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How much $ do you need to 'get started'?

Discussion in 'Property Finance' started by KayTea, 22nd Jan, 2016.

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  1. KayTea

    KayTea Well-Known Member

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    I was talking with a much younger friend only yesterday about getting started in investing. We were basically just discussing what investment is, the importance of good advice and support, developing an investment strategy, and how to get started.

    I'll spare you the long, but very interesting, conversation, but it got me thinking about how much money someone would really need to have saved in order to get started on their property investing journey. I was lucky - I had equity in my PPoR that allowed me to get moving. But, for a fresh faced uni graduate (i.e.. someone with no savings, and only just starting full time employment), how much in savings do you think they need to have saved before thinking about getting into the property market?

    I know that it is dependent upon the price of the potential investment property (as deposits are % of price etc), however I'd be interested to know, especially from the parents who are currently helping their adult children get into the IP market for the first time, what sort of advice did you give them about how much to save etc before making the leap, contacting brokers, looking for a place etc?
     
  2. Perthguy

    Perthguy Well-Known Member

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    I got started relatively recently compared to a lot here. I think I had about $15k when I bought my first place for $206,000, which recently sold $255,000 not heaps more than I paid for it.

    I didn't have enough for the deposit, so I borrowed from friends. I guess it depends on the price of the property, how much they are borrowing from friends/family and how large a loan they can service. It's a bit of a difficult question to answer.
     
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  3. euro73

    euro73 Well-Known Member Business Member

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    You need 12% + stamps if you want to get started ... and a few K buffer if you are sensible. How much that equates to in dollar terms depends on the purchase price, which in turn depends on borrowing capacity.
     
  4. KayTea

    KayTea Well-Known Member

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    Assuming CF neutral……. (but, hypothetically, maybe add a few extra $$$ to the repayments).

    Now, doing a bit of research on first year grads (and yes, I know professions and state awards may have a big impact here), so I'll start low - let's say $45,000 pa (but no other loans/debts yet, other than HECS, of course……).
     
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  5. Brian84

    Brian84 Well-Known Member

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    I guess you would have to work out what your price range is and then work out how much deposit, LMI if applicable, stamp duty and other relevant costs plus a bit of a buffer that will allow to cover a month or 2 of repayments incase you can't get it tenanted straight away.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If they were saving a deposit themselves, it's a toss up between leveraging up as high as possible for the first one and wearing the LMI cost, or saving a bit more and reducing it somewhat. It does depend on their circumstances, and also the property they're buying. Also how long it would take them to get a decent buffer in place and so on, if they used most of their savings as a deposit.

    On $45k they won't be paying any HECS. I would look at their own plans - when do they want to buy a PPOR? Their next IP? What's the plan? It's not really a one size thing. General rule though 12% deposit is the go due to the not exorbitant LMI cost, and greater choice of lenders.

    I would see a broker as soon as you're/they're thinking about it to start getting everything in order.
     
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  7. Perthguy

    Perthguy Well-Known Member

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    My first place had no stamp duty. Are they still doing that for FHBs?
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes, with certain limitations but not for investors.
     
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  9. Perthguy

    Perthguy Well-Known Member

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    My first IP was a PPoR that I had to move out of when my job got moved to another area. I followed my job and rented out my PPoR so it became an IP down the track. That's why there was no stamp duty at the time I bought it.
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Best way to do it! Live in for 6 months and then rent it out :)
     
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  11. Perthguy

    Perthguy Well-Known Member

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    I think I was there about 18 months but yeah, same concept.
     
  12. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    If we assume no guarantors/gifts are involved, I reckon $40k is enough to get going today. If you''re ok copping some LMI, that's a $300k+ property. That'd require up to $55k of pre-tax earnings. Doable in a couple of years for just about anyone who is keen and capable of matching their behaviours to their goals :)

    To answer your question:
    • Help them get clear on the "why". Why are they investing? No, not to buy x properties. Property is just the vehicle to get you them somewhere they want to be.
    • Explain what they'll need to earn to save the deposit.
    • Help them get clear on the "when" so they can adjust their spending/saving accordingly.
    • Encourage them to learn as much as possible about investing––read property chat, books, magazines..listen to podcasts, go to some seminars (keep the wallet at home) and most importantly, network with investors––while saving so they have a high level of knowledge before they pull the trigger.
    • Encourage them to begin building there team and most critically, to find an awesome broker (yes, I'm biased). Preparation is key.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    We actually did the same - lived in it for a short time, then moved up north and rented it out.

    @Steven Ryan Regarding what you need to earn - why? More important what you'll need to save, I would have thought? What you need to earn would come into play if you don't earn enough to save the required amount, is that what you mean?
     
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  14. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    @Jess Peletier, sorry, it made sense in in my head :) I should have used the term "save" but was trying to make the point that people often overlook the fact that they get taxed and think "I make $40k a year so I just need to save half of my pay for two years and I'm there".
     
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  15. USC

    USC Active Member

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    I think if you are looking in a capital city, minimum would be circa $50K in addition to a buffer.

    About a $350K property:
    $35K deposit
    $10-17K stamp duty depending on state
    $5K LMI

    On a $50K new grad wage, this could probably be saved in 2 years if frugal. If living at home with parents, it can easily be saved within 2 years.
     
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  16. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    @USC, typically you would capitalise LMI on to the loan so it's not an out of pocket cost.
     
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  17. joel

    joel Well-Known Member

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    I saved for my first place in a year and a half, but it was only 150k..
     
  18. Daniel007

    Daniel007 Well-Known Member

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    This is my situation at the moment, currently in my final year of study. At a bare minimum i think 50k will be necessary with a cash buffer which seems to be correct with what has been mentioned. Feeling good because i'll be close to this figure by the end of the year :)

    I'm assuming that living at home would have a much smaller impact on serviceability now with the APRA reforms and their disregard for actuals?

    Also, does HECS have a large impact on serviceability? From the online calculators and a 60k salary, only 2k is taken out to pay down my HECS debt so it shouldn't be a big issue when i'm borrowing?
     
  19. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Hey all,

    Is it possible in this current lending environment to do a 5% deposit?

    Let's say this guy was on a $45K salary, lived at home, had a phenomenal credit score, no credit card/personal debt, literally no expenses or dependants whatsoever.

    Therefore, on a $250K purchase - 5% deposit + 5% entry costs, and LMI is capitalised.
    Only need $25K to get started?

    I understand 5% deposit is not ideal at all, but to get in the game early may be worth it.


    Cheers,

    Taku
     
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  20. Adele

    Adele Well-Known Member

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    The monetary value will have to depend on how much study the person has put in.
    Research, understanding the process, DD. A less informed person will need a lot more buffer for the unexpected and mistakes.
    I think the money is secondary to the information and study.
     
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