First time investor - $250-300K budget

Hi,

I am from Sydney and looking to purchase my first investment property. I have done lots of research and reading to the extent that I am even more confused so I am hoping to get advice from people who have purchased recently based on similar factors/considerations as myself.

A few things I've considered:
- New vs old - lots of pros and cons for both but I think old is the way to go. Off the plan seems quite risky and it's not even within my budget
- Mainly considered suburbs like Blacktown NSW, Port Stephens NSW, near the new airport but haven't looked much outside NSW
- House vs apartment - again depends on the actual property and my budget but would rather buy a house as land appreciates
- I actually have enough deposit to buy a property up to $700K. I've thought about buying 1 property but I feel like it's quite risky to invest all one property given how volatile the housing market is... so I've considered to buy 1 property unto $300K then another one of similar price in another location a few months later. What are your thoughts on this?

Below is some information:
1. Budget - $250-300K
2. I live in Sydney but would consider buying in other states e.g. Adelaide, Tasmania seems to be quite popular on this forum
3. Seems like buying a house is the way to go (although this depends on the property itself, do not want a property that is beyond repairable)
4. Currently living at home with an annual salary of $80K
5. I prefer a positive cashflow property with growth potential. I do want to be able to use equity from my first property to eventually purchase a second one. I am 23 years old and this is my first investment property, I do not want to buy a high risk property. I also don't want to tie myself down (for now) as I do want to save money to travel too.

Could you please provide recommendations on specific suburbs I could look into and any other key information that might be useful.

Thanks in advance for all your help!

Christina

 

Hi Christina
How have you come up with a 250k to 300k budget (apart from the fact you don't want to "tie" yourself).

Given you are living at home, with that sort of income you should be able to do better.

Whilst people may recommend areas, what is it that you want to achieve from this purchase and subsequent purchase(s)?

As you mention you want to be able to use equity from this purchase to fund the next one, you need to ensure you buy a good quality IP where fundamentals stack up or look to manufacture equity through value add. No point buying a cheapie if it wont help you move forward with your goals.

Good luck.

 

@monalisa Thanks for your advice!

I came up with the budget based on the deposit I have. For one property I have about $70K deposit so I won't be able to afford any more than that. However, I could borrow more from my parents depending on what is best in terms of investment, although I would like to avoid this option.

I have a large sum of money just sitting in my bank account and it's going no where. I've considered other investment options e.g. shares/ETFs, but it doesn't interest me enough to read about it. So what do I want to achieve? I want to be able to build a property portfolio which will eventually allow me to buy/build my dream home - that's my long term goal (probably like most people).

I guess the most common argument is whether positive cash flow is better or capital growth. Based on my financial situation now and the next couple of years, I prefer positive cash flow property with average growth potential. Whilst I earn $80K now and live at home, I plan to move out of home with my partner in the next 6 months and would like to travel as well so I don't want to invest everything I have in this one property.

Hope this info provides some clarity on my situation.

Thanks

 

Appears you are looking at doing a 20% deposit on the purchase. Have you considered paying lenders mortgage insurance?

Subject to servicing, if you do 88% LVR ie 12% deposit and 5% buying in costs e.g. stamps, legals etc, you can purchase a property c. $410k. If you choose to seek a Buyer's Agent's assistance for an interstate property, and take out $10k, you can purchase a $350k property. At 90% LVR, this would be c. $460k where you buy yourself vs $400k where you use a Buyer's Agent.

Do you mean you want to hold some funds back from the 70k savings as you will be moving out?

You can have a mix of cash flow and capital growth as well. I can relate, as we have preferred properties which have cost little or nothing to hold. It makes sense for it to not impact your lifestyle.

 

Hi Christina you will need both cash flow and capital growth to build a solid portfolio. There are plenty of properties in Adelaide, Brisbane and regional areas that are providing both. As you said buying two properties compared to one $700k property would be a safer bet in my opinion.

As @monalisa said I would take advantage of LMI as much as possible if you plan to continue purchasing.

 

@monalisa I guess if I am looking to buy interstate, I may need a Buyers Agent but at the same time, I'm not sure if it's worth the money either.

@Tony Fleming thanks Tony, would you be able to recommend specific suburbs in Brisbane and Adelaide so I can research/look into it?

 

i think going on to the ground to check the market gives you a better idea of what you should buy.

 

Using a BA can be a great learning experience - so I think it's worth the money especially if you are starting out. Also as you are buying your first property interstate you either need to read up here and then visit the place to research or alternatively use a BA.

