy" the company @ $2, then "loan" the company the lost money. That way when the company was closed, I wrote it off as a forgiven debt, and a capital loss I can carry forward.

Thanks. Does those numbers affect the comments you would make?

 

[alexlee]

I have about 80k in savings, and I'm putting
away about 3500 a month, except December and January (Christmas and time away) where I'm lucky if I don't dip into my savings.

That amount should increase by at LEAST 1500 a month, if I move back to my parent's house.

The loss has been crystalised in my name. Thankfully, the accountant had the foresight, for me to "buy" the company @ $2, then "loan" the company the lost money. That way when the company was closed, I wrote it off as a forgiven debt, and a capital loss I can carry forward.

Thanks. Does those numbers affect the comments you would make?

Yes, because if you told me you weren't saving I'd tell you to start saving first.

You're certainly in a good position to buy IPs. If I were in your position, though, I wouldn't buy a 600k property to start with. Buy something cheaper, and then keep buying.

The loss is a capital loss, which means you can only offet it with capital gains. Which isn't as good, since you'd have to sell to crystalise capital gains, and generally I wouldn't sell.
Alex

 

[Sunder]

Yes, because if you told me you weren't saving I'd tell you to start saving first.

You're certainly in a good position to buy IPs. If I were in your position, though, I wouldn't buy a 600k property to start with. Buy something cheaper, and then keep buying.

The loss is a capital loss, which means you can only offet it with capital gains. Which isn't as good, since you'd have to sell to crystalise capital gains, and generally I wouldn't sell.
Alex

Thanks... I was thinking a 250k apartment and a 350k house, but it's still early days yet. I want to start viewing auctions without bidding in the next two months.

The loss thing is good, because only capital gains losses can be carried forward right? And the loss can be reclaimed if I decide to sell up, buy the PPOR of my dreams, which has no day to day tax advantage, and buy more IPs.

I like your goal as well. For me, it's not about greed, but about freedom. It's about not being forced to work if I don't want to, and about being able to buy whatever I want, without asking "Can I afford it?". I'm prepared to wait quite a while (two decades plus) for that to become reality though.

Thanks for your input.

Cheers,

Ken.

 

[alexlee]

Thanks... I was thinking a 250k apartment and a 350k house, but it's still early days yet. I want to start viewing auctions without bidding in the next two months.

You don't have to go for auction. Just start going to open houses in your target areas.

The loss thing is good, because only capital gains losses can be carried forward right? And the loss can be reclaimed if I decide to sell up, buy the PPOR of my dreams, which has no day to day tax advantage, and buy more IPs.

Well, yes, it can be carried forward, but it's not indexed to inflation. Also, you had to incur real losses to get that CG loss, so I wouldn't call it good. As for the sell IPs to buy dream PPOR (to be honest, if you're single you don't know what your PPOR needs will be) thing.... cross that bridge when you get to it.

I like your goal as well. For me, it's not about greed, but about freedom. It's about not being forced to work if I don't want to, and about being able to buy whatever I want, without asking "Can I afford it?". I'm prepared to wait quite a while (two decades plus) for that to become reality though.

Depends on how much you want. And just what you mean by 'whatever I want'. The price of your freedom grows with your greed.
Alex