VIC Melbourne, First IP

Hey everyone,
Just a Millennial here trying to not waste money on avocado brunch and looking to invest. I'm really green and a new member here so I was wondering if you could help me out with advice.

My situation right now is I've just started full time work and still live with my parents.
I've got a couple options that span across different thread categories. I earn about 61k before tax + super. I don't have any real tough expenses. I know, I'm blessed but I don't want to take it for granted.

Budget: 600k ish (I can get assistance from my parents but would love to be able to try grab a loan myself)

Option 1:
Obtain first home buyer's grant.
Stay in home for 12 months, making it my PPOR.
Work is in the city for me and location as close as possible would be great.
Advice for location that fits within budget?

Option 2:
Disregard first home buyer's grant, still live with parents.
Use property/s (if possible to even afford more than one with my budget) for negative gearing, maximise capital gains.
Where would be the best place to buy?

Overall, just wondering what options do I have? What's your best advice to a new user like me? I've been trying to educate myself through this forum. Additionally, if you had any tips in understanding acronyms - I've pieced together IP, PPOR but anything else I should know?

 

Not legal advice but I think currently the FHOG for Vic allows you to own property prior just not claim it. However the rules could change and this wouldn’t be something you would say will never happen.

Check SRO about the FHOG/ legal advice.

As for the other quiery about which is better, my belief is Melbourne has done its run already and yes it might get further up but doubt it will double in 5 years or have significant gains in the short term.

Personally I would look at other markets such as Brisbane (full disclosure I own there) as there are a lot of activity from building, jobs and migration plus really affordable housing compared to Sydney/Melbourne- do your own DD but this is where I would consider.

 

I have quite a few clients who have owned investment properties and still received the grant and other first home buyer benefits later when they bought their first home for themselves.

 

Hi @Z Millennial,

Welcome to the forum and kudos in starting out young and eager to make a start on your property investment journey!

Having IPs in both VIC & QLD myself I tend to agree with @Big Will - Melbourne has done a really good run in last couple of years and tides are starting to turn. My Geelong IP has done really well in the last 12 months alone - so the regional areas like Geelong/Ballarat/Bendigo are now getting the ripple from Melbourne, which is usually an indication that the capital city are close to finishing it's run. Recent auction clearance rate also supports this as it floats around 60% (at peak it was around 80 to 85%), so you may need to ask yourself whether investing in the Melbourne market has the best chance to get further price growth.

Now what is best for you comes down to what your short, medium and long term goal is. For example is your medium term goal to eventually buy a home to live in? Or are you happy to rent where you want to live and invest where you think you can make profit? i.e. Rentvesting. And what's your reason to invest in property and where do you want to be financially in 10 years time? Once you have the answers for these questions bedded down then you'll be able to eventually find the path that you should take towards moving to your goal.

Cheers,
David

 

Budget: 600k ish
I earn about 61k before tax + super.

Just because a bank will give you x amount of dollars. Taking the max loan possible is not for every one. Could you still make repayments if interest rates go to 6% or 7% ?
A worst case scenario . What if you property devalues by 10% ish and you forced to sell within a couple of years?
Building wealth is a long slow process that gets faster over time. Maybe start with a $300/350k ish property. but ymmv

 

Hi David,
Thank you for your response. I cannot seem to edit my original post but I do mean Victoria instead of Melbourne. I am open to the regional areas like Geelong etc as well. Can you please explain the concept of float to me?

Essentially the long term goal is to buy a home to live in, near family so east melbourne, within the next five years. Financially in 10 years time I would like to have full ownership of my PPOR with no mortgage (although that may just be a dream).

Further more than that, my intention over the next 20+ years is to be able to financial stable and earn enough passive income to cover living expenses.

The reason why I'm looking for property within Victoria is because I am able to explore the house in person and may be easier for property management? Also it feels more real? That may be child-ish and I can be open to other states. However for the time being I would like to focus on Victoria.

 

I understand this. Is this only concern you have here risk? It is possible to get assistance from my parents to make repayments should that be the case. However, I guess the short term goal is to use the house for negative gearing for tax benefits and sell within the next 5 - 10 years.

 

What deposit do you have?

 

I wouldn’t do any NG strategy in Vic for a 5-10 year window from today... unless you are really good at picking locations which I doubt you poses that right now so it would either be pot luck or you will end up losing.

5-10 years maybe look at shares (ETF/LIC) then

 

Hi Big Will,
You've been a great help in your replies! Did not know that you could have a property prior to receiving your FHOG. You are correct, I do not possess the knowledge to pick really good locations.

