Life financial guidance wanted

Hi all.

I am very new to Property/investments in general and would like to hear some of your advice. I am currently trying to do some research so would love to hear any experiences or be pointed in the right direction.

Here's the break down of my particular situation.
I am 31 and engaged to my fantastic fiance. We have been travelling Australia for 2+ years and love the lifestyle.
Neither of us have any debts other than my HECS (including credit cards, personal loans)
I am currently working temp as a teacher and have employment for the foreseeable future on contract. My partner has recently started her own business not currently generating income due to covid but we are hopeful.
Total income aprox 100k pre tax and 20k savings

Our goal is to travel again in around 3 years for an extended period of time, however this time around i would like some financial security in terms of a property or similar.
We will save up a large portion of money but will not be earning a guaranteed income whilst travelling.
I was thinking of looking into buying a cheap property that is cash flow positive. ie sub 200k My thoughts behind this is:

• Looking for a buy and hold / set and forget property
• cheaper means easier to save for deposit and more likely to get a loan.
• Cash flow positive so that we do not have any extra expenses on the road (not expecting a net income from the property, although this is always welcomed)
• Would love capital gains, but possibly not an option in the areas where we could afford at the risk of having too large of a mortgage if interest rates rise/no tenant and we have to service the loan
• Not looking at any tax benefits when travelling as wont be paying much/any tax

Other options would be to just invest in shares etc until we feel like settling down and buying a forever home or having kids.

Any thoughts are welcomed.
Cheers
Mark

 

What is the point of buying a cashflow positive property in that price range, if no capital gains are expected? Compared to an alternative like shares? What will that sort of property do for you in a few years when you are looking to buy ppor?

 

A thought that i have had. i guess at this age getting the foot in the door on the property ladder would feel better than putting a small deposit into shares. If the property pays for itself over the next 25+ years (with minimal growth) i expect i would be in a similar position. However i could be wrong as this is all assuming the rent covers cost of the property including repairs etc.

Perhaps targeting capital growth is best for my situation but that would require a more substantial property/better region which would require a larger deposit and larger mortgage which my partner is against unless it is our ppor...

As i said im new to this so still looking for advice \
cheers

 

I guess the same argument could be had at any price range though right? why cash flow positive with no capital gains..?
For me would be an opportunity to get into property market and have the chance at extra cash flow (when not earning a regular income for a 2+ years) and also a possibility of CG (not ruling it out)

 

I would buy a cheap property (but like $400k ish, not $200k) that you can live in for the next 3 years (maybe) and maybe do some work on to increase the value and rental yield. Something that will likely have capital growth - eg outer suburbs of Brisbane. What city/town are you anticipating to live in for the next few years?

 

We live where we grew up on the central coast nsw with family for cash rent. We would love to buy here but unfortunately have been priced out (prices have been crazy)
Happy to purchase anywhere in Australia for our IP but still unsure if best option.
My worry would be buying $400k IP and bank interest rates go up/vacancy issues etc and we have to fork out large values of money either in bulk or weekly. Other than the obvious , this could stop us from traveling and/or saving for our ppor in the future…
But again I’m kind of making this up as I go along. Please advise. Any experience out there?

 

You are assuming you can get rent to pay for interest, expenses AND loan principal?

really suggest you start from the beginning. Do a lot of reading. Then redo your plan.

also, the brutal truth is that if you decide to travel for a while, in the early years, that will slow down investing or even buying any ppor.

 

Good on you for your diligent savings, and well done for wanting to make the move into real estate. Real estate is really essential for banking the future, so well done.

I can't believe I am going to say this, but check out the "Logan" thread on this forum. I think it could present a realistic option.

Cheers,
John

 

You need a big cash buffer in your account in the event that something needs repairs etc… Perhaps shares might be a better option at this stage? And then cash out when you need a deposit for your PPOR. You could even make use of the super saver scheme to get your PPOR deposit.

 

This is certainly possible. I bought in Mildura and Slacks Creek in 2015 with this principle in mind.
It's been 6 years and I certainly have not seen tremendous Capital Growth but they've done all this and more.

To be clear, the way I operate it is as follows :
1. Rent goes into Offset Account for the property
2. All expenses and Interest & Loan principal gets debited from this account.

It's operated this way for six years on P&I and I actually have ~$4-5K in each of the accounts.

I also did this with a property in Blacktown I bought last year (House + GF) and it's been working smoothly. Granted that's only been a year and a $5000 repair could throw it off.

 

Just to be clear I am at the beginning, so am taking on all the advice thank you. I have read plenty of posts suggesting a net positive yield after expenses. And looking at some properties I estimated a small ~1-3% net in some regional towns. If this is not possible to achieve then you are correct and I will need to reasses. I thought net positive cash flow was possible.

 

I feel like you're assuming that it will make money. It might not.

Cashflow wise, you might be stuck with a raft of maintenance expenses, vacancies, problem tenants and property management fees. Even if you don't, most properties would have a net operating loss - it's just by how much.

Capital growth wise (especially in that price bracket) you might end up with something that is worth the same or possibly even less in 10 years.

How would the above help you with your lifestyle and financial future exactly? And do you have the skills and time available to try and pick a good investment over a dud one?

 

Thanks for the feedback, it's great to hear a success story from someone in a similar investment strategy. I will try to find similar cases and see if i can mimic or if something else like shares suit better

 

Hey thanks for the information! i definitely have the time but not the skill (at this stage, but got to start somewhere right) to pick the right property, but that is where i could also enlist some help.
I am not assuming anything only looking for advice, by the sounds of what your'e saying it might not be possible or at least likely for me to have a net positive cash flow property?
You are correct that would not be helpful at all and possibly shares are safer in that respect. So in your opinion it is not worth doing at all or only in that price bracket?> should i expose myself more and get out a higher loan and a more expensive property with more expensive fees/running costs or since, as you said, most properties will be running at a cash flow loss should I at least wait until i can off set that with some tax benefits?

 

How much could you make if you just invested the money in an index fund instead? based on average returns.

 

Assuming a $30,000 at a high estimated average of 10% (normally any where between 5-10%)
would look like
~77000 after 10 years
~200000 after 20
and ~300k+ after 25 years

A unit or house value at ~$180,000 with 30k deposit so aprox $150k loan plus stamp duty etc, assuming no further expenses need to go in (so any net yield on the rent would go into a fund to pay for any repairs or expenses) after paying P&I equity in the home would look like this assuming the Property price does not fluctuate.
~63000 after 10 years
~147000 after 20 years
~180000 after 25 years ie loan paid off

Now this is making MANY assumptions, Does not include any broker or management fees of stock portfolio, and take very high end of the scale interest rate.
It also assumes that the expenses of the building over 25 years are covered by the net rent (very unlikely) and interest rates don't change (HA!)
However it also assumes that the property has none, zero, nada capital gains in 25+ years and that i don't use the equity in the property for other investments or ppor..

Thoughts on these rough numbers? i don't think it clarified too much for myself.

 

Look at what you will likely need in a few years: a deposit for a ppor. You probably wont hold that ip for 25 years. Unless you get strong capital gains…. The shares are more flexible.

 

I think after saying it all out loud that makes a lot of sense and probably a smarter option. I think I was loving the idea of getting into the property market and getting some experience/own a piece of land.

 

I often wonder if I had just invested in ETFs way back instead of buying property would I have been better off. It would have been much less headaches thats for sure

 

this is not a good reason to buy a property especially if there is no long term plan, or even a long term plan to hold. Not all land is alike.