What would you do ?

I have 60,000 deposit and can roughly save 8,000 a month from now on in with still been able to have a decent life.

I'm on roughly 200,000 pa and expect to be doing FIFO work For another 12 months so trying to make the most of been able to save for deposits

I expect I will drop back to 70,000 pa And my partners wage of 50,000 pa

As I'm basing all my debts for this lower income I believe I can manage to negative gear approx $150 a week

I was planning on trying to buy around now anywhere in Australia that will get good growth In a capital city etc

I currently have a ppor and pay PI repayments but have a high LVR. The unit is worth 375k with a loan of 350k
I can manage this loan. And expect that November next year I can refinance under 90% and change to IO

Once this loan is changed to IO. I will hopefully be able to negative gear a bit more on property number 3 which I will try and buy around December 2017. With another $70,000 deposit

Was wondering what your thoughts are if I should save a bit more and try get a better property in Melbourne or Sydney or or buy in Adelaide etc ?

Obviously I'm very time poor as I work 29 days on 6 days off and am wanting to use a buyers agency

I am trying to buy reasonably aggressive whilst I have servicibility And can save deposits easier so that down the track when on a lower income I can hopefully just use equity to buy properties

Am expecting that My partner and I will have a baby or 2 in the next 2-3 years,

so I'm not sure if I should be going for yield or growth properties ? And I'm not exactly to sure where I should buy because I obviously want growth as well

as we will obviously go back to 1 income etc

Let me know your thoughts



Kind Regards Jaye

 

A few things:

• Aim for locations with vacancy rates ideally below 1.5%
• Look for yields ideally at 5% or above, perhaps above 6% due to threat of rising interest rates. These yields will help the property to fund itself.
• Then look for attributes of locations that will help to drive capital growth - signs of gentrification, infrastructure / government spending, untapped potential

Set the vacancy rates and yields as the key criteria and then look into other aspects that will drive capital growth.

Recently renovated properties or newish properties will have a more healthy depreciation benefit to assist cashflow. Make sure you get a depreciation schedule done.

Also look at properties you can add value later to increase yield through some form of development potential ( granny flat, subdivide, zoned for medium-high density ).

Given you are also in Caloundra, use your local knowledge to your advantage. Yields in SEQ are high-enough in the outer suburbs. Moreton Bay, Logan, etc.

The trick is picking where you will get growth. Finding good yields isn't so hard.

Edit - forgot to add, try to buy below market value if you can. A popular strategy is to do some cosmetic reno to rapidly increase yield. Reconfiguring to add a bedroom or make a property dual-Occ is also popular ( be aware of legal heights if looking at build-under of highsets ).

 

I would try to get my deposits from increased equity in properties (from market growth) preferably instead of saving a deposit. So in your early stages look for growth or anything you can get instant equity from. Of course, if you can get both capital growth and yield in the one investment, that's even better.

 

Thanks for that it's hard for me to pin point an area as well because I keep hearing that for the long game I should hold a property in sydney or Melbourne . For future growth

But I also like. Woody point and Clontarf. In the Moreton bay region and I'm also biased towards the Sunshine Coast as I believe it will do well , but just doesn't have the jobs there

 

Yeah I wish I had equity to pull out of existing property. But it's only been a year and hasn't really gone up. So at this point In time saving is my only option and can't really pull equity out a above 80% LVR anyway . But it's looking bright for the area ! So over time should do well

I could always rent out the unit and it would make for a good yield. And hopefully growth property


And then try focus on a growth property and just rent a house for my family if needs be

Decisions decisions........

 

You need to pay all your salary into your PPOR and split off deposits for your IP purchase from that.

 

I'm going to say something a little controversial... you're strategy appears to be based on CG forecasts coupled with an expectation of babies & significantly reduced income in the next 1-3 years... top that off with a high PPOR debt ratio & I'm struggling to share the same optimistic outlook.

You're in a good position right now so well done! If I were in your position, smashing non-deductible debt & creating a cash buffer would be at the top of my list. Then I'd use equity in PPOR for IP.... that's just my opinion.

Enjoy the journey

Indi

 

+1 for Albanga and Indi. Your PPOR LVR is too high to comfortably think about IP2/3 atm with those other factors.

And... negative gearing works if you are on a high income... Seeing your income will most likely drop back significantly, I would try not to rely on that strategy.

 

Yes i responded quickly off my phone on a packed train (stupid earlier service not running! Grr).
I have to say I totally agree with @Indifference and @Gockie that whilst I love the enthusiasm I do not believe this is perhaps a well thought out plan.

