First Home Buyer - looking to start small

Discussion in 'What to buy' started by JoshB, 11th Jan, 2019.

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  1. JoshB

    JoshB Member

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    Hi guys,

    Long-time lurker, first time poster.

    I've been reading a lot here about getting started and I was wondering if you guys had an opinion on this...

    If you wanted to start off with a property around $300k, where would you buy? I was originally thinking some established apartments in Canberra, but on this forum I read that due to oversupply the capital gains would be minimal, and the cashflow barely adequate due to the land tax.

    Wondering where to look next.
     
  2. Jana

    Jana Well-Known Member

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    Go Brisbane North near new uni. May be DB. That is the only region I could think near CBD for under 300k. Wait for 5 years, else wait another 2 years Sydney to cool down..
     
  3. JoshB

    JoshB Member

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    Thanks for the advice, very much appreciated.

    Is it generally considered best to buy a house or a unit? Considering my deposit is so small. Or are units just not worth it.
     
  4. Karlos1234

    Karlos1234 Well-Known Member

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    With a small deposit at hand, I would wait and save for a while to increase it. I buy when I have 20% of purchase price+costs+some extra in my pocket
     
  5. RS Gumby

    RS Gumby Well-Known Member

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    I'd look at Northern part of Adelaide. Can get 3 bed houses for less than 300k in some places, DT and DaveM would be able to expand on this
     
  6. jefn89

    jefn89 Well-Known Member

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    Ask yourself what you want to achieve in 10 - 15 years and buy with that in mind..
    Another key that I've learned is what is the exit strategy i.e. are you going to develop/sell/sub-divide and sell? While a lot of people suggest to never sell and this is one strategy for various reasons.. If you consider why a person in 10 - 15 years is going to pay more for the property or if there's minimal capital growth, unfortunately property doesn't always go up especially as we've seen in Sydney past 12 months, what else are you going to be able to do to manufacture some "capital growth".. Always speak to accountants, mortgage brokers etc to validate anything tax/finance related but all the best with it :)
     
  7. JoshB

    JoshB Member

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    The dream is to have the option to stop working in 7 years time when I'm 40 :D

    Basically I want an asset that has a lot of CG so that in 5-10 years I can sell it. I don't see rental income as a viable way to build wealth as the amount you make after paying the mortgage & all other costs is negligible in most cases I've seen.
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    Let's take that one step ahead then - in 7 years' time you sell. You have a lump of cash. What will you do then to give you this "option to retire"?

    The Y-man
     
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  9. Shogun

    Shogun Well-Known Member

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    With $300k you don't ask for much.
    Detroit? which I wouldn't
     
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  10. GX1

    GX1 Member

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    7 years?! I'm not sure it is that easy to set yourself up for retirement with your budget and timeframe through property.

    I understand people have seen significant capital gains in recent years, but with low inflation and low wages growth, I think a lot of these capital gains are due to speculation/easy access to credit.

    I'd like to share an anecdote. A family member had a small lump sum awarded to them 15 years ago. This was just before they had turned 40. Instead of using this money as a deposit to buy property, they bought an existing small business with this money (costing less than $100,000, located in a blue chip suburb). They employed a few staff members. Family member was spending roughly one day a week running/promoting the business - but not engaged in any other paid work (they quit their day job). After 12 months this family member was easily making low six figures annually (after paying wages, rent and other costs), which was more than enough for them.

    For more than a decade after this, they have spent half of each year living overseas in a cheaper country, idling and partying until recently their health suffered and they had to return to Australia permanently. They haven't worked a day as an employee since buying their business, and are very unlikely to return to the workforce, so essentially an early retirement.

    Yes, running a business can come with risks, and if you are not careful then you risk losing it all. Most business owners prefer to put a lot of time into their business, but people have demonstrated this doesn't have to be the case. Some people run their business as a 'side hustle' alongside their day jobs.

    Property prices can stagnate. I personally believe they will do this in Melbourne/Sydney over the next few years, but I know little about other property markets. There are times when you could have invested in Sydney (and more recently, Perth) and then make little or no profit after seven years. If you are really serious about retiring in your 40s, perhaps you should explore some other investment strategies, not solely property :)
     
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  11. jefn89

    jefn89 Well-Known Member

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    Love the ambition but that's 1 property cycle, some argue that it can take 10 - 15 years for a well located property to double and even then if you buy very well with research that means you're seeing decent capital growth you're going to need to buy maybe 3 or 4 in 2 years to even get somewhere near it..