 

@illmakeyourgrannyflat as others have said you really should do the groundwork to get a feel for the areas.

I'd start working out what yields, returns you plan on achieving and what infrastructure plans, job growth etc is in the pipeline for the region you plan to invest in. From there you can narrow down certain suburbs and streets. Than you can really start with the researching.

Plenty of suburbs in this sub forum to research I don't know too much about Brisbane but my most recent purchasers have been in regional nsw and Adelaide. Both providing strong cash flow and capital growth.

 

@monalisa @Tony Fleming thanks for your advice. I agree, I definitely need to do the groundwork but finding the time to do this is pretty full on especially with a full time job, don't know how people find the time! So it may be beneficial to find a BA.

Can you please elaborate on what you mean by "take advantage of LMI if I plan to continue purchasing?"

 

LMI is a one off payment you pay if your deposit is less than 20% so what @monalisa was refering to was a 12% deposit(88% lend)is the sweet spot where the lmi payment reduces significantly. It is a tax deductible cost over 5 years as well.

The goal is to use as little off your own money in purchasing as you can than move onto the next property quicker without having to save more money up and in the meantime the funds you would have used as the rest of the deposit can be left in an offset account against non deductible debt.

 

What @Tony Fleming said...

Lenders Mortgage Insurance (LMI) is a price you have to pay to protect the bank in case you are unable to meet the repayments.

By using LMI, you will be able to target higher price brackets in comparison to where you do a 20% deposit. This will also help you have larger exposure to the market in terms of $.

 

Hi Christina. If I were you I would look at purchasing two different properties in two totally different areas for diversification. But I'd also aim for properties between $300-$400k, as any less than that and you are really limiting your options and the type of areas you can purchase in. So that may mean you have to wait longer to purchase the second property, but I don't see that as such a bad thing as by spreading your purchases out a little bit you are essentially dollar-cost-averaging, a share market technique whereby you purchase regular amounts over a longer time frame meaning the ups and downs of the markets don't impact you as much. I do think we may be entering a period of uncertainty in the property market, particularly if interest rates start to rise. If rates keep rising you may find in another year or two, when you have saved up more money for a second deposit, that there is some good value around.

In terms of locations, I would be looking at Brisbane and Adelaide. I bought a property in Adelaide last year and am now looking in Brisbane. You can find some good properties with large land components in some of the outer suburbs of these areas for prices between &300-$400k, as well as good yields. The advantage is that there is still such value in these cities, with potentially less risk as they haven't boomed like Sydney and Melb. I'd definitely keep away from Sydney. Also, as you will be buying interstate, I would recommend a buyers agent, unless you are willing to put in significant time and effort into throrough research, to make sure you don't make a poor purchase decision. They cost around $10k but this is deducted from your cost base when you sell. Feel free to PM me if you'd like the names of the buyers agents I have used.

 

What profession are you in ? Are you sure you want to invest in property ?
If I had the time, I'd educate myself on trading options. You could tap into a much bigger user base instead of listening to a few opinionated farts on this forum. A few of me mates are doing it and even without a basic strategy are making decent coin. Isn't too hard to read candle stick patterns and be aware of general knowledge and make money there. Just my 2 cents. I, however, would invest in property though and for property take advise given here.

 

@aussieB

I currently work in HR so investments is not my area of expertise. I have read about shares, in particular ETFs and that is something I will be looking at buying once the prices fall over the next couple of months (hopefully). However, property is also something I would like to get myself into. I think I'm finding it difficult now because it's my first property and there's lots of debate around whether to buy now or not, market correction etc which makes it all sound risky. But once I get my foot in the door, I think I will be okay!

 

@Tony Fleming @monalisa

Thanks for your advice
I understand what LMI is and how it will give me access to more properties to purchase from. However, if you put a lower deposit to your purchase e.g. 12%, that would impact your cash flow... instead of it being positive/neutral it could end up being negative. So whilst it will allow me to save that extra $$$ for my second property, if I'm negatively geared then I'm essentially having to use my extra $$$ for pay that off which means that amount I initially had to save for my second property will be much less 1 year later. Keeping in mind that I will continue to save more throughout that year..

 

@illmakeyourgrannyflat - do you build granny flats?

 

@neK haha no...it's just a silly name I came up with. It's meant to be a stupid pun..

 

Would you be able to PM any recommendations for BAs I can speak to either in Brisbane or Adelaide?

 

I worked for a global research house here in AU.
One of the Head Research Analysts for shares invested in property by buying blocks in Adelaide and building townhouses on them and continues to do so.
Another research analyst wished he invested in property instead.