To buy or not to buy

[Cathaygirl]

Hi, I'm new to this forum and I am inspired by the many success stories i have read of Humble beginnings and determination to eventually achieving financial freedom!

I am a late starter and been keen to buy our first home. I am the sole income provider and we have 2 children. We have been renting for the last 8 years.
Because of our commitment to pay off credit cards and other loans, we struggled to save for a deposit.
After alot of will power and determination, eventually we manage to save about 15k and I recently decided to do some hard core research on our First Home...but it left me even more confused and dismayed.
I earn around 85k and with that income the bank says I can take a conservative loan amount of <385k. Then she started crunching numbers and my hopes just Shattered. Our deposit now seems like piggy bank savings compared to what is expected to fork out on the extra costs plus the deposit. It would be a struggle to pay off the loan repayments of $530 (ATM we pay rent of $380)
Are we doomed to pay rent to someone else's mortgage for the rest of our lives?
Then I came across this forum and somehow there seems to be a glimmer of hope.
My question is this, is it a wiser move to purchase a more affordable unit as my first IP and continue with renting.
If so, what price should I be looking at considering my goal is to get a positive rental yield( I can't afford to fork out any gap) and still be able be able to achieve a good CG in the near future and eventually get some equity for my First home?

Please forgive me if my questions seems trivial and completely amateurish. I am super new in this, as I write this I am still referring back to the glossary of abbreviated words like LVR and CG!

Anyone have been in similar position like me or have any tips for a first time future investor? After the many late night reading of this forum, I am so keen to start somewhere....but where and is it possible?

 

[Stangman]

The $530 per week repayments you wrote about - I assume that was for a loan of 385k ie your maximum borrowing capacity?

Why not start with a fixer upper for about 200k and live in it while you renovate to increase the value thereby giving you equity and the ability to then start investing in property.

You are not going to get anywhere very quickly by renting.

Start at the start before building your portfolio.

Stangman.

 

[MrChomp]

Hi, don't feel crushed, it's never too late to start. You don't have to start big. I've never earned more than 45000 but have built a nice portfolio. A recent purchase I made was a unit for $156,000 rents for $280.00. You don't need to stretch yourself to get started.

 

[china]

Welcome to the forum. You will find a lot of valuable advice here. It is always difficult to begin property investment. I have read this forum for some years and still find it hard to actually find the right investment property. And the goals for all of us are different. Our resources to invest and mindset / risk appetite are also different

If you can find a genuinely cash flow positive property, then it should not impact on your lifestyle at all as the income should exceed all costs. These are very difficult to find in areas where there is traditional and established capital growth. Generally, cash flow positive properties are found in places further from the centre of capital cities at lower price ranges. In NSW, western and southwestern parts of Sydney are often good places for cash flow positive properties.

I suspect that such properties are probably the way to go in terms of minimising the impact on your lifestyle and getting you off the rental cycle.

Renovating to manufacture equity is great if you or close family members know something about building but otherwise, it is a difficult and costly process.

Or you must find ways to increase your income so as to increase available cash.

Best of luck.

 

[alexlee]

Because of our commitment to pay off credit cards and other loans, we struggled to save for a deposit.

And those credit card debts and other loans came from what, exactly? Repaying debt is a responsibility, not some noble calling.

I earn around 85k and with that income the bank says I can take a conservative loan amount of <385k.

More than the average person. People on less than average incomes have done well.

It would be a struggle to pay off the loan repayments of $530 (ATM we pay rent of $380)

Look, you haven't managed your finances well in the past. You might actually have to make some sacrifices?

Are we doomed to pay rent to someone else's mortgage for the rest of our lives?

If you don't change, yes. Now can we dispense with the melodrama and focus on steps that will actually help you? Seriously, why do you think statements and thinking like this helps you in any conceivable way?

If so, what price should I be looking at considering my goal is to get a positive rental yield( I can't afford to fork out any gap)

Thing is, looking for positive rental yield, without real experience and skill (renovation, etc) increases the risk that you stitch yourself into a crap investment because you only see the yield and not the rest of the risks.

