Young investor starting out

[LOE]

Hi all,

I came across this forum approximately a month ago and began reading topics before finally joining to increase my knowledge. I am 22 years of age and looking to get into property investing, I am in a secure job and earn close to 66k a year.

I am looking to do my first investment property with my parents. I reside on the northern beaches and have been looking at 2 bedroom apartments ranging in price from 500-550k in various suburbs. I have summarized the following suburbs based on research, living and working on the beaches.

Manly - prices are higher, high demand however growth has significantly slowed.

Freshwater - One of the most sought after suburbs, high demand steady growth, properties are selling quick, older style apartments

Collaroy/Narrabeen - Newer developments, more bang for your buck however growth has slowed significantly. Could work to buy whilst it's in a decline phase?

Having been attending a lot of open homes and a relative trying to rent in the area, properties seem to be flying off the shelf.

Up until recently I had most just been searching the beaches until I began reading articles that western sydney e/g Penrith were being listed as hotspots for future growth due various infrastructure plans set for the next 3-5 years. E/g Wet N Wild water park and Parkers Casino training center at Panthers.

Obviously prices are cheaper and I can pick up a decent house for 380-430k which also have higher rental yields.

I have turned to this forum to get opinions on the options I have presented and educate myself because well... friends my age have no interest in investing.

All opinions welcome,

Thanks in advance
LOE

 

[Aaron_C]

How are you supposed to invest with your parents? They gift you money or you use the equity in their home?

 

[LOE]

Use the equity in their property

 

[Paul B.]

Hi LOE,

It really comes down to what you want to achieve and your risk tolerance. Buying an apartment on the North Shore is a relatively safe option as the area is highly desireable and (I would assume) low vacancy rates. Buying out west brings a certain amount of risk in that you are relying on unrealised infrastructre and services to make significant capital gains. As with all risk, you stand to make greater reward.

You are 22. You have many years of investing ahead of you. I would be leaning towards buying a house out west and taking a chance on the predicted growth of the region, as well as the benefit of entering the market at a manageable rate and the high yields.

What I suggest is reading as much as you can about the price trends in certain areas (for example: coastal v rural, CBD v suburban, metro v regional) and determine which areas would best meet what you are aiming to achieve. From there you can narrow your search to suburbs and then property types. Before too long you will have reasonable confidence you are making a sound decision.

 

[Terry_w]

Use the equity in their property

Who will go on title?

 

[Aaron_C]

Use the equity in their property

Are you going with a family guarantee?

 

[LOE]

Paul B thank you for your reply, much appreciated. I will continue researching so when it comes time I can make an informed decision.

Aaron C - The plan is to use a percentage of the equity as a deposit and I will do the home loan through the Police Credit Union. That is how it was explained to me, correct me if I am wrong, happy to listen to any input.

LOE

 

[Aaron_C]

Aaron C - The plan is to use a percentage of the equity as a deposit and I will do the home loan through the Police Credit Union. That is how it was explained to me, correct me if I am wrong, happy to listen to any input.

It depends on how it is structured. Some family guarantees mean the parents offer their entire property as security for your loan as well as the new place you're going to buy. Others just take a small % of the equity and parents are just liable for the small portion via a limited guarantee. I don't know how the Police Credit Union's policies work in this area.

 

[LOE]

Both options you listed were explained to me. I will only choose the option of securing a small percentage as I am not comfortable with my parents putting their entire property up.

 

[Aaron_C]

Both options you listed were explained to me. I will only choose the option of securing a small percentage as I am not comfortable with my parents putting their entire property up.

Ok well that's the best option.

 

[Anthonyj]

There was an older 2 bd apartment with a courtyard listed for 425k three weeks ago. It lasted a few days. One block from Narrabeen beach.
I would get a pre approval and wait for a good buy like this.
Good luck.

 

[Aaron_C]

I would get a pre approval and wait for a good buy like this.

Pre-approval is pretty useless for a family guarantee. Too many variables and valuation-dependent.

 

[Jake Milne]

Hi Loe,

Thanks for sharing your situation, and congrats on choosing to invest in your future at such a young age.

The questions you should ask yourself before purchasing all relate to your end goal...

At 22 it's often hard to know what that goal will be because so many of life's events such as marriage, children, major holidays haven't occurred yet.

