What should I do?

Hi all,

I'm looking for my first IP and not sure which direction I should go. I still live at home with parents in western Sydney and will have a lending capacity of up to $700k.

I have been looking actively for the past 12 months but have not really gone onto the next level and actually commit to something. I guess I am at the FOMO stage but being young I would really like to have a foot in the market. I started looking in Sydney then moved onto Brisbane and now more recently Perth. If I am starting off, should I start off with something more manageable (a unit/townhouse) then when possible look at a house/land to hold long term?

 

Why do you think a unit/townhouse is more 'manageable' than a house?

 

Hi @Blunkman

Australia has multiple property markets, and each is at a different stage in the property cycle.

How long will you be living at your parents?

Sydney you could purchase an owner occupier, and have stamp duty concessions being a first home buyer. On the other hand, Sydney has had growth over the last 5 years, where as some other markets haven't grown over the last 10 years.

Just depends on your needs and goals.

 

Hi all thanks for your feedback.

Plan to live with parents at least next couple of years unless things suddenly happen with life. I guess my goals are to build a portfolio and use this to hopefully fund my future PPOR (which won't be for at least another 5-10 years.

From my understanding, would these be the correct assumptions for the following places and property clock?

Sydney - Slowdown (early stages)
Brisbane - Recovery (later stages)
Perth - Recovery (early stages)

 

welcome to PC @Blunkman

great, you find the forum at the very early stage of investing. lots of useful info /advice on this forum.

ti is nice to have options to choose where to invest/buy, but also overwhelming, like a kid in a candy store ( no offence here)

maybe, step back a bit to consider why you are investing, what you want to achieve, in what time frame, once these are clear, it can make the next step easier.

there are lots of experienced investors, maybe reach out to them, have a coffee.

or go to the investor story section ( on the forum) to see what others have done, and give them a call.

 

Hi @Blunkman,
You should focus on what your end goal is.
Is it passive income, owning outright or both?
Your idea of investing first and then moving on to PPOR is great and has many benefits.
I would recommend you decide what is the criteria the IP must pass. I.e Positively Geared, High yield, Capital growth etc.
What I'm basically saying is that you want to know what you're looking for first and based on that start exploring areas. As many first time investors (and experienced ones) can become location biased.
Personally, I always chase positively geared properties with no holding costs that generate about $20-$30 profit a week.
If you want a safe strategy then balance the following: 1. Low vacancy rates. 3% would translate to 1.1 week per year possible vacancy. 2. Capital growth of 5%+ 3.Rental Yield that manifests positive gearing and no holding cost (Rates etc.)

I'll try to summaries your options (there more but these are your main ones.)

1. Balance of the the 3 metrics - Vacancy Rates+Capital Growth + Rental Yield= Safe approach where you can build on growth in a stable long term manner.
2. Equity Strategy- Can be quite costly as you focus on equity growth. Lump sum rewards if done well but you would require good serviceability to cover ongoing costs. And it limits your borrowing capacity.
3. Yield Strategy - A very safe strategy if done well. Can lead to good passive income. CG is regarded as second priority.
Cheers,
Joseph.

 

Sounds like investment path may be better suited, given you can stay at your parents. Living at home (depending on your age etc) can be beneficial from a borrowing capacity perspective, as the board would be lower than you renting by yourself or being on a shared lease.

Take advantage of other up and coming markets, and whilst we don't have a crystal ball, you may benefit from growth in other markets. You can then potentially bring back the money to Sydney to buy your home.

 

All excellent feedback, I do like the idea of passive income!

As a first time investor, would it be a good idea to consider starting off with small fish (units/townhouses) for the first year or two then move onto house/land?

 

Have a couple of options on the table, do the numbers and then compare. You are currently looking at different locations but not necessary different strategies.

Another strategy may include purchasing a vacant land and constructing for owner occupied purposes. Then you can convert into an investment property. Potentially you would be eligible for government grants and would be able to claim depreciation on the property. The big thing here is buying well. I would strongly recommend staying away from anything that carries strata fees.

 

Depends on your resources. We started with townhouses and villas due to low entry cost, and that is what we could afford given our resources at the time. Additionally, we were seeking higher rental yield.

If you are able to get a better quality asset, that is what I would recommend doing up front, as it will allow you to potentially have better gains (its compounding!), which may allow you to tap into the equity sooner.

 

Hi @Blunkman ,
Units and town houses are obviously more affordable but I would recommend looking at the big picture before you purchase that type of property.
In property transactions, the land is the main component that increases in value while the improvement (Unit,house etc.) decreases in value.
It's a good strategy to invest in units if you intend to use the rapid depreciation as a tax benefit.
Units are more difficult to sell, depreciate quicker and can face oversupply more often.
With a unit, you should be very strict about which one to buy and I would suggest you attain professional advice. I.e Buyer's agent, property investment companies, NOT a real estate agent, as they work for the seller and promote their own stock.
Real estate agents are great, but use their services when you sell, not buy.
With both town houses and units, ensure that strata and any additional management fees are not disproportionate to the purchase price. As it affects the RY%.
30km to 40km radius around CBD'S and 10km - 20km radius around permanent employment hubs and transport are usually a safer bet. Think about what a tenant would be interested in.
As I mentioned before, follow the money (infrastructure, transport etc. ) to research areas.
In my opinion, a house is a safer bet but that heavily depends on location.
Good luck,
Joseph.