A new settler

Hello Forum.
Wish you all a very happy 2020.

I have just joined the website looking for advice and share thoughts with experienced people. Also hope to be able to give an active contribution, when possible.

Brief introduction
Originally from a country of the European Union, I moved to Australia in 2016 and now it's time for me to settle here for the long term. I am currently living in Sydney (rent) with my partner and we are starting to think it's time for us to buy our PPOR.

I work full time in Sydney (employed as accountant, $75k gross salary/year), while she is not working.

We are not tied forever to Sydney, as I could be able to relocate quite easily in other capital cities and have no other family commitments here.
We are both Permanent Resident, likely to become Australian citizens in a couple of years.

We are also lucky enough to have the following assets (and no debts):

• $550k cash (it's a rough estimate, as something is in Euro, something is in AUD, something is in readily cashable securities)
• an investment property located in a major European city, which grants a steady cash flow of roughly $15k/year.

Our short term priorities are (1) to own our PPOR (house with at least 600 sqm of land) and (2) make a wise use of our money, so... let's start the chat !

Also, note that the idea of investing in property is not excluded: it's just not at the top of my priority list at the moment.

 

Welcome aboard
You'll find most of us helpful !!
Just keep asking questions

 

Thanks RS Gumby for your welcome.
So, I will share my thoughts with you regarding our plans.

Consider that our current rent is $515/week. So, at the moment we have a net outgoing of $26,800/year.

Because buying in Sydney is very expensive and I am not very keen to enter into a HUGE mortgage loan for the PPOR, we are thinking of moving to Brisbane where we could purchase a nice house with land ALMOST without mortgage.

I say ALMOST, because we are actually quite picky and - based on a very limited knowledge we have of Brisbane - I think the houses/areas we like are in the $650k - $750k price range.

This means to spend almost all our cash in the purchase of the PPOR and top-up the difference with a mortgage of $150k - $250k (maybe the mortgage could also be higher, and we can keep the unspent amount in an offset account).

However, considering I am relatively new in Australia and I am aware there is plenty of options out there, I am not sure if this is the best way to make our money work for us.

Any idea?

 

What will be the income in Brisbane?

Generally 80% LVR mortgage with the cash in the offset is more flexible. If you move, for example.

 

Welcome....a little similar story to mine except that I came as a teenager with siblings and parents and with suitcases only! So IMHO you are already well better off.
There's a difference between owning a house or property and owning IP, so keep reading and educating yourself on this.
Other options include rent-vesting, where you could invest in another state like BRI but still live and work in Sydney.
So it really comes to two things you need to answer: 1. what do you wish to achieve from property investing and 2. what investing strategy will you adopt?
Many years ago my mentor suggested first decide where you want to live then invest into IPs....
We did that bought our PPOR but not where we wanted to live (it was where we could afford at those times) then invested outside of SYD first, then eventually bought our dream PPOR.
Also, remember, PPOR is not tax deductible so you pay off interest and loans after tax $, IP interest is tax deductible.
So I suggest you and wife read this book first, to see if it makes sense (where you actually own 2 properties instead of one).
Best of luck and keep reading and learning and then posting your journey!
How to Achieve Wealth for Life

 

@Happy_Migrant, have you thought about rent-investing?

Rent in Sydney for the short-term and buy an IP in Brisbane. That way, the tenant and the Government are helping you on your Net Worth creation journey.

If you go down this path, ensure your deposit is no more than 20%, take out an I/O loan for the remainder and put the rest of your cash into the Offset. Place all excess cashflow in the same Offset.

Also, buy a new/close-to-new house to maximise the depreciation benefits.

You’re an accountant - so you understand where I am coming from .

When/if you do move to Brisbane, you can either convert this IP to your PPOR OR use some of the funds in the Offset to buy a second IP (and rent in Brisbane) OR use the funds in the Offset to buy another property as your PPOR, ...

If you keep things flexible, you will always have many options.

 

Thanks Trainee.
The idea is to ask my company a transfer as soon as a position is available in Brisbane.
Assume the income could be the same in Brisbane ($75k/year) than in Sydney. It could be a bit lower in the first period, but I have the prospect to be promoted to the next level within 18 months, so it can be potentially higher after a few months. Realistically we also need that time to have a better knowledge of Brisbane and understand where we would like to live.

Are you suggesting to enter into the highest mortgage we can obtain [within the 80% LVR limit] and then to be self-disciplined and stick to our budget (keeping the loan excess in an offset account or in a redraw facility)?

 

Thanks both - sorry, I was replying to Trainee while you wrote your responses.
I will add some further comments as soon as possible.

As a general idea - however - after renting for more than 3 years we would like to live in a place which is ours for a number of reasons (we would like to have a dog, my wife loves gardening, possibility to give a personal touch to the house, etc etc...)

 

Offset, not redraw. This is to maintain flexibility so that, for example, if you move PPOR in the future and keep the existing property as a rental (fairly common), suddenly need money (if you love your job), etc.

 

All my houses in BRI I allow tenants to have pets so dogs are allowed in some houses.
My next door neighbour is SYD is a tenant and changed all the plants in the front and back garden, some landlords will allow that.
It seems you want PPOR but decide where you want to live first then! Read the book I suggested and see a different point of view that you two may not have thought off?

