Where to buy in Melbourne at my budget?

[LarryC]

Hi everyone

I need advice on which areas to keep a eye on, for a property investment at a budget of up to $350K in Melbourne (or anywhere in Victoria). I'm currently living with my folks and saving every penny I am making (stingy I know).

I have saved up $72k currently. I will save another $15k for the sake of stamp duty and other government fees.

I am looking at a 1-2 bedroom, 1 bathroom and 1 car space unit perferably at this price. I will lease this investment for the next 4-5 years, before either selling it for a PPOR or move into the property itself (We'll see).

I need help on which areas to keep an eye on, which will give me moderate-good rental yield for the next 4-5 years and will appreciate in value in 4-5 years time.

One thing I'd like to add
I do not want to invest in apartments blocks (Only House and Land).

Thanks for reading

 

[Aaron_C]

Why that budget? Have you spoken to someone about your borrowing capacity? With mortgage insurance you can increase that budget significantly if that's what you want.

 

[LarryC]

Hi Aaron

I went to ANZ this weekend and they told me I can borrow a maximum of $350k if it is a investment property. I make $42K gross (Not much I know), but again I will be living with my parents for the next 4-5 years.

I thought you were supposed to save up 20% deposit to avoid Loan Mortage Insurance? Have I got this wrong?

I'm still very new at this game and don't have the necessary skills yet.

 

[Aaron_C]

LMI isn't always a bad thing if it helps you afford a better property. There are no absolutes in property investing - but LMI is a very useful tool if used appropriately.

 

[LarryC]

If I have mortage insurance, how much will by borrowing capacity increase to?

 

[Aaron_C]

If I have mortage insurance, how much will by borrowing capacity increase to?

At least $400,000 (Borrowing capacity, not house value) but it depends on the rental incomes etc. ANZ isn't a great lender for your situation, to be honest.

 

[LarryC]

At least $400,000 (Borrowing capacity, not house value) but it depends on the rental incomes etc. ANZ isn't a great lender for your situation, to be honest.

I'll be going to the other banks in the weeks to come and find what they can lend me. I just don't want to overborrow from the banks, incase the interest rate jacks up again and I can't afford to pay the monthly interest.

 

[Aaron_C]

I'll be going to the other banks in the weeks to come and find what they can lend me. I just don't want to overborrow from the banks, incase the interest rate jacks up again and I can't afford to pay the monthly interest.

I wouldn't do that. They will all perform credit checks on you and it will not bode well for your future application chances.

 

[LarryC]

I wouldn't do that. They will all perform credit checks on you and it will not bode well for your future application chances.

Sorry I don't follow this. Your saying not to goto the other banks and request at all my borrowing capacity. If I don't shop around, how can I know I am getting a decent borrowing capacity?

How will banks doing a credit check on me impact me in a negative way? Other than HECS i have no other debts. I do not have a credit card either.

 

[norwoodman]

What sort of investment strategy are you looking at? Neutral or cash flow positive?

 

[schweedy]

Hi Larry
Your best bet would be to start with a broker, they can tell you how much and through whom, without all the individual checks each bank would do.

Are you getting the first home buyers grant??? You would have to allow a portion of time for yourself to live in the IP, if this is the plan.

I think the guys are trying to say, if this is primarily going to be an investment property for you, borrowing more than 80% and getting mortgage insurance allows you maximum amount of claims come tax time, both the interest and the insurance etc, then your extra savings should go into another account to accumulate for your next property....this could be an offset account.

 

[Shaneelastic]

larry,
sounds like your a young fell,a early career wage
what you do over the next 10 years can make you
give aaron c a call
hes a broker, but also an investor

 

[Murphy69]

What Aaron is saying is that if you make a serious enquiry with a bank then they will run a credit check and use a formula to determine your credit worthiness based on a range of factors. One of those factors is how many credit checks you've had in the past.

So each bank you make an enquiry with makes another credit check, which potentially reduces their assessment of how much you can afford.

Different banks have different risk models and credit scoring formulas. A good broker will have an understanding of which bank would suit your personal situation.

I was initially sceptical on what a broker actually did to add value to the process.

