New Investor - a little help

[JD86]

Hi Guys,

just after a bit of a guide as to what you would do in my situation.

I am 24, have just built a house, it is worth approx. $330k, my loan is for $230k. so around 70% LVR

I am on $43k per year (due for a rise soon)

I am thinking of drawing on equity in my home, rasing my LVR to 80% and purchasing an investment property for around $200k (which is what i have worked out is my max. limit)

i have been looking at houses in regional areas like bendigo, ballarat & shepparton as well as inner city 1 bedroom appartments. what would you suggest is the better 1st investment? taking into account i would prefer a neutral or positively geared investment due to my low income at present

or would you suggest sitting still for a year or so, until i am on something like $50k per year and my home increases in value to something like $350k. then purchasing a house in a suburb

if anyone could help suggest what option i should take or any other ideas of what you would do in my position it would be much appreciated

thanks in advance

josh

 

[Propertunity]

i have been looking at houses in regional areas like bendigo, ballarat & shepparton as well as inner city 1 bedroom appartments. what would you suggest is the better 1st investment? taking into account i would prefer a neutral or positively geared investment

Hi Josh,

Positive geared 1brm inner city apartments for $200K do not exist.

I can't comment on Bendigo, Ballarat houses but I'd strongly suspect they would not be positive / neutrally geared either.

To get neutral / positive geared and you are borrowing all the money, look at the figures:
Costs:
Mortgage: 7%
PM & mtce fees: 1.5%
Total costs = 8.5%
Less depreciation/tax 0.5% (roughly)
Therefore you need rental income of 8% to break even.

The only way I know how you can get that in the city or large regionals is a dual income property like a house & granny flat (bungalow you call them in Vic).

We regularly buy these for ourselves & clients - hard to find, but they do exist. Depending where you are buying, you need about $350-400K to buy them. We have picked up a rare few for just under $300K.

*edit* Or buy a house on a sub-dividable block. Do the sub-division and use the proceeds to pay down the mortgage on the initial purchase. This is not then 'borrowing all the money' but a viable variation on the theme.

 

[JD86]

thanks proportunity, any other advice?

 

[Propertunity]

thanks proportunity, any other advice?

Yes, since you asked
Please spell my name correctly!

 

[Propertunity]

I have plenty of opinions on things.

What more would you like to ask?

Given what you've said in your original post, you need to increase your budget by saving a bit more, make more money at work, or do some smallish development to make more money......it all boils down to more money

Money gives you options

 

[Garry Mac]

Hi Guys,

just after a bit of a guide as to what you would do in my situation.

I am 24, have just built a house, it is worth approx. $330k, my loan is for $230k. so around 70% LVR

I am on $43k per year (due for a rise soon)

I am thinking of drawing on equity in my home, rasing my LVR to 80% and purchasing an investment property for around $200k (which is what i have worked out is my max. limit)

i have been looking at houses in regional areas like bendigo, ballarat & shepparton as well as inner city 1 bedroom appartments. what would you suggest is the better 1st investment? taking into account i would prefer a neutral or positively geared investment due to my low income at present

or would you suggest sitting still for a year or so, until i am on something like $50k per year and my home increases in value to something like $350k. then purchasing a house in a suburb

if anyone could help suggest what option i should take or any other ideas of what you would do in my position it would be much appreciated

thanks in advance

josh

Hi Josh
You should certainly look at the granny flat option. You need to find an area with strong growth prospects (not suggesting that's easy...it's all about research), approach council to establish the requirements to add a granny flat OR convert part of the existing structure. Depending on how efficient council is, you may need to speak to an independent town planner to be confident of the requirements.

Another alternative might be to buy in another city. Can I suggest you look at the area surrounding Blacktown in Sydney. We've bought for a number of clients and arranged for the addition of a granny flat. This results in either neutral or positively geared and/or cash flow PLUS very good opportunity for capital growth.

Good luck with it.

Cheers
Garry

 

[James Sampson]

Hi JD86, i know the feeling when you get the investment bug you just want to go out there guns blazing and buy everything.

You have already build great equity and you have more than enough to leverage into another property. Just be careful with your current income, you dont want to get into trouble with repayments down the track. All the big banks are still factoring 2 new interest rate rises before 2011.

Do you sums and work out what you can comfortably afford on your income today. You dont want to be in a position where you are forced to sell like we saw in recent years when rates were around 9%

 

[JD86]

ok thanks for the input everyone, maybe i will continue gaining knowledge and look again in 6 - 12 months

i want to get into it soon, i do not want to be one of these people who have the knowledge but too scared to jump into it, but i also dont want to be a fool and bite off more than i can chew

thanks again

 

[Propertunity]

i want to get into it soon, i do not want to be one of these people who have the knowledge but too scared to jump into it,

I don't think you are one of those types of people Josh. You're 24 and have built a house. How many other 24 yr olds have done that?

but i also dont want to be a fool and bite off more than i can chew

It is important not to do that, because you put at risk everything you've built. The trick is to find that point that causes you to be stretched and challenged but not to over-stretch and lose it all.

You'll do well, just be patient and as you say, revisit the situation in 6 - 12 months.

 

[Rockstar]

ok thanks for the input everyone, maybe i will continue gaining knowledge and look again in 6 - 12 months

I wouldn't wait that long to look mate. You should be looking all the time as you never know what opportunity may present. Absolutely sure that nothing will happen if you don't look. It doesn't matter if you don't find anything - you will gain valuable research and number crunching experience and will get better at finding the bargain when it presents.
Good luck.

 

[Player]

I wouldn't wait that long to look mate. You should be looking all the time as you never know what opportunity may present. Absolutely sure that nothing will happen if you don't look. It doesn't matter if you don't find anything - you will gain valuable research and number crunching experience and will get better at finding the bargain when it presents.
Good luck.

Agree entirely.

Keep looking all the time and as Rocky has mentioned number crunch everything. A bit like paper trading shares. Become an expert in a few areas on likely rents and capital values.

In this manner when your preparedness meets the opportunity, you can pounce and have everyone else around you who are of the jealous type declare you as being LUCKY

Have your finger on the pulse and be finance ready so when the right thing comes along for your portfolio that ticks your boxes you can proceed confidently and knock out those other buyers who are "finance clause reliant". For this you should expect a discount.

Good luck

 

[JD86]

ok thanks guys thats good advice, i shall do that

thanks very much for all your input

 

[hoobie1]

Well done Josh. You should be very proud of yourself for what you have achieved so far. You definitely have your head screwed on the right way.
Keep following your investing goals, but also enjoy yourself and live it up while you're still young.
All the best.

 

[zed_kid]

G’day Josh,

I remember you from our back and fwd about land subdivision. I’m still looking for a surveyor...

Like the other guys said just constantly keep looking, if you got nothing better to do just browse domain.com and such, that’s what I do. Have you looked in the west of melb? Even as far as Werribee.

P.S. just wait for those number plates to appreciate in value

 

[JD86]

thanks guys appreciate your input