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Discussion in 'Where to Buy' started by Otie, 26th Mar, 2016.

  1. Otie

    Otie Well-Known Member

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    Hi everybody.

    Recent lurker, first time poster, so please go easy on me!

    I have only recently began researching and reading through the somersoft/property chat threads.

    My husband and I currently have our PPOR which we built in 2009. We now have approx 300k equity in our home.
    I have always been interested in property investing and renovating/flipping, however my hubby was never interested. I've finally been able to convince him so we are now in the early stages of hopefully purchasing our first ip.
    I realise that in today's market renovate/flip is not what it was 5-10 years ago, as purchase prices in suburbs where this is possible to make profit are completely out of budget for us, so my goal is to spend the next 15 years investing (and holding long term) low cost properties to build a portfolio that in 30 years will become our retirement income. I'm currently 28.
    I would love to be able to afford to predominately buy in the suburbs such as Ardeer,Laverton,Albion etc, however serviceability will become an issue short term as rental returns are quite low (approx) $280 per week rent on a $400k property, and I would want to hold for approx 10 years before developing/selling to developer to maximise on capital growth that I would expect these areas to gain.
    We are expecting to be able to borrow approx 400k. (Still in process of applying). Due to our situation we are going low doc 85%LVR with IR approx 6.5% as it is currently our only option, I expect our serviceability after the first IP will be low/ nothing until we can change to a regular lender. I wish we could wait 12 months so we can enjoy the current low interest rates through normal banks, but I'm afraid that by waiting 12 months property prices will go up 50-100k and we will regret waiting and not getting our foot in the door.

    I would like people's thoughts on a few scenarios to get us started.
    I'm torn between these options;

    A) Buy 1 IP and hold in Laverton- crappiest house, on 600m2 block- approx 400k dev potential down the track (atleast 10-15 years). Would be CF Neg, and I think it would take a while for any decent growth to be able to use equity for second purchase. I don't mind using my own cf to fund the difference but I think banks serviceability calc will stop me from getting a second IP.

    B) Buy 1 (maybe two if budget stretches) H&L packages (or 140k land cosbuild 120k cheap house on it for total cost of approx $260-280k each in Pakenham (walk distance to train) or Cranbourne West (5 min drive to train).
    These would be long term holds, and I would expect an initial capital growth of approx 40k per property in first 18 months in each property,which would make this option close to CF neutral. I would be relying on gains on this to hopefully afford me a second/third property, though I think I would be restricted to the same type of investment value again..

    c) Frankston North- big block, crappy house

    My other thought was Deer Park,as it seems a bargain, there is a prison being built nearby (I'm thinking will boost the local economy?) and there are some pretty weatherboard houses there that if we're anywhere else they would be hot property- from what I've read about Deer Park it seems to have enough there to service the locals, and they seem to like they're community. They are a 55 train trip to the CBD which is probably a big reason it is so cheap..

    I am in this for long term holds, but would like growth and yield so that I can grow a decent portfolio. My plan is to hold all and pass on to my kids, whilst generating a good income for retirement.

    I would really appreciate your input, as I said we are complete newbies to this, so need as much help as we can get

    Sorry in advance if I have rambled on a bit- writing this in my phone so I hope it makes sense!
     
    Last edited: 27th Mar, 2016
  2. ashish1137

    ashish1137 Well-Known Member

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    I am a big fan of low cost positively geared properties.

    Though, I am fairly new to this as well but i would still recommend buying something in the lower quadrant of market and using it to start building. H+L will ensure you attain some growth.

    Also start to research geelong and nearby suburbs, a lot of growth and potential in that area.

    Regards
     
  3. Otie

    Otie Well-Known Member

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    Thanks for your reply! Much appreciated.
     
  4. Azazel

    Azazel Well-Known Member

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    Hey Otie, welcome aboard.
    I'm not that familiar with the Melbourne market so can't really comment on that.
    But good on you for doing your research.
     
  5. Otie

    Otie Well-Known Member

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    Thank you:)
     
  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Hey @Otie. Welcome to the forum. $300k combined equity at 28 is a nice effort, well done.

    Are you dealing direct with a bank? It kinda sounds like it. I reckon you should talk to a broker around your specific situation to determine stuff like your borrowing capacity, suitable lenders/products and what kind of a purchase(s) will either get you stuck, or allow you to move forward into another property when the time comes. We're not going to be able to provide much input on stuff like that without knowing a lot about you (incomes, employment situation, living situation, expenses, liabilities etc).

    On the face of it though, I'd be looking for high rental returns so you don't paint yourself into a corner too early..especially if you're faced with 6.5% interest rates to begin.
     
    Taku Ekanayake likes this.
  7. Otie

    Otie Well-Known Member

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    Thanks for your reply. We are dealing direct with pepper as I have a few defaults that are unpaid, and we both need to be on the application for serviceability. We are also both self employed, have financials up to date but last years returns are too low to use, as we had a large tax debt which we have just finished paying off so we kept income as low as we could last year. The person we are dealing with has looked at last 6months of bank statements and said serviceability will not be an issue, he says they can overlook my defaults, so I'm just waiting to see what they come back with. My biggest regret is being so stupid with credit when I was younger. Pretty much straight after getting our first home loan (our current) I just went out and got everything I could on credit. I'm slowly cleaning up my file but it's been long and slow.
     
