Introduction and an analysis on my future property prospects.

Firstly let me introduce myself, I'm Ethan a 26 year old fairly new too property investment and First home ownership. The time had come where I had to take a leap into the property market and make a purchase while bank interest rates were low in January-March this year. I had spent approximately 4 weeks searching for a first property, I had saved enough for a 20% deposit but actually made a wise financial decision to rent it out after settlement so I'm still currently living at home. I'm not on a fantastic wage like a lot of others may be on in these forums but I make up for it but saving hard, working hard and putting my money into areas at the right time which is now property.

After searching for a few property's and giving them the flick as they were just simply overpriced I settled for a 1/1/1 in a small 12 Unit complex in Nundah for approx. $300,000. It was a little bit of a stretch but I have picked up a very good buy and have rented it out for more than my Loan repayments. I was fortunate enough to rent it out only 2 weeks after contract settlement as well to a sofar clean and tidy Tennant.
Here are my questions and where I stand at the moment. I was planning to move out on Janurary 2016 but the living costs for a single guy is a little hard on my wage. I'am looking to rent it out for another 12 months and see what my position is and also look at the Unit demand in Nundah. I'am almost coming to an analysis that I could sell for a profit (Units already of less quality to mine are fetching $345,000+) to help me get into a 2/2/2 apartment which I will move into and rent out one of the rooms.

Are there any other investors/Owner occupiers living in Nundah area? What are the Unit prices like at the moment? Is there still a gradual demand in Nundah with equal growth?

 

Hi Ethan, like you I am a new investor. I just wanted to share with you some of the things I have learnt from this and the former SS forum - which has been invaluable. Firstly, congrats on your first IP. You appear to have done well but I'm sure other, more experienced members here can comment on that better than me. One of the first things I learnt is that you don't have to be on a great wage and in fact there have been threads in the past and in API about successful investors on $50K or less. It's all about saving well and using key investing strategies to keep purchasing i.e your loan structures, team around you, leverage, etc....Staying at home as long as you can is a smart idea and will help you save.

You might want to ask some members about the benefits of holding your IP and CG tax especially as it sounds like you are positively geared. However, this will all depend on your goals - something I am learning that determines every decision you will make. Another thing I have learnt is that investors must ensure that they factor in that this low interest rate environment will not last forever. We need to ensure that we can still survive if rates rise. I am continuing to ask questions here - sometimes I am worried they are so stupid but courage is essential as is developing the mindset of a successful investor. I am by no means there and will continue to read. to date I have read 10 - 15 books on the premise that you learn from those who have already achieved their goals. (there was a great list on SS not sure how to find it now) but even so have to keep asking the forum for help as the theory can be just that when it comes to the reality of actually choosing a house. We all want to buy well it just tricky sorting through all the information needed to do that.

The more I learn it seems the more I don't know (courage again needed here). Sorry I can't help with your Nundar questions. I wish you all the best, you have found a great resource here.

 

Hi, Ethan,
Brisbane looks like a booming city in terms of property market for the next few years. Of course, no one has the crystal ball ! "Do not sell" is my advice. I am in Sydney and just bought some in Brissy. BTW, do you have to move out ? Can you delay moving out ? Save/work harder to buy more. Booming time only comes once in a decade or more, do not sell prematurely. Booming window is precious. Maybe I am wrong but time will tell.

 

Dear Ethan.
Not a bad start. Well done on buying a first IP.
Its great you may have equity in your 1/1/1 and if that is the case, I suggest that you dont sell it but pull out that equity. If you can get a loan for more than 80% LVR, (say 88% or 90%), do it because it will help you expand your portfolio - you need some money available to buy the next one. (I'm assuming your servicability is ok, and your rental return will be fairly strong so you wont need to fund it ongoing from your pay packet).

The LMI can be capitalised and its tax deductible over 5 years anyway. Its better to have 2 or 3 properties in a rising market rather than 1 (as long as you can service the loans and not have it cause you sleepless nights). Even if they all go up say $40k each then you've made much more than a singular $40k. And they should continue to go up in the future too as long as you bought well. (When a boom comes... you'll love it!!) Anyway, talk to a good broker (many are on the forum) on how to pull your equity out and use them to help buy your next purchase. Good luck.

 

Agree with @Gockie , use your equity if you're able to.
Plenty of more information on it around here.

