Single girl needing IP advice

[nugget]

Hello,
I am thinking of investing in property this year, but need some advice as to what type of IP would be best for me. I am single and only earn around $50,000 p/a and therefore dont think it would be possible to buy a property to live in myself as I would not be able to afford the repayments. ( I live in Melbourne). Also, I dont have a very big deposit.

Am i better off buying a cheap house in a regional city (like Ballarat for instance) for around $150,000 and renting it out (possibly being able to pay it off faster) or should I go for the big loan in Melbourne and struggle to repay the mortgage on a house worth around $300,000?

What about investing in student apartments near Melbourne University? Or are there any other options for me that wont send me broke? I want to start investing, but doing so on a single income is looking very difficult.

Any advice would be much appreciated.
Thank you.
Nugget

 

[Bon]

Are you planning on paying P+I or IO? If you pay interest only, the $300k debt will be more managable.

 

[boomtown]

Stay away from purpose built student accomodation. Are you prepared to do some light reno?

 

[Rob Williams]

It's not how much you earn, it's what you do with what you earn!
For me, it's all about mindset. With the right mindset, you can do almost anything. Focus on opportunities, not obstacles.
Check out some units or apartments near the city, then work your way outward if prices are not within your budget.
Factor in using an Income Tax Withholding Variation to increase your weekly take home pay, in order to improve cash flow.
There are many strategies you can use.
I believe that it's important to do SOMETHING and not procrastinate. Tame the fear that stops you making a positive move.
Don't wait for the perfect deal or perfect conditions. You will wait forever if you do that.
I'm single and have only one income. I've managed to accumulate 6 IP's.
If I can do it, so can you!!
That's my theory on dinasours.

 

[alexlee]

What you can afford is not just about your salary but how much you can save. How much can you save every month? For example if you buy a $300k property, and borrow 100%, your net after tax cashflow will probably be down about 12k a year or 230pw. That may or may not be affordable depending on your savings rate.
Alex

 

[HiredGoon]

I am single and only earn around $50,000 p/a and therefore dont think it would be possible to buy a property to live in myself as I would not be able to afford the repayments.

Hi - that's not too far off the average wage.

If you can't afford the repayments, who will come after you to pay the even bigger ones to give you the capital gains you need to make up for renting the place out at a loss?

 

[boomtown]

The first thing you need to do is put Hiredgoon on ignore.

Then sit down with an independent accountant who knows property and work out how much you can comfortably afford to borrow taking into account negative gearing, interest only loans, depreciation, reducing your income withholding tax and anything else I have missed. That will give you your budget.

Then take a map of Melbourne and get some train time tables. Pick out all the train lines that have regular commuter services. Draw 500 meter circles around all the train stations on those lines (make sure the commuter services go out that far).

Start looking for units in those circles that match your budget. Stuff that is well built and will last. Then study what the asking price is for rent in the area. You may be surprised what you can find not too far from the city.

And welcome to the community

 

[units4me]

Hi nugget. I really like your idea of a good regional city for buying a cheaper house with a good yield. My personal view is that metro areas are due for a fall in price.

Stay away from student accomodation.

 

[willair]

Any advice would be much appreciated.
Thank you.
Nugget

Nugget,you could always target the house in the 300K range,live in it yourself,then rent out the rooms to o-s students that way your mortgage payments are covered,but before you start you need accurate up to date information on the area's you intend to invest in,before you make any investment decisions,just do a search on this site on Melbourne that will help you understand the complexties and risks and the safest options in the current real estate environment,and welcome to the fourm..
willair..

 

[Perp]

Stay away from purpose built student accomodation.

Concur with boomtown and units4me on this one - LVRs much lower anyway; only 60-70%.

Hi - that's not too far off the average wage.

If you can't afford the repayments, who will come after you to pay the even bigger ones to give you the capital gains you need to make up for renting the place out at a loss?

A valid point.

I really like your idea of a good regional city for buying a cheaper house with a good yield. My personal view is that metro areas are due for a fall in price.

Me, too. I'm liking some of the southern suburbs of Geelong at the moment - I think they represent relatively good value.

The first thing you need to do is put Hiredgoon on ignore.

boomtown, I'm going to disagree on this front. I'm not saying you should agree completely, but at least seek to understand what point HiredGoon is making and weigh it with other views, and you'll be a more informed investor. You can't make an informed choice between opposing viewpoints if you don't understand, or even hear, the opposing view.

I don't think that prices are going to plunge 50%, but I'm a lot more choosy than I was a few years ago. I think that it's likely that residential property overall will perform very poorly over the next decade - but, as always, there will still be pockets of opportunity. But they will be small pockets - you won't be able to just buy anywhere and make spectacular gains, as you could have done the last 6 years or so.

 

[wylie]

I would be looking at trying to find something that will cost you as little out of your own pocket as you can manage. If that means having overseas students occasionally with a break for yourself in between, or having somebody in to share costs, that is what I would do to get on the property ladder.

