What is the optimal path

Hi Experts

You might have answered these kinds of questions many times, but I couldn’t exactly get to all points by going through the forum. May be I am lacking patience. I am a first timer to everything, to the forum, to buying property, to taking a loan (never taken one). So please understand and don’t get me wrong. Reading the forum for few weeks now. Apologies, if I posted this under the wrong section.

I am 36 yrs old, moved to Australia/Melbourne in 2013, married with 2 kids. Woking full time and have a saving of around 115K. Plan to move to a new job (contracting).

Since I want to move into contracting job, there is no guarantee of being in a specific location. But contracting may not happen and I may move to another permanent. Because of this, I’m confused on how to go about starting in property buying between wish list (emotional) and a sensible option (financial).

Should I

· Buy a PPOR with a view of changing it to IP in one year, assuming I take advantage of FHB stamp duty exemption. I understand for this I need to buy in my name.

· If yes, how do I structure (Tax, Financial and Legal) to have less headache down the line if any. I read strategy 11 from @terryw but could not understand if this is possible in my scenario.

· Buy an IP first. I guess this comes with higher interest rate and stamp duty while providing tax benefits

· What should be my ideal maximum amount that I should budget. Not the pre-approval amount. Optimal budget to not put myself into super stress if things go otherwise. If I'm thinking 700k, am I stretching too much.

· For this optimal budget should I look for larger block with house in outer suburb or an inner circle apartment (I don’t think my budget will not allow me to, but it’s obviously my wish to be close to city)

· Looking at the current Melbourne market, is it wise to wait for another 3 or 5 months while I get to know the outcome of a personal application that leads to my contracting job to move on or should I just buy as soon as possible.

Initially my plan was to buy an Investment property with my thinking to have flexibility in lifestyle and can be closer to my next job by renting. My wife thinks we should have a bigger home and is fine with comprising on being closer to city.

As you can see I have tangled my thinking as much as I can and looking to untangle this for sensible safer future for my family.

Thanks for understanding.

Yorker

 

The problem is that you think theres an optimal path at all. Right now any suggestion you get you will argue to death.

 

There is no optimal path, only an optimal path for you.
Set a strategy and work out why you want to invest in property. What are your long term goals (what you have written is not detailed enough - you don't need to share with us, but be clear about what you want and why) and then act. Most people don't act.
Also, I would suggest getting a permanent role when trying to organise finance as being a contractor may cause you some issues. Once you have your loan and your investment then you could possibly move back into contracting.
Lastly, do your research, find the right team including broker (hard to find a good one), lawyer, BA/Agent etc and then act and don't wait.
Best time to buy? 20 years ago Longer you wait the more you potentially lose.
Good luck

 

Optimal path is to start a path.

 

Thanks for answering. I think the way I asked my question was wrong. I had too many if and buts. My apologies.


Yes I indeed want to start and not sit on sidelines which I did for substantial period. My first post came in here with an view to act. I don’t know how to get to the right team and looking forward for some help from this forum. You already mentioned it is hard to fine one. It cannot be trial and error as that will be an expensive if gone wrong. I get that everyone learn from mistakes and there will be some failures down the line, but that should not be a starting point and reinvent the wheel. I learnt this lesson hard way during my initial investing (in stocks). Now I don’t want to burn my fingers again.


I understand the your answer on permanent role for financing and that leads to some of my answers. Sooner the better (in fact right now). My goal is to live with freedom of location, so I can live close to my job and make good investments for kids in 10 to 15 years’ time – Why I want.


What I want – Obviously I would like to get as land block (what I can afford in my price range) in affluent suburbs and not outer suburbs. Any my second option is to look for townhouses where land is not affordable (10 to 15kms to the CBD). I am aiming for 4 to 5 properties in this time period.


This will mean I get the right property under right structure first time. Whilst I am starting late, I wanted to start right and don’t mess up my investment opportunities down the line. I met a broker and explained my intentions to buy from an investment stand point for the first property. The broker asked me to go as FHB for loan and stamp duty savings, live in for an year and convert to rental property. If the forum agrees with this advice, then how do I set myself with a structure initially that does not lead to any further financial/tax/ legal challenges down the line. (I am trying to get everything as free advice. Please don’t get me wrong. As I said I don’t know whom to trust to build a team) .


With some research, I looked at properties in the north west in 15 kms city, with detached houses around 650k to 700k. Looked at south east for 3,3,2 townhouses but couldn’t scout one. Not inclined to apartments to live or to invest. Lived in a strata managed units for some time and feel they are better than apartments for investments.

 

I dont want to argue on any suggestions, I just want to act. Nervous because of being first time. I burnt my fingers in the past badly. I can't stress this enough. Please understand. I want to a stronger foundation for long term.

 

Please read the below line as..
(I am not trying to get everything as free advice. Please don’t get me wrong. As I said I don’t know whom to trust to build a team) .

 

Your response certainly helps. My mistake, I could have explained myself better. I am not sure if I conveyed it currently even now.


Multiple income streams are a good start. Yes this is exactly where I want to start.

And working out what your real long term goal is - this may actually be BLOCKED by a PPOR purchase at all- I replied to FFAP on this. Please comment.

There are plenty of people that can help with that sort of stuff- Can you please let me know who I can reach out to?

 

This. To be quite frank, now is not a good time to buy property especially in a city that is at the top of the property clock. A big PPOR spend can easily cripple you to the point where your resources are too starved to fuel any sort of investment portfolio. You have to ignore social pressures/expectations and set a path that gets you to your end goal, rather than just filling one piece of the jigsaw puzzle.

