First steps on IP ladder - your advice please

Hi Folks

Recent member here and late to the property investment game but here goes (deep breath)...

Single mum raising 2 fab kids (now in High school and no fin support from their father) so just my income and keen to retire not just on the pension but with passive income from property but have much learning and doing in the meantime. I won’t be a pension statistic!!!

I humbly seek your thoughts and ask for any advice

Current situation
Age 48
Income C$120k Pre tax working full time (current job 4.5 yrs)
Kids 13 and 15
No PPOR (but will inherit fathers property at some point - he’s 76 - which I hate to think about but he lovingly reminds me! Current value c$1m no debt I guess this helps with painting the picture re future situation down the line)
Savings c$230k for deposit
Super $100k
Pre approval from bank for IP upto $450k (LVR over 50%)
Melbourne based (Bayside way)

My goal with property investing is to create passive income of the equivalent of $40k in current $S to supplement my super at retirement at age 65

Right now my biggest fear is that I have left it too late and how do I reverse engineer my goal to work out a strategy to start

I have a good mortgage broker
Speaking to a FA this week (but with changes last year In the fin industry and my current financial situation I am cautious but want to ensure I have to the correct advice.
Finding an accountant

My questions

If you were in my situation what would be the first steps you would take?

Would a BA be advisable in my situation given I am time poor and see their value but not sure I had the budget as where would their costs come from (my deposit?)

I know this is a hard question but Given the property cycles where would you recommend re IP location for neutral / positive cash flow and CGs??

Apologies if I appear naive in my questioning and feel really green on this but I am humbly asking for any advice

Really appreciate your input

 

I'll throw in the an option

Doesn't seem too late at all. $40K passive income means you'll need to build $1m in net assets (4% return assumption) invested outside of PPOR by 67 year of age (roughly 20 years from today).

Other thing for you to consider is the pension. I believe the current full pension for house owners is $18,000 and you can also earn another $5,000 in passive income without tax. You may not need the full $1m investable asset if you can work out what the part pension payment is and subsidies this with dividends. Of course, rules may change by then.

If you can move in with your dad in his old age that would probably help to lower your cost.

(# not individual financial advice do your own research )

TB

 

Look at the tax laws especially around succession and inheritance.

One strategy might be buy a main residence now and later sell it tax free and move into inheritance or

Sell the inheritance tax free up to 2 years after death and use it to pay off smaller main residence which you can then borrow against to invest as well as using the cash.

Could be a quick retirement

 

First step is to chat to your mortgage broker.

With that budget, I would suggest targeting a tired older style walk up apartment in a good location. At your stage, you will need to balance out yield and growth so a well located Melbourne apartment is not a bad way to start. There is very little downside to this sort of investing and this sorts of properties represent a solid starting point.

For location, you could talk to a Melbourne based BA who knows that market better.

If you could focus on one or two things, it should be location, and having a high land/asset ratio.

 

You may not need the $1m from your father's inheritance.
Your father could skip a generation and give straight to your children.

 

Welcome to the forum! Don't feel silly we all start somewhere, some don't start at all... Sounds like your kids are in good hands. I'm sure you do already, but would be good to pass on everything you're going to learn over your investing journey to your kids. Will be worth more to them in the long run than any $ amount. All the best!

 

Hey

Here are my thoughts. Well, more a series of questions really. You are in a pretty strong situation compared to most people so well done thus far and don't stress!

Have you considered purchasing a PPOR? If not, why not?

I don't know the Melbourne market at all, but doubt you'd get much land for $700k. Given you have "only" 17 years to retirement, have you considered a share fund as an alternative to an IP.? While 17 years is certainly long enough to ride out any property downturns, it won't be anywhere near paid off at retirement. And then you face a big call as to what to do with an illiquid asset. And share funds offer greater diversity, have much lower set-up and ongoing costs, and require little to no active management.

 

Im getting into this at in my 20's for those exact reasons!

 

My thoughts are as follows:

Typically property is a fairly safe and stable investment - so, I prefer to buy property using OPM to increase the risk (and hopefully the return). I aim for good capital growth from property as the after-expense/after-tax income is low/negative.

Shares are a fairly risky and more volatile investment, especially their share price - so, I prefer to buy shares using cash (no need to increase the risk with debt). I aim for good after-expense/after-tax income (especially in a SMSF and in retirement) from shares with some capital growth.

 

In addition to the points above - as Terry touched on; (general comments),
PPOR - tax free gains,
Super contributions & returns (noting low current balance) - concessional tax treatment
IP - returns generally fully taxed but can use some non cash deductions such as depreciation to assist & also 50% discount on CGT when held over 12 months.
The inheritance you consider as a gain at a later time (hopefully a while for your family’s sake).

I would suggest consider those as part of investment thoughts & priorities, although I note you talk about your IP in addition to super.

as others have suggested, work out your number required in retirement & work back from there with some professional assistance in the areas required.

Good luck!