I also agree that we may have a long flat period ahead while the property market adjusts to the boom we have had, so don't count on making quick gains. If that happens, what a bonus, but as long as you can "tread water" and try not to spend more than you would on rent, you should do okay.

This is my opinion anyway. This is what I did as a single female when I started out. I bought shares with family in IPs before buying a house for me to live in. I never did have to get anybody in to share, but if it meant keeping my house, I would have done so.

 

[Toon]

Hi Nugget, $50K p/a should be plenty to get started with. I now have two IP's and an acreage & my wage is still under $50K. (Although in a relationship, I invest independently, so I'm technically a single female investor). Rental income covers a good portion of expenses so you should still have plenty to cover the shortfall. My living expenses would be lower than yours as I live in Ballarat, but I would think you would still easily be able to get your foot in the door with one IP.
The idea of sharing with foreign students is probably a good one if you feel OK about sharing with strangers. That's purely personal of course.
Regional cities are much easier to get into - there's no way I could have started out in the Melbourne market, and when I started I was earning about half of what I do now. But if you do plan to live there yourself, now or later, that won't be an option.
I would suggest sitting down and working out pretty detailed costs and expected returns for a couple of different property types & living arrangements to see where you would really sit financially with each option.
Good luck.
Toon

 

[DavidMc]

Figure out a small budget and save like a mad woman for the next 6-12 months.

You'll have a much larger deposit, meaning more choice of lenders and lower repayments. You also will have proven to yourself that you can afford the loan.

At a guess you'll probably paying a similar price for a given property with the way the market is going.

 

[GoAnna!]

I would keep saving and begin to watch properties in certain areas - smaller properties in more expensive areas, larger places in more affordable locations. I would speak to local PMs to see what is in demand or not. Sounds like you couldn't afford a long term vacancy. I would get to know one or two areas so well that I can buy either some-one well under market or when the properties in that area begin to experience some growth. Missing the first 10% of growth is annoying, losing thousands each year in holding costs with no compensating growth - painful

If you think you can add value yourself and have an good sense of style then by an improver that just needs a cosmetc makeover rather than structural.

I would try to avoid a negative geared property with no real prospects for growth in the next while. Can't see how that is an investment. You would be better off with your money in a term deposit.

 

[nugget]

thank you

Thank you to everyone who replied to my thread. I thought i'd put a few questions out there and I have learned that I really need to do a lot more research to work out exactly what I want and if its worth it in today's market.
I need to do a bit more thinking...
Do people really think the market is going to cool off? Every time I think its going to cool off and im better off keeping money in a term deposit, I read somewhere that the market has gone up 12 percent in 12 months, or that the property market will rise by 40% over the next 5 years. are these scare tactics?
Also, is it actually possible ot find a positively geared property in today's market?
Thanks again for the advice. All the best with your financial goals everyone!
Nugget

 

[nugget]

I dont like the idea of interest only loans - think i still want the P+I loan.

 

[alexlee]

I dont like the idea of interest only loans - think i still want the P+I loan.

Because you feel 'better' paying off some of the principle instead of having this loan hanging over you forever?

Let me ask this, though. Say you buy a $200k place now and borrow $180k. In 20 years, the property is worth 800k. What would you say to a person who owns a property worth 800k and has a mortgage of 180k against it? Would you considier that a worry?
Alex

 

[boomtown]

Also, is it actually possible ot find a positively geared property in today's market?

As a general rule, you may not want to own residential property that is positively geared at current interest rates without doing significant renovation. The sorts of categories you are looking at are:

*house in a dying rural town
*inner city flophouses for drunks
*house close to university converted to 10 bedrooms for students.

 

[Rob Williams]

I dont like the idea of interest only loans - think i still want the P+I loan.

I started property investment with a P&I loan back in 2000. I thought it was the right way to do it.
I was wrong.
I'd be retired by now if I'd used IO loans and bought more property.
I spent many years trying to "own" my first IP.
I've bought 5 in the last year, having learned my lesson and am financing with IO loans.
Almost regardless of your risk profile and objectives, I would have to say that P&I loans are not the way to building wealth through property investment.
My first IP cost me $79k in 2000. It's now worth $260k. Assuming I had an IO loan of $60k outstanding, I'd still have enough equity for me to not really care too much about the outstanding debt.
I made an expensive mistake. You can learn from it for free

 

[Perp]

*house close to university converted to 10 bedrooms for students.

And even that's difficult - I have 16 bedrooms with 18 students, in the CBD and I'm still going to be slightly cashflow negative the first year... I had anticipated being cashflow positive about $20K, but with a $1M mortgage, about half of that got knocked out by interest rate rises since I started the project 18 months ago (every 0.25% = $2,500 pa). The rest got knocked out by the commercial valuation coming in low, and thus having to pay a higher interest rate because of my "high" LVR. [nb I would be significantly cashflow positive after tax except I have no profits in the DT to offset these losses against at the moment. But I'll get the benefit eventually. ]

So cashflow positive residential property is pretty challenging to find at high LVRs right now.