very low income earner

[flightcrank]

hi.

i have saved up as much money as i can for the past 6 or 7 years hand have come up with about $55,000.

this is big enough for a deposit for most people in Australia however for myself on a single income and that income being low (27k per year) it is way to much of a risk taking out a large loan for a property with house to rent out to someone else. let alone be approved for such a loan.

not beging interested in funds/shares with this money i was thinking something along the lines of buying some land and borrowing the amount i need using my savings as a deposit.

i figure i could get a block and owe about the banks about $100,000 after my deposit is taken out of the total.

i found out my goal and that is to buy a decent size home. i cant reach that goal currently so

my questions are is it a good idea to secure my goal by buying the land upon which i should build my home ?

are there any holding costs of land in qld ?

am i forced to build on it or can i just pay off the loan i take out for the land. and after its all payed off save again for a deposit to build a house?

can i use the land its-self as a deposit to build the house on it (assuming i payed the money i borrowed for land back)

any other advice. keeping in mind i want to secure my goal of a decent sized block so want a biggish one no smaller that 600m2. i dont want the 400m2 ones people sell for the price of a 600m2.

shares/funds ect are just not what i fell confident investing in.

so yeah is buying a good idea for someone in my position or should i continue saving - secure a higher paying job to service a bigger loan ?

 

[Pablo]

Flightcrank,

You have done very well saving that much on your wage but if I were you I would definitely be trying to land a higher paying job, it will make things so much easier but of course you don't get something for nothing so you may need to look at doing some courses.

I suggest buying ASAP because houses aren't getting cheaper and prices may go up quicker than you can save. This may however mean that you might not be able to buy that dream home, instead why don't you buy the cheapest house you can find and use it as a steeping stone. You could rent it out and that way the tenant and tax man will help you pay most (if not all) the costs and leave you to do what ever you want with your remaining money.

The problem with buying land is that you cannot earn an income or live in it so you will have to service the loan, pay all the other holding cost (yes there will be some) and possibly pay rent while trying to pay off the loan.

If you do choose to go down the path of buying land and paying off the loan then yes you can use the equity you have in the land as security for the house loan. The deadline you have to build within will depend on who you are buying it from (eg the developer of a large estate will probably want all the houses to go up within a certain time) so it is best to ask and read the contract to find this out.

Hope this helps.
Pablo.

 

[flightcrank]

buying a place and renting it out was my original plan but its out of the option, as they are simply to expensive here in the gold coast/birsbane for me to afford to service it. the banks dont take into account that it will be rented and will not loan me the money even given my good savings history.

looks like i will have to find a better job. and leave buying a property for a few more years down the track

 

[kissfan]

the banks dont take into account that it will be rented

Hi flightcrank.

Well done on your saving a deposit like that and for having the nouse to try and get ahead.

When applying for a loan, the banks SHOULD BE considering the rent, they normally work on a percentage (70%?) of quoted rent when processing loans.

Speak to a few different banks or a mortgage broker that is investment property savvy.

As mentioned already, a higher paying salary or second job will help your cause.

Good luck with it.

Regards
Marty

 

[HandyAndy888]

How can you afford internet with that sort of wage???

Anyway, well done for thinking about investing. If you can prove to the bank that your savings are genuine, perhaps they will give you a loan for an IP, rather than just land....good luck!

 

[pieman]

Hi
Well done on saving that deposit on your wage. I dont know how you did it.

Could you possibly up-skill and get a higher paying job? It would be much easier to get ahead, especially with your savings ability. Maybe you could write a book on saving on a low income ?
I thing you need to concentrate on increasing your earning capacity as well as focusing on investing. At the start, if you have a larger income its heaps easier to get things going. I used to work every spare hour i could getting paid overtime in my first IT job but it really made a difference. A boring life because of the big work hours but I reaping the rewards at aged 42.
good luck
pieman

 

[steveadl]

As others have suggested, I would consider buying a cheap IP somewhere instead of land where you want to live. This will in a few years give you equity for your own home (or if you sell, a bigger deposit), and after a couple years of rental increases, won't be a drain on your finances. Also, if you get a higher paying job, the tax benefits will get better as well.

If you buy a cheap house for around $170k let's say, and then put your $55k savings into the loan, the figures may look something like this:

$178k total costs
less $55k deposit
= $123k loan
Yield of 6% = $10k pa
Holding costs aprroximately = $2570 (council rates, water, insurance)
Loan Interest @ 7.8%pa = $9594
Total holding costs = $12,164
Holding Cost before Tax = $2,164pa or $41pw
Holding Costs after Tax = $1800pa or $34pw

This is just back of napkin calcs, so nothing definitive - but it outlines another possibility instead of buying land which provides no income.