 

Yep. And the nice thing about doing this is that you can simply rinse and repeat. Gain equity, buy another. Its a money tree. One property can turn into a whole portfolio over time as long as you have the capital growth.

 

Than you everyone for the generous reply's and helpful information! I have been flat out at work and unable until now to get back on. At the moment I'm negatively geared as my total costs yearly to look after my unit are $40 a week more than my rent. My rent is a very stable $350 with repayments only at 280 per week as not too shabby. I will be renting it out for another 12 months as my current tenant is leaving January 8th. Depending on what Brisbane is looking like and mainly Nundah Area I'm considering selling my unit and purchasing a 2/2/2 so that I can get a friend in to live with me and also motivate me to move out of home. Only a 2 year stint in IP terms sounds like I'am impatient but with unit's on the increase in Brisbane I dare say the total amount I can sell my unit for won't be much more than what I aim too sell for, my goal is $350,000.

 

Slow right down. Hold your horses. Try to not sell. Pull out equity.... which means, top up your loan, use that released equity to buy your 2/2/2 if you can. Buying and selling does not get you too far. In 10 years time, assuming the market performs like normal and assuming Australia hasn't fallen apart, you'd want to have held onto all your properties (unless they are dogs) because in general, over time, property values go up. If each property goes up 3% a year, i'd prefer to own 5 properties instead of just one....
If you don't understand what I just wrote, I suggest you should start by reading some good books on property investment to clearly understand why building a portfolio (rather than buying and selling) is important for long term wealth...

 

Mate, you've done well so far. It's important you take it a step at a time and don't rush without thinking things through and getting proper advice. It may be very costly and your efforts would have been in vain.
You paid 300k 6 months ago and your talking about getting your goal price being 350k. If you factor in holding costs over the holding period and selling fees there isn't really going to be much left. As @Gockie said, buying and selling especially in the short term isn't a good idea generally speaking. The small gains will be swollowed up by transaction costs. Also it isn't clear if the 300k you paid was including stamps or not. If it isn't, then realistically, you will be lucky to break even after all associated transaction costs both in the buying and selling stages. Taking advantage of any equite gains might allow you to still purchase that 2 bedder you want without sacrificing the one you currently have. Again as Gockie said 2 x properties increasing in value is always better than 1.
If you want to expand and have a portfolio, do yourself a favour and speak to a reputable broker who can advise you on your options.

 

I'm only considering selling after 2 years, definitely not after only 6 months. I'm mainly wanting to use this property as a stepping stone to pay my loan off and upgrade into a place I can move into. I will continue to save hard and pay it off but I struggle too fathom if I will get enough equity built up within 2-3 years especially on my wage....My time is running out in the comfort of my Home Nest as I will need to move out permanently when my parents retire and move to a smaller home that's easier too manage for them.

 

My total price was around $317,000, I unfortunately had to pay stamp duty as I made the decision to rent it straight out upon purchase. In a perfect scenario I would like to sell my unit at the time the market is quiet so that I can make an offer on an apartment that could possibly be out of my reach at a Boom time of the season. I understand I'm thinking far ahead but it is what has to be done in property to follow the market and catch the perfect moments to sell. I can't sit on a property for 5-10 years waiting for the profits to "Fruit" so too speak, I need to plan to move out so timing this all is part of what I'm getting at.

 

Give it at least a full cycle (7-10 years) before selling.
And... what's the talk of paying something off? Go interest only. You don't actually want to pay it off. As an investor, you should try to expand the portfolio early, and only near the end (like when you want to retire), then consider selling a few and paying off the loans to have a number of unencumbered properties. Or alternatively, sell down and buy shares etc.
I'm only paying off my PPOR because of the partner... otherwise I'd plough all I can into a huge IP portfolio.
Perhaps i'm on the aggresive side though. But being aggressive suits me. I feel there's no point in stopping at just 1 or 2!

 

Try to learn about owning more than 1 property at a time. It's definitely possible. But it helps obviously if you have heaps of growth in IP1 to help you buy property #2. Can you manufacture equity in any way, such as via reno?

 

Great advise Gockie! first ip is always the hardest it get easier the more you accumulate, if you change to interest only and do an equity realease for the new place you could find that you might be in a similar position as you were with one loan repayments.

Run the figures by one of the brokers on here with what your looking at purchasing you might be surprised.