need your idea ?

[myviolet]

Hi all,

I'd like to ask for your idea on my case.

I am planning to buy my 1st IP somewhere in Baulkham hills, 2153

I ve 85K in the saving account
and i have a unit worth 150K which i live in now and i paid off this morgate long time ago.

My plan is to buy a 4bed rooms house in Baulkham hills and rent it for about 7 years then i move in, so that my kids can go to schools in this area later.
my income 110K/year

i have some questions:

1) is it a good time to buy now ?

2) should i buy a IP first, then buy a house to live in later ?

3) i also have a plan to follow you guys to put my feet into the property market, should i concentrate on investment first then buy a house to live in later as we now already have a flat fully owned ?

i am looking into some areas such as:

Carlingford
Baulkham hills
Cherrybrook
Northrock

i am still reseaching those areas and have no idea which one is the best one in term of investment.

anyway, i'd like to hear your idea on my case,
what would you do if you were in my position ?

and i keep reading this forum

thanks alot

Tony
Sydney

 

[alexlee]

For tax and other reasons, I prefer to keep my IPs and PPOR separate. In other words, it's better to buy houses only for investment, or only for living in it yourself.

I'd like to know your opinion on why you paid off the $150k unit completely. For example, have you considered buying an investment property separately first? Or re-mortgaging your existing unit for a deposit to buy another investment property? You obviously can save money: have you considered what else to use that money for in terms of investments?

The answers to the above will give clues as to what your risk profile, etc is and that will determine what you should / are comfortable with doing.
Alex

 

[myviolet]

Hi Alex and all

The idea to buy an IP just comes up recently, i had no plan to invest at the time i bought my flat. That is why i paid it off.
I started to learn about investment recently,
i am a completely newbie when it comes to investment
and now, i am very intersted in buying my 1st home in Sydney then rent it for 7 years or so and then hopefully move in.
what i think is try to buy a house as soon as posible so that i can lock the interest for 5 years, but it seems like the market is not booming yet and i hope it will not boom very soon then i have enough time to save some more cash ...
thanks alot.

 

[alexlee]

what i think is try to buy a house as soon as posible so that i can lock the interest for 5 years, but it seems like the market is not booming yet and i hope it will not boom very soon then i have enough time to save some more cash ...
thanks alot.

My question would be, would you consider buying an investment property first, and then your own house later? There are many reasons for this, including much better tax breaks for buying investment property. The key thing in your case, though, is that you will be using very different criteria when selecting your own place and selecting an investment property. To mix the two may not be the best idea.

The areas you're looking at would have poorer yields than average, I think, because of the number of owner-occupiers there. If your purpose is investment (given that you don't plan on moving in for 7 years), is it the best idea to buy a place that has poor yield?

The big question is what do you want to do. If you want your PPOR only and want to pay that off ASAP, you can certainly buy it now and rent it out for 7 years. If you want to build some investments (whether property or shares or whatever), then I don't think putting everything into what will become your PPOR is the best idea, especially if you don't intend to move in immediately.
Alex

 

[myviolet]

thanks alot for your quick and helpful response.
i will come back and ask some more questions in a diffent thread.
your answer did give us somethings to think about.

cheers
Tony

 

[Twitch]

Tony, I think your initial plan has merit.

I see it as a good idea to buy the house you intend to live in but in the meantime have it as an IP. Given the timeframe, and cash flow allowing, it would be ideal to buy an extra investment property.

So the plan might be
1) buy future PPOR and rent it out as IP for 7 years.
2) buy additional IP?
3) in 7 years move into 'dream' PPOR, sell current PPOR and pay down loan with proceeds.
4) Then potentially re-borrow to purchase an IP.

That will minimise non-deductable debt and maximise deductable debt, but, will involve stamp duty and agent commission on step 4), but at least no CGT is applicable.

good luck

 

[bennos]

Hi myviolet, what made you decide on Baulkham Hills for the school for your kids?

 

[VYBerlinaV8]

Given that you already own your unit outright, and don't want to live in Baulkham Hills for another 7 years or so, I would be tempted to try to build your equity in others ways more quickly. Borrowing against your existing unit, for example, will give you the deposit you need for an IP, plus the debt you incur will be tax deductible against your income (as will any debt on the asset you buy, whether IP, shares, or something else).

If you take steps to invest what you already have in a tax effective way, you will build equity to a point where in 7 years you can go shopping for the house you want. If you still like BH, great, you'll have enough equity to buy it easily. If you decide to live elsewhere, the same applies. I would recommend not falling into the trap of buying your future home now then renting it, as you will likely get a better return over a 7 year period by looking elsewhere. You will also remove the emotion associated with buying a PPOR.

Also, I'd keep some or all of the 85k savings in a cash account for emergencies, and to reduce your investment risk. When you refinance to get your equity out for a deposit, get a structure with a 100% offset account and park your savings there to reduce your interest costs. This benefit is non-taxable, which is also beneficial.

 

[Rolf Latham]

Hiya

Id use NONE of the 85 k cash.

You have paid income tax on it, so reserve it to reduce non tax deductible debt when you do buy or convert to PPOR.

In the meantime is a structure that allows u to use the equity in the unit to allow you to buy the next place no money down, and use an offset acct to park the 85 k to save on interest

ta
rolf

 

[myviolet]

Hi all,

Thanks alot for your inputs, it will take me a while to understand exactly what you said, esspecially when it comes to tax .

i am very happy to find this forum and learn from you all, it saves me alot of time to research.