 

This comes down to priorities - lifestyle vs wealth creation.

One of my property investment principles was to live in the worse house in our portfolio, until we made it. That way, tenants and the Government are helping us get to our financial goals.

When one “has made it”, then one can afford to live in the best house in one’s property portfolio.

That is what we did. We are now retired and our current PPOR is 5 x the average value of our IPs.

Our next PPOR (currently an IP) is also 5 x the average value of our IPs.

We have much to be thankful for to our tenants and the Government.

There is nothing wrong with having lifestyle goals and/or wealth creation goals. But be clear about which is your number one priority.

 

Thanks all for your thoughts. Agree with the comments saying that the first decision should be WHERE TO LIVE.

After that, we should decide whether it is a priority to buy a PPOR vs using the money to invest/create wealth.

Question: moving to a cheaper city (ie Brisbane) could allow us to use the $550k cash to buy a nice PPOR AND invest at the same time or that sounds too ambitious/risky?

 

The risk of moving to brisbane is more about your career. Depending on your age and specific industry, some higher paying jobs just dont exist in brisbane so you may make less long term. But balanced against better lifestyle for less money.

 

Hello Happy Migrant
Some good discussions already. A couple of things you haven't disclosed in your intro that might help people offer other thoughts, ie
1) What age are you and your partner ?
2) Is you partner likely to be seeking work and in what capacity ?
3) Do you have children or are you planning to in the future ?

As it seems you have no family ties in Sydney, this will make it far easier for you to make the switch to a smaller population capital like Bris / Adel / Perth or even some of the higher pop. regional cities that offer great lifestyle such as Launceston, Bendigo, Cairns, Newcastle etc where your modest earnings will allow a good lifestyle, without the financial struggle you will have in Sydney.
I reckon I lot more people would make the switch if family wasn't such an anchor.

I would also suggest you read Jan Somers first book for some inspiration. I think she acquired 4 houses in 4 years back in the day on the back of her husband's work transfers. Each one was a PPOR needing work, that got spruced up and turned into an IP when they left town. Not saying you would do exactly the same but you might get to 2 houses in 4 years applying the same principles and get set up well financially all while you enjoy life.

 

Thanks for raising this issue.
I don't see it as a real risk, as if I make the move with my company to Brisbane, then I will have no problems at all to come back to Sydney if I really wish to work more/earn more. In our Sydney office, for my niche of specialty, there are usually 4/5 positions always open.
Honestly, after years of pursuing the "great career" in both my home country and Australia, I would like to 'downshift' and try to live a bit more relaxed and with less pressure of "doing great things". If I really miss the big business life, I can always return to Sydney.
Also, I have considered that a 10% higher salary in Sydney does not make financial sense if the cost to buy the same house is double than in Brisbane.

Answers for you, Foxy *****:
1) We are both in our late 30s
2) My wife will probably not work in Brisbane either. It's just her choice. If she wants, she is able to find a basic employment in retail, in an admin role or similar. However, she is happier with less money, more spare time for herself and no work commitments. We are really good at keeping our expenses under control, so there is not a real need for her to work.
3) We have no children, but we would like to have (maybe 2). The sooner the better ! Before we become too old... !
4) I confirm we have NO family ties in the whole Australia. We found some good friends here in Sydney, however we can't plan our life based on friendships.
5) At the moment we are considering the capital cities only, as my company has no offices in regional cities. Brisbane tops the list, due to the warmer climate and to the fact that we roughly know how is the city. I have also heard that Perth is a nice place, but never been there (never had time to go there since we landed in Australia)

 

I think this should be your top priority because it is time sensitive since you are both in your late thirties.

Potentially, you need to factor in the cost of IVF too if required.

 

Just consider it as well. Remember its easy to move to someplace cheaper, but hard to move back to the more expensive place. Ie you may not be able to afford to move back to sydney later.

though just a 10% difference in salary makes brisbane attractive. It would be different if you had to take a 30%+ cut say.

 

Thanks. Actually that is our current priority and we are already working on that. Relocation and career plans are in the second place. Just starting to plan these additional steps.

However, I already can't afford to buy in Sydney the house I like. So, if I really need to come back in the future, it would be in the same situation I have now (that is: in a rented apartment). And that should be for a VERY good reason (i.e. much higher salary, BIG promotion, or similar...)
A 10% difference SYD vs BRI is just my estimate, but it seems to me quite reliable based on what I have 'heard' in the office. I can always refuse an offer, if it's too low.

 

I had a little smile when I read this.

When we got married (last century ), a woman’s prime child bearing age was 26 (from memory).

Our first child was born just before my wife 29th birthday. My wife was considered well passed her prime .

For us, one of the benefits of having children earlier is that they have all “flown the nest” by the time we retired.

When we retired 10 years ago at age 55, our two kids were in their mid-twenties and well-and-truly on their separate ways in life.

This is an observation (not criticism) but I am glad we had our kids when we did. I don’t know whether we would have retired if we had mid-teen ankle biters with us.

How times have changed!!

 

I loved that idea... unfortunately we MET for the first time just before my wife's 29th birthday.
I am also sure that today I have not the same energy I had 10 years ago to play with a toddler, but hope I'll have soon the opportunity to test this .