I've recently purchased two properties using a broker (Rolf Latham), and I am now 100% convinced that buying using a broker is the best way to go, and I would not consider going for any kind of finance without using a broker.

I'm sure one of the brokers here can explain better, but effectively the broker gets a commission from the bank equal to a few points of the interest rate. You may think that you might be able to negotiate a cheaper rate from the bank (and maybe you might by .01% or something) but a good broker will do a lot for that commission.

Apart from finding you the most suitable deal for your circumstances, if you give them an idea of your long term financial goals, they can choose lenders in a strategic way so that you maximise the amount you can borrow longer term.

I've learnt many lessons from this forum, but I think the single biggest thing I've learnt is to establish a team of people who do things for you, and don't be shy about paying them for it!

There are many different strategies possible, and lots of good discussions about which is best, which suits what circumstance best etc. There is probably no one "truth" when it comes to the different strategies. But I cannot think of any strategy that wouldn't benefit from a good accountant and a good mortgage broker.

There are a number of mortgage brokers on this forum (one has replied already to this thread). Have read and judge for yourself as to how open/helpful/honest they appear. Most of the long term brokers on this forum are genuine and offer a lot of advice for free, and seem to take pains not to spruik apart from the signature block.

The ones that post purely to advertise probably don't last long.

For tax, I use The House of Wealth, and I am happy to recommend them, particularly as you are in Melbourne. Again, if you are just starting out, you may think that you can do your tax yourself. But using advisers right from the start will help you avoid costly mistakes in how you set up your loans, accounts, payments etc.

A $500 accountants fee could prevent the loss of tens (or hundreds) of thousands of dollars years down the track because you got your structures wrong at the start.

Murphy
(There are many other good accountants and brokers than the ones I've mentioned above on this forum)

 

[LarryC]

What sort of investment strategy are you looking at? Neutral or cash flow positive?

Cash flow positive.

Hi Larry
Your best bet would be to start with a broker, they can tell you how much and through whom, without all the individual checks each bank would do.

Are you getting the first home buyers grant??? You would have to allow a portion of time for yourself to live in the IP, if this is the plan.

I think the guys are trying to say, if this is primarily going to be an investment property for you, borrowing more than 80% and getting mortgage insurance allows you maximum amount of claims come tax time, both the interest and the insurance etc, then your extra savings should go into another account to accumulate for your next property....this could be an offset account.

Yes this will primarily be a investment property. I will not be getting the first home buyers grant.

Can you please elaborate further on the claim I can make during tax return. So If I borrow over 80% and do get LMI, how much do you think I can get in tax return (roughly).

larry,
sounds like your a young fell,a early career wage
what you do over the next 10 years can make you
give aaron c a call
hes a broker, but also an investor

I'm 24 already. Not the best wage for my age

 

[LarryC]

What Aaron is saying is that if you make a serious enquiry with a bank then they will run a credit check and use a formula to determine your credit worthiness based on a range of factors. One of those factors is how many credit checks you've had in the past.

So each bank you make an enquiry with makes another credit check, which potentially reduces their assessment of how much you can afford.

Different banks have different risk models and credit scoring formulas. A good broker will have an understanding of which bank would suit your personal situation.

I was initially sceptical on what a broker actually did to add value to the process.

I've recently purchased two properties using a broker (Rolf Latham), and I am now 100% convinced that buying using a broker is the best way to go, and I would not consider going for any kind of finance without using a broker.

I'm sure one of the brokers here can explain better, but effectively the broker gets a commission from the bank equal to a few points of the interest rate. You may think that you might be able to negotiate a cheaper rate from the bank (and maybe you might by .01% or something) but a good broker will do a lot for that commission.

Apart from finding you the most suitable deal for your circumstances, if you give them an idea of your long term financial goals, they can choose lenders in a strategic way so that you maximise the amount you can borrow longer term.

I've learnt many lessons from this forum, but I think the single biggest thing I've learnt is to establish a team of people who do things for you, and don't be shy about paying them for it!

There are many different strategies possible, and lots of good discussions about which is best, which suits what circumstance best etc. There is probably no one "truth" when it comes to the different strategies. But I cannot think of any strategy that would benefit from a good accountant and a good mortgage broker.

