need advice

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From: Tristan Newman


I have just started to think about property, I have been looking around the Kensington area in victoria,

Q1 i have been looking at investing ( or buying off the plan) is this a good idea for the first IP.

q2 after buying the software and working out what it will cost me after all the calculations, i e $4o week, my question is if i buy another 5 or 10 properties, will that mean that I will have to pay out of my pocket say $30 a week for each individual property. If this is the case then it is costing me nearly $200 a week out of my own pocket, which means that I cannot afford this, taken into account that i have bills to pay ETC, how do i fix this problem or can this problem be fixed.

thank you for your help

I hope can become a great fisherman one day, instead of being just a fisherman.

 

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Reply: 1
From: Dave


Hi Tristan,

Welcome to the forum.

First of all, you're looking at a great area - Kensington has showed
good growth in recent years as have the surrounding suburbs (Flemington,
Ascot Vale, North Melbourne etc)

As to your next question, you'll get different replies from different
people. If you don't want to pay anything out of your pocket each
month, but would rather have additional income from your IP's, many
would say to find an established property at a very good price and have
it positively cash flowed from day one. This is the approach used by
some in this forum and they swear by it - so it works!

However, buying off the plan also has it's advantages. You're buying
tomorrows product at today's prices (that's the theory) and, provided
you're buying into an area that is on a growth surge, your property will
be worth substantially more when you finally settle on it. It also
allows you to buy with very little (or none at all) of your own money,
freeing your cash or equity for other opportunities that may present
themselves in the meantime. If you're a PAYE salary earner, you'll have
a substantial amount of deductions on a brand new property, and don't
have to necessarily wait until the end of the financial year to get this
back from the Tax Office. Your accountant can arrange a 221d tax
variation (or whatever the new name is) where your employer will deduct
less tax from your monthly pay, resulting in additional $$ in your hand
each month. With this additional income, you can re-invest it back into
buying property. To me, capital growth is the NUMBER ONE priority and
objective when buying property. Yield and tax deductions are, for
me at least, a secondary consideration...although still important. If
you buy a property for $300K, and find that 12 months later your
property is worth $350K, your net worth has increased substantially -
that's the equivalent of having every cent of a $100K salary dropped
into a mortgage, after tax. This is especially important for single
income families. Unless you decide to marry 3 or 4 hard working wives
*grins..now there would be pro's and cons with that one*, that's the
best way you'll multiply yourself in terms of creating wealth. This
effect is multiplied when you've got three or four properties.


Some will tell you that wealth occurs when you have enough positively
cash flowed properties providing you with passive income, to more than
cover your desired quality of living expenses. I see wealth in the rate
at which my net asset worth grows. Horses for courses.

Good luck with your ventures. By the way, look at the "Melbourne
Network Meeting Details" post in Meeting Point. Quite a few experienced
and also very new property investors will be getting together for an
informal catch-up. You'll no doubt find many people there that could
share their experience with you also.

Cheers,

Dave

 

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Reply: 2
From: David Searle


G'day Tristan,
A1:
Some things to consider when buying IP's off the plan:
- rentability- find out the vacancy rate in the area ie if you're considering purchasing a unit in a small development where rental demand is high it's obviously preferrable to a larger development where demand is low.
Also, type of IP is important- ie we find smaller 1 bedroom apartments are fine for student digs (near a uni) but not as ideal for family areas (lots of schools- no uni)
- rental rate- pose as a tenant and get a good feel for rents in the area- take no notice of rental guarantees/ RE agents guesses
- price- get an independant valuation and/or look up recent sales prices in the area through RPData/Residex. Also, get a feel for price flexibility by checking time on market compared to number of sales of the development
A2:
- One Q:is the $40 cost per week factoring in non cash deductions ?? ie the depreciation @ 2.5% construction costs would
be reasonable on a new development.
Irrespective, if you're negative gearing you'll eventually run out of either equity (Loan to valuation ratio) or servicability on finance. Once the IP appreciates sufficiently in value this increase in equity can be used to purchase additional IP's. Equally, servicability improves with increases in rents and personal renumeration. Summarily, the faster prices grow and to a lesser extent the faster rents increase the quicker the rate of IP accumulation,
hope this helps- let us know how you get on,
DavidS.