Instead of seeing investing as some cure for all your problems, a financial overall may be in order. Start writing down EVERYTHING you spend. Every cent. Analyse it weekly and monthly. Sit down with your partner and make decisions on what are really necessary and what are frivolous. Note that every dollar you can stop spending becomes savings that helps your future.

Time to do some struggling.

 

[CHAOS]

Hi Cathaygirl

Well done for making changes to get that first 15k together. You will be able to acquire your own home if you that is what you really want. Stangman's suggestion to look for starter home around 200k is good advice.

You need to be willing to assess all your spending and lifestyle choices. You need to ask yourself if you are willing to make the sacrifices to achieve your goals. You said you are the sole income earner - if you have a partner can they work?

 

[one world]

l referring back to the glossary of abbreviated words like LVR and CG!

Anyone have been in similar position like me or have any tips for a first time future investor? After the many late night reading of this forum, I am so keen to start somewhere....but where and is it possible?

With interest rates at their lowest level in 50 years, now is definitely the time to buy. There's no need to overspend or stretch yourself excessively. Buy what you can afford and trade up later. If it means living in a Bogan neighbourhood for a few years, so be it. Sometimes sacrifices are necessary in life.

Do the homework and numbers - find neighbourhoods where you can buy an older house on a large subdivisible block. This sort of asset class always appreciates, even during tough times. Units do not perform anywhere as well, in the long run.

As hard as it may be with 2 kids, taking in a boarder would also make a significant contribution towards your mortgage.

You are on a decent salary, you can definitely afford to own!

Good luck on your journey.

 

[Cathaygirl]

The $530 per week repayments you wrote about - I assume that was for a loan of 385k ie your maximum borrowing capacity?

Why not start with a fixer upper for about 200k and live in it while you renovate to increase the value thereby giving you equity and the ability to then start investing in property.

You are not going to get anywhere very quickly by renting.

Start at the start before building your portfolio.

Stangman.

Thanks for that tip. Didn't think about that. My only concern is that I have two young kids, with me/husband not having a clue about renovations and if the work needed, is it viable to renovated with two young kids in tow. But if work is minor it is something to consider!

 

[travelbug]

Hi, some great advice already. I don't agree with strangman that you have to buy your PPOR (home to live in) first. It can actually be easier for some to buy an IP first. Sometimes it may be cheaper to rent in the area where you live. By buying in a cheaper area yields may be higher, thus providing less drain on your hip pocket. You can also tax deduct interest and other costs. Look into structure too before you buy. As you are the only wage earner it may be wise to have it in your name to get the most tax deductions, but if you sell of course CGT will be higher.

I'm assuming you now have the debts and credit cards under control now that you're saving? If not get those sorted first, maybe by refinancing to a lower rate loan to get rid of the credit cards.m

My daughter had a 2 bed unit and she was working 2 jobs to keep up with the payments. She rented it out and moved into a 1 bed and was able to quit her second job while still keeping the unit. She then moved into it a few years later. So there are ways to move ahead even when things don't look so roses.

There are some good, buy, Reno, rent opportunities in Brisbane at the moment. Is doing a Reno something you could envisage doing? That can get you an under market property and after the Reno give you instant equity with neutral to positive cash flow. These are in the $200k mark.
So stay positive and do more research into your options.

 

[Stangman]

Cathaygirl, I am liking your thinking.

A renovation does not need to be a full remodelling of a house. It can be as simple as a repaint inside and out, tidy up the garden, have a carpenter fit new doors, fit new LED downlights etc.

I would suggest you look for a property that is just a bit neglected, maybe built late seventies to nineties, brick veneer. You should be able to find one around Brisbane for somewhere around 200k. Make sure it is stucturally sound.
Make a list of jobs to do then do each job as money allows - preferably cash.

Doing a good quality paint job is not hard and is a good skill that will help you with properties in the future. There are thousands of youtube "how to"" videos that you can check out before taking on any task. There are also several home renovation forums where you could seek help at any time. Maybe do the easy jobs yourself and pay tradesmen to do the difficult stuff.

