New Investor - very nervous

D

Darren1968

Hi all,

I am about to take my first step into the property investing world and I am nervous as hell about it.

I am using the equity in my PPOR to allow me to finance the purchase of a house and land package in Andrews Farm in the northern suburbs of Adelaide.

My PPOR in the Elizabeth area was recently valued at $210,000 and I owe $150,000 on it and I feel quite comfortable with my level of debt at the moment and the current repayments of $250 p/week are also well within my comfort zone.

To be honest I have read every book, magazine and forum on property investing that I could find over the last 12 months but I still do not consider myself 'educated' enough in this area to know if I am doing the right thing.

I guess I am just after reassurance as less than ten years ago I was flat broke and in debt and I do not ever wish to be in that situation again.

Can anyone hold my hand and tell me it's alright. :)

What do you all think? Any advice from those that have been there before will certainly be welcome.

I'm also not smart enough in thid area to work out how much this property is going to cost me per week out of my pocket which is what makes me nervous. If anyone could point me to an online calculator or similar where I could work out that info I would be very greatful. If anyone is willing to do the calculations for me I would happily supply all the necessary info.

All my finance has been pre-approved but I still really have no idea exactly how much it is going to cost me. I know the price of the land and the price of the house with all the inclusions I require, but being able to work out exactly how much it will cost including fees, taxes, legals etc has got me stumped.

Once again, any info will be appreciated and I apologise for the 'numpty' questions.

Thanks
Darren
 
Post the details of your proposed IP such as purchase price & estimated rent.

The figures shouldn't be to hard to work out
 
Congratulations Darren, the nerves turn into excitement after the tenth one ;)

People that don't invest should be more nervous, they have more to lose, so yes absolutely you are making the right move.

I think I have a cashflow calculator on my laptop somewhere, I haven't used it for years, but happy to attach it to an email for you, maybe you can have a go and work out how to use it. You can email me at [email protected]. I have a very hectic few weeks again so I may not respond immediately but I do flag and respond to all emails (eventually ;) )

also, if you need a good property manager, I can recomend one ;)
 
nervous

OK, here is the rough details.

Purchase price

Land = $97,000
House = $130,000

Loan is approved for $245,000 but this is more than I will need so I will only use what I need.

I am not sure what this will be as I do not have the knowledge to calculate stamp duty, and other fees.

The price for the house included almost everything required for a tenant to move in. I will need light fittings, curtains, clothesline, letterbox and lawn/garden beds.

Estimated rent is $225 a week
I am single and my taxable income is approx $60-$65,000 (depending on overtime)

If I was to borrow the full amount ($245,000) fixed for 5 years, my IO payment works out to approx $1520 p/month.

regards
Darren
 
Hi Darren,

Personally I think it's very commendable that after being down and out in debt that you've come this far.

As WillG mentioned you would need to post up your details for anyone to accurately comment.

ciao

Nor

( ........haha.......and I see you've done that already)
 
As Nike says, "Just Do it". Everyone gets nervous when they are trying something new for the first time but you will never know how it's like unless you take that important first step. Besides I think you've educated your self enough. You don't need to know every single trick in the book to get started. You will learn as you go.

Also we were selling house & land packages at Andrew Farm aswell. It looks like a very good area with alot of potential. They are spending alot of money in those areas of Andrews Farm and Elizabeth.
 
Had you set up a poll, I would have voted agin it. But you didn't, so I won't comment :D except to refer you to a post I did an hour ago on my, personal attitude to risk.
 
I have put stamp duty at around $8k (should be something around this).
Here are some rough calculations to get the ball rolling

land $97,000.00
house $130,000.00
stamp duty $8,000.00
legals & other $1,500.00
Total Costs $236,500.00

Interest Rate 8%

Interest $18,920.00
rent - per week $225.00
annual rent $11,700.00
annual expenses $2,340.00
(calculated at 20% of yearly rent
includes rates, prop management, repairs etc)

loss per year -$9,560.00
Cost per week -$183.85
without taking into account depreciation
 
thanks

Thanks for the reply WillG.

I have a couple of question regarding the figures you have come up with.

The figure of $8000 for stamp duty seems very high. Is this based on the total price of the package or only on the land content.
I am under the belief that as I am settling on the land first that I will only pay stamp duty on the cost of the land. Is that correct?

I can figure out the rental income and the interest expenses but what I do not know how to work out accurately is how much my tax breaks due to the 'loss' and depreciation will help me out with the weekly 'out of pocket' expenses.

If I was forking out much more than $150 a week then I can't see how I could duplicate this to buy another property.

This is my dilemma - I don't want to be struggling to hold an IP and not be able to afford another one.

How do all of you get around this issue?

Sorry again for the 'numpty' questions which I am sure you have all answered many many times.
 
Darren1968 said:
The figure of $8000 for stamp duty seems very high. Is this based on the total price of the package or only on the land content.
I am under the belief that as I am settling on the land first that I will only pay stamp duty on the cost of the land. Is that correct?
Click to expand...

That's right you only settle on the land first and stamp duty is for land only. The 10% deposit will be on the land too. Then they will take out the funds from your acount in 5 stages until the house is built. Am I correct?

I had a Property Investment Analysis software somwhere...If I find it I'll give you the link. You can download it online.

Also to see if you are better off by investing (most likely you will be) then...
Divide the NEW TAX you will be paying by 52 (after the deductions).
Add it with your WEEKLY CONTRIBUTION.
Minus from OLD TAX you were paying (before deductions).

This will tell you whether you are better of by investing or not. Because all that tax is getting wasted anways so if you can invest with your tax money then there is no reason why you shouldnt go ahead with it.
 
Last edited:
Darren1968 said:
Thanks for the reply WillG.

I have a couple of question regarding the figures you have come up with.