To answer why i did choose Baulkham hills, it is because of :
some good schools over there and in the long term, i think govement will put the rail line to this area, this will increase the price

just look at the profiles at this area, then you understand why i like this area.

thank you all for your time

Tony
Sydney

 

[alexlee]

I like the area too (except that is has no train line). I wouldn't hold my breath waiting for the train to get there, though.

However, what I would suggest you think about is your long term plan. Will you be happy with just buying the Baulkham Hills house, living in it long term and paying it off? Or do you want to build other investments?

It boils down to: should you aim for the house, or aim for the money to buy the house? By expanding your goals past just the house, you may find that you can achieve much more: financial freedom, more cashflow, whatever.

For example, you are looking at Baulkham Hills because it has good schools. What if you aim to build wealth through investments instead? You may find that you will have enough money to send your kids to a private school (not saying private schools are better, but this means you're not as limited by the catchments).
Alex

 

[myviolet]

I like the area too (except that is has no train line). I wouldn't hold my breath waiting for the train to get there, though.

However, what I would suggest you think about is your long term plan. Will you be happy with just buying the Baulkham Hills house, living in it long term and paying it off? Or do you want to build other investments?

It boils down to: should you aim for the house, or aim for the money to buy the house? By expanding your goals past just the house, you may find that you can achieve much more: financial freedom, more cashflow, whatever.

For example, you are looking at Baulkham Hills because it has good schools. What if you aim to build wealth through investments instead? You may find that you will have enough money to send your kids to a private school (not saying private schools are better, but this means you're not as limited by the catchments).
Alex

Hi Alex and all,

My initial plan is to buy a house to live in and pay it off as quick as i can.
however, after reading this forum, i know my plan might be not a good idea, the problem with us is we are a newbie here and it is always difficult for us to buy the first IP and borrow alot of money....
if we pick up the wrong location, we could end up in deep debt....

borrowing alot of money is a bit scary to me....
your idea deffinately has alot of meaning to me....
i will think about what you said...
thanks alot
cheers
Tony

 

[alexlee]

My initial plan is to buy a house to live in and pay it off as quick as i can.
however, after reading this forum, i know my plan might be not a good idea, the problem with us is we are a newbie here and it is always difficult for us to buy the first IP and borrow alot of money....
if we pick up the wrong location, we could end up in deep debt....

borrowing alot of money is a bit scary to me....
your idea deffinately has alot of meaning to me....
i will think about what you said...

I can understand the fear of debt, so my suggestion would be to start cheap. You can get a decent IP for $200k in Sydney (Parramatta unit, say). I saw an original condition workman's cottage in Blacktown last weekend that would probably go for about $230k or so, renting for may be $200, $210pw? Basically land value.

The most expensive IP I've ever bought is $309k. If you're comfortable with taking on what, $400, $500k debt for a place in Baulkham Hills where the yields are low, buying a $200k IP with a 5% yield should be 'safer'.

All I can say is, once you focus only on a PPOR, you really ignore everything else. Time is the key to investing, so if you buy just one IP now (and then just buy your PPOR and nothing else), over 20 years your situation will be VERY different to if you had just bought a PPOR.
Alex

 

[myviolet]

Hi Alex

you dead right on that, buy more IPs it will make a big different 20 years from now.

the only thing a newbie like me concern is to pick up the right IP at the right location at the right time....
i agree all what you said,

good night
Tony

 

[alexlee]

you dead right on that, buy more IPs it will make a big different 20 years from now.

the only thing a newbie like me concern is to pick up the right IP at the right location at the right time....

Do the above statements seem contradictory to you? Ask anyone who has held a property for 20 years. Do you really need to pick the 'right' property at the 'right' location at the 'right' time to benefit from a 20 year buy and hold? Say you buy a place now for $250k, and the actual market value is $200k (so you've overpaid by 20%). In 20 years, the place is worth $800k (7% growth on 200k). Are you really going to care that you only have $550k in equity, or complain "if I'd bought better I would have $600k in equity"? Especially if over the 20 years you've used the equity to buy 20 properties?

Show me one property that hasn't appreciated in the last 20 years in Oz. Short term, of course, it's more volatile. If you have a long enough horizon EVERY property is the right property. Some of my buys have been above the then-market value. Doesn't matter. In time they all go up, and even if you overpay for your first ones, you develop the experience that lets you buy better later on. I STILL don't know how to buy bargains, but that doesn't matter. I know that if I buy around market value, with some conditions like decent rental yield and so on, in time it'll probably track the long term average of around 7%.

Also, the fundamental point is in your second question. Don't think of IP in the singular. Think one property a year, every year. There is no 'right' property, just a 'bunch' of properties.

I'm harping on about this because going from 'I need to buy the RIGHT investment property' to 'I just need to buy, keep buying, and hold on' is the biggest step to becoming an investor. Non-investors think you need to buy the 'right' property. Investors understand that you don't have to buy the right property, you just need to buy average properties and keep buying!
Alex

 

[VYBerlinaV8]

...and after a while you will find that you start to choose properties that suit your particular circumstance. For example, you might find 3 reasonable properties, all of which make good IPs. You then start to look at things like depreciation schedules, ease of financing, etc. But you can't learn this stuff until you actually do it. Once you get your head around it all, you'll find there are many, many properties for sale, in virtually all locations, that make good long term IPs.

 

[myviolet]

very good stuffs! thanks heaps!

i like your idea, i will discuss this with my wife and take some actions soon. thanks alot for your time.

cheers
Tony