Children should not prevent you from working on one room at a time. Just close off the room that is being renovated and make it a no go zone for them.

Good luck.

Stangman.

 

[Cathaygirl]

@Alexlee - I have parents and a sibling overseas that still is financially dependent on us.
A few years ago, my husband was made redundant and couldnt get a job so he had to be a stay home dad and I went back to work, which I was happy to anyway. Also a failed business which we tried to make it work, didn't, and I had to pick up the pieces financially. So credit card interest incurred over the first few years but finally after 4 years paying it off.. we are debt free!

@MrChomp - Thanks for sharing.. Hearing stories like yours just motivates me that it is possible to start with baby steps. That's what got me thinking maybe its best to start with a small IP and continue to save for a big deposit in the next 2 years. I am still very conservative but would hope that timeframe suffice.

@travelbug- I am on the same page with you and I know it takes a lot of sacrifice like what your daughter had to go through. Hearing stories about young investors at her age amazes me that they are starting out so young...you must be proud!

 

[justlearning]

Another option would be to consider moving states for work to increase your salary and find more opportunities for your partner. I worked for the government in Karratha for four years. We got heavily reduced rent and a district allowance. Not only was it financially good for us but it was an adventure!

 

[Cathaygirl]

If you don't change, yes. Now can we dispense with the melodrama and focus on steps that will actually help you? Seriously, why do you think statements and thinking like this helps you in any conceivable way?

I figured since I have posted my melodrama plight, as you mildly put it, I might as well tell you my whole sob story from the very beginning to shed light how we got into this predicament.
And truthfully, it is easy to be hard on yourself when the whole world is on your shoulders. Well, my family anyway.
Which is why I am more determine after reading many success stories in investment propertys. It's something I always wanted to do, property investment for a long long time but thought I couldn't because of my family situation.

Instead of seeing investing as some cure for all your problems, a financial overall may be in order. Start writing down EVERYTHING you spend. Every cent. Analyse it weekly and monthly. Sit down with your partner and make decisions on what are really necessary and what are frivolous. Note that every dollar you can stop spending becomes savings that helps your future.

Time to do some struggling.

I am not looking for a cure when I came to this forum but to get insight and given the right direction where to go from here. In my financial state when my parents and family depends on me, I am scared s#!t to make a drastic wrong move with investments or to repeat the same mistakes ( as we did with my husband's failed business)
That's why every advice is much appreciated especially from those who have been in my position before.

 

[Cathaygirl]

Cathaygirl, I am liking your thinking.

A renovation does not need to be a full remodelling of a house. It can be as simple as a repaint inside and out, tidy up the garden, have a carpenter fit new doors, fit new LED downlights etc.

I would suggest you look for a property that is just a bit neglected, maybe built late seventies to nineties, brick veneer. You should be able to find one around Brisbane for somewhere around 200k. Make sure it is stucturally sound.
Make a list of jobs to do then do each job as money allows - preferably cash.

Doing a good quality paint job is not hard and is a good skill that will help you with properties in the future. There are thousands of youtube "how to"" videos that you can check out before taking on any task. There are also several home renovation forums where you could seek help at any time. Maybe do the easy jobs yourself and pay tradesmen to do the difficult stuff.

Children should not prevent you from working on one room at a time. Just close off the room that is being renovated and make it a no go zone for them.

Good luck.

Stangman.

I wish we could do just that, is to Reno a preloved home and ship shape it into its glory days if not better.
With my job, I do travel interstate at times and when I am home, my husband does odd jobs to increase our cash flow. I can only imagine how much time and effort we have to put in to make this project work.

 

[ZachAnSel]

Hi Cathaygirl,
Don't miss-understood Alexlee, what I will do if I were you is organise saving plan. Re-evaluate my current income/expense, to find out how much minimum I can save. This is fundamental, as well as to build back up plan (incase u need urgent money for family needs). I suggest minimum 1 year plan, with review 3 months period..

While you build discipline and saving, learn like sponge about investment property. Especially the hard work, bad stories, cause this game is not always green.

