looking to buy first IP, am i on the right track

Hi All,

Looking to buy my first IP and this is basically what I'm "planning" to do.

Buy a house 3-4 bedroom on as much land as possible with a 20% deposit.

rent it out cash flow positive interest only loan.

any money made will go into an offset account against the house.

Use any cash in there + my own from working to purchase more properties and repeat the process.

Sell a few in years to come to either buy more or decrease the loans on other IPs to in turn bring more cash in.

does this sound logical enough?
i have much to learn but will buy 1 and learn from there.

thanks!

 

Overall plan broadly sounds fine. Not sure if the selling in a few years time will work well though. Might need to be flexible with that part. Generally unless you are very proactive and plan to utilise 'value adding' strategies to manufacture growth faster, organic growth generally will take more than just 'a few years'. Also entry and exit costs are high.

Only thing left to do is to learn how to increase your chances of buying the right types of properties in the right places at roughly the right times, so you have the best exposure for growth medium to long term. And if you think it suits you, might look into value adding strategies in the future.

Your new best friends should be property books, learning from the forum and networking with other successful investors who can guide you along.

Congrats on starting and good luck with your first place.

 

Hiya

Do you have a PPOR?

Cheers

Jamie

 

thanks for the responses.

yes i do, lets say half paid off.

 

Welcome Hannibal.
Some questions for you -

1. Do you have any savings to begin with?
2. Are you on an income that lenders would consider sound to lend you the amount of money you require?
3. Is there a particular reason you want to purchase all properties at 80% LVR?
4. Are you certain all your properties will be CF+?
5. Have you found any areas you think you can always get CF+?
6. Are you aware that saving up 20% plus costs for each property will not be an easy task? (obviously depends on your income/MPS)

Just a few points to consider. We'll done for getting started though and taking the first step.

 

Then best not to park your cash in an offset linked to the IP.

Best to keep your cash in an offset linked to your PPOR - pay less interest on non-deductible debt.

Cheers

Jamie

 

yes i thought that might be the best case thanks for confirming that!.

Hi.

1 - Any saving i do have is in my offset against my house
2 - Yes both partner and I work full time with above average salarys
3 - 2 reasons would be no mortgage insurance and to get the loan down getting to more cash flow positive
4 - i would try my best to make sure they where before i made any purchases
5 - i think i have found a few areas but still havent found what im looking for
6 - i do understand this but will reassess at the time, but any ideas of how to get around this take more of a loan?

thanks!

 

[QUOT"HannibalK1ng, post: 154303, member: 4396"]



3 - 2 reasons would be no mortgage insurance and to get the loan down getting to more cash flow positive. Have you considered to use LMI and view it as a business expense, allowing you to grow your asset base much faster and bigger. Then during the 'pay down' or consolidation phase you can reduce debt to increase cashflow. By using LMI, it allows you to build that base faster and larger in the beginning (acquisition phase). Just a suggestion and it has to match your goals and risk profile too.

 

I agree with Leo. He made some excellent points regarding how to benefit from LMI.

 

thanks very much good to know!

 

@HannibalK1ng, Sounds solid overall.

Though it sounds like you're going to use your savings as a 20% deposit. Is that right?

Another way to approach things is to draw equity from your home, using that for your deposit and purchase costs. Then you can keep all your cash in offset.

And as others have mentioned, consider LMI. It will allow you to retain more cash as a safety net and you'll be able to acquire the next property sooner.

Of course, talk to your broker about the implications of these ideas. It's all good in general but your specific circumstances (and goals) need to be taken into consideration when it comes to using equity to fund deposits, LMI and other bits and pieces.

 

Many investors opt for an 88% lend. The LMI seems to be at its maximum efficiency at this level. This will allow you to borrow more and expand your portfolio quicker as Leo has mentioned. Although there are some other issues to consider like the interest rate can be higher and as usual, it is subject to certain criteria.

 

thanks everyone for your input all taken on board.

would there be any reason not to build a house for a first investment?

a few areas i have found i can build a house for 50k less then buying a built one.
is it worth building if thats the case?

i have been looking at min 3 bed houses but should i also look at units?

thanks!

 

[QUOTEHannibalK1ng, post: 154743, member: 4396"]

would there be any reason not to build a house for a first investment?

Yes, higher risk especially for first ip.

a few areas i have found i can build a house for 50k less then buying a built one.
is it worth building if thats the case?

Not worth it for the risks involved imo.

 

What area? This sounds yarrabilba themed...
What is your capital growth likely to be when others are getting shiny and new for cheaper

 

ok then its not something i would want to do then.

question is would you buy a unit closer to melbourne cbd or a house out rural (ballarat, bendigo, shepperton).

thats what im stuck between at the moment.

i know i just need to dive it but want to make the most calculated decision possible with my limited knowledge at the moment.

 

[QUOT"HannibalK1ng, post: 154754, member: 4396"]ok then its not something i would want to do then.

Well it is higher risk, there is no doubting that. Whether or not its suitable for you, only you can know that mate, but personally I wouldn't generally recommend it for someone's first ip.

question is would you buy a unit closer to melbourne cbd or a house out rural (ballarat, bendigo, shepperton). i'm not one to ask on Melbourne, ( last time i bought there was quite a few years ago) but i'm sure others will have feedback. I would add though that its really important to do your own research and DD too, and never ever just rely on what any one says mate.

 

this really depends on your goals or what you hope to achieve.Also there are 2 appoaches for this. if you are looking to expand your portfolio, you should as many said use LMI to your advantage to maximum the cash or equity you have, so you can purchase more.

If you intention is to generate a gain quickly a year from now then the question would be to limit the cost of acquiring the IP. For someone who intends to renovates or develop or sub divide houses within a shorter timeframe, i think the best is to got with the 20% deposit to avoid LMI.