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Strategies for getting my first property

Discussion in 'General Property Chat' started by dissimulo, 22nd Jan, 2016.

  1. dissimulo

    dissimulo Member

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    Hi guys, newbie here so please be gentle.

    This forum has been a wealth of knowledge for someone new to property like myself, so I hope that you guys can share some of your wisdom to assist me in acquiring my first property.

    So as a late 20 something, I am late to the game compared to many on these forums, but after slogging it out I have finally been able to get a well paying job (paying approximately 90k pa before taxes), I have managed to save up a little over 50k and currently am living with my parents so expenses are quite minimal at the moment. I am currently living in Kensington, Victoria and work in the CBD.

    My short to medium term goal would be to own at least 3 properties by the time I get to my mid 30's. In an ideal world, I would love to purchase a positively geared property with huge potential for capital gains, but of course, with property being so unaffordable at the moment, these sort of properties appear long gone.

    So given the information I have provided above, what would you guys recommend going forward in terms of choosing the right location, the type of property, the price of the property etc, in order for me to achieve my goal.

    Some things that I have considered as an entry point as a first property;

    1. Purchase a cheap oldish 2 bedroom flat/unit in the range of about 250k-270k in Footscray and rent it out for potentially 250 pw
    2. Purchase a House and Land Package in Western suburbs (Wyndham Vale/Tarneit/Point Cook/Werribee) for around 350k with rentals potentially 300-350 pw
    3. Purchase a newish 1 bedroom apartment in Maidstone for 300k and possiby move into it in the next 1-2 years.

    The plan would be to rent out the property and put the rentals towards repayments, as well as putting as much as I can into the offset account every month whilst I'm still living with the parents. Within the next 2 years I will have to move out and could see myself living in any of the properties mentioned above. By that time, I would hope to have enough equity to purchase my 2nd property.

    At this stage, I am leaning towards purchasing the H&L package at Wyndham Vale at the Manors Lake Estate for 350k for a 4 bedroom house. I just think that there will be room for prices to increase in the long term (10-15 years), I also would have no hesitation in living in the property in the future.

    I appreciate anyone who have read this post, and if you guys can throw me some ideas, Pros & Cons, suggestions, opinions on my next plan of attack, that would be awesome.

    Cheers
     
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  2. pommy

    pommy Well-Known Member

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    Hi Dissimulo

    Firstly welcome to the forum and kudos for you for getting a well paid job and saving a decent deposit after tax.

    I am new to property investment too and not familiar with VIC either so don't think I can help you much in terms of which suburbs and if those prices are good etc.

    I would read a lot about tax, e.g. the Terry's Tax Tips on this forum. Do you know about the 6 year rule on the main residence?

    As to which property to choose. For investment I'll let others comment.

    For the main residence it will depend on your circumstances and what you need in the future. It is going to be more a personal/emotional choice. Moving is expensive but so is maintaining a house that is bigger than you need. So when you plan to have children etc. may come into the picture when choosing where to live.

    If a property makes a good yield then perhaps you can rent a place instead of moving into your own. The logic being that 350/week in rent may get you a 500k property to live in instead of moving in to your 350k one, in a low-yield area.

    So you get a better lifestyle for the same price.

    You also get to claim the negative gearing and depreciation on your IP which you couldn't do if you moved in. And you can still do this with the 6 year rule to avoid the CGT, and then move back in before the 6 years is up. Get pro. tax advice on this first though of course!

    Happy for someone to shoot me down about the above though I will edit it if anything is wrong :)

    Good luck sounds like you are off to a good start.
     
  3. dabbler

    dabbler Well-Known Member

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    Hi, don't sweat about joining late, your doing well if your thinking ahead at your age.

    In regard to income, it is probably not as important as how you manage what you have, I have done the most when on the lowest income, in many ways, low income forces you to pay attention to a lot of things.

    I will let others talk about your areas mentioned, I only know Werribee/Wyndham Vale, can I ask if the estate your looking at has fees like strata or ongoing fees ?

