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Guidance / beginner advice re property investment with a reasonable salary

Discussion in 'General Property Chat' started by ebayhtl, 26th Oct, 2015.

  1. ebayhtl

    ebayhtl Member

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    Hi guys,

    I've been enjoying reading Propertychat for a little while now, but I still feel like I'm lacking some direction on my future property investment strategies - hence this post.

    Any guidance / pointers to get me rolling would be greatly appreciated!

    Background
    • Currently working in HKG and will likely be here/away from Sydney for the next 5-10 years (i.e. indefinitely) - so a non tax resident at the moment.
    • On a reasonable annual salary - about AUD180,000 after tax and rent (I don't have a lot of fixed expenses otherwise). I should be on an income of at least AUD150,000 after tax and rent for the foreseeable future (might significantly increase if I keep progressing my career, but won't factor that in for now).
    • I have a house (my PPOR) in Sydney - positive cash flow, worth about AUD700,000 and I owe about AUD250,000 to the bank. No investment properties.
    • I have savings of about AUD140,000. If I don't find anything good to invest in, I'll probably put most of this into the above mortgage soon.
    Goals
    • Keen on starting an IP portfolio, to find something better with my money than spend it, as well as take advantage of the current good HKD/AUD exchange rate (for me). I am no good at picking shares.
    • Keen to eventually have a second passive income in 15 years or so that I can live off, in case I want my current career to take a backseat.
    • Happy to invest anywhere in Australia. Slight preference for Sydney given I grew up there, but no worries if not. Like many, I'm also looking at Brisbane.
    • Also happy to look at overseas opportunities - having a chat with a BA in London at the moment.
    • Open-minded about strategy - would slightly prefer a cash-flow positive/neutral strategy, as I'm generally not as concerned about CG as having my properties paid off over time. Having said that, I'm fine with a CG strategy too (I have some disposable income that I can contribute to negative cash flow for a period of time).
    • Happy to engage a good BA if I'm buying in an area I'm not informed in (so any recommendations there would be appreciated) - I'm not time rich enough to do all the legwork myself.
    I'm basically looking for guidance and pointers for how I can be more specific in my research and objectives - whether in relation to suburbs, areas, financial strategies, people I can talk to, things I should look out for etc. Pretty conscious at the moment that I need to be spending more time planning investments and less time spending money, particularly with the exchange rate!

    Many thanks for any pointers in advance.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Is the PPOR rented out currently? How much for may I ask? Do you see yourself moving back into it?

    Answers to those questions might dictate how you structure getting the equity out of that place, to use as deposits for more.

    I'd stick to metropolitan areas - you can find plenty of CF positive/neutral stuff in Adelaide, Brisbane, Canberra. I'd probably avoid Perth and Sydney at this point as they're at boiling point - check in with them again in your next round of purchases. The other cities / regionals I don't think are worth your time given the resources you have available.

    I'd probably try to get houses (not units) so that you can get good land content as this is what ultimately goes up in value. Obviously try to get close to decent public transport, schools, amentities and facilities.

    You can probably buy a few places straight off the bat with the resources you have available - might be worth diversifying across multiple places to hedge your bets a little.
     
  3. ebayhtl

    ebayhtl Member

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    Thanks DT.

    The PPOR is currently rented out for AUD530/week. I would like to move back into it eventually, but I'm not sure about that (both in terms of its size and also whether I'll return to Sydney in the near future) - so in short I'm open to not moving back in if that works better.
     
  4. MsAli

    MsAli Well-Known Member Premium Member

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    @ebayhtl, seems like a great position to be in!
    In my opinion, it appears you have roughly $310,000 equity @ 80% LVR / $366,000 equity @ 88% LVR

    80% would mean you save on Lenders Mortgage Insurance (LMI).

    Makes sense to maximise borrowing for IP's. $310,000 would give you roughly $1,800,000+ of property at 88% LVR. The downside would be you won't be able to utilise the tax deductions onshore in Australia. However talk to your tax accountant. Understand the losses (such as LMI and depreciation) can be carried forward.

    There are so many ways to skin a cat. You could target the more expensive (and therefore better quality) properties and buy circa $600k x 3 (within 12km of the Brisbane CBD). OR $360000 x 5 properties (North/South Brissy). The 600k property is more likely to be negatively geared, but it appears you do have decent buffers. Another downside with the more expensive property is, when vacancy occurs, you have greater holding costs to cover. At the same time, a portfolio of cheaper properties means multiple council/water rate charges. Though these are more likely to be neutral/positive (at least at current rates) and hence allow for neutral holding costs.

    No body has a crystal ball. Though Brisbane is said to rise after Sydney and the returns do justify Brisbane.

    Another option would be to wait till Sydney comes down. But it means leaving yourself exposed to inflation and hence money losing value. You could always bring the funds back to Sydney in the next 5 years and go on a buying spree!

    Depending on what you decide, Find yourself a GOOD broker who can assist with structuring the portfolio well for you in order to help you maximise your borrowing and therefore the ability to have maximum exposure to your chosen market(s).

    Good luck!
     
