My first property purchase plan!

Hi everyone, I've been lurking around these forums for a couple years now and only joined recently. This week I'm posting a thread out of a strong desire to finally take action. What kick started it is actually kind of funny, and sad...

I'm 31 years old, and have wanted to buy an IP for the past couple of years. Earlier this week I went back through some old books and found Steve McKnight?s 0-260+ properties book. Looked inside and saw some questions and some answers that I'd penned in when I first bought the book...

"Age:........22" My jaw dropped. I first picked up this book 9 years ago and have STILL not got a property! I was immediately depressed. Although I can't say the 9 years have been wasted (I now have a small deposit and a degree) I just wish I'd done something sooner.

I remember thinking at age 22; "Buying a house is a big deal! That's for grownups, and I don't even have a girlfriend!" Plus an extremely cynical friend of mine kept reminding me; "Do you know, Radicals, that "mortgage" literally means "death lease" in Latin?" How inspiring.

Why this post? Well after reading hundreds of pages from the forums, in books, and magazines, and after figuring out my financial goals (that was harder than I thought!) I want to see if I'm on the right track. Please comment below if you have any input, I'm interested in things like; have I missed anything? Am I focusing too much on one problem? Etc...

My goals:

1) To have an income/cash flow from investments big enough to cover my "needs" (rent/food/insurance/gas, power & fuel) by age 40.
2) To have enough equity & cash flow that I could retire by age 50 and travel for up to 3 months per year.
I believe these goals are realistic and achievable because other people seem to have done this, and I have plenty of time. Also, I do not cost much to run ;)

My plan:

1) Live in a small rental property, keep my outgoing as minimal as possible.
2) Keep saving up my deposit
3) Research areas in QLD that "add up" (Do my DD)
4) Form a team of; accountant, broker, B&P inspector, possibly a conveyencor & lawyer.
5) Put a deposit on an IP (Hopefully I can find a CF neutral or CF+ property, even if I do interest only to make it so)
6) 12 months later, with more savings, and a bigger income stream from my new work, tap a little into the equity of property 1 and buy property #2 with a focus on growth.

This is as far as I've planned...

Right now I'm going to seminars/meet-ups for property investors; I'm reading just about every book and magazine under the sun as well. I just started a new job a month ago, so in 5 months I'll meet the minimum period of employment to apply for a loan. Once I know my borrowing capacity I will have a clearer sense of where I can look to buy.

Thoughts?
 
Depending on the job situation, you may not need to wait 6 months - as long as you're in a similar line of work with no gap you could be fine.

Other than that, get your borrowing capacity sorted early - there's no point researching and doing DD on houses/areas you may not be able to actually fund. It will help narrow your search, be clear on deposit requirements and be more much efficient. Add to that, you can start to make a bit of plan with your broker regarding purchase 2 and 3.

Good luck! :)
 
Add "take action today!" to that list!

The first step is the hardest, don't let anayalsis paralysis get in the way.

Good luck!
 
Depending on the job situation, you may not need to wait 6 months - as long as you're in a similar line of work with no gap you could be fine.

Other than that, get your borrowing capacity sorted early - there's no point researching and doing DD on houses/areas you may not be able to actually fund. It will help narrow your search, be clear on deposit requirements and be more much efficient. Add to that, you can start to make a bit of plan with your broker regarding purchase 2 and 3.

Good luck! :)

Very good point, about finding my capacity first. As for loans, I'm aware I can apply for some 1-day loans out there but I'd rather have the flexibility of a few to choose from :)
 
Completely understandable :) But it's good to know if a great deal comes up you're not without options.

Hey Jess whenever I try to use those online "borrowing capacity" calculators, there is never an option for me to choose "investment property" and factor in the incoming rent. Do you know of any online that could give me a ballpark figure if I factored this in?
 
Hey Jess whenever I try to use those online "borrowing capacity" calculators, there is never an option for me to choose "investment property" and factor in the incoming rent. Do you know of any online that could give me a ballpark figure if I factored this in?

Don't waste your time with those online calculators - you may as well just use a random number generator. They are just used as a lead generation tool for the business.

Build a relationship with an investment savvy mortgage broker. They will be able to give you a strong understanding of your borrowing capacity now, and map out a plan for the future. Borrowing structures evolve over time, so you will need a tailored option if you're looking at building a substantial investment portfolio.
 
Corey is right - those online calcs are junk. Add to that, they take no account of what your deposit might be which is pretty much the determining factor as to how much you can borrow.

Huge income, zero deposit = zero borrowing power. (Without a guarantee, anyway.)

BUT if you are determined to use one of the online calcs and use the rental income, a really rough and dirty way to do it would be to take the annual rent, times it by 0.8 and add it to your annual income.

It still won't account for negative gearing though. Or your deposit.
 
So baffled...

Short story; I work part time, make about $30K a year.

I want to buy an IP and rent it out, cashflow positive.
Shouldn't be a problem...? If the tenants are paying it off, what does my income matter?

My broker tells me it all still ties back to me, and I can't wrap my head around why. I have no intention of living in my new IP, the tenants will be paying it off, why does my income matter? (And if it does, wouldn't $30K be sufficient to cover the hypothetical 4 weeks per year it isn't rented, plus insurance? I know it would but why don't the banks?)
 
What if it's vacant for 8 weeks, you need to carry out repairs due to termite damage, you need a new hot water system, a new fence, a new roof etc,etc
While something might be casflow positive, over the short term it might not always work out that way and you need to be able to show that you can cover any short fall based on your income
 
So baffled...

Short story; I work part time, make about $30K a year.

I want to buy an IP and rent it out, cashflow positive.
Shouldn't be a problem...? If the tenants are paying it off, what does my income matter?

My broker tells me it all still ties back to me, and I can't wrap my head around why. I have no intention of living in my new IP, the tenants will be paying it off, why does my income matter? (And if it does, wouldn't $30K be sufficient to cover the hypothetical 4 weeks per year it isn't rented, plus insurance? I know it would but why don't the banks?)

The property doesn't exist in a vacuum. The bank still needs to make sure you can cover your total living expenses and liabilities before lending you hundreds of thousands of dollars. If they didn't, it would be possible for someone one week from bankruptcy to purchase properties - that wouldn't be too smart would it?

The lender will take into account the interest at their servicing rate (can be 2%+ above current rates), only factor in 80% of rent received, minimum monthly living expenses (1.1k+ per month), board/rent, existing debts etc.

It's certainly possible to purchase properties even on a 30k income, but the numbers still need to work with the lenders servicing calculators and policy.
 
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