I see a lot of young investors saying "I want to own 10 houses" or something to that effect with out consideration as to why they're doing it.
As investing is all about putting money aside to one day improve your lifestyle you need to think, what's this lifestyle going to be, and how much per annum will I need to support it, and how much of this is going to come from my investments.

It may help to speak to a financial planner so they can assist you flesh out all of the unknowns.

In the meantime if you're intent on diving in without considering all of the above you'll need to think about risk as mentioned by Paul.

If you're putting your parents equity on the line, I'd suggest playing it safe. Buy in blue chip areas. The North as you've described is good, especially if you know the streets.

Greenwich I believe is still undervalued in many pockets and might be worth a look, especially for an entry level property.

 

[Peter 14.7]

Hi all,

I have turned to this forum to get opinions on the options I have presented and educate myself because well... friends my age have no interest in investing.

All opinions welcome,

Thanks in advance
LOE

WELL DONE!!!!!

The earlier you start the easier it is. Bought my first Home at 22 with about to be wife. So many homes and IPs ago. We worked hard and saved and invested wisely but also enjoyed life in balance. Now in our 40s we are financially independent, holiday in France, etc..

My advice is simple:

1. what is you goal? be specific
2. set up a strategy to get the goal
3. buy in the north shore or city
4. avoid west sydney
5. buy something to invest in or something to live in your self
6. don't put parents on title but give them a legally binding loan agreement as to your debt they loaned and repayment agreement, even if same money back at sale

I did this with our first PPOR at 22 with Father in Law putting in 10% which was $7k at the time. We offered to pay him back many times but it was, later. Essentially he was protecting his daughter in the event we broke up. I will do the same with my daughter.

Consider where you like to live because if you find someone and want your own place you can move in, If not, all good,

Welcome to the forum, Peter 14.7

 

[johncheexyz]

@Peter14.7 RE: "avoid west sydney"
Just wonder why is western sydney is bad for investment ? I've been reading a lot of posters suggested western sydney is good with cashflows etc. and of course, western sydney has one of the largest population.

 

[Peter 14.7]

@Peter14.7 RE: "avoid west sydney"
Just wonder why is western sydney is bad for investment ? I've been reading a lot of posters suggested western sydney is good with cashflows etc. and of course, western sydney has one of the largest population.

OK, west SYD is both a good and poor investment , it comes back to YOUR goal and strategy. In the context of the original poster, not good IMO.

Overall: Supply Versus Demand.

I know some parts of West SYD are CF+ at the moment like Units in Guildford. If have a mixed portfolio and CF+ strategy for long term hold and CG growth, not a bad catch accepting the issues that come with the suburb. At the moment there is oversupply and little demand so prices are low. Whilst it is CF+ until demand exceeds supply prices will not rise regardless of replacement cost of rental returns. The classic case of this is Mining Town where some though would cost $500k to build rents for $1500 and costs $1M. Huge Demand, limited supply. Bit take away the mine and ZERO demand, rents crash, prices crash.

But if I was the poster I would look at:

The SYD inner city as it is poised to leap again.

Suburbs like Chippendale can be bought for $420k 1 bed old with car park only a few blocks from $580K + new CENTRAL PARK developments. In very unattractive back streets 1 beds no space are $500k. So is under build cost by at least $80k. already.

When the CENTRAL park development opens with supermarkets, 3 levels of bars and shops you are essentially inserting a Surry Hills/darling harbour complex in one go. This will change the suburb to fill it iwth cafes, boutiques etc and money tenants and residents move in. http://www.centralparksydney.com

This happened in Surry Hills, I bought our PPOR terrace in 96 for $235k. Median price is presently $800k plus. What happened? Well, one by one. money moved in.

Rough pubs like the CLOCK closed and opened as YUPPIE pubs with dress codes. Being grungy it was new and hence trendy, cutting edge. Derelict shops became cafes, hairdressers, green grocers, restaurants, etc.. Old warehouses turned in to gyms and pilates studios. Galleries opened. Streets closed and were beautified.

The low income renter moved out and YUPPIES tenants and then owners moved in. Now even the cheapie cafes are being forced out.