    Lastly, I will only add, Melbourne seems to be like a lot of Sydney, not very good returns, that is just a general comment, Brisbane seems to be easier to get better return.
     
  4. Greyghost

    Greyghost Well-Known Member

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    Don't buy 1br apartment.
    Don't buy a house and land package.

    There will be an oversupply of apartments in the cbd and purchasing an apartment further out from cbd what growth prospects are there?

    Save more and possibly utilise LMI on a 90% lend and buy a house.

    If you pick either of the 2 options I dislike above I feel you will not generate enough capital growth to find future deposits to grow your portfolio..

    In reference to capital growth vs cash flow. For someone on 90k living at home, is an extra $50 per week for a property that will possibly grow $20-$40k+ per annum more than a cash flow neutral one? I think so..

    Alt buying a house with a good land component, sunshine. Though already moved quite a bit. Albion? Otherwise around the 600k Mark Oak Park has great owner occupied appeal. That side of Glenroy is good too.

    Have spent my whole life between broadmeadows and Kensington.

    So I am intimate with these suburbs.

    Will your parents go guarantor on a loan? That will help with the deposit hurdle?

    Buy something within 14kms of cbd with a decent land component. $50k more or less will not make a difference cash flow wise but will affect capital growth potential.. We are growing the portfolio!!

    Anything apartment wise I would give a big miss..

    I really think having some discipline, holding back and saving some more.
    Don't mix your emotions of:
    1. Eager to get into the market
    2. Greed of buying something cheap

    You need to buy the first property well!!

    I can speak from first hand experience..
    I was too keen in 2009 (I just finished uni), and has saved enough to buy.
    It was the peak of the last cycle..
    I researched and researched. The market moved so quick I was priced out of areas.
    I ended up buying a solid double fronted brick house in deer park.

    It has made up for lost time now, but it did nothing (went backwards) after to boom and has taken until now to generate some equity..
    I had to save from scratch again to fund my next 2 deposits. That was hard work and burned knowing if I had saved a touch more (Marley would have dropped), I would have timed it better and ended up with a better property..
    Would I have done it again? Yes, because I got my foot into the market and it kept my passion for property alive..

    But a lesson like this allows me to help someone like yourself. So self discipline and diligence is key.. Especially for where the Melbourne cycle is it.

    If you want to chat more mate PM me.
    More than happy to bounce ideas off, growing up in these areas myself.

    Cheers
    GG
     
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  5. dabbler

    dabbler Well-Known Member

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    @Greyghost do you not think if buying a higher value house in Melbourne in a lot closer suburb than th e ones mentioned may not be putting them in the same position ?

    I can tell you Werribee has a lot of activity probably due to price, would have thought the 600k pricing would have already done most of it's growing ?
     
  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    First, well done on the diligent saving. Second, well done on joining the forum and preparing to take action–most never do :)

    Depending on how much LMI you're ok with, your savings will get you in to a $300-$350k property (unless a guarantor comes in to play). My advice is don't think local. Look at the big picture and put your money where your research tells you you have the best opportunity to achieve the result you want. This is an investment right? So don't think "I might live here". Ask "Will this produce a result?".

    Your budget opens up a lot of markets, including one where a great number of my clients (and this forum) are buying - the 15-25km ring around Brisbane.

    While you're living at home, you will be able to lay a solid foundation for your portfolio. Make the most of it!
     
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  7. Greyghost

    Greyghost Well-Known Member

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    Price has nothing to do with the level of growth.

    Don't be short sighted in looking for the instant growth. There might not be much to follow!

    I would choose a $600-$700k house with land 12-14km from cbd over 3 $350k houses in werribee any day, if growth is what I'm after. (Unless your a pro like @sash ).. OP has cash flow so he shouldn't play too much of a cash flow card when he is in a position to make a solid but difficult purchase now - with 40 years until retirement - where is that more expensive better geographically positioned property going to be then?

    Fundamentals don't change.
     