 

[Mr. Fabulous]

The answer is simple. Get a job that pays better. Do some training if you have to. That's what I did.

Mark

 

[willair]

i have saved up as much money as i can for the past 6 or 7 years hand have come up with about $55,000.
so yeah is buying a good idea for someone in my position or should i continue saving - secure a higher paying job to service a bigger loan ?

At least you have 55k to start with and once you take ,rental income
tax,and a few other items that you can read about in this site you
will understand the bigger picture, imho i would not start with a block
of land,unless you can see fast C/G then by the time you pay the rates
and cleaning costs it may cost you money..willair..

 

[Mr. Fabulous]

At least you have 55k to start with and once you take ,rental income
tax,and a few other items that you can read about in this site you
will understand the bigger picture, imho i would not start with a block
of land,unless you can see fast C/G then by the time you pay the rates
and cleaning costs it may cost you money..willair..

Absolutely. If you are going to buy a property, at least buy something that is going to give you an income. There are people that make less than you that have successfully achieved financial independence, there's no reason you can't do it as well.

Mark

 

[softmonkey]

forget the block size imho, sorry but you just dont have the income to leapfrog straight to your dream block unless you buy rural. also forget negative gearing its too much out of your pocket for practically no tax benefit. use your weekends wisely, search for a unit in a reasonable area that will just about pay for itself, keep saving for property 2 and meanwhile let that equity in the unit grow. you will get there.

 

[feihong]

I know you are not interested in shares, but I know one person who's in similar situation to you.. so what he did was everytime he saves up $5000 he dumped into BHP.. he ended up buying a decent house worth 400k with very little loan after 5 yrs.

 

[chrispy]

Many years ago we were in this same situation, our resolution was:

Put the deposit on the block of land
Obtained permission from the vendor to build on it
Spent our weekends as owner builders building our own house
We paid for each bit by cash, saved up and paid for the slab
Saved up and bought the timber, made the frames ourselves
Saved up and bought the bricks, laid them ourselves

It took us about 3 years to do but when we moved in we owned it, we had paid off the land and owned the unfinished house ourselves. We had the habitable permit but had concrete floors, unpainted walls, etc., until we could afford to furnish it.

It set us up. From there, we saved for another block of land and did it all again. From then on we saved deposits and bought existing houses but with two completely owned houses behind us we never looked back.

I went to Uni at night to get a Degree, my husband did all the maintenance on the houses.

Good luck with whatever you choose to do BUT do something.

Chris

 

[beachgurl]

Have you considered purchasing an investment property in a large rural community? I don't know rural Queensland so can't give you advice there, but have a look at council websites and talk to people who know country areas about towns that have high rental demand and have plans for more facilities to be built there. I just bought a place in country NSW for 123K that should rent for $190 per week. With returns like that and using your large deposit, figures like this would be cash flow positive for you and you would have a small enough loan that should be manageable for you. And once you are in the market you have something that should get some capital growth, sell in a few years and you might be able to afford something you would like to live in.

 

[sue78]

Firstly, well done for saving for so many years!
Secondly, need to buy asap as you may already know...Brisbane is experienecing another boom but it's probably still cheaper than the GC.


Banks do take into account rent. $27k is very little..get a better job but if you are living at home then that should be more than enough for a $300k IP yielding 6%.

Okay now my advice....you need to double that $50k you have!

You could buy in a townhouse in Woodridge for $140k a few mths ago rented out at about $190 to $230 p/w but now it's closer to $180k and that's hard to get. You would really only need to pay rates and body corporate so total $3k a year and maybe top up $1k a year towards the mortgage after the $50k deposit. Peopl say that it's a bad area and little CG but it has another gone up quite a bit and it's a great area for rentals.

Buy a block of land and build a house in Gold Coast/Brisbane corridor (GCCC) for around $280k, rented out at $380 to $450p/w. Would be worth min $420k on completion. Pm me if you want to know where the land is. I can't disclose it here coz I am hoping to get a few blocks.

Any house in the logan, beenleigh, kingston...any area around $250k, do it up a bit and rent for about $300 p/w.

I am pro building because it's instant CG...if you are living at home then you should definitely consider building...yield is also better.

 

[Peter_Tersteeg]

Well done on saving so much!

Purchasing an investment property in the range of $100k - $150 should be reasonably straight forward and affordable. In this price range, as others have suggested, the rent will cover most of the costs. Also with the potential deposit you've got available, there would be quite a few lenders willing to supply a loan on favourable terms and rates.

I do have a few clients purchasing good investment properties in regional areas of QLD, VIC and NSW in this price range. The rental returns are generally postive geared or very close to it, especially with some minimal improvements (a few repairs and a coat of paint, nothing serious).