I have been looking at shares and is definitely one of my main options. However, I'm interested in diversifying a little bit outside of the share market and wanted to learn more about the property market.

I know eventually I will be looking into property - so do you have any advice on where to start?

 

Opinions are like bums. Everyone has one.
Spent $20 on the Barefoot Investors book or go read it in a shop. That is his opinion and gives you a bit to think about when it comes to buying a house.

 

Thanks Shogun, I've briefly skimmed through the Barefoot Investor book and understood the general principles. I feel like because of my general lifestyle (ie. not having too many living expenses to pay for right now), the financial advice is not super aligned with me. I aim to maximise my investment by utilising the majority of my take home money.

Again this may be childish because I'm relying on my parents for general living expenses and any possible emergencies. However, right now I'm blessed enough to utilise this to my advantage. (and they're happy to!)

 

Maybe read pages 168 and 169 again.

 

I'm assuming you mean ripple effect here. In very simple terms as a capital city like Sydney or Melbourne gets very pricey then people will look for surrounding suburbs/area that are more affordable and have better value for money. So the demand keeps shifting out like a ripple - hence it's called ripple effect.

Traditionally when Sydney/Melbourne has had it's growth then we see the regional areas starting to heat up. This is what we're seeing right now - Geelong has been running hot for the last 12-18 months and is still going, Ballarat is also now heating up - so yes if you're open to VIC in general and not just Melbourne, then perhaps have a read at the Geelong/Ballarat thread to get some insights. Personally I wouldn't recommend entering Geelong market at this point (due to the growth it already had) but I believe you can still pick up sub-300K properties which have better capital growth potential in the next 12 months.

Good to have your goal defined - though yes I think the timeframe you specified could be optimistic but you're still young! Plenty of time ahead of you so these can definitely be your the long term goal. Short to medium term goal would be to find out what to invest and jump in (in whatever asset class that you believe will get you there quickest) so you can make some profit from the asset class and then buy your own PPOR

Having a clear goal will motivate you and drive you to get you there. I would suggest write them down, print it out and stick it somewhere so you can see it everyday. Because guaranteed you will encounter setbacks all the time, and at some point you may start lose your focus and start second guessing yourself on "why am I doing this". That's when the visualisation of goal is more important than ever!

Cheers,
David

 

Read PC, read books and talk to people either through meet-ups, through PM/private appointments or just through your everyday dealings.

Just be mindful to do your own DD to anything someone says to me listen to everything but believe nothing unless you verify it is correct.

Property is a very lumpy purchase and has a lot of costs in purchasing and also for selling. So it is hard to diversify in multiple properties and is a slow burn but very fruitful if you have patience.

Shares are much easier to diversify with much lower entry/exist costs and has a lot of liquidity.

A big risk I can see with your current situation with buying a house is the timeframe with assets selection, changing in personal circumstances (both +/-, job, leaving home, partner etc).

To give you some idea about 5 years ago I bought my (now our) first home for 500k (Melb), a year later we got married and a year later we got married, 2 years after that we had a child and a year later we started to get ready to buy an ip and took a year to do so (was very picky and negotiated maybe a bit hard but heck it was fun!).

We have owned for a year and wife is now pregnant with second due later this year. I already have plans for more purchases which my wife knows but this will happen in time.

When I purchased the first home I had a pretty good understanding on where my life was heading however when I was saving the deposit 20-25 if you told me above is what was going to happen I would of laughed as I didn’t really have a deposit but also didn’t have a GF - was some during the time but far from thinking let’s settle down except wife we met at 24.

 

I would definitely take advantage of the first home buyers. It is true you can purchase an IP first and still be eligible but two key considerations with this.

A) How will the FHOG look when you next try and use it. It may be better, it may be the same OR it may be worse. It’s likely due to the recent change it will be the same but heck why you can, no stamps for your purchase price is a good option.

B) And more importantly, if you hold off to utilize it later than will you even qualify. The FHOG in Melbourne becomes fairly insignificant above 700k and nothing over 750k. If your looking at a purchase of 600k now then what will you be looking at in maybe 3-5 years time? Maybe you will have a wife by then, maybe a child? Maybe you like a certain area because the local does a great smashed avo but prices there are above normal.

Point is your in a position right now to utilize this incentive. You said yourself your flexible with where you live. It’s perfect on your current budget and it will give you a major head start.

 

Mate I take a few months of the forums and I come back to you spruiking shares! Tsk Tsk

Have to agree the outlook of future growth in Melbourne is looking a bit stale. Perfect time given I’m just about to get back into the market! Guess I’m going to have to cast a far eye.