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  8. Leo2413

    Leo2413 Well-Known Member Premium Member

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    dissimulo, post: 144662, member: 4253"]

    My short to medium term goal would be to own at least 3 properties by the time I get to my mid 30's. In an ideal world, I would love to purchase a positively geared property with huge potential for capital gains, but of course, with property being so unaffordable at the moment, these sort of properties appear long gone.

    Be careful when you say your goal is to own 3 properties by such and such a date because really you could buy any crap. Clarify your goal. It sounds like you want to buy 3 properties, with good CG potential and decent yield to sustain it in the mean time. Otherwise if you want great CG and great yield at the same time, its generally not gonna happen. Also the term 'positively geared' imo is a catch phrase nowadays where people mostly dont really know why they want PG property. I have never bought a positively geared property in my life, either a little negative or neutral, and i was able to build a good portfolio. I am not saying to not buy PG property, but just make sure it makes sense for your goals and situation. I have seen many, many times people who have great financial capacity go on to buy property out in the sticks for that extra 2% yield and missing out on massive amounts of CG in later years. So if you want a great yield, thats fine, but you really need to make sure its in a place that has indicators of good CG in the medium term otherwise your wealth creation will slow down greatly imo.


    At this stage, I am leaning towards purchasing the H&L package at Wyndham Vale at the Manors Lake Estate for 350k for a 4 bedroom house. I just think that there will be room for prices to increase in the long term (10-15 years), I also would have no hesitation in living in the property in the future.


    I would avoid H&L package and 1 bedrooms, at least from a CG perspective in the short to medium terms. The example you gave above, lets say it does increase in the next 10 to 15 years, but if you want to build wealth (assuming in the millions) then you really need to also think about the short to medium terms of CG potential. Because without the CG coming sooner, you wont have deposits for more properties, so again the wealth creation comes to a halt. So dont just think if you have growth in 15 years then all is good. Short term and medium terms are more important to continue building wealth (fast) imo because long term, generally many, many areas will have some growth anyways.

    EDIT: I would also like to add that 'Value Adding' is a great strategy to potentially manufacture equity faster. There are many ways to Value Add so if your interested in that then i would encourage you to look into some strategies a little more. Probably not full on development for your first dip into the investing world imo.
     
    Last edited: 22nd Jan, 2016
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  9. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @Steven Ryan how dare you use the term "most" (people). You evil being :p
     
  10. dissimulo

    dissimulo Member

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    Thank you so much for everyone who has contributed, has given me a lot to think about.

    I was dead keen on the H&L package, but it seems I will have to reconsider that option, it is probably more of a good long term investment as oppose to what I want to achieve at this stage.
    Apartments looks like a no no as well, so that's out.

    Some have suggested looking into properties in Brisbane, was never in my mind to think of purchasing outside of Melbourne as it's already a daunting experience in itself, but will definitely do some research and look into it.

    Some really good points raised regarding purchasing a higher price property closer to the CBD.
    My cash flow is fairly good at the moment being able to save about $3k plus a month, so my deposit is growing steadily. My only hesitation with purchasing anything over $350k is just a feeling that I'm over extending myself, ideally, I want to be in a comfortable position to get that 2nd and 3rd property as soon as I can, but doing it in a responsible manner where I'm not at riskif the economy goes bad.

    Unfortunately my parents were never in a position to purchase a home, so I will not be able to get a guarantor, so LMI will be almost unavoidable at this stage.

    When taking out a loan, is it wise to let the bank know that it will be an investment property? And is there a specific structure with regards to the loan that I will need to arrange in order for the ATO to allow me to claim the interest expense component.
    Can I just take out an owner occupier loan with an offset account and park all my savings into the offset, and when the time comes, take the cash and use it as a deposit for the next property?


    Apologies for all the questions, it's probably more appropriate to ask in the Tax section but I don't want to bombard the forums will all my questions.

    Once again, thank you for everyones contributions.
     
  11. Perthguy

    Perthguy Well-Known Member

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    I didn't buy my first house until mid 30's, so don't feel too far behind... :)

    Ask away! The forum is what it is because people like you ask lots of questions. Actually, you should definitely ask the question because if you do this, there are tax implications:

    Can I just take out an owner occupier loan with an offset account and park all my savings into the offset, and when the time comes, take the cash and use it as a deposit for the next property?

