Getting an Investment Property, first buyer question

• 

  fertiliser on 15/08/2015 - 15:21

  +5

  1. yes
  2. yes
  3. yes
  4. no

  You need to speak to a financial advisor, as you're potentially committing to something you don't understand entirely.

• 

  Hotpotcorn on 15/08/2015 - 15:22

  U need 20%. Anything under 20% you have to pay insurance

  • 

    pjetson on 15/08/2015 - 17:10

    And the insurance doesn't benefit you in the slightest, it only benefits the bank. If you default and the bank claims on the insurer, the insurer will still come after you for the money anyway.

• 

  gmail92 on 15/08/2015 - 15:25

  -1

  I've studied real estate economics, and I'd recommend against given the current situation. It may be feasible when the bubble pops and the market crashes. It also sounds like you're amongst the clueless Australians who believe real estate is a failsafe investment which will perpetually increase in value.

  Not to mention the rather simple questions you're asking, implying you have no clue about how any of it works, or even how to do research online.

  • 

    [Deactivated] on 15/08/2015 - 15:33

    True…

    • 

      rgr on 15/08/2015 - 15:36

      if you're response is 'true' then why are you about to go and do it? look at your situation: you don't know much about real estate investment and the finance around it, your family is pooling money together to get one AND it's one of the biggest purchases you're about to make.

      this is no different to entering something like a boxing match without knowing your opponent and not doing enough training to prepare yourself.

      • 

        DealzEddy123 on 15/08/2015 - 23:59

        i.e. gambling.

        If you dont know what you're doing and you're investing, then you might as well hit up the casino. at least you know straight away whether ur a winner or loser.

• 

  rgr on 15/08/2015 - 15:34

  +1

  another generation about to be misinformed about the path to riches starting with property investment. why are people my age so impressionable by what their parents tell them?

  • 

    siraitken on 15/08/2015 - 16:01

    Because they trust their parents but their parents are as ill-informed as they are.

• 

  siraitken on 15/08/2015 - 16:08

  +3

  Here are my thoughts…
  - 44k p.a does not exclude you from the property market
  - Don't max out your lending limit
  - Invest in a property which is neutral or positively geared
  - Invest significant time researching property investment
  - Invest time in developing your employ-ability to earn more (debt servicing)
  - Don't trust opinions from people who have not invested before (potentially family members)
  - Join a property group to discuss with like minded people

• 

  AJW on 15/08/2015 - 16:15

  +1

  jobler has it right in his post - you should get some advice because judging by your questions there is a lot you don't know.

  If you are a recent graduate, and don't have years of solid income and saving history, then no matter what your parents give you, it won't be taken into account because it doesn't increase your saving or income ability. Which is what I guess the high deposit is due to. And dealing with family can be fraught with danger - no matter how rosy things are at the moment.

  First home buyers can only get grants if they live in the house for a certain time, so depending on who you rented to, you might be able to have your mail sent there and still 'live' there (in spirit) if your tenants were someone you knew…

  Considering you won't get much (if any) negative gearing benefits on $44k/yr then this kind of investment isn't going to be nearly as profitable as it is for someone on a higher income. Buying a house (in my opinion) is still a sound investment if you do have a decent deposit and would be renting otherwise.

  I think if you posted "I'm a graduate earning $44k per year. I have saved up nearly $30k in savings. What are some good investment options?" then very few would be saying "investment property in Sydney"

  • 

    theguru1 on 16/08/2015 - 09:10

    Advising that people might try to cheat the First home buyer grant is not good advice. There have been a large number of investigations and prosecutions. Don't do it!

    I'm also guessing that part of this strategy would be not declaring the rental income. Hmmm.

• 

  [Deactivated] on 15/08/2015 - 17:25

  I would forget about a property for a few years, $44k is a very low income, despite living with your parents, you will struggle to pay off any mortgage and associated costs with so little coming in. Wait till you hit at least $70k before you even consider it.

• 

  welfoj on 15/08/2015 - 23:30

  +2

  I purchased an ip about 5 years ago and wish I didnt. Some things I wish I was told and listened to are:

  1. Do not buy unless it is BELOW market value. Every investment needs an exit strategy, even if that means you may make a small loss to get out, but if you pay market value or above expecting the value to increase you have no way of getting out without significant loss if that value increase doesnt come. Use advantages like fast settlement or if you are able to unconditional contracts to get the best price. If thats more than what its worth walk away.