    Last edited: 26th Oct, 2015
  5. TheGreenLeaf

    TheGreenLeaf Well-Known Member

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    @ebayhtl Even if the forex is good for you right now, it's always a risk to take loans in a different currency than your main stream of income (as your salary is in HKD if I understand well).
    Things can change quickly so bear that in mind in your strategy, and don't over-expose yourself.
    It seems anyway that you would have the option to come back to Oz in case you need it, so it mitigates this risk a bit...
     
  6. twistedstats

    twistedstats Well-Known Member

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    I'm sure a lot of foreign investors are happy to take this but FX is a real risk if you maintain a loan in HKD, particularly given downward trend in $A. Careful what you wish for :).
     
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  7. albanga

    albanga Well-Known Member

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    You said you have 140k in savings and if you don't find anything to invest in shortly then you will pay it of the mortgage?
    Is there any reason this isn't in an offset account anyway? This is a very significant amount of money!

    Personally I would not be bothered with CF+ properties right now if I were you. You have a huge salary with little expenses and could easily withstand some losses (appreciate you need to consider negative gearing issues being in HK).
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    It probably is in offset.

    Always prefer to make money over losing money , may be able to stop / reduce working this way
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    That is not called "reasonable salary"!! :eek:

    That is called "higher than average"

    The Y-man
     
  10. JDP1

    JDP1 Well-Known Member

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    My thoughts exactly. Well. For brisbane at least 180 after tax is considered a helluva lot.
     
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  11. albanga

    albanga Well-Known Member

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    I think this is a fairly simplistic reaponse though. Ofcourse we would all prefer to make money than lose money but how do you propose this is done whilst OP is living and working overseas?

    He can buy regional and yes get some CF but why would he do that and forego CG when earning so much with so little expenses?
    Alternatively he could employ a strategy to manufacture some growth but this takes time and effort which would be far harder from overseas.

    I am not saying it is impossible but reading over the post the easiest way I can see is buying a couplecof houses in blue chip suburbs on a decent block of land. Cover the shortfall with his massive salary until he returns home full time and then options a plenty open up. At that stage he can subdivide and develop, sell off and then buy into CF+ or commercial.etc.
     
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  12. JDP1

    JDP1 Well-Known Member

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    Yes I would agree. Blue chip house. Will likely be - ve cf, cover the loss with salary. The long term cg will be there. House will also have some value add/reno potential. With that salary, I'd be looking solely at top 4 cities to capitalise on pop growth.
     
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  13. ebayhtl

    ebayhtl Member

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    Wow thanks all for the responses - some very useful information! I'll see if multi-quote works or not.

    Thanks! One question, brokers actually help structure portfolios? I've always been a bit confused about the role of a broker as against a financial planner (besides brokers being property-specific). What should I look for in a good broker?

    Also, within 12kms of Brisbane CBDs or north/south Brisbane - could you please at least rattle off a few suburbs for me to start my searching? I've been through the Brisbane threads and wow it's doing my head in a little!
     
  14. ebayhtl

    ebayhtl Member

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    Thanks, yeah I wasn't thinking of borrowing to my max capacity - but it would be good to at least start the investing somewhere! My salary is in HKD so will account for that although it currently looks very doubtful whether AUD will ever get back to the USD1-AUD1 days...
     
  15. ebayhtl

    ebayhtl Member

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    The savings are mostly in HKD and I just haven't gotten around to sending the money back yet (I'll obviously need a bit of a savings buffer in HK regardless), I was also hoping the exchange rate will improve for me but seems it has stabilised for now. But if I don't invest it soon, agree with you - I'm going to send most of it back...
     
  16. Michael_X

    Michael_X Mortgage Broker Business Member

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    Hi ebayhtl,

    Reading your strategy to cashflow neutral/positive - I would do the numbers for 12kms within Brisbane. If you can find a property that gives you those returns then go for it.

    I suspect you will need to go out a touch further to find those yields.

    A hint in Brisbane. If you are looking for neutral, aim for 6.5-7%, the holding costs are fairly high in this state.

    Good luck on your journey. Joining this forum and asking questions is a great start.

    Cheers,
    Michael
     
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  17. ebayhtl

    ebayhtl Member

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    Haha yes maybe! Salad days to be earning non-AUD at the moment but that's probably a separate topic altogether.
     
  18. D.T.

    D.T. Adelaide Property Manager Business Member

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    The best way to do multi quote is to highlight the sentence/paragraph you want and press on the reply button that hovers next to it. This inserts it into your post box. You can then repeat this same method on as many additional posts as you want, and they'll come into that same post box at the bottom. You can then write your replies between those quotes or at the end as you choose.
     
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  19. ebayhtl

    ebayhtl Member

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    Thanks for the above, yes I've been thinking about that.

    Where can I learn more about doing things like development, by the way? Besides reading propertychat obviously. Is it a difficult thing to get started with if I have no contacts?

    I forgot to put in the above first post, but my dad has recently retired and quite frankly wouldn't mind having something like a renovation project to manage.
     
  20. ebayhtl

    ebayhtl Member

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    Thanks! I thought multi-quote just inserts the entire quote. I'll do that and save some space.

    Thanks, food for thought.
    Thanks. Are there any list of suburbs that I should at least start my research with? I haven't been to Brisbane for about 15 years now...