Join Australia's most dynamic and respected property investment community

How did you dive into your first IP purchase?

Discussion in 'Where to Buy' started by fajji, 18th Dec, 2015.

  1. fajji

    fajji Active Member

    Joined:
    2nd Dec, 2015
    Posts:
    26
    Location:
    Melbourne
    Hi,
    I am yet to purchase my first property (IP or PPoR), still deciding which path to go. I feel buying PPoR is probably easier, but wanted to know whether it matters which way you start off with and how does one narrow down on that single property to purchase for IP. I have been lurking the threads and spoke to few of the property investment strategists but still not sure where to buy!

    Maybe a few of the old hands can share how they bought their first IP and what factors they considered.

    Thanks
    FM
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    I reckon if you treat your first purchase as an IP even if it's going to be a PPOR, you can't go too far wrong. Not many people stay in their first home forever, so buy it with a view to it being an IP in years to come.

    Make sure you structure your loans appropriately too, or you'll lose thousands in deductions when changing it over.
     
    tavinium and Mel_C like this.
  3. fajji

    fajji Active Member

    Joined:
    2nd Dec, 2015
    Posts:
    26
    Location:
    Melbourne
    Is there an one size fits all solution for this?
     
  4. Hodor

    Hodor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    745
    Location:
    Homeless
    Some things are one size fits all.

    Using an offset account for example.
    Using the minimum deposit possible and placing extra funds into the offset account - ie don't use a 40% deposit as this reduces flexibility and deductions in the future. Maximum deposit I would ever use would be that required to avoid LMI which is 10-20% depending on employment and lender.
     
    KayTea likes this.
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    Generally, I'd use as high leverage as possible for the first one, if you're sure it will be an IP down the track.
    Use an offset for any savings, have the loan IO so you can save as much as possible into the offset.
     
  6. JustinB

    JustinB New Member

    Joined:
    18th Dec, 2015
    Posts:
    2
    Location:
    Victoria
    Hodor - How would this apply to a FHO who was able to skip LMI by using their parents as guarantor? Would it be worthwhile only laying down a 5% deposit and keeping the rest of my savings in an offset?

    I should add, that FHO would be me and it would be a temporary PPOR which I would turn into an IP once I could afford to buy another.
     
  7. Tranquilo

    Tranquilo Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    342
    Location:
    Mascot
    @JustinB , If it was me I would and I didn't have to pay LMI I would take 95% and leave my savings in offset. Go IO and and save my (what would be principal) into offset as well. Also have my salary paid in to offset too.
     
    JustinB likes this.
  8. S.T

    S.T Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    428
    Location:
    I'm not selling anything
    Buy an IP with a pool
     
  9. JustinB

    JustinB New Member

    Joined:
    18th Dec, 2015
    Posts:
    2
    Location:
    Victoria
    A pool?
     
  10. fajji

    fajji Active Member

    Joined:
    2nd Dec, 2015
    Posts:
    26
    Location:
    Melbourne
    what about in terms of narrowing down on a state, city, suburb, street and then finally the property? I know there isn't one right answer, but just struggling in narrowing it down to a location
     
  11. wogitalia

    wogitalia Well-Known Member

    Joined:
    28th Oct, 2015
    Posts:
    871
    Location:
    Perth
    First step is certainly a plan of what you want to do with it, from there you can find the questions to ask from a tax and financing perspective and from there you can identify how much you can spend which helps identify the regions to target.

    Certainly look into the FHO grants available where you are as they may tip the decision further to PPOR. Some of the tax benefits of buying as a PPOR are also worth investigating but if you live at home the rental income may offset those within a very quick period.
     
  12. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    2,458
    Location:
    Sydney & Gold Coast
    I concur with others, utilising LMI is a fair idea (in most cases) to retain more of your cash savings and use more of the bank's money rather than yours.

    @fajji one other thing to consider is that having deductible debt (so, buying a PPOR) will limit our borrowing capacity quite a bit when looking at buying more property. This may not become an obstacle for some time depending on your income etc, but something to be mindful of.

    I bought a PPOR first but if I had my time again I'd have gone straight for investment properties first and been able to buy more, sooner.

    I thought I'd be in me home for 15+ years.

    I moved out after 5 and it's now another investment property.

