Seeking advice on a 10 year plan (VIC)

Apologies for the stock "what would you do" thread. I am new to the sport of property buying and investing and would like some advice to help me initiate a starting point

In short, my partner and I (25 and 27) are looking to get into the market. We are lucky to have quite a bit of cash floating in the bank and a reasonably high and stable combined income for our age. We are a little tired of renting and have been discussing our first purchase for a few months now.

We currently have:

Income
Cash in bank - 170K
Combined annual income - Net 122K

Expenses
Combined is never more than 60k between us, include rent and bills. We know that we could cut back if necessary.
I have 10K of HECS debt still to pay


OUR CURRENT GEN Y THINKING
- Our plan A is baseless and scarce in research. It's largely based on how we would want to live our lives, as opposed to its merit as an intelligent property strategy.

In short, we are thinking of buying an established 2br apartment (Budget of up to 500k for the right place). We would like this apartment to be no further than 6km from the CBD. We intend to live here for roughly five years and then be in a good position to purchase a dwelling for the for the next stage of our life in 2025 (unsure on what this will look like).

We are not married to our Plan A, it just represents our ideal scenario.

Savvy investors, how would you steer our current income, expenses and goals?

 

Buy a house. You won't get a decent apartment that will have any good growth for under 500k. A house you could see grow really well over the next 5-10 years.

 

I wouldn't be buying an apartment and I wouldn't be buying in Melbourne at the moment.

 

I would buy the right apartment any day and start turbo boosting your cashflow.

Ppl will laugh now - but when those new train stations across CBD fringe happens - that would be something in demand as it really does help ease tram congestion and avoiding gridlock traffic if going to the CBD or other destinations to flinders or southern cross.

Rental is so in demand in CBD fringes - I have personally managed renting out IPs in CBD, south Melbourne, southbank, reservoir, preston, clayton, doncaster, doncaster east, pt cook, box hill, Malvern east and can say the turnaround is fastest in CBD fringe.

Melbourne hands down is undervalued if you compare to Sydney. Only individuals who go to the auctions, inspections and can see who are buying and how suburbs move.

 

Otie,

Where would you buy a house for 500k 6kms to the CBD?

Even Footscray is well over that mark now

 

You won't get anything close to the city. Maybe you could try Hoppers Crossing, Deer Park etc. Not so desirable, but close enough.

 

Buy a run down place with the best land you can afford. Do it up over time with your spare cash flow.

Don't rely on the market to get all the growth for you.

Also do whatever you can to improve future income prospects.

 

Don't expect your first home to be your dream home in terms of location or aesthetics. Just look at it as a stepping stone.

 

If you go this route then look for a high land to building ratio (at least 50/50).

You will find the higher land to building ratio in boutique older style apartments that usually sit on relatively large and valuable pieces of land. If there are 10 units in the complex you essentially own or have a share in 1/10th of the land. A larger high storey complex not so good as the maths tells the story on land ownership %.

Land appreciates in value over time and buildings depreciate in value over time

 

This is the idea. This first property, whatever shape, size or location should be purchased to achieve two things

1. Allow us to live in for roughly five years
2. Support us in buying our next property, whether or not that's the "dream home"

 

Thanks for the support - we didn't see it like this.

We've ruled out off the plan and those big developments.

If you get in a boutique, how much autonomy do you have in doing up the inside of your apartment?

 

You may want to consider if you plan to sell the property or convert it to an investment property down the track and access equity as deposit plus costs for next purchase. With some careful planning and loan structuring you can set things up to be tax effective going forward especially in lite of the recent credit changes around owner occupier and interest only loans.

In summary, dont go it alone and get team of trusted advisers around you with the first port of call being a mortgage broker who is strategic in nature an not just transaction focused. A strategic broker will design a strategy based on your short medium and longer term goals and a transaction focused broker will just look at the deal at hand and usually steer you towards a fixed rate facility that ensures they get paid for the life of the fixed term

 

Inside you can pretty much do as you please as long as it does not involve altering the structural integrity of the building. Anything external you will likely need permission form the BC (body corporate) in order to implement.

Another red hot tip is to ask for a copy of the last 2 years AGM minutes and the financials for the complex a this will reveal the financial and literal condition of the building as well as any "special levy's" that need to be raised for major repairs such as concrete cancer. A decent broker will be able to read the financials and minute's to get a "big picture" view.

 

A good apartment (older low density) is a good safe option. However if you want to upgrade to a house later, why not buy a house now? If you buy an apartment now there will be transaction costs when it comes time to upgrade. 5% to buy your apartment now, 5% when it comes to sell, 5% to buy new house, depending on value you’re looking at 100k of transaction costs.

 

Yep - what he said.. I started with an apartment, the main benefits were it had a great lifestyle while I was young with my gf (now wife) and a created a great launchpad for purchases 2 & 3

It's Michael Yardney's 101 really:
Try to keep it below 12 on the block
Try to buy where you can't see 500 more apartments going up nearby
Try to buy something you can add value to by renovating

The sooner you get in the market, the sooner the market starts working for you instead of against you..

Good luck and keep us posted on your thought process