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First Investment property TIPs and common mistakes

Discussion in 'Property Finance' started by Jungle, 4th Oct, 2016.

  1. Jungle

    Jungle Active Member

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    Hello
    My sister is currently in the process of buying an investment property. she had an offer accepted subject to a couple of conditions. A copy of the contract has been sent to my solicitor and she is looking into organising a building and pest inspection.

    She was asking me for some tips as what should she do (but unfortunately, I dont have any investment property in Australia so not sure and I'm still learning.) Thought this forum would be great for some tip/suggestions
    She has a good saving but looking to use the least for deposit and placing the rest into offset account till she buys a next one.
    The property is around 350K, how many % deposit she should use. I have heard 12% deposit is the way to go as you save on LMI premium fees. Is that correct?
    Is there any good offers currently on? Even though she plans to check with her broker.
    Also, she is considering going for interest only variable loan- Is there a fixed term?
    Any other common mistakes to watch out for?

    Thanks in advance for your feedback and input.
    Please let me know if added information is required.
     
  2. Brady

    Brady Well-Known Member

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    Questions are probably best direct for her banker/broker as they hopefully will have an idea of her current and future plans.
    But you have nailed it on the head for most
    - IO w/ Offset, keep it variable IMO
    - minimal deposit used keeping funds for future purchases (thats if this property isn't going to be a PPOR and stay a PPOR)
    - offers, most banks will provide similar rates, make sure you get the right features/service - pending employment/industry might be able to get LMI waived

    Mistakes
    - bad banker/broker
    - not seeking professional advise when required (lawyer/accountant/townplanner)
    - poor performing property
    - overpriced
     
    MTR likes this.
  3. York

    York Finance Broker Business Member

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    If she has a plan moving forward to build a property portfolio, using as little of her own funds as possible is ideal. Borrowing 88% of the property value is common for investors as this is generally the level where LMI is at its best value for money. After 88%, the premium seems to shoot up exponentially.
    Interest only is also common type of repayment for investors. As it allows you to pay the minimal amount which can help with cash flow and allow you to build a cash buffer or reserve and focus on building another deposit if that is the objective. Variable vs fixed is a personal choice depending on each person's requirements/risk tolerance combined with their general understanding of the basic principals of monetary policy and the current economic climate.

    A broker can cover the specifics of these depending on each person's particular requirements. I hope your sister has an investment savvy broker seeing as her plan is grow a portfolio.
     
    Leo2413 likes this.
  4. Jungle

    Jungle Active Member

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    Thanks for the feedback would you be able to provide more information on options of getting LMI waived? How is that possible.
    Also, the agent told sister that to sign a contract as getting offer accepted telling her it's a normal process in qld. Question is now that she has singed a contract once the pest and building report is out can she negotiate anything or it's too late? She has a clause that if she isn't happy she can walk out of it.

    Cheers
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Some lenders offer LMI waivers to certain professions such as doctors, lawyers and accountants. There are additional criteria such as minimum income that these professions also need to meet.

    There's probably a building and pest clause, as well as a finance clause. These aren't a "get out of it if you aren't happy" clause though.

    Have your sister get in touch with one of the brokers from this forum immediately. If she's already signed a contract she doesn't have time to waste on this. The broker should be able to explain the entire process to her, let her know who she needs to talk to and what needs to be done.
     
  6. God_of_money

    God_of_money Well-Known Member

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    If she is a medical specialist, westpac offers PPOR 95%LVR without LMI @3.97% I/O.
    The interest is not sharp but waiving LMI.
     
  7. MTR

    MTR Well-Known Member Premium Member

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    Ignoring market conditions/cycles, ie buying when markets are falling/not growing

    Sacrificing capital growth for cash flow, you need both

    Buying in one town industries ie mining towns, small regional towns with one horse, one man and a dog

    Taking advice from the wrong people, always check their success rate/track record ie gurus, spruikers, forums etc.
     
    Phase2 likes this.
  8. Jungle

    Jungle Active Member

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    Thanks Peter, if the building &upset report comes with something that needs fixing let's say to fix it will cost $7000 will she be able to renegotiate the purchase price (amend the agreed price) or nope? She will be checking with her solicitor in the morning.
     
  9. Jungle

    Jungle Active Member

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    That's handy to know
     
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Of course she can negotiate.
     
  11. Jungle

    Jungle Active Member

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    Even though when the contract has been signed by both parties?
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You can always say there's $10,000 in unanticipated repairs required to make the house safe for tenants. This wasn't factored into the original offer, we'd like to reduce the offer by $5,000 to help us cover this.

    I see buyers agents do this all the time. Keep in mind the seller can refuse to budge and it's then the buyers option to exit the contract.
     
  13. Jungle

    Jungle Active Member

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    Thanks heaps Peter and all who have contributed. Really appreciated. Its been a great learning experience.
    I would really appreciate to hear from others who have been through their first property purchase and think they should have or could have done things differently.
    Looking forward to hearing tips, tricks and suggestions and learning from all of you.
     
  14. albanga

    albanga Well-Known Member

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    My mum sold her house last year subject to building inspection. She had 2 buyers in private treaty and both had this clause so she obviously took the highest offer.

    Our big concern was the house was literally sagging at the front, it was very noticeable so we were preparing ourselves for negotiations.

    What was worse is the REA when he found out the inspection company said "these guys are brutal so just be ready".

    Offer went unconditional soon after. I still to this day have no idea what happened! Was the inspector 10 cans under? Or did the purchaser just not want to or think they could negotiate.

    The house as clear as day needed restumping.