Newbie Advice

[Vanillascent]

Hi everyone,

I have been lurking these forums for quite some time and really appreciate the discussions and insight that you all offer.

I am 25 and live in Brisbane and am currently in the process of saving for my first home deposit. I am hoping to save $30,000ish by March 2015. I am saving on a single income of 60k per year. My family have told me that if I can save 10% they will go guarantor etc.

I was just interested in hearing your perspective on how you would go about setting yourself up for a future in property investment if you were in my position. I would love to hear thoughts on those with more experience than me.

Thanks.

Kind regards,
Tamira

 

[Rixter]

First off, welcome to the forum.

Is this property going to be a PPOR?

Have you decided on a property investment strategy?

What and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. The strategy is how you intend driving that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be - all based around your personal risk profile.

I hope this provides some food for thought.

 

[Gockie]

Have an offset account linked to your home loan, that way you can deposit extra funds in reducing interest and you can pull it out later if you decide to make it an IP rather than PPOR. Don't pay off your principle more than you have to, just sit your extra funds in the offset, reducing the interest. I made the mistake of reducing the principle and so has a friend and sister and we ended up selling the original properties as there wasn't so much tax benefit to holding.
Take home message: make sure you park extra funds in an offset account rather than using an redraw facility.
Good luck

 

[Rixter]

I made the mistake of reducing the principle and so has a friend and sister and we ended up selling the original properties as there wasn't so much tax benefit to holding.

Why couldn't you refinance it out again for next IP? The interest on the refinance loan would still be tax deductible.

 

[Vanillascent]

Hi Rixter,

Thanks for your response.

I personally was thinking about buying an IP as my first property.

As I am an accountant and a lawyer, I guess I look at things from a strategy perspective. I want the benefit of additional income and the ability to claim deductions which I would not be able to achieve with a PPOR. Plus I figured by doing this, I will be able to better use my first home owner benefits down the track on a more substantially priced PPOR. I believe that FHOGs and exemptions are here to stay and personally believe that if anything, as pricing in and around capital cities become less and less affordable for FHO, that there will be greater benefits offered to FHO. Because of this, I am not too concerned about using the current FHOG and exemptions on my first property.

My other option is to treat the first purchase as my PPOR for the minimum amount of time possible then turn it into an investment to benefit from the 6 year CGT exemption on PPORs. I am still undecided on which of these options would be best.

I have been looking into strategies broadly for a while. I haven't sat down and put any one strategy in writing. I guess that is where I was planning to head next after hearing what others with experience and the benefit of hindsight had to say.

From my current research, I believe that any investment strategy that I decide upon will be originally focused on CF rather than CG as I want to maximise my borrowing potential through increasing my income in these early stages.

This is just my pondering so far and I am completely open to criticism and suggestions.

Kind regards,
Tamira

 

[nhg]

Hey,

Being a newbie myself IMO, a lot of the advice will come across as a little vague and airy fairy. I can promise you with time you will come to understand there is a lot of wisdom behind the advice being given.

As above, work out your strategy. It will evolve over time so no need to have it rock solid from the start.

Ask plenty of questions, 'the only dumb question is the one unasked' as they say. Call people, text, knock on doors, and read-read-read. Though end of the day the best lessons are learnt by doing.

As for when you get to the looking part, have one particular property which fits your strategy in mind, it is really confusing trying to look at any and all properties that may or may not work. It gives you analysis paralysis. Just start small and refine the strategy with each purchase.

Good luck! It is an amazing journey and the people on this forum are a great support.

 

[thatbum]

I believe that FHOGs and exemptions are here to stay and personally believe that if anything, as pricing in and around capital cities become less and less affordable for FHO, that there will be greater benefits offered to FHO.

Just a warning - I actually believe the opposite and have been telling people generally to use the FHOG now before they disappear. The trend around the country seems to be more along scaling the benefits back.

 

[Aaron_C]

Just don't overthink it. I generally stay away with FHB-land stuff as it is the one most susceptible to manipulation through FHB incentives and the like which invariably dry up.

 

[HD_ACE]

Just a warning - I actually believe the opposite and have been telling people generally to use the FHOG now before they disappear. The trend around the country seems to be more along scaling the benefits back.

I agree. Have seen it more than half since i used it.

The other benefit is if your not going to buy a ppor for 5 years+ then you can take advantage ofthe cgt exemption for 6 years after you make it your ppor.

And you can put the savings towards another property.

Something to think about.

Cheers

 

[Colin Rice]

Just a warning - I actually believe the opposite and have been telling people generally to use the FHOG now before they disappear. The trend around the country seems to be more along scaling the benefits back.

Sound advice that bum (feels odd calling some by that name!)

Not familiar with the FHOG in other states but a client has just settled his first property utilising FHOG thus avoiding stamp duty as it is sub 500k, pocketed 3k + another 2k via grants available.

Intention is to rent it for 10 months, live in it for 6 months and the rent again, move back with parents and repeat the process by combining savings and equity in first property to purchase the second IP all by his 21st birthday.

 

[Gockie]

Why couldn't you refinance it out again for next IP? The interest on the refinance loan would still be tax deductible.

But it that permitted given the money would be redrawn for a PPOR purchase? (Not investment)? I think not. That's where we got stuck.

 

[Rixter]

Nah...thought you had the PPOR and looking to purchase an IP

Yeah its a common newbie mistake what you discovered.

Property investment is about finance and structuring oneself in order to to continue purchasing.

 

[FelixL]

Go and buy a low end CF neutral property in your home town. You will learn very fast once you actually own something and wont' fallen trap to analysis paralysis

Of course read a lot of property book and somersoft, but nothing beats real action