The figure of $8000 for stamp duty seems very high. Is this based on the total price of the package or only on the land content.
I am under the belief that as I am settling on the land first that I will only pay stamp duty on the cost of the land. Is that correct?.
Click to expand...

Hi Darren1968,

I have just looked up http://www.revenuesa.sa.gov.au which has a calculator to work out the stamp duty payable on propertes that have been purchased. I know that in Victoria you only need to pay stamp duty on the land component when you build a new house, and not the total sum of the building and the land. I am not sure about SA.

Based on the value of the land being $97,000 according to the calculator you will need to pay $2725 in stamp duty.



Darren1968 said:
If I was forking out much more than $150 a week then I can't see how I could duplicate this to buy another property.

This is my dilemma - I don't want to be struggling to hold an IP and not be able to afford another one.

How do all of you get around this issue?

Sorry again for the 'numpty' questions which I am sure you have all answered many many times.
Click to expand...

Over time the rental income of your IP will increase, and therefore will begin to cover a greater % of the holding costs. This, together with the increased value in your IP over time will enable you to borrow again to buy another IP. How quickly this will happen will depend on the capital and rental growth achieved by your IP.

Your pay will also increase over time, and this will help you to purchase again.

Congratulations on your impending purchase.

Regards Jason.
 
stamp duty

Is stamp duty really 10%? That seems excessive.

The stamp duty section on the Revenue S.A. web site lists it at $1080 plus 3.5% for every dollar over $50,000 which I calculate to be $2725

http://www.revenuesa.sa.gov.au/

If I also add the stamp duty on the mortage (investment loan only) of $245,000 which the website calculator lists as $1085.50

This gives me a total of $3810.50


Am I missing something? Where does the 10% or the $8000 come from?

If I purchase the land and then build a house on it do I also have to pay stamp duty on the price of the building? I didn't think I did. Now I am confused again. :)
 
Darren1968 said:
Is stamp duty really 10%? That seems excessive.


If I purchase the land and then build a house on it do I also have to pay stamp duty on the price of the building? I didn't think I did. Now I am confused again. :)
Click to expand...


Hi Darren,

I can only speak about Victoria as I don't have IP's in SA. In Victoria you only need to pay stamp duty on the land, not the new construction that you have built on it. This is part of the attraction of building!

Regards Jason.
 
Darren,

1) You need to ensure that 245K will be enough to bring you over the line with regard to the additional costs incurred in getting the place ready for tenants - or any overuns in construction costs. Have you any estimates of these costs as yet?

2) What is your borrowing strategy and finacing? This really needs to be set up correctly if you intend purchasing more properties later. It may pay you to have a chat with some of the mortgage brokers here for some info and strategies.

3) What is your risk mangement strategy if it turns pear shaped? - whilst it is good to approach issues from a positive viewpoint you still need to ensure that the risks (and they do exist) are correctly managed - particularly if you see yourself buying more property in the future.

I'm interested in kowing why you have chosen a H&L package as your initial investment vehicle. Personally I would see H&L as a poor first investment - others may possibly choose to disagree.

Oh....and always remember that whilst Ahmad would gladly sell it to you and that Xenia would love to manage it, you are the one that is taking the risk - (no disrespect intended towards them of course)

ciao

Nor
 
I meant the 10% DEPOSIT :D so no you dont have to pay 10% stamp duty. Darren your calulations are correct I believe. I did some calculations afew months ago on the same property and came up with similar answer as yours. Are you buying from Devine? Because they are doing some developments there.
 
Norwester said:
Darren,

1) You need to ensure that 245K will be enough to bring you over the line with regard to the additional costs incurred in getting the place ready for tenants - or any overuns in construction costs. Have you any estimates of these costs as yet?

2) What is your borrowing strategy and finacing? This really needs to be set up correctly if you intend purchasing more properties later. It may pay you to have a chat with some of the mortgage brokers here for some info and strategies.

3) What is your risk mangement strategy if it turns pear shaped? - whilst it is good to approach issues from a positive viewpoint you still need to ensure that the risks (and they do exist) are correctly managed - particularly if you see yourself buying more property in the future.

I'm interested in kowing why you have chosen a H&L package as your initial investment vehicle. Personally I would see H&L as a poor first investment - others may possibly choose to disagree.

Oh....and always remember that whilst Ahmad would gladly sell it to you and that Xenia would love to manage it, you are the one that is taking the risk - (no disrespect intended towards them of course)

ciao

Nor
Click to expand...

Great post Nor! There are certainly risks to consider. Not everything always runs smoothly when investing in IPs.

Regards Jason.
 
WillG said:
I have put stamp duty at around $8k (should be something around this).
Here are some rough calculations to get the ball rolling

land $97,000.00
house $130,000.00
stamp duty $8,000.00
legals & other $1,500.00
Total Costs $236,500.00

Interest Rate 8%

Interest $18,920.00
rent - per week $225.00
annual rent $11,700.00
annual expenses $2,340.00
(calculated at 20% of yearly rent
includes rates, prop management, repairs etc)

loss per year -$9,560.00
Cost per week -$183.85
without taking into account depreciation
Click to expand...

darren,
I think for a managed property 33% for the long term would be a better figure , but some commentators recommend 40%.
In the first 5 years in particular depreciation will really help in being able to make an investment if you can only contribute an additional $150 a week.
Make sure you get a professional to do the depreciation.
It also sounds like you need an accountant
don't invest until you understand how all expenses and income are inter related. Eyeballing the figures it seems ok, but what is the projected growth in your view of your property?
If you have to sell in 2 years can you afford to take a loss should that happen?
The Nike motto is a good one ,but know what you are doing mate.
If you phone someone who has the software I am sure 15 mins on the phone will be all you need to get you up to speed given your reading background.
 
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