Then all the "Old Man" Pubs serving VB with TAB and reheated pies refurbished in foodie pubs with boutique bears and cocktails filled with Professional Young Women in short dresses chased by Guys in Suits. With the YUPPIES came the DINKS and then KIDS. Next high end toy shops and designer kids clothing was on corner shops. Council updated the library with WIFI and yet more cafes. Bike paths. etc.....

The above will either suit him or her or provide a good tenants base. Will not be CF+ but with $60k to spend the plan is CG+. When it does move it will move quick. We bought another terrace in 2001 for $331k, sold in 2003 for $570k after $15k small reno. The west will not do this unless they find a mine under it.

Do that help? Peter

 

[johncheexyz]

Thanks Peter for your insights.

Yes I agree with you on the city area. However, "buy in north shore & avoid west Sydney" as you mentioned, it's depending on the OP strategy.
I'm not intending to compare suburb by suburb as North Shore and Sydney West cover a very big chunk of area.

My believe is in the economy of the area. So if we look at the main economy area in Sydney, the biggest economy is coming from CBD and Parramatta area (2nd city and located in western sydney). People will tend to live as close to this employment area (CBD or Parramatta).
Although, I do understand western sydney tends to draw in lower socio economic class. But for investment purposes, this should be still an option.

So could you please shed some lights on why OP should buy in North Shore compare to Western Sydney ?

 

[Peter 14.7]

Thanks Peter for your insights.

So could you please shed some lights on why OP should buy in North Shore compare to Western Sydney ?

Sure.

Location: He lives there now. He may work there. Buying there means he can move in with partner or mate if 2 bed. More options for futere and being 22 that is likely.

and generally speaking:

Cap Gain: Buying well in the North Shore will out grow the West in general terms. WHY supply is limited and very NIMBY. Anti Development. Don/t confuse growth in population with good investment, look at low supply and high demand. High growth in No not median value means high supply.

Better Tenants. Again overall.

Really it comes back to strategy and goals.

For example for me: I am older, young family, tree changer, I like time off to travel, play with farms etc...so I want flexible time.

So I have business for income and time. But I don't need property issues, I have enough with business.

I own 100% PPOR, I am about to build new PPOR I will own. So I don't need CG to pay debt as I have no personal debt.

My goal is acquire CF+ to retire on. I want "no problem tenants". I presently have them (knock on wood).

I have equity so I don't need CG to buy new IPs.

I have time for some maintenance so homes over units are ok.

I pay too much land tax in VIC. I need investments in other states.

So for me, west SYD unit CF+ would not be bad. Provided it was metaphorically and literally bullet proof. Good BC, no long term issues re building. Set and forgot.

10 year back I had PPOR almost paid off. I wanted CG to sell IP to kill PPOR debt. So I bought in inner city and got really lucky.

as I said , the goal and strategy is what matters FIRST!

I.e. if my business needed a warehouse I might want to buy vacant land to build warehouse. Etc.

Regards Peter 14.7

 

[LOE]

Once again, thank you all that have contributed for your valuable input.

The reason why I want to invest in property is to supplement my income so that in years to come when marriage and children follow I am financially comfortable and would be able to live a comfortable lifestyle and provide for my family without having to constantly stress about money issues.
I have a plan set out however as other members have mentioned there will be variables such as marriage and children that may effect this which may cause me to re-strategize.

Firstly I’d like to have two I.P’s by the age of 25-26.

From there on, by the age of 30 I’d like to have 5 I.P’s in my portfolio.

This is a short term 3-8 year goal that I would like to achieve. Once this is achieved, I will reassess and plan for the next 5-10 years.

I definitely feel that the Northern Beaches is the safest option for my first I.P not only because I live there, but also I’m a Police Officer working within that Local Area Command therefore I’m very educated on Crime Trends and Hotspots within the Northern Beaches which gives me the added advantage of knowing what suburbs and streets to steer clear of.

Having said that though, this needs to be an informed decision so I will consciously be ensuring that I do not become narrow minded in only looking at the Northern Beaches. If my research finds that there are other suburbs then I will be looking at them as well.

In the mean time I have been attending a lot of open homes and speaking to agents on the beaches and I have observed that many of the properties 750k and under are selling very quickly.

 

[johncheexyz]

Yes agreed, it's all back to set goals. Hence, can we say that "buy in north shore & avoid west Sydney" was based on your experience and it shouldn't serve as a general advice ?