    Before you buy your first property is the perfect time to get your loan structures and offset accounts right. This might be a good place to start and you can ask questions in this thread:

    Tax Tip 13: Simple Loan Structuring Strategy
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, but you would be silly to do so. The interest wouldn't be deductible.

    See
    Tax Tip 9: Don’t use Cash in Offset account to Invest
     
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  13. Leo2413

    Leo2413 Well-Known Member Premium Member

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    All these questions can be addressed by a good broker. That's the beauty of building a property team. You don't need to worry, fret or even fully understand all the above. Just get a good broker who invests in property themselves and discuss this with them. They will be able to help you set it up correctly, give advice to your specific situation/goals and help you plan for the future.

    Having a great finance broker imo is essential. Some great ones on the forum.
     
  14. Big Will

    Big Will Well-Known Member

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    Welcome to the forum, I am about the same age as you (turning 30 in just over 2 months :O), however I already have a nice home in Watsonia which I paid $510,000 for in 2011, I would anticipate it is worth over $700,000. I couldn't save $200,000 in 5 years but this allows me access to $160,000 in equity (80LVR) and would allow us to purchase something up to the value of $800,000 (provided we can service it).

    If I bought in Woodridge (Logan/Brisbane), which isn't a great suburb I would be lucky to of had much growth in that time but I would of had a better yield and most likely would of been CF+. However I would need to save $160,000 during the 5 years to be in the same situation I am now.

    My opinion with you being on the younger side is chase the CG and not the cashflow for your first property. It might cost you more week to hold now but eventually it will become cashflow positive and keep returning you capital growth.
     
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  15. ross100

    ross100 Well-Known Member

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    Hi
    since we are on the subject of Deerpark is it fair enough to buy there right now. how is the prospect looking for Deer park as St albans, albion sunshine have gone up
     
  16. Greyghost

    Greyghost Well-Known Member

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    JP Cashflow has done some development work in deer park I believe.
    I live close by myself.

    I think this outer western ring has some life in it still this cycle, because of the flow I effect and affordability of closer to the cbd.

    However I would be buying something for future development and or sub division. You may not do it at all, but I would be buying a property that would meet the criteria so that if you can sell to a developer in the future.

    Seeing a few townhouse developments popping up now which means the water is on the boil.
    I saw this with the oak park side of Glenroy 7 years ago.
    I'm not advocating that deer park is similar to Glenroy, but there are some decent block sizes for cheap sqm prices.

    It just doesn't have the public transport (train line) running close enough. Even when they do electrify it will be on the derrimut side of ballarat rd, which leaves most of deer park in no mans land between there and St. Albans station..
     
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  17. dabbler

    dabbler Well-Known Member

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    Of course pricing has something to do with it.

    Also, sorry, but I look for things on the growth path at the time, not flat or sideways for who knows how long, anyway you do not have to be Eisenstein to know that it is not at the beginning of a growth period........but.....

    I was asking, do *you* see properties in the 600+ range growing at the moment, I mean, actually growing by X % The cheaper places are growing in price right as we type, and they are moving quick. I have not watched places in the 600-700 range ?
     
  18. Greyghost

    Greyghost Well-Known Member

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    Ask they people in Glen Waverley, box hill their thoughts...
     
  19. dabbler

    dabbler Well-Known Member

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    I don't know anyone there, was trying to have an intelligent discussion, if you know, you could just say ....yes, it is happening now and started x months ago, or not sure, maybe flattening out.....or just, I do not know.

    The OP asked about an area, that area is going along well.
     
  20. VB King

    VB King Well-Known Member

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    I would be a little bit wary of your comment about potentially living in your IP.
    1. You run the risk of letting your emotions get in the way of choosing an investment ...
    2. And at your stage of life living at home with your parents, who knows where a future partner may want to live with you?, running the risk you will never live in it anyway.
    Just take some care ...