Strategy for a Young Adult

Discussion in 'Investment Strategy' started by Luclause, 14th Oct, 2019.

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  1. Luclause

    Luclause Member

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    Hi guys,

    Recently graduated university and getting a full-time job in the CBD earning $72.5K (gross). I've currently got $65K in savings through working and my parents saving money on my behalf (I'm a lucky kid). Currently renting for $700/pm and will need a place to live, hence having the cliche of not wanting to pay rent when I could be paying a house down.

    Looking towards my future financially and eventhough I've been reading a lot about the property market, I'm still worried and overwhelmed about making big mistakes with my money. I've got a couple strategies on my mind but my inexperience makes me unsure if I'm heading in the right direction. Hoping someone could give me some insight if they were in my situation.

    What I've got so far:
    1. Buying a house for $500-550K range in the western/northern outer suburbs (Glenroy, Broadmeadows, Epping, Sunshine, Laverton, etc.) Living in the property for 5-10 years and hopefully upgrading to a suburb I prefer.

    2. Buy a unit for ~$500K in the western/northern inner suburbs (e.g. Brunswick West, Footscray, Preston, Coburg, etc.) and live with more convenience while it appreciates and sell. I was looking at prices and it seems they do contain similar growth?

    3. Buy a cheap <$400K apartment much closer to the city for lifestyle benefits and upgrade at a later stage. This is probably the most risky "I'll deal with it later" strategy I have.

    4. Keep saving and working for a few years until I have a larger deposit with a greater salary.

    Thanks for any advice!

    Regards,
    Jason
     
  2. The Y-man

    The Y-man Moderator Staff Member

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  3. Luclause

    Luclause Member

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    @Y-man sounds like the right option and thanks for the suggested suburb/property too!

    I'll definitely have a more detailed research session in the coming days.

    Should I be looking for established homes or new developments?

    And how important should growth (property, infrastructure, etc.) be when comparing between suburbs? Like choosing a cheaper (more run-down) property in a suburb with expected growth in the coming years versus a better more expensive property in a location that might not grow in the next 10 years.
     
  4. Propertunity

    Propertunity Well-Known Member

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    Property for the most part should be a capital growth strategy. If it does not grow in value, you're wasting your time and experiencing "opportunity cost" by not having the funds deployed elsewhere, where you could be getting growth.
     
  5. Propertunity

    Propertunity Well-Known Member

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    Option 1, if not that, then option 4 while at the same time doing option 5 (learn how the share-market works).
     
  6. Luclause

    Luclause Member

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    @Propertunity That makes complete sense, I guess my main struggle is finding a place to live so that I don't pay rent vs. buying a property that has growth but I think they can both be addressed if I'm diligent enough in tracking the right place down. Will keep that in mind.

    Already on option 5 haha but if I do decide to purchase a property, this avenue will probably have to slow down quite a bit for myself in terms of my financial budget.

    Thanks for the insights!!
     
  7. Propertunity

    Propertunity Well-Known Member

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    Or option 6. start a side-hustle - a business on the side.
     
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  8. The Y-man

    The Y-man Moderator Staff Member

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    For Epping, go established in the older part ~~ I'd stay away from the newer stuff (smaller blocks, and tons of HV powerlines). To make it easier, set a general rule of staying south of Findon. Try to stay walking distance to Epping or Sth Morang Station OR walking distance to the 901 bus stops along Mcdonalds rd

    The Y-man
     
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  9. The Y-man

    The Y-man Moderator Staff Member

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    As per @Propertunity - go for growth. BUUUT having said that, if that means living in hovel where you get broken into every second night etc, I'd be willing to sacrifice some CG for personal safety and SANF factor - it is your home we are talking about!!

    I own an IP in Epping and have spent a bit of time in the area (actually we are closer to the Sth Morang end) and I find no major issues (superficially at least). On the other hand I hear exciting stories about Broady and Jacana - now they may be completely unfounded but they seem to have a pretty fierce rep (I have been to the shopping centre, and caught a train at Broady without any issues - it was broad daylight tho...).

    The Y-man
     
  10. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Hi Jason, and welcome to the forums :)

    Your strategy needs to come down to your own personal skills as well. if you're going to be living in it and you're a handy kinda guy, buying something you can do up over time to add value will give you more margin for error than if you bought something new and was totally relying on the market for growth.

    I wouldn't buy an apartment - if you've got additional rooms you can rent them out to friends to help with cash flow which will help you get to stage two much more quickly than if you're spending your whole budget on a small apartment.
     
  11. ZAY

    ZAY Member

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    @Jess Peletier @Propertunity and @The Y-man maybe you can help me as I am in a similar position leaning towards purchasing a property in Epping with a price limit of $500,000

    I am a bit unsure whether I should buy in today's market or continue to save and maybe purchase mid to late next year.

    I have about 62k savings at the moment but currently am saving at a rate of $3500 per month. I will be looking to move in for the first year then renting out after the initial year to get the benefits of free stamp duty and then move back in with my parents for maybe anywhere between 2-4 years while putting the property on rent to help with additional repayments on the house or to either save up for a deposit for another IP.

