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Thoughts after buying first home

Discussion in 'General Property Chat' started by CGB, 11th Aug, 2016.

  1. CGB

    CGB Member

    Joined:
    26th Jul, 2016
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    5
    Location:
    Melbourne
    Hi all,

    We recently purchased our first house 8 months ago in the small suburb of Kingsville, Melbourne. We paid $650k to secure our 2-bedroom property on a quiet street (approx 214sqm). The suburb is peaceful & quiet, a 10 minute walk to public transport and close to local amenities that trendy Yarraville and Seddon have to offer. The house is an older style Edwardian property with a traditional floor layout (2 bed-rooms, central bathroom, open living and kitchen), however we find the open living area a bit small and use it merely for kitchen/dining and one of the bed-rooms for our living room. It more than meets our current needs however am hoping to get some expert opinions in relation to a 5 year plan.

    Our options are:

    1) Flip property as is and buy a bigger 3 or 4 bedroom house and incur more transaction costs
    2) Extend property to 3 bedroom and improve open living arrangement before flipping to potentially generate a higher return and for us to gain further enjoyment out of it.
    3) Hold property and rent it out whilst drawing on equity to repurchase bigger house and taking on more debt.

    During our search, we were always told to purchase a house as units and apartments wouldn't produce the same levels of capital growth. This may be true to a degree, however in terms of being able to create a buy & hold property portfolio, starting small is arguably a safer and more achievable strategy.

    So my question is essentially, what do you think would be the best option for us, have we made a mistake buying an expensive first property and if so, what is the best way to rectify it?

    Thanks,
    CGB
     
  2. Phase2

    Phase2 Well-Known Member

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    Perth
    Option 4) buy smaller furniture for your living space :)

    I wouldn't fret. What's in your 5-year plan? I presume it's starting a family? why else would you need more space? If so, then I'll guarantee whatever you think you need, will change again with little ones, and when they come it will change yet again.

    I'd convert home loan to IO (if not already) and pay extra into an offset for the next 5 years.

    That way you can decide whether to stay or move when the time comes and if you keep the Kingsville as an IP, you'll have max deduct-ability on the loan and hopefully a significant deposit for your next move.

    If you decide to stay and extend, you can extend the loan and use some cash from offset to top-up deposit. Is an attic conversion possible? (attics can also be done just for storage)
     
  3. CGB

    CGB Member

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    26th Jul, 2016
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    Location:
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    Thanks for your reply Phase.
    I like your thinking behind converting the loan to IO. We are already directing our surplus cash into an offset account but we could certainly expedite the process if we weren't paying down the principal.

    after doing some research, I believe our house could produce approx. $450 p/w in rent due to solar electricity that covers all gas/electricity costs. My only concern is that $450 is not the greatest return for a property that we purchased for 650k.
    In terms of capital growth, the property has achieved approximately 5.5% over the last 11 years which is solid, however I also have concerns around the land size (214sqm) and always ask myself the question as to whether we could be sitting on a bigger block, further out (eg. Sunshine) on a 500-600sqm block for a similar price-range. In other words, factoring in any potential opportunity costs.

    Since our purchase, I am intrigued by property but this is causing me some doubts about our purchase. I am really uncertain about whether to sell and use our first home as a stepping stone to purchasing a family home in the future or hold the property for long-term rental yield. I worry that the potential rent is not attractive enough to convert this property into an IP?

    P.S - in regards to attic storage, the house already has an attic however it cannot be converted into any room due to its size.
     
  4. Joynz

    Joynz Well-Known Member

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    Melbourne
    Capital growth of just 5.6% in 11 years! That can't be correct!
     
  5. CGB

    CGB Member

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    Hi Joynz. 5.5% p.a that is*

    apologies.
     
  6. CGB

    CGB Member

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    Location:
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    And I should also add that the property had a fairly major extension / renovation during that period.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Location:
    Gold Coast
    The elephant ...........

    what are your goals ?

    ta
    rolf
     
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  8. CGB

    CGB Member

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    26th Jul, 2016
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    Location:
    Melbourne
    Hi Rolf,

    I should have mentioned that we are both 25. Our goal is to be in a family home (4-bedrooms) within 20km from Melbourne CBD within 7-10 years with minimal debt. Our LVR is just shy of 80% at the moment which makes us a bit uncomfortable. I have just always been against selling, however in this market, I can't see any other way to get into a family home without a having a huge debt.
     
  9. kamchatsky

    kamchatsky Well-Known Member

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    Location:
    Sydney Northwest
    Whilst I haven't been to Kingsville, I have been to Yarraville and Seddon and they are very nice suburbs.

    Personally I would be against flipping only because the real estate agent selling fees plus re-purchasing stamp duty (where Victoria has one of the highest stamp duty costs) would wipe out most of the profits, if any.

    I suggest you see a good VIC based broker (some around here) to see how much you can borrow and maybe you can buy a second one ......
     
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  10. NewGuyACT

    NewGuyACT Member

    Joined:
    9th Aug, 2016
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    20
    Location:
    Canberra

    I don't know Melbourne, but surely you can get a 4 bedroom house with 20km of the city now? So why did you buy the current place? Is the issue that you can't afford your preferred family home - is it deposit / purchase cost or serviceability?

    Ie. Could you use 10% deposit and get the house you want now or can you simply not afford the house you want?