Just bought my FIrst home. Now what?

Discussion in 'Investment Strategy' started by AndrewL, 11th Feb, 2020.

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  1. AndrewL

    AndrewL Member

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    Hi Property Chat community,


    I wanted to get opinions regarding how I should proceed.


    I’m 25 years old, medico and I have just bought and in the settlement period for my first home (FHB) in lalor park. It is a 2 bedroom, 560m2, r2 zoned. 19 min walk to station. Purchased for 610k. Rent would be $390-400 a week.


    I plan to live in the property for 6months and rent out the other room in the meantime and then transition it into an investment property.


    I have got a granny flat quote for 2 bedroom, brick for 120k from 5 star granny flats.


    Now I have been advised by some people that building a granny flat would be overcapitalising and to use my $86000 in savings to purchase another property rather than get a loan or cash loan for the granny flat from Mum and dad for the remaining 34k. As I am medico I can get 10% deposit no LMI.


    My borrowing capacity would be 400-500k. Haven’t got preapproval yet.


    Should I

    1. Build the granny flat and then turn the property into almost neutrally geared? And if so, should I get a loan or should I try and get a cash loan from the bank of Mum and Dad?
    2. Purchase an investment property with the savings I have in the meantime somewhere with close to neutrally geared somewhere in Melbourne with a BA. Also should I build the granny flat in the future when I have maxed out my serviceability?
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Option 2.

    We explored the granny flat option when we were building our intial portfolio. However, decided against it, as you would rather use that to leverage for a 2nd Property and get further exposure to the market.

    Another 500k property grows 10%, you make 50k in equity gains, however a Granny Flat won't give you that.
     
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  3. Toby

    Toby Well-Known Member

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    Best to increase the asset base first, if you feel the need for extra cashflow later after you have tapped out lending options the GF may be a good option.
     
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  4. Trainee

    Trainee Well-Known Member

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    Is it reasonable to assume your income will rise from now on? Investment cashfow probably not a priority.
     
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  5. AndrewL

    AndrewL Member

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    Thank you. Yeah I’ve been changing my mind about the granny flat. Seems like a good cashflow move later on down the track.
     
  6. AndrewL

    AndrewL Member

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    Yes it should hopefully increase by about 10k each year and then max out at 150k until I finish my training and become a specialist.
     
  7. Luca

    Luca Well-Known Member

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    ...pay the loan ;-)
     
  8. Trainee

    Trainee Well-Known Member

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    at which point your pay should get another jump?

    you can afford to focus on increasing exposure and capital gains. And look at asset protection.
     
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  9. AndrewL

    AndrewL Member

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    When you say loan do you mean obtain finance for the GF?
     
  10. Biggbird

    Biggbird Well-Known Member

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    Have you considered option 3: invest a significant portion in ETFs/LICs?
     
  11. Trainee

    Trainee Well-Known Member

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    You will likely have a lot of different opportunities in the future, as long as you are financially educated to understand them.

    doctors tend to be high income but financially uneducated. Lots of potential investors and business opportunities in your social circle.

    commercial property, equipment leases, pharma and medical device companies etc. combine your skills.
     
  12. Barny

    Barny Well-Known Member

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    Can you use some of that 86k and add value to the home you just bought? Perhaps turn it into a 3 bedroom or add value through other methods. Then onsell take the profits if possible and repaeat. Tax free as it's your ppor if sold.
     
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  13. mikey7

    mikey7 Well-Known Member

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    They were answering the topic of this thread: "Just bought my first home. Now what?"

    I like Barny's idea, if its something you can do.
     
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  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Incorrect. The main residence exemption applies to the owner occupied portion of the home - Maybe 50% but maybe 100% for the first 6 months only. The Dr indicated he will rent one bedroom of the 2.
     
  15. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    One issue new medico's face is the impact higher education debts have on borrowing capacity. Most new dentists and doctors face rather large debts which lenders expect and consider. Your broker should address that issue too.
     
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  16. Jamesaurus

    Jamesaurus Well-Known Member

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    In this scenario is the other room rented out "on the books"? Or is that cash a contribution to your regular household expenses?
     
  17. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    GF play in that PC is more around cashflow and is typically more suited to someone in consolidation phase, rather than acquisition phase.

    as other have alluded, gearing that cash into another property or perhaps equities will likely have a better outcome middle term.

    Further, its rare that the GF will increase the value of the property by its cost, again in that type of postcode

    Typically you would see a 75 % return on the dollar in val, meaning youd need to tip in a bit more than expected.

    one thing thats worthy of consideration is that your focus on neutral to +ve cashflow over growth, serves your current need, its unliklely to be that way in 10 years time............ quality asset over quantity income I suspect will be the preference. Its a common experience with folks that have high income progressions.

    ta
    rolf
     
  18. AndrewL

    AndrewL Member

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    Happy to consider either. What would be the pros and cons of on the books or cash in hand payments?
     
  19. AndrewL

    AndrewL Member

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    I like this idea. Will look into it. Thanks Barny
     
  20. AndrewL

    AndrewL Member

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    Thanks Rolf. It’s reassuring to see that most people here are suggesting against the GF for the time being.

    I guess my concern was that my borrowing capacity would be impacted because of the significant shortfall in the property ~$300 or so per week.

    So I should focus on settling this property then acquisition, and continue to look for properties with good capital growth potential even if it means it may be more negatively geared vs neutrally geared but lower capital growth potential?