Unit or House??

[ajago5]

Hi Guys

I am new to the IP market and have just recently had a joint loan approved with a friend for $300,000 we plan on putting down a 10% deposite so the property value would be $330,000. Now all we need to do is find a IP, we have looked throughout many areas around melbourne for a houses in the western suburbs and other surrounding suburbs however 330000 doesn't get us very close to the city so we were considering the advantages of perhaps purchasing a unit in the CBD or something very close.

can you please offer any advice as to our decesion, as we are unsure as to how dramatically this will affect our capital gains and annual return.

cheers

ajago5

 

[alexlee]

You're forgetting buying costs, stamp duty, etc. As you're going for 90% LVR there's a good chance you'll have to pay LMI.

Your limit is more like 310-315k.

Going back a step, what agreements do you have with your friend about the future? What if one of you wants to sell, etc?

 

[Aaron_C]

Sorry with $330,000 you can really only afford a house in Geelong or a very small unit near the CBD.

 

[Dawn]

For $330,000 you can get a house in Craigieburn and other outer Melbourne suburbs. You don't have to go so far out to Geelong.

 

[Rixter]

can you please offer any advice as to our decesion, as we are unsure as to how dramatically this will affect our capital gains and annual return.

It depends what you are wanting the property to do for you.

Remember, investing in property is not about the property. The property is merely the vehicle to get you from your A to your B destination.

Do you know what your B is?

Then ask yourself based on your due diligense, will acquiring this vehicle (the property) take you to your B destination.

I hope this helps.

 

[Macca]

have you a written agreement with your friend to cover such eventualities as

one of you losing your job
moving interstate
getting married
wanting their half share back to do something else
falling ill etc etc

Plan for the worst and hope for the best, real estate is a Very long term commitment even when things are good.

When they are bad, people can cease to be friends and it all ends up being very costly.

A written agreement for all possible scenarios is vital IMO

 

[Spades]

Sorry with $330,000 you can really only afford a house in Geelong or a very small unit near the CBD.

BS...

http://www.realestate.com.au/property-house-vic-werribee-107869141

http://www.realestate.com.au/property-house-vic-werribee-107922011

 

[ajago5]

You're forgetting buying costs, stamp duty, etc. As you're going for 90% LVR there's a good chance you'll have to pay LMI.

Your limit is more like 310-315k.

Going back a step, what agreements do you have with your friend about the future? What if one of you wants to sell, etc?

We have taken into account all purchasing and legal costs. We have sat down with the bank and worked out our finances and can afford a $330,000 property between us. We will be getting the lenders insurance, would you recommend against this? We have not formally made any definite decisions about the future, however we are both close friends studying property at university so we have common interests but we should definitely discuss what would happen given that one of us wants to sell and the other doesn't. Any advise in terms of units closer to the CBD vs houses further out and the gains/returns implications?

 

[ajago5]

It depends what you are wanting the property to do for you.

Remember, investing in property is not about the property. The property is merely the vehicle to get you from your A to your B destination.

Do you know what your B is?

Then ask yourself based on your due diligense, will acquiring this vehicle (the property) take you to your B destination.

I hope this helps.

Rixter, thank you for ur comments I have never thought of it like this however it has been something that I have been meaning to do, that is, to plan out my future movements and work out what decisions to make now to get me there. I find it quite hard though and have played around with a lot of spreadsheets to try and help me, however I am yet to find one whereby I can calculate my ability to, or the advantage of buying property in future years or more simply calculate the difference between buying a IP in 2012 or 2013 given the additional savings and loss of capital gain etc. Would you or anyone for that matter be able to give me the name of a spreadsheet that could do this?.

Thanks again

 

[ajago5]

have you a written agreement with your friend to cover such eventualities as

one of you losing your job
moving interstate
getting married
wanting their half share back to do something else
falling ill etc etc

Plan for the worst and hope for the best, real estate is a Very long term commitment even when things are good.

When they are bad, people can cease to be friends and it all ends up being very costly.

A written agreement for all possible scenarios is vital IMO

Thanks Macca, we have taken into account additional legal fees in our budget and will definitely have everything formally written up before we purchase. I understand that many friendships are broken through business and we will do everything possible to make the agreement transparent. Do you have any experience with joint loans, would you be more inclined to say it is better to go it alone and buy later on after more time saving? I know it is dependent on my personal situation however as I said to Rixter I am finding it difficult to find the right way to calculate and I have spent a fair bit of time on spreadsheets and calculators. Do you have any further advise on this?

 

[Macca]

Thanks Macca, we have taken into account additional legal fees in our budget and will definitely have everything formally written up before we purchase. I understand that many friendships are broken through business and we will do everything possible to make the agreement transparent. Do you have any experience with joint loans, would you be more inclined to say it is better to go it alone and buy later on after more time saving? I know it is dependent on my personal situation however as I said to Rixter I am finding it difficult to find the right way to calculate and I have spent a fair bit of time on spreadsheets and calculators. Do you have any further advise on this?

Yes, I think it definitely better to be patient and save up then go it alone. I know it is very hard to be patient when you are young and full of enthusiasm but with RE investments it is hard to change things.

If it were a joint project that was being built, sold and profit shared then I think that is much easier as there is a start and an end.

When it is simply a bog standard buy this, hold and hope for capital gain investment then the time frames are Much longer, hence the far greater likelihood of it all turning sour. Even something as common as a slow paying tenant could cause repayment problems. Not all tenants are good tenants

You could also ask yourself "what will we do if it goes down in value ?" Many pundits are saying our RE is way overvalued and should the Euro community fall to pieces, which is now a distinct possibility, the world could enter a long depression or at best stagnate for a decade.

As it is your first major investment and you are not employed full time perhaps a cautious attitude with a good cash buffer could be wise.

 

[Tin Tin]

i dont think i will ever buy another unit. Just scratching your butt you need to get permission from body corporate. And paying for your expenses upfront only really helps those that hold the property for a long period.

 

[Nth Brisbanite]

i dont think i will ever buy another unit. Just scratching your butt you need to get permission from body corporate. And paying for your expenses upfront only really helps those that hold the property for a long period.

Units can do well in some areas even though houses overall do better than units. I agree that you don't have as much freedom owning a unit but body corporate are there to protect your investment and everyone else's in the complex.

Instead of being a negative influence, body corporate can be a positive. Instead of worrying about upkeep, insurance and working out how much to set aside money for the future, body corporate can do it all for you. The fees can appear to be high in some complexes but you may prefer paying body corporate to do all the work for you especially if you are interstate or just too busy.