Buying land for future long term PPOR more than 10 years in advance

Discussion in 'Investment Strategy' started by Kramerica12, 29th Mar, 2020.

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  1. Kramerica12

    Kramerica12 Active Member

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    Hi,

    My partner and I are 25, high earners and are looking to buy a property given we have 300k in savings, and still live at home so we can save 80-90% of our income. Particularly with Coronavirus now we’re working from home, unaffected, and now are easily saving 90% of our income for the next few months.

    I own a unit already that is currently tenanted, with 250k equity in that. We have been looking at properties for a couple months, around where we live. I know this is sometimes frowned upon, but this is where we want to raise a family later and we know the surrounding suburbs well, and where the better parts of the suburbs are. Our buying power was 1.7m at 280k savings and would be 2.1m at 380k savings. We could get to 380k savings in 6 months. We have been thinking of two options:

    1. buying a 3 bedroom one storey house in a suburb 10 minutes away, which would be around 1.3-1.4m. This would rent for around 700-750 per week as it would be a house in decent shape. We’d use it as an investment for now, and then move it for around the period where children are around 3-13 years old. Then around that point we’d look to move into the suburb I currently live in, and this existing property would become an investment. This suburb is much more expensive, where 3 bedroom houses that aren’t in amazing shape on decent land are worth around 2.1m. These rent for $700 per week, and yes the rental yield is terrible. But the capital growth is very significant in this suburb.

    2. save up for 6 months and buy a house in the suburb we want our future long term PPOR. Rent this out for like 15 years, and build a nice house there when we want to move here. In the mean time we’d likely rent or buy other properties that we could live in along the way, and become investment properties when we move out.

    I’ve been playing around with some projections, and am leaning towards option 2. The suburb we want to live in long term will have higher capital growth, and given we can afford it now, it seems like a smarter idea. I probably need to spend some more time working on the projection, but it seems feasible. When we want to get married and move out, I was thinking we could buy a unit to live in around here and set it up as IO when we move in, then change to P&I when we move out and change it to an investment property. Then we could rent a 3 bedroom house, which we would live in for around 10 years. We could either try buy a house here that would later become an investment, or rentvest.

    sorry I know that’s a lot of information, but wanted to give enough context. Really appreciate any help.
     
  2. Trainee

    Trainee Well-Known Member

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    Its very hard to envision ppor that far out. Though at a guess, you would not be satisfied with a 3 bedder with the resources you have.
     
  3. Kramerica12

    Kramerica12 Active Member

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    Yeh agreed I’m trying to think very far ahead and it’s difficult haha. I’m also not sure on how much in costs of children to allow for, which we plan to have 2 of.
     
  4. thatbum

    thatbum Well-Known Member

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    Wouldn't it be a better option to invest to the best of your ability instead (free from PPOR suburb restrictions), and then be in a better financial position when the time comes when you're ready to buy a PPOR?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You could invest into a few properties including one main residence and then in 15 years time sell the main residence tax free and use the proceeds to pay down the investment property loan and then move into it.

    See this strategy post that I wrote
    Strategy: Make the most of the Main Residence CGT exemption
     
  6. Kramerica12

    Kramerica12 Active Member

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    the suburb for this PPOR has very strong capital growth, and it’s more expensive to start with. That’s why I lean towards buying this now, over suburbs where I’m going to invest, which are a bit less expensive, and the yield is a bit higher with lower capital growth. And given we’re young and cash flow isn’t an issue, it seems like we should be buying where the capital growth is highest first. The projection I did shows that we should be able to buy another investment property (around 800k) in another two years time approximately.

    Alternatively yes we can look to accumulate some high quality investment properties quickly given we have large savings and borrowing power. So we could look to buy 2 or 3 good investment properties in the next 2-3 years. I’m unsure about which path is more favourable in terms of the numbers.
     
  7. Ummm

    Ummm Well-Known Member

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    Has or had very strong capital growth? What makes you think this growth will continue?

    i.e. what are the factors that will allow people buying in this suburb to pay more for properties in the future than what they are now?
     
    Beano and Terry_w like this.
  8. Kramerica12

    Kramerica12 Active Member

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    had, but I think this will continue. Very central suburb with one of the best train stations, can’t build duplexes or subdivide the land, big blocks of land, quite a prestigious suburb, great schools, good demographic. It’s been in high demand for many decades.
     
  9. bunkai

    bunkai Well-Known Member

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    I wouldn't buy an asset that was not affordable for one of you standalone until I'd done one or both of the above :cool:
     
  10. Joynz

    Joynz Well-Known Member

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    When are you thinking of having children?

    If you haven’t lived together, perhaps you should try that first - in a rental.
     
  11. Kramerica12

    Kramerica12 Active Member

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    In around 4-5 years time when we’re 30.
     
  12. Ummm

    Ummm Well-Known Member

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    Those are all good reasons why people might like to live there. However, demand in isolation does not give capital gains, you also need to include the new buyers ability to pay more. What are the reasons that you think will allow people to pay more than the current group of people that live there did, in order to for capital gains to occur? Given it is already a prestigious suburb, it sounds like there is little room for it to gentrify. Are people moving to the area in the future likely to earn more money than the current inhabitants, do you think people will be able to borrow more money? Inflation may allow the price to be higher than today, but that doesn't really meet the intent of what an investor is trying to achieve by having capital gains.