 

[want2bewealthy]

If I were you, Id be looking for a rather low upkeep property such as a unit thats "good value" not cheap by the sense of the word, but good value,

It should be in a growth location and be a high yielding rent, say 7%
that way it will pay for itself after tax and depreciation,
you can do it! [and yes, theyre still out there]
I wish you all the best of luck,
you remind me of myself on a low income and able to save well, with so many whingers saying how poor they are and living beyond their means, youre certainly on the right path, Id suggest just getting into the market, It doesnt need to be a flash place, just a starter.

 

[cgw]

Good on ya for saving so much on your low wages.

Go and buy something you can afford.
Read the Somersoft books, and Michael Yardney books, stay on this forum, and learn, learn, learn. The books will help you understand why the land only option is not so good.
You are young, go an get a better paying job, if it means going back to school, go and do it part time. Get a part time job to help as well.

Cheers

 

[Bricks & Mortar]

Good on ya for saving so much on your low wages.

You are young, go an get a better paying job, if it means going back to school, go and do it part time. Get a part time job to help as well.

Cheers

Ok flightcrank,
Everyone is telling you to get a better paying job,
If this is an option It would be great however it may not be the case
as it is sometimes easier said than done.

Your saving ability has been extraordinary considering you lower income
and also shows how determined you are, Congratulations.

You asked whether to buy a block and progress from there to build would be a good choice...given that it has taken you 6-7 years to save up $55K and you want a block @ $100k it means you would have a loan of approx $50K which @ 7.5% would cost you $3750 p.a. plus rates on the block.

Rates in Qld would probably include general rates, Community Protection, Water (vacant land) and Rural fire levy (depending on area) say somewhere between $350-$500 ( based on regional area so yours might be more in the Gold Coast area). So in effect each year outgoings would be over $4000 minimum.
It would take you and additional 9-10 years given you same savings schedule to get it paid off, to get to the next step.

A block of land is NOT income producing so cannot be claimed against your tax, and nobody is helping you to reach you goal faster.

We originally bought a block of land and held it for several years, paying it down slowly, eventually we got tired of having to spend our spare time mowing the block as it was one and half hours drive from our PPOR.
We got it built to lock up and spent the next three years every weekend going to finish the house off. Our cash was in short supply and we weren't familiar with leveraging and using OPM, so the weekends we didn't have the cash to buy something, say for the bathroom, we plastered as it was cheap and just labour intensive.
On completion we had to rent it out to pay some of the outstanding bills as our wages wouldn't cover the shortfall.
We rented out the house and started to get money back into our hip pockets.
Not only did it pay for the interest on the loan, but we also could claim depreciation on the house.
In short, we discovered quite quickly that had we origianally got a bigger loan to pay for the house to be completed, and started renting it out three years earlier, we would have had more money in the bank than doing it ourselves.

As far as RISK goes, there is more risk buying vacant land than buying a house/unit and having tenants, as the Tenants are helping you pay of the loan.
In the case of your vacant land, it's only your funds that are going to pay the bills.

So to get to goal faster I would suggest getting the maximum help
i.e. help from the tax man and a tenant and buy a IP not land.

If you can't afford to enter the market in your immediate vecinity, do a wider search for outer regions where you can afford. You can later use the equity to get more or closer to where you want to live.

Other side of the coin:
We have also bought three blocks of land and made quite a bit of money in the process selling two, (holding the other for future development) but I must also say that it is speculative and requires quite a bit of money or equity to hold and also a rise in the values to make it worthwhile. A much bigger RISK. The people who bought the two blocks of land in Philip Island from us saw a decrease of value of $15-$20 four months after purchase. It's a timing issue more akin to share trading.

The choice is ultimately yours but to me the safer and quicker option would be to an IP not land.

Good luck with your endeavours


Ohh Andy,
"How can you afford internet with that sort of wage??? "
I'm astounded by your question, but I can answer that one....
None of your beeswax!

 

[flightcrank]

internet is only $50 a month. i live with my mum. thats how i was able to save. but i pay my mum every week for my room.

well im definably going to look for a better job. i will have to study because im not qualified to do anything. the thing i hate about that is it will set me back another year or two. i have jan somers book. ill re-read it so some things sink in better.

in the mean time i guess i will look in the undesirable suburbs to see if something in my budget pops up. The thing is there in bad suburbs in between gold coast and brisbane. my dad wants me to take out a bigger loan (which i cant on my pay) and buy in a better suburb.

and kind of given me the cold shoulder as he dose not want me buying into these suburbs. I wont live in it so it dosnt really bother me. but he wont help me look or anything in these suburbs and ive never bought a property before so its all kind of scary.

i know i want to buy a property a townhouse/unit is all my budget will afford. but i have a limited choice of suburbs, the only ones available to me are considered undesirable.