21 Years Old | Buying First IP Advise? (VIC)

Hey Everyone,

I'm 21 Years Old From Melbourne & I'm Going To Buy My First Investment Property in Melbourne Around September 2020. I have 100K Saved For A Deposit, i can borrow up to $630K. I'm not interested in apartments, i only want to buy houses or townhouses which are cash flow positive. I have no liabilities at all.

I was about to close on this 2 Bedroom, 1 Bathroom, 1 Car Garage Brand New Established Town House in Pascoe Vale which is a 5 minute walk from Pascoe Vale Station for $550,000 But i have to wait for a few months because my ABN isn't 2 years old yet. That property would be cash flow positive for me and i'd have various tax advantages, would it be a good investment in your opinion? I have visited that property in person and everything looks good to me the property has 7 schools/collages in it's surrounding and 4 are walking distance. I'm still looking for more properties because i have to wait till September otherwise i would have closed on this one.

The areas i'm looking at are Pascoe Vale, Heidelberg West, Doncaster, Box Hill North. I only want to target areas which are 15kms from the city or South-Eastern Suburbs with good CG. I don't want to buy old properties because i don't wanna be dealing with repairs and maintenance. I'm investing for capital growth and i wanna hold onto my portfolio forever. I don't wanna invest anywhere else except Melbourne.

My goal is to accumulate as many properties as i can in the next 10 years which pay for themselves.

I'd appreciate some advice and tips on what you would do in my situation.

Best Regards

 

Why? Would you go cashflow negative if it meant higher capital gains?

 

Because land is scarce, you can always build on top of a building but you can't generate land like that. No i wouldn't go cash-flow negative even though it means higher capital gains. I'd rather save up more deposits and go for another property rather than going for a cash flow negative property.

 

yield and CG have been negatively correlated especially in the market you are looking at (15km from CBD Melbourne). Was looking in buying in Super with similar criteria and budget as you. Couldn't find any really worth investing in. Good luck, at the end of the day property value = land + building, it seems like you will be too heavy on the building side which usually means not much CG as buildings depreciate

 

User name check out

 

The screen handle and avatar explicitly tell us why he wants CF+ properties only.

Jokes aside, please know interest rates don't stay at the same level forever. What maybe CF+ now may well be CF- in 2-3 years time. Further, CF+ doesn't always mean lots of CG, read @TMNT's threads about his CF+ property experiences. Also, it's not just the mortgages you'd be paying off, there's leasing fees, marketing fees, body corp fee, council rates, strata, land tax, gap between tenancies etc will eat into your CF. Additionally, depreciation is the greatest in the initial years of a property - say $10k in the first year, only say $3k in the 6th.

Most importantly, get in touch with a top-shelf broker. The ones on the website are in that league. Hit up @Peter_Tersteeg / @Redom / @David Shih (in no particular order), thank me later.

 

What does your ABN being under two years old have to do with it?

My advice (based on reading on this site): borrow the deposit - don’t use your own cash.

Could you post your calculations showing how this investment would be cash flow positive.

 

It's CF+ after all the body corp fees, council rates, strata etc.

Thanks for the tips.

 

I am self employed not PAYG, self employed people need an ABN which is active for at least 2 years to get a loan.

How can i buy without a deposit and using my own cash? I don't think that's possible. I know it's best to leverage the lenders or banks money in investing.





Let me know your thoughts

 

What happens when you need to go on to P&I? Where will that extra money come from?

Why do you need two mortgages?

Have you allowed for upkeep costs - e.g. repair of dishwasher etc.

I’m not sure about how to borrow the deposit either - but I’m sure I’ve read several posts about it on the site....

 

Couple of issues:
What marginal tax rate is this using? Yr 1 tax credits of 5,500. Net cash is -4k and Depreciation of -7k. This implies the top marginal tax rate. Are you on that?

You are not comparing it to anything. Put numbers for a ETF paying 7% grossed up and 7% capital growth, and a house with lower rent but higher capital gains (though >8% is not realistic, imho), and see what the end value looks like.

It assumes 8% growth rate, which seems optimistic for anything, much less a townhouse. But there is no number here for future value.

 

Assuming your rent will grow over time so aggressively and assuming an 8% annual growth rate may or may not be achievable. @Joynz's comment about dishwasher repairs is a good one, and I can't see anything in the figures that make an allowance for this. You should have something included for annual maintenance.

 

The second one is for the mortgage insurance i'm pretty sure.

Yes that's not an issue for me as i will put some money aside for maintenance costs.

Oh that's what u meant, I've heard of that strategy where u can borrow 110% but it wouldn't be that simple but it's possible in some scenarios.

 

I'm not sure i can find out. i think my agent mentioned that rates have been made higher in the report just so i get a idea. What's the issue with "top marginal tax rate"? and i'm not onto that

I'm not into EFT's or stocks, i have a passion for real estate only tbh.

What do u think about the numbers below?

 

I don't care what that mass of numbers say. Experience tells me the assumptions drive the numbers. And you can make the numbers look like whatever you want. I see 4 or 5 assumptions that I would question (rent, expenses, rental growth rate, capital growth rate, marginal tax rate). How accurate or realistic are they? If they are not accurate of realistic, the rest of the numbers are meaningless.

eg the significance of the marginal tax rate you are on is that it affects your cashflow. Assuming -4k cash net and 6k depreciation before tax.

At the top marginal rate of 45%, it's 1k positive after tax.
At marginal rate of 32.5%? It's 1k negative after tax.

If you have such a specific cashflow based strategy you need to understand where the numbers come from.

at the moment your strategy based on faulty assumptions is going to drive you to a new build with artificially low first year body corp where you overlook a shoddy build because you want depreciation. And as soon as you do the first years tax return you will realise you are actually losing money no matter what your spreadsheet says.

 

a buyers agent that you are paying? Or the agent the seller is paying to sell the property to you?

 

Yes i know what you mean, numbers can never be 100% accurate and same goes with capital growth. This property would currently rent for 425 - 430 easily, if you're questioning the future rent then that's fine but i don't see anything wrong with the current rent price. I've double checked the expenses with my parents and they know about all the expenses listed on the report there's nothing shady in it that they found.

I'm definitely on the 30% marginal tax rate so does that mean it's actually 1K negative after tax?

I just love property man, even if i had 2 Million dollars i wouldn't put them in EFT/Stocks. I'd either leverage the money to buy more properties or fully pay out properties in a good growth suburb and just enjoy the cash-flow while it builds equity. I just feel more comfortable attaining financial freedom via property then stocks.

 

Agent that i'm paying. He knows the developer though and negotiated with him for me. He's more of a property investor himself rather than an agent, he has been doing this for years and also worked for big banks.

Original price was 585k for this property.

I've checked RP Data For All the other townhouses around it and confirmed how much they were sold for etc.

 

How fortunate......... where's the buyers agent fee in your calc?

 

Agent's commission (7.70%): 1,668

Is this what you're talking about?