    Regarding narrowing stuff down (assuming this relates to an investment or a VERY strategic PPOR purchase) and assuming you're got a good understanding of the mechanics of investing itself – if not, books, magazines and this forum will help:
    • Get clear on your goal. Why are you buying/investing? What is your timeline to achieve your goal?
    • Work out your borrowing capacity with your mortgage broker and have them map out how to get from IP1 to IP2 to IP3 and beyond–look at the bigger picture and ensure your purchases fit into part of a bigger plan to achieve your goal.
    • With a budget and plan, you should know your approx purchase price, desired rental yield type of dwelling etc.
    • Leverage other investors–those with experience and results. This can help guide you into a state, even suburb and then you can do your own due diligence to see if what they've suggested, and their reasons/evidence, make sense.
    • Get intimately familiar with the area and current values. Look at past sales, current listings, talk to agents, get in a plane and check the area out until you have a great feel for it and attend as many open homes as you can.
    • Make offers in which the numbers stack up for you.
    • Repeat until you successfully purchase.
     
    fajji likes this.
  13. tavinium

    tavinium Well-Known Member

    Joined:
    10th Oct, 2015
    Posts:
    51
    Location:
    Melbourne
    I did similar to already discussed. Found my first place where it ticked all the investment boxes and that I was happy to live in myself, which is a good sanity check for buying an IP anyway. Set up my loan structure to ensure best tax outcomes down the track. When my circumstances changed, easy convert into an IP.

    Understand how emotions can influence your decisions. And of course be prepared to compromise as to what you may ideally want in a PPOR property. But compromise many come along even if you were looking for just a PPOR for the long term.
     
  14. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    904
    Location:
    Melbourne
    Good for you to be still unsure! We talked to a so called "property investment strategist", believed him and ended up in all sorts of trouble for our first IP!!

    The Y-man
     
    Realist35 likes this.
  15. fajji

    fajji Active Member

    Joined:
    2nd Dec, 2015
    Posts:
    26
    Location:
    Melbourne
    Thanks everyone. Very helpful!
    Can anyone recommend a good mortgage broker in Melbourne? I knew a good mortgage broker in Perth but now that I am in Melbourne, prefer someone I can discuss with in person.

    Where can I find this list?

    To be fair, investing to hopefully have a comfortable and early retirement. In terms of actual goals in terms of numbers i.e. yield %, CG, value of properties - haven't got any of that as I have no idea what is considered good.

    For e.g. 1 & 2/2-4 Leatherwood Grove Meadow Heights Vic 3048 - House for Sale #121157226 - realestate.com.au how would an experienced investor evaluate this property? Could probably get gross rental of $600/wk, which gives it a yield of 6.4% if bought at $485k. Any methods or lists here would be helpful. I could then try that on few properties I think would sell for X and then see how much they actually sell for and then also track their estimated CG
     
  16. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    I saved a deposit, bought a block of land and was fortunate it more than doubled in a short amount of time. Looking back, that seems oversimplified, time helps you forget the difficulties.
    Didn't really know anything about investment property way back then, so can't share any of my genius thinking at the time, a bit of dumb luck involved. I was also fortunate that I knew a lot of people who had bought houses, brother was a carpenter/builder, close family friend was an agent/worked for a building company, so I was familiar with finding 'value', building, paying mortgages etc... relating to PPoR's - but not all the ins and outs of investment property. It was probably more than 10 years before I read a real property investment book.
    But if I was going to go back in time and give myself some advice it would be to start reading books, researching, asking questions of people who have done it themselves as early as possible.
     
  17. tavinium

    tavinium Well-Known Member

    Joined:
    10th Oct, 2015
    Posts:
    51
    Location:
    Melbourne
    I'm speaking figuratively when I say ticked all the boxes :)
    Have a look online for IP appraisal forms.
    For cash flow, how rentable is the property, eg area demand, location, transport, etc, and is it low maintenance and have low running costs. What is the gearing and depreciation like. Can you get a good cash flow.
    For growth, can you add value to the property and flip it, does it have long term growth potential, or development potential, etc
    All depends how you plan to reach your goal.
     
  18. sanj

    sanj Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,148
    Location:
    Perth
    First u need to decide if the priority is to make money (and maximise your potential return) or have a home of your own to live in. Unfortunately the 2 are often, but not always, mutually exclusive.

    Get that big decision out ofnthe way and the progess from there.
     
    fajji likes this.
  19. fajji

    fajji Active Member

    Joined:
    2nd Dec, 2015
    Posts:
    26
    Location:
    Melbourne
    Yup, that's what we are trying to work out now. Will keep you all posted once that decision is made :)
     
    sanj likes this.
  20. rizzle

    rizzle Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    50
    Location:
    Melbourne
    I started out with a PPOR that had reasonable IP fundamentals. If I had my time over I would have gone down he rent-vesting route (rent a home and buy IP's) as I've already hit a finance wall (because I am servicing the debt, not a tenant).