    With my current budget at the moment pushing its absolute limit is $500,000, considering in 12 months I would have another $42,000 towards my deposit which would obviously that would add to my limit. But then that would push back the start of renting out my property 12 months too of course so it delays the whole investment and additional cash flow from rent towards mortgage/second deposit by 12 months.

    What would be your advice, purchase now on a budget and maybe settle for a house that needs a bit of work in Epping or keep saving for a higher budget and maybe even find a under market value sale within the next 12 months, which I am very doubtful off, I have been attending so many opens and auctions and seeing properties for over their EPR which is really annoying. The whole process so far has been so time consuming and frustrating.
     
  12. Propertunity

    Propertunity Well-Known Member

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    Can you find a house in Epping that needs work, for $500K??
    Maybe you can, maybe you can't. But if the market moves up by 10% over the next 12 months, then your $42K of savings has not kept pace with the growth of the property market.
    I have a wealthy friend who had a saying many years ago now - "The market does what the market does and it doesn't do it to you". You just aren't "with it" yet.

    My advice would be to stop trying to second guess the market. I don't know what it will do anymore than you do. You can only make a guess on the balance of probabilities - which will either confirm you are a genius like all the other property guru's or ......not. Just buy when you can afford to, much like the strategy of "dollar cost averaging" in the share market. (google it if you need an explanation).

    Cheers and all the best with your investing :)
     
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  13. The Y-man

    The Y-man Moderator Staff Member

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    Depends if Epping NSW or Epping vic! :D

    The Y-man
     
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  14. The Y-man

    The Y-man Moderator Staff Member

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    The rule for Auctions is assume the buyer's reserve is 10% above the upper edge of the EPR - then you generally won't be "disappointed".

    It takes many months to find the right deal - enjoy the hunt. We average going to 7 opens per week when looking.

    The Y-man
     
  15. Propertunity

    Propertunity Well-Known Member

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    Ah yes! Why they have to do that in a country as small as Australia, I don't know. I've made the same error when offering to drop in to see a client in Surry Hills (SYD & MEL although the spelling is different, but pronounced the same). Perth in TAS as well as Perth in WA.....and so on. :confused:
     
  16. The Y-man

    The Y-man Moderator Staff Member

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    @Luclause and @ZAY

    Finding the right property can take many months as I said above - often one just pops up out of nowhere if you keep looking.

    What has worked for me in the past (can't guarantee it will still work!!) is:
    • Know the "market price" of the area. As @Propertunity has said above, if things are selling 20% above their EPR, then that's the "market price". It makes it easier to identify when things come along that are therefore "below market"
    • The longer the search takes, the more you save - so it's kind of a win-win
    • I never go to auctions unless I happen to be in the area and got nothing better to do (i.e. spare time between opens) or I need to get a feel for the pricing in the area. You can get the results on au house prices (if they publish). I do however actively look for ones that have passed in. We have picked up many deals on properties that have passed in (the monday after is a good time to go in). If everything is selling like hotcakes, market is too hot for me to enter. Look for somewhere cooler.
    The Y-man
     
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  17. Luclause

    Luclause Member

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    @ZAY - Good to know there's someone else in the same situation as I am, welcome to the club!

    @The Y-man , @Propertunity , @Jess Peletier - Thanks for the advice guys, being relatively new to a lot of this, the advice is helping me make a more informed decision on my property research :).

    I guess the last thing really worrying me now is the looming recession that many people are talking about. I've been having conversations here and there with friends and family about it and its giving me a bit of grief.

    The main concern I have is whether it is worthwhile waiting for the market to drop further hoping prices will lower, so that I have a higher potential for growth when the market recovers. Also wondering if lenders will be more hesitant during this period and its implications.

    Another concern is that if I get a mortgage for a property now and we enter a recession, what should I be expecting in being able to repay my loan then?

    I'm worried about being too hasty to buy a property in what seems to be a risky period in our economy but also whether there is any point waiting because getting a foothold in the market has its value through time over timing.

    Jason
     
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  18. mikey7

    mikey7 Well-Known Member

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    The biggest thing I've learnt since starting my journey - don't listen to a single thing family and friends say, unless they are genuine EXPERTS in the field they are talking about.
    Everyone THINKS they know what they're talking about, but they don't. Do your own research and just nod and smile when those non experts talk about something.
     
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  19. The Y-man

    The Y-man Moderator Staff Member

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    In my experience, they won't be more hesitant - and if they do, it is not a bad thing, as it lowers your risk (in not taking out a loan you can't afford)

    The Y-man
     
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  20. The Y-man

    The Y-man Moderator Staff Member

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    It is good that you are concerned. Never assume your job is 100% secure. Having said that, you should also have some confidence that there is always some work you can do. The key is NOT to stretch too far (i.e. when a conservative bank serviceability says "NO" - stop there)/.

    The Y-man
     
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