There are a number of mortgage brokers on this forum (one has replied already to this thread). Have read and judge for yourself as to how open/helpful/honest they appear. Most of the long term brokers on this forum are genuine and offer a lot of advice for free, and seem to take pains not to spruik apart from the signature block.

The ones that post purely to advertise probably don't last long.

For tax, I use The House of Wealth, and I am happy to recommend them, particularly as you are in Melbourne. Again, if you are just starting out, you may think that you can do your tax yourself. But using advisers right from the start will help you avoid costly mistakes in how you set up your loans, accounts, payments etc.

A $500 accountants fee could prevent the loss of tens (or hundreds) of thousands of dollars years down the track because you got your structures wrong at the start.

Murphy
(There are many other good accountants and brokers than the ones I've mentioned above on this forum)

Thanks for the explanation
Really glad I only approached one bank only so far.
Alright I will do my research in selecting a financial broker first.

 

[Aaron_C]

Sorry I don't follow this. Your saying not to goto the other banks and request at all my borrowing capacity. If I don't shop around, how can I know I am getting a decent borrowing capacity?

How will banks doing a credit check on me impact me in a negative way? Other than HECS i have no other debts. I do not have a credit card either.

As murphy said the banks do things called 'credit scoring' these days. If they see you have applied for a loan (or enquired for a pre-approval) 4 times within 1 month they will pretty much not give you a loan because it is deemed a high credit risk with the bank's credit computer. What I am saying is you can find out how much you can borrow without going through all that hassle - which saves you time, money and heartache.

 

[wylie]

I'm 24 already. Not the best wage for my age

At age 24, even on $42K gross, you have saved a lot of money. I would think you are well ahead of most people at that age, so don't pull yourself down.

Our son is 23 (and a half) and bought his first unit at 22 which he lived in for over a year and which is now rented, and he has just bought a house with his partner. He was earning $38K when he bought his unit and is now on about $50K.

Definitely see a broker, and good luck and well done for having such a focused plan. You will go far.

 

[LarryC]

As murphy said the banks do things called 'credit scoring' these days. If they see you have applied for a loan (or enquired for a pre-approval) 4 times within 1 month they will pretty much not give you a loan because it is deemed a high credit risk with the bank's credit computer. What I am saying is you can find out how much you can borrow without going through all that hassle - which saves you time, money and heartache.

Thanks for clarifying this up Aaron

At age 24, even on $42K gross, you have saved a lot of money. I would think you are well ahead of most people at that age, so don't pull yourself down.

Our son is 23 (and a half) and bought his first unit at 22 which he lived in for over a year and which is now rented, and he has just bought a house with his partner. He was earning $38K when he bought his unit and is now on about $50K.

Definitely see a broker, and good luck and well done for having such a focused plan. You will go far.

I'm gonna talk to some of the staff from work who have experience in investing and get some ideas first about local brokers within the area. I'll see If I can get some information about them and post them here.

Can I ask where your son bought his first unit, If you don't mind me asking?

 

[BayView]

Cash flow positive.

In Melb?

It'd need to be a minimum of 8% yield I would think..

I guess if you have saved $72k and expecting to save another $15k as a cash component this might work.

Adding LMI will decreases the chances.

 

[norwoodman]

At age 24, even on $42K gross, you have saved a lot of money. I would think you are well ahead of most people at that age, so don't pull yourself down.

Our son is 23 (and a half) and bought his first unit at 22 which he lived in for over a year and which is now rented, and he has just bought a house with his partner. He was earning $38K when he bought his unit and is now on about $50K.

Definitely see a broker, and good luck and well done for having such a focused plan. You will go far.

Yes, he's certainly done a good job saving up that much at age 24! Most people I know about this age (I am 23.5) have either blown most of their savings or have just started working full time having just left uni. I fall in the latter camp, and have just paid off my uni debt and currently paying off a car I bought so only just building up savings now (currently earn $78k gross). I moved interstate for work so I don't have the luxury of living at home with parents and saving that way!

In short, I'd envy to have that much in savings at my age.