    For me, and I'm not exactly where I want to be yet but am actively working on it to continue educating while also taking action, you want to understand what that option to stop working means i.e. is it $50K, 80K, 150K etc

    It's unlikely you'll be able to hit that 7 year goal from purely buy and holding, you'll either have to look at considering more active strategies such as sub-division/development, which increases risk and shouldn't be done without a trusted mentor.. All the best and I'd say take a couple of hours, sit down what you want to achieve and then brainstorm some ideas that match that

    All the best with it!
     
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  12. Sackie

    Sackie Well-Known Member

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    What is your net wealth position now and in 7 years what CF will you require to retire?

    Unless you have a decent net worth currently and or your CF needed at retirement isn't much, Its extremely unlikely you will be able to retire in 7 years, assuming you don't have any other income from other sources.
     
  13. JoshB

    JoshB Member

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    Thanks everyone for your replies, so much knowledge here! Much appreciated.

    At the moment I am just beginning investing, with about 50k in shares and 20k in cash - which I intended to build into enough for a deposit on a cheap place this year. My strategy would be to buy something which is cash flow neutral, then wait for capital gains or make improvements that increase value, and sell in 5-7 years time. Then put that money into the stock market to generate dividends/CG.

    So in short I was hoping property would be a good wait to accelerate capital growth.

    Is this realistic? Not knowing a whole heaps about property (except that I'll never be able to afford to buy in Sydney) I'm open to advice :)

    I also probably wouldn't want to entirely stop work, but I want the option to go part time, or just do contract work, rather than be tired to the old 9-5 paradigm. I was hoping property might help me on my road to freedom!
     
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  14. JoshB

    JoshB Member

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    I definitely agree with this and I'm looking into business options as well. Have already sunk almost $30k into an app idea that hasn't gone anywhere (yet). But it's a learning experience... if you never go, you never know as they say.
     
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  15. GX1

    GX1 Member

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    That is great to hear you are looking at it as a learning experience. Apps can be risky... unless you know you have a brilliant idea that no one has thought of yet. But a business that provides a service to the community can be very profitable. If you look after your staff you can set and forget, and have a lot more free time for retirement.
     
  16. jefn89

    jefn89 Well-Known Member

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    Hey Josh, it comes down to your goals i.e. how much income are you wanting from property..
    As mentioned in my previous post you're unlikely to see sufficient capital gain to see enough growth in 7 years.. Unless you perfectly time the property market that is going to double in the next 7 years, which while possible is not likely..

    Decide on how involved you want to be in the process, buy and holding is not likely to get you there but it's possible if you want to create the capital growth as mentioned in my previous post..

    How confident are you about picking an area that will receive sufficient capital growth to meet your goals?
     
  17. JoshB

    JoshB Member

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    I mean, I don't know a lot about property so I'm not super confident in picking a good spot. I will definitely need to seek advice on that.

    My understanding, and tell me if I'm wrong, is that if the property was cash flow neutral, then the tenants would essentially be paying the mortgage for me. Then when I sell I will get all of that money (minus selling costs of course). This is provided the property hasn't lost value - hopefully it's gone up in price.

    So if it's a 400k mortgage, after 7 years they will have paid off around a quarter of that. So that's 100k in my pocket which I didn't have before? Seems very simplistic, there must be something I'm missing!
     
  18. Optimus

    Optimus Well-Known Member Business Member

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    A little thing called interest...
     
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  19. The Y-man

    The Y-man Moderator Staff Member

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    Let's reverse that calculation (same assumptions):
    $400k mortgage at 5% interest

    That's $20k per year you need *just* for the interest.
    Not allowing for any vacancies, that's $385 per week "net" rent
    Taking into account PM fees and some outgoings (let's say 10%) you'll need $427 per week to just to break even.

    This means the property is not getting paid off at all.

    If you wanted to pay of a quarter of the $400k by year 7, you need roughly $14k on top, so now the rent you need to cover all this is $732 pw.

    If you now look for a place that can get you $750pw, you'll probably find it's like $1.5 million to buy (where there will be some growth).

    So you'll need a deposit of $1.1m......

    The Y-man
     
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  20. JoshB

    JoshB Member

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    Right, so in the free market rent stabilises to a level where it pays off interest only, not the principal.

    So the only realistic way to make money is to get CG which gives you equity, or renovate/split the block into 2 properties?

    Sorry to ask so many newbie questions guys. This thread is really convincing me to stay in ETFs/LICs .
     

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