 

All understandable, but you dont have enough understanding of yourself or investing to decide.

You will argue. Because your nervous and dont know what is right for you. Say someone suggests a cheaper house. Youll say but what about quality of tenants and repairs? A unit, i heard that land is what goes up? More expensive property, not sure if i want to take on that much debt? Then you end up going with a spruiker who makes you feel good about it.

A couple of months of reading, understanding all the moving parts (eg loans first before looking at property) and thinking about your own situation and attitude to money (scared of debt? Why? Family history? Partners view of all of this? Kids?) will help.

 

Thank you and understand what everybody is saying.
“don’t have enough understanding of yourself”- a bit hard to accept this line but I see that is fact and truth. Yes I was scared about debt for a very long time until I understood the types of debt. My partner is more sensible than me.

Getting back to the point before I started this thread, I did read couple of books (Steve McKnight’s and Michael Yardeny’s). That’s when it open my eyes and took the fear out of buying a property. Then I attended couple of seminars. All this because I wanted to start with Investing instead of PPOR which is what my family or even me who wants emotionally. And acting emotionally is bad.

When one reads through the forum it is evident that seminars are pure sales pitch and in general I agree to that as well irrespective of kind of seminar. There is no free lunch. I then started trying to understand what it takes to buy a property, what one should keep in mind for budgeting a purchase (LMI, Stamp duty, management expenses etc) before even thinking of purchasing. At this point I could see implications of the stamp duty exemption margins I used to scan or browsing the whole of realestate.com each and every day. Takes you nowhere. In fact the list presented is after the fact. I mean the good ones are dealt offline before they are listed. So need to have good contact with real estate agent, negotiating skills etc or have a good buyer agent. Need to focus on what is in budget. Focus on undervalue properties. Go below your means. Don’t over extend. Understand my pre-approval limits. Understand the macro and micro- economic implications. Started to put my feet on ground from flying in the sky.

From this forum I learnt what to and not to do like looking for:
Not in oversupply of land zones, no Off the plan properties, no student apartments, no regional areas, no hot spotting, try to get into an affluent area (full ownership, higher incomes) if possible due less volatility, demand supply in particular suburb, historical growth of suburb (however couldn’t find a resource where I could get 10 yr information), check council website, watch out for property cycles and act accordingly (If I go buy this, I should avoid Melbourne and hence asked in my initial thread). I am sure there are many more I am not aware of.

I am still confused because learning is one part and implementing is the second. I wanted to get to implementation, but maybe looking at the responses I am too early still.

I take the feedback as constructive. But I feel overwhelmed and feel like a kinder garden student trying to be in a degree college in the first month of school. I don’t want to be that vulnerable person who just buys a big block with a huge house and keeps paying the debt for the rest of life and be at the mercy of job.

My expectation was for a helping hand who can lead me to light from darkness and felt this forum will be the right place. Apologies for wasting members time with a monkey mind. It is depressing to be aware of your mind that is functioning like a monkey and you can’t stop it. Thanks for all the help.

Yorker

 

Your learning something new, and its against what youve grown up with.

Try a plan first. Think about what you want by when. Be ambitious, but realistic. Your current income inflation adjusted by 60 yo is a good start. How much assets do you need? (20x income is a guide). Plus the ppor on top. Say income is 100k with a 1m ppor. So you need 3m net. +50% inflation so 4.5m?

How do you get there? What debt so you need to take on? Can you borrow that much? Are you comfortable with this?

On a doing side, go see a mortgage broker and ask for a long term borrowing strategy. Manage your expenses and see what you can save on.

Decide on a property type. Be honest about what you are willing to buy. You might not like 1 bed units, for example. You might not like certain areas. If you have one house type and one unit type, plus a budget, that will really narrow things down.

What should i buy is too wide. Where should i buy an old 3 bed house for about 500k is actionable.

 

Thanks mate. Will do some home work first along with finding a broker and come back . This gives me back some confidence.

 

Youll need a thick skin for this investing thing. My guess is that a lot of your family and friends will be negative about it. Dont mention it to anyone who doesnt invest.

 

Hey @Yorker everyone needs to start somewhere so just take a breath, it seems daunting but that is probably because you don't have enough knowledge yet. These forums are great but info can come with embedded opinions and that can seem overwhelming.
I'm also pretty newb. I found it most useful at the start to read some neutral books on property that explains the basics of property for the avg joe. Just go to your local library and read through that section (avoid spruiker books, like how I built bijjilion portfolio on $1). Then consider your own circumstances and long term goals for fam before deciding on strategy

Then go talk to some 'experts'. I'd say first is broker, just to get an idea of what is possible for you.
Then if your tax situation is more complex (more then just salary/wage and a few shares), then go talk to tax accountant with rough dollars and strategy in mind to get the tax implications.

The technicalities behind actual buying/selling process , you actually don't need to know in depth. You can leave that to the broker/bank/conveyancer when the time comes. But you do need to know basics so you know red flags to watch out for and question.

get some knowledge, don't depend on others, that way you'll feel more in control and the whole process of buying your home is a lot more enjoyable

 

Talk to people in your life that you know have your best interests at heart and have done well with the resources they have had. I'm a great believer in older and wiser advisors.

If an investment plan works someone disagreeing with you is not a problem. Either the plan works or it doesn't but you won't learn anything surrounding yourself with people who only agree with you.