When you ready, start small and learn every step of the process. Learn why u need finance organised, solicitor, independent b&p inspector, tradies, property management, etc. Start with cashflow positive is important, if u end up in negative - imagine when the interest rates is up..

Don't worry about price will go up soon, etc.. There always oppoturnity in the market..
Good luck..

 

[Cathaygirl]

With interest rates at their lowest level in 50 years, now is definitely the time to buy. There's no need to overspend or stretch yourself excessively. Buy what you can afford and trade up later. If it means living in a Bogan neighbourhood for a few years, so be it. Sometimes sacrifices are necessary in life.

Do the homework and numbers - find neighbourhoods where you can buy an older house on a large subdivisible block. This sort of asset class always appreciates, even during tough times. Units do not perform anywhere as well, in the long run.

As hard as it may be with 2 kids, taking in a boarder would also make a significant contribution towards your mortgage.

You are on a decent salary, you can definitely afford to own!

Good luck on your journey.

Thank you for your bountiful advices... One of your suggestion was to subdivide. Do you think I should take my time and really do a thorough research where we can get a property and expand into future subdivide dwelling?
Or purchase a IP priced at $170,000 with a rental yield of $280/wk, for example. Better sooner than later?

 

[one world]

Thank you for your bountiful advices... One of your suggestion was to subdivide. Do you think I should take my time and really do a thorough research where we can get a property and expand into future subdivide dwelling?
Or purchase a IP priced at $170,000 with a rental yield of $280/wk, for example. Better sooner than later?

Personally I would do the "old house on subdivisible block" thing. This is a central plank as far as my investment portfolio is concerned.

But what you say is also fine. If you can find a house (not a unit or apartment ) in a metro area selling for $170, its pretty hard to go wrong in the long run.

Good luck to you and your family. May your great Aussie dream of home ownership come true.

 

[alexlee]

I figured since I have posted my melodrama plight, as you mildly put it, I might as well tell you my whole sob story from the very beginning to shed light how we got into this predicament.

Thing is, none of that helps you move forward. Better to think about what you can do than to dwell on the past. Sympathy will make you feel better but it doesn't put any money in your pocket.

And truthfully, it is easy to be hard on yourself when the whole world is on your shoulders. Well, my family anyway.

And that helps you financially how?

Which is why I am more determine after reading many success stories in investment propertys. It's something I always wanted to do, property investment for a long long time but thought I couldn't because of my family situation.

You also 'think' you'll struggle to pay $530 a week. Maybe you're wrong there too?

I am not looking for a cure when I came to this forum but to get insight and given the right direction where to go from here. In my financial state when my parents and family depends on me, I am scared s#!t to make a drastic wrong move with investments or to repeat the same mistakes ( as we did with my husband's failed business)
That's why every advice is much appreciated especially from those who have been in my position before.

You're looking for a good investment. Which isn't bad as such, but you also need to be prepared for when things go against you. Saving more money will help that, as will keeping your expenses in check. My bet is that if you review your spending you can easily find savings in the form of morning coffees, magazines, cheaper mobile plans, etc.

 

[Cathaygirl]

Thanks for all that posted their thoughts and advices.
I have gotten into doing more research and been seeing some real estate agents to get some tips on potential suburbs/ upcoming developments/infrastructure. I have only moved here the last 1 year from Perth to Brissy so its crunch time.
Would anyone know much about investment property in further south west, Jimboomba, Beaudesert and beyond? The agents mentioned them expanding in developement and population so investments will be good for the next couple years to come...and it's quite affordable. Any thoughts?
Thanks in advance!

 

[JohnA]

I wish we could do just that, is to Reno a preloved home and ship shape it into its glory days if not better.
With my job, I do travel interstate at times and when I am home, my husband does odd jobs to increase our cash flow. I can only imagine how much time and effort we have to put in to make this project work.

You can do it - if you choose to. Yes it does take time and effort to make things work. My wife and I and our young children (who we take with us) are doing it at the moment. It is a challenge, it involves a lot of juggling, sharing of roles and a lack of leisure and relaxation time. But the rewards of these efforts outweigh the excuses for not doing it.