Hi everyone, Firstly, thank you for all the information and questions that you post on this forum. I have learnt so much, I doubt I could have gained this knowledge from any book or course. I am yet to buy my first property and I hope to give back to this community when I do achieve something in future. About me: I'm 28yo and I'm renting in Sydney. I'm a middle income earner looking to build an investment portfolio with just 50k savings and up to 100k parental guarantee. This wasn't the plan but seeing that the Sydney housing market has flipped me the bird, it looks like a necessity to be able to buy a house in Sydney without forever owing money to the banks. I wish I had started earlier but I didn't care much about property or making money in my younger days. I thought that I would be repaying home loans my entire life anyway, so why start early. Aim: My aim is to be able to retire early myself or to enable my future wife to not have to work as hard. Plan: My short term plan is to buy 2 IPs by the end of this year and then to try and buy 1 IP every couple of years. I know it may sound ambitious and I'm not entirely sure of the details or what I will get out of it, but I want to reach a point in 10 years time when I can start selling the oldest property every 2 years and buy a cheaper one in the outermost/affordable/high yield suburb. Strategy: Considering that banks are tightening up on investment lending, and the fact that I'm a low-mid income earner, cashflow will be most important to me. I want to maintain a good cashflow in order to maintain my serviceability for future properties. Since I'm not a high risk taker, I want the properties to be able to pay for themselves in case I lose my job. I'm looking to buy my first IP in the Logan area and will be using a BA to help me find a high cashflow, under market value property. Expecting to spend 300k-350k max. The reason I'm looking at logan is because in the short term, it has a decent rental yield and in the long term it will have ok to good CG. Soon after that I will either buy a second property for 300k in SE QLD or buy 1 IP for around 180k in Adelaide(low CG but 7+ yield) plus another IP in Tasmania for 130k(low CG but 10+ yield). Questions: 1. I'm using a parental guarantee to buy my first IP. I intend on using the guarantee for 20% deposit and to avoid LMI. I'm looking to buy under-market and have it revalued, hopefully I will get rid of the guarantee within 6 month. When I do build some equity, I plan to get rid of the guarantee when I have enough to cover 12% of the deposit. This will enable me to use the guarantee again for another property in future. Are there any advantages in guaranteeing 12% deposit instead of 20% at the start, apart from it being less risk for my parents? 2. I'm looking to buy my second, or second + third IP as soon as possible after the first, is there any reason for me to wait a bit? What should I be considering here before buying the next property? 3. Would it be better for me to buy the second IP worth 300k with decent CG and above average CF or do you think it is better to buy a second IP(180k, low CG, high CF) plus third IP(130k, low CG, very high CF)? 4. What are your thought on regional towns that have cheap houses with very high cashflow? What are the things to look out for when looking at regional towns? 5. Anything that I seem to have not considered? Any flaws in the strategy that I've mentioned above? This is my first time posting, so please go easy on me in case I've broken any rules here or asked something that has already been asked. Finding this forum was the best thing to happen to me this year, before PC I didn't even know there difference between a redraw and an offset account. My then mortgage broker told me they were the same [insert angry emoji]. I look forward to seeing some of you at the Sydney meet
Hi and welcome as for your questions 1. I'd talk to a investment savvy broker. Plenty on here floating around 2. Before moving on I would make sure your current IP's are in the best condition they can be in. Just to maximise rental return, limit vacancies and push for sweat equity. 3. It's hard to say as everyones goal/plans are different. Are you trying to be financial free in 5 or 20 years? Do you want a certain sized portfolio etc? You need both cash flow and equity to build a solid portfolio. A lot of my portfolio was buy reno and hold so I was getting good cash flow and sweat equity from the renovations. 4. I have some regional properties but you need to becareful. I would only invest in regional towns with 40k+ population, lots of different industries, low vacancy rates and infrastructure plans to boost the population or improve the town. 5. Just make sure you do plenty of research and have a plan in place before taking the plunge. Make sure the numbers stack up as well Keep us updated on how you go
You can't have a parental guarantee and use LMI at the same time. The two are mutually exclusive. You may also find it hard to refinance at 90% to get out of the guarantee (difficult but not impossible). On top of that, you'll need to save at least 17% for the next purchase (10% deposit, 5% stamp duty, 2% LMI). Saving the deposit for IP 2 and saving to get rid of the parental guarantee is a lot to take on. Perhaps leave the guarantee in place until the property has grown in value on its own? Also it would be unrealistic to expect a property to grow so fast that you could pay out the guarantee and have equity for deposits within a year or two. You're going to need to save for deposits to move that quickly. Even with 10% growth per annum (which doesn't happen as much as some would have you believe), you'd have to wait a couple of years between each property. The very high cash flow stuff tends to be in very high risk areas. If it were that simple, everyone would be doing it, which is a risk in itself. Depends what you mean by regional? I've seen people go for really high cash flow in really cheap areas and they've never got any growth and can't get ahead. A balance is probably a better strategy. Get another broker. That's such a fundamental mistake, this broker clearly has no idea what they're doing when it comes to investment.
Slow down! Life is (hopefully) a marathon, not a sprint. Due to different times, we were around 40 before we bought our first IP, (admittedly by then we fully owned our PPOR) so at 28 you have plenty of time. Get your first IP and let things settle. It's a Huge learning curve, and usually you will be hit with an unexpected expense or two in the first year of ownership. Hot water system replacement was our usual initial expense. You will learn how to deal with tenants, and with PMs, and generally learn a lot. By the time you start looking for IP 2, you will have experience to help you. Don't put time pressures on yourself by thinking you HAVE to buy a property by a certain date. Marg
I see no point buying continuously over a decade, then flipping into reverse overnight and selling off the oldest ones? Surely you just wouldn't buy at the back end, as you're simply paying crazy entry / exit costs to merely be back at a portfolio size you were at what 18 months earlier?
All the others above gave solid advice. I just have a question. Not sure if you should be aiming for this... selling something that has capital growth means you'll incur selling costs and you'll lose money with CGT. Unless you think there will be little future growth or you've had too much maintenance on a property, try to hold your properties and pull out equity to keep buying (assuming you have serviceability). Rents should have increased by then anyway. In 10 years' time you'll still only be 38. Try to keep holding any properties for the long run.
