Financially clueless! - advice on what to do with my money

Hi,

I am 35 and single, and have about $450,000 which I have saved up from working.
Some of this is in shares, managed funds and term deposits but I don't own any property.

I have started a full time job recently where my annual salary pre-tax will be around $200,000.
I know my salary is very good, and I am in a good position financially but I have no clue what to do with my money - I'm embarrassed to admit it but I'm financially clueless!

I currently live in a share house near the city in Melbourne, where my rent is around $1200 per month. I really enjoy this city living lifestyle and would like at some stage to own a penthouse apartment.

I have been thinking recently about property investing and what attracts me is the ability to use leverage to generate income from capital gains.

I would like to know what some of the more experienced investors out there would suggest I do to make the most of my money, considering we are apparently in a downturn in the property market. Is now a good time to buy? Would you suggest a few smaller investment properties in up and coming areas such as Footscray? Is it better to buy houses rather than units?

Thanks for your time!

 

Hi @OldNoob

Welcome to PC, and well done on building your savings.

1) Read up on PC, and educate yourself on what strategies others have utilised
2) Look at the concept of property cycles to consider where each market is at in the property cycle - in our experience, capital growth and rental returns are inversely related
3) When looking at areas - consider current and upcoming infrastructure, Government and Private investment, and undervalued suburbs - neighbouring other pricier suburbs
4) Speak with a broker on mapping out step by step strategy for your property portfolio on how best you are able to utilise your resources buying 1,2, or more properties, and how it ties in with your future goal of owning a penthouse apartment

Good luck!

 

I say oldboy

I would start edumacating oneself around some of the apartments in low rises. See if you can find firesales...(ie. recievers involved) and have decent rental yields say 5%....try to but new ...and at firesale prices....in attractive complexes...in another few years you would be laughing...

The other option is but in the better suburbs in Perth at firesale prices...in a few years yoa would be laughin....

 

welcome to the forum @OldNoob

you are in an excellent position there ( available funds and income), not sure why you think you are "financially clueless",

maybe ask a few questions to your self:

why invest in property? or share?
what do you want to achieve and in what time frame?
are you a risk taker or don't want risk?

it helps clear the thoughts hopefully

 

Hi Oldnewb

Income from capital gains - I'm not sure what you mean by this? Income from property is rental return unless you're employing a Living off Equity strategy which is super high risk and really doesn't work very well these days.

Leverage is great but it's a two edged sword so try and get really clear on what you're trying to achieve with the properties you're considering.

If you'd like a penthouse apartment to live in, what's stopping you buying that now? You might find buying a home first and debt recycling into shares or inv properties will help you have it all more quickly than buying INV properties first.

 

Unpacking -

• Don't call yourself financially clueless. You have done well and the fact that you are on this forum doing your homework says a lot..
• Leverage to generate income - not sure what you mean. But leverage surely is one of the great benefits of investing in property. You only put so much of your money and bank lends you the majority and rent helps cover up good portion of the repayments.
• Downturn market - Downturn we seeing is mainly affecting Sydney and Melb where prices shot up a lot over last few years before correcting. And since you mentioned city lifestyle, it's not a bad move renting in city and investing your money where it works the most.

Lot of opportunities with decent rent yields available in interstate market and works nicely with rentvesting concept..

And footscray is not such bad place to invest provided you pick the right thing at right price (yields will be bit lower) but comes down to overall strategy...

You in great position overall and I honestly will recommend involving a BA/Broker to workout medium term strategy and fire the bullets after that!..

Cheers,

 

The most important thing you can do is educate yourself. Start reading books and watching investment shows and anything else you can get your hands on, besides the mainstream media (if you watch or listen to that you will become negative clueless).

Secondly, start to plan your journey... you don't get in a car and start driving and then figure out where you want to go. You usually have a destination first and then work out how you are going to get there. Investment is no different - plan your work then work your plan and start to put together a great team around you to help you do it. Mortgage broker, accountant, solicitor, property adviser and a few others.

Once you do those things, then you can start to look at property.

- Andrew

 

To save yourself from future stress and angst give it to me. My bank details are...

 

It is impossible for one to be financially clueless yet saved $450,000 from hard work.

- Dalia Lama, Warren Buffet, Shakespear

 

I currently live in a share house near the city in Melbourne, where my rent is around $1200 per month. I really enjoy this city living lifestyle and would like at some stage to own a penthouse apartment.

Maybe just look at the number's ,if you started work at age 20 and your now 35 that's 30k in after tax dollars you have saved each year so you have to pick a side which one you want to stand on..renter x investor..

1200 Bucks per month rent ,unless you live alone then buy a property in the area you rent--then rent out the rooms then wait for tripling in value wave effect ..Btw I know nothing about inner Melbourne only Chinatown and a hotel chain we stay in ..All the Banks are going to hope you walk in their door and ask the question..imho..

 

We started at 40 plus and we didn’t even have that much capital. Property is a long term game. Don’t underestimate your borrowing capacity (and leverage). Most important thing is to get a good-best broker, we got plenty here!

 

I wouldn't jump into property unless you have a plan and have done a ton of research (as others have said). Getting capital growth in properties is taking a lot longer nowadays.

If I were you, I'd stick with the shares portfolio and periodically just buy LICs or ETFs. For e.g. if you had $450k worth of shares, @ 6% return p.a, you would be enjoying an income of ~$27K p.a, which could be re-invested or spent however you like.

 

How does one go about finding firesales?

 

I have never yet seen a property advertised as a 'firesale' despite being over 35 years as a REA. Look in the area you are already living in, go to all the 'open for inspections' to gage prices and educate yourself. Then buy something you would like to live in ... simple
Then you can think long term and decide if you would like an IP or build up your share portfolio.

 

Look for places where the days on market have increased significantly and prices have declined.

The other thing is to look at things like must sell or no reasonable offers rejected. Get the agent to talk about the property.....lots will give things away...and ask them why people are selling.

I found my property in Strathpine...when I asked the agent about what else he had. He mentioned you won't like it ...it requires work...and it had not listed yet...apparently a lady died and the siblings were squabbling and both the agent and the lawyers had enough. Anyway....to cut a long short I got it for 301k...for a 4x1x1 house on a 696sqm block. Did a 8k reno ..it now rents for $370pw and is worth about $430k. It was bought in 2015k.

 

First off massive congrats on being disciplined enough to save so much money oldnoob.
True the property market in Melbourne has dropped back overall but there are markets within markets, just be careful, not all bargains out there are actual bargains. Price is one thing but asset selection remains key. Stay focused on location and property style when selecting what to buy. Scarce assets always perform best. Most of all be patient, this market isnt going to run away from you anytime soon. You hold all the aces