As soon as someone mentions the word "negative gearing" in a strategy I immediately think they do not have a strategy and they do not necessarily understand property (no offence).
NG should NEVER be used as a reason for investing in property. The idea of investing for a loss is ridiculous IMO.

You also have some huge life changing circumstances on the horizon. A massive reduction in income is on the cards within the next 1-2 years, a baby in that same time frame and you can 100% guarantee a couple of rate rises by the time that is all said and done.
Throw in a PPOR at 95% LVR and your right up in what i would call the "Danger zone".

If I were you personally, whilst I am a massive income is just annihilate that PPOR debt. Whilst your doing that, get yourself stuck into this forum and any book you can read regarding property and particularly property strategies, get educated and when your back on your new income perhaps with bubs then re-assess.
You can bet by that time you will be looking at a different property market and lending landscape. When that time comes, one thing you will have done is ensured a safety net with a PPOR probably at around 60% LVR.

 

im currently saving in my ppor offset account but was planning on using savings to buy next property as im not at a good lvr and don't have enough equity yet.

 

haha thanks for that sometimes I think im dreaming as well but just thought If I can leverage into some more property sooner then hopefully I can retire sooner I have time on my side as im 25 surely should get some good growth

 

thanks for your comment , im personally not keen on negative gearing either, I probably didnt make my self very clear I would be comfortable buying a property that cost me maximum $150 out of my pocket but ideally would rather it didn't but it got me into a growth suburb I would sacrifice that for the short term.

I have factored in interest rates for around 8% on my basic cashflows Ive done

I was purely thinking for a servicibilty play thats the reason I was ambitious on trying to buy 2 properties next year on a high income because I know once I drop income my servicibilty will be basically non existent ,

that's why I thought if I buy a growth property early next year that if needs be costs me max $150 a week I can then save and buy a high yielding cash cow property that will be positive geared from day one by end of next year .

I will take your idea on board about learning different strategies.

I regularly stalk the forum , and Im doing my own market research on areas I believe will do well checking up on them 12 monthly to see how they would have performed.

so far I like the strategy of just buy and hold for the long term and never plan on selling unless I need to. and just let time do its thing and pull equity as I can to accumulate more.
now that I have my property on the sunshine coast try and stick to capital cities
and only renovate when needed , not really into trying to manufacture equity through buying properties that needs renovations unless I have a property in Brisbane

 

After buying below market value, renovations are the next easiest way to create equity. You also get better rental returns, quality tenants and lowers the chance of having vacancies. I wouldn't take it off the table if you want to build a strong portfolio in a short time. Good to see another young gun in the making as well

 

Sorry @Jaye Kershler
Not to hijack, but in the waiting game at the moment.
@albanga, trying to learn as much from this awesome site but to get started, what books can I start?(so many recommendations here)

 

The idea is you use the money in your savings and pay down your PPOR and then redraw the equity hence making it tax deductible if the purpose of the draw is for investment purposes (which it will be).

At such a high LVR it is true that you will pay some into the loan that your lender simply won't allow you to use again. Depends on your lender though, if it's a big4 then usually they have flexible policies that will allow you to top back up to 90%.

Let's do a quick scenario:
Your current PPOR is at 93.3% LVR with a loan of 350k and you have 60k in the bank.

Option 1
Leave as is and then use the 60k as a deposit on the next property. Let's say you purchase for 300k (low I know but just bare with me for the exercise).
Your 60k covers the deposit and you save another 15k to pay stamp and other costs.
The result is a 240k deductible loan.

Option 2
Take the 60k and pay down your PPOR so your new loan is 290k and new LVR is 77.3%. You now create a new loan split for the amount back up to 90% which is approx $48,000.

The result here is YES you have lost some money towards your next deposit BUT you have now created 48k more deductible debt for the LIFE of the loan.

Their are some other things to consider and ideally you would save the entire deposit plus closing costs and pay down and then draw that out in one go. But the fundamentals are more what I am getting at.

 

I think Margaret Lomas has some great introductory books and Steve McKnight 0-135 is the reason I got into property (some of his strategies not as relevant now).

Making money made simple by Noel Whitaker is also a good book about general finance as well. Great for beginners!

I recommend reading some books and then thrashing out the ideas in here. Books will give you the basics, this forum will give you the expertise

 

Agree with others above. Smash out the debt on your unit loan as hard as you can while you research where to buy next.
As Albanga said you can redeploy your newly created equity (by paying down the loan quickly) as deductible deposit /s on future IP/s. With the added bonus of a lower PPOR LVR looking more appealing to the banks in the meantime. Hell might even save you from having to NG so much so you can future proof your portfolio for upcoming family and associated drop in income.

 

Merci Beaucoup @albanga will check these out. Appreciate it.