  8. Otie

    Otie Well-Known Member

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    There are packages that look ok to me in Cranbourne West. Not the cheapest I have come across but they do seem good value. Porter Davis H/L turnkey package for 387k, 21sq, double storey- ground floor kitchen/dining/living/laundry & pdr room, and 4 bed plus study on 1st floor. I like the idea of a double and 4th bedroom as from what I have witnessed is that in the crappy estates the double stories always seem to have better resale value and seem to bring better rental yields. It still seems like a lot to spend in Cranbourne though. I had a drive around the estate, and it seems to be attractive to Indians/arabs, the estate seemed to have an abundance of residents from these backgrounds walking around and out the front of their homes. What really puts me off though is that there are streets which have literally about 6 of the same house design & facade built on them, and the blocks are really narrow and are tiny (295m2). If I was to buy here our house would not stand out from the rest when it comes to renting it out and re-sale.
    It almost felt like a housing estate you would expect to find in a large asian city. A lot of concrete, no nice gardens etc, though there is a lot of parkland and a river/creek running through the estate. The estate has a new primary school proposed in it (walking distance to the 2 packages they have left) and one of the packages faces parkland which I would assume is a plus. It is about a 5 minute drive to the closest train station which I think would be a plus aswell.
    This property if paying interest only would leave us about $60 per week out of pocket after receiving rent, so it would be negatively geared however could possibly turn to positive once we are in a position to negotiate a lower interest rate which we expect to be about 12 months away.
     
  9. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Hmm, sounds like a few bumps in the road so far. Do you feel you are ready to invest? Is there more learning to do first? Are you going to sort out the defaults? If you're starting out with Pepper and have unpaid defaults, your lender options for the next investment (after this) will be...minimal.. and your getting back to regular rates will also be a challenge :)
     
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  10. Otie

    Otie Well-Known Member

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    I feel that if I don't invest now, I will miss the boat. I think that I will regret not getting a property more than I will regret not getting one. I figure if it doesn't go well then I have not lost anything.
    That's the reason why I am doing all I can to get it happening. Does the "Pepper" enquiry alone on my credit file make us look bad to future lenders alone?
    I have told them not to do an enquiry until they have confirmed that everything will work, as I don't want any unnecessary enquiries, they obviously have to do one when I submit the application, but in the meantime I have provided them with a copy of our files. I would consider even staying with Pepper and switching to one of their regular loans next year when my credit file is cleared up and when we can provide good tax returns and bas statements.
    What are the prospects for a second IP with Pepper if equity builds ok with the first IP? I also will have left over equity in my PPOR.
     
  11. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    It sound like you have Fear Of Missing Out which shouldn't be why you're wanting to invest. You can make money from property any time.

    Most lenders are not going to love a credit enquiry from Pepper. It will raise a lot of questions. Mind you, they'll be able to answer many of those questions themselves when they look at your credit file and see defaults which they also will not love...at all. Even when paid, defaults stick around for 5 years. Switching to another lender when your self employed income looks better may not be that easy. How old are the default, how much and why weren't they paid?

    With Pepper, you may be able to expand your portfolio further if you have sufficient equity and servicing but it will be a bit tougher on your pocket if they're whacking you with high rates.
     
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  12. Otie

    Otie Well-Known Member

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    The defaults were back in 2010 and 2011.
    Unpaid. Biggest one is for 4500 from Vodafone
     
  13. larrylarry

    larrylarry Well-Known Member

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    Speak to a broker who can help navigate. It's worth it if it's a good one.
     
  14. dabbler

    dabbler Well-Known Member

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    I would say, go to good broker, give them a copy of your credit file and take it from there, I think going it alone as others say you may paint yourself in a corner, you also may get stuck with a high rate.
     
  15. Otie

    Otie Well-Known Member

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    Thanks for the tips. The only reason I went direct to Pepper was that the broker was slow at responding to calls/emails and questions, even after I provided him with the credit files and income details. He mentioned that he would be looking at Pepper and since I'm so impatient after a few days I contacted Pepper direct assuming that it would be easier
     
  16. dabbler

    dabbler Well-Known Member

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    The brokers on the forum all seem to be helpful, if you have been lurking you know who they are, seeing a broker does not need to be local to you, choose one who has maybe helped or answered things for you, or just roll the dice and choose one !
     
  17. HUGH72

    HUGH72 Well-Known Member

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    To clean up your file over time wouldn't it be better to pay the outstanding debts first?
     
  18. Otie

    Otie Well-Known Member

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    That is something I looked at but the broker I dealt with said it wouldn't make much difference since we have to go Lo doc anyway since they would still show up
     
  19. Otie

    Otie Well-Known Member

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