  2. Get a proper INDEPENDANT valuation before committing. This ties in with point in that you need to know exactly how much what you are buying is actually worth, not just what the real estate agent says or what other properties list prices are. The bank does a valuation but this information will not be given to you, and they dont care if you pay 50g too much for a house. They only care whether their money is at risk. So if you paid a $50k deposit on a $500k house all they care is that they place is worth $450k.

  3. Expect bad tennants/no tennants. I have been relatively lucky so far with tennants but have still had periods of 6-7 weeks with no income. This may be different in sydney but the potential is still there as markets change etc. And bad tennants exist everywhere, so if your investment can not be sustained without rental income for a few months walk away.

  4. Real estate is inherently a bad investment path. Huge amounts of money get tied up for huge amounts of time, and unless luck is on your side and you hsppen to pick a suburb at the start of a growth period, a very modest return.

  Good luck. Hope you do more with your savings than I did.

• 

  GnarlyKnuckles on 16/08/2015 - 00:00

  -1

  I agree with the general sentiment of most on here, that buying an 'investment' property in Sydney doesn't sound like something you should do at the moment. I would only be buying a first property to actually live in, i.e. because then you'd be saving on rent/get the full government grants etc. But perhaps you plan to live with your parents for many years to come/until you get married/forever (I'm not judging this at all, it's common in many cultures); so 'saving rent' is not a consideration of yours?

  It is true that houses in Sydney are appreciating by a lot more than $1000 per week in value on average, but this won't be the case forever; it will have to 'top out' at some stage. At which point they may flat-line for quite some time. When that happens, you'll still be paying massive amounts of interest every month (because you have very little capital), your 'investment' won't be appreciating much if at all, and as someone wisely noted above, you don't have the kind of income that could benefit substantially from negative gearing. And I also agree with the poster above who warned against investing in a property with your family. Things like this can end up breaking close families apart, when differences of opinion about who is entitled to what/what should be done when etc. arise.

  Another thing is that with the sort of money you're talking about, you would be unlikely to get an actual house in Sydney; you would be buying a flat, or at best a very small unit somewhere. These usually put you at the mercy of a 'body corporate' (which really sucks, I'm told), and they can also turn out to be real money-pits if you're unlucky… Imagine just after you buy the body corporate votes to have the entire car-park resurfaced ;everyone must contribute $, or the roof on the building turns out to need major structural work due to years of neglect; everyone must contribute $, etc. etc.

  SO ANYHOO, if you defo' want to get a 'foot in the door' in the property market despite evidently not knowing much about it, have you considered buying somewhere where property is not perceived to be 'over-priced'/ there is not thought to be a 'bubble'/ there is still potentially a lot of room for prices to go up in the years to come? Somewhere like Adelaide? Given you have no plan to actually live in the place, there's no real reason why it has to be in 'your' city, right?

  For $440k in Adelaide you could get a very decent free-standing house, on a nice sized bit of actual land, with no body corporate to worry about. I'm no property expert, but it strikes me as a wiser move, given how little capital you have. I mean, you never hear anyone marveling at how artificially inflated property prices are in Adelaide/wondering when the bubble there will burst etc. Adelaide is in fact a really nice place to live, and if anything I reckon the property prices there are a bit lower than they 'should' be compared to the other states/territories (except maybe Tassie).

  Re the other capitals (no doubt I'll offend a lot of peeps on here with the below statements, but that's never worried me in the past so I'll press on):

  Steer clear of the ACT, it's a pretty crap place 'culture'-wise/ no one really wants to live there so I can't see it appreciating much any time soon (or ever?).
  Steer clear of WA because after a massive protracted 'boom' in the 1990s/noughties based on demand inflated by a mining boom, it's a bit of a state of 'downward correction' at the moment due to uncertainty about the relative extent of mining there.
  Sydney and Melbourne are said/thought to be 'over-priced'… you could get lucky and a joint in Sydney/Melbourne might continue to appreciate at a rate substantially greater than [inflation + your interest repayments], OR NOT; and perhaps more to the point, you don't have enough money to afford anything in those cities worth buying anyway (i.e. an actual house on actual land somewhere reasonably close to the CBD that's in a rentable state).
  I don't know enough about NT to comment, but I do know that prices there have gone up quite a lot in the last 10-15 years, so maybe it's run its course for now… also, apparently all home-owners there grapple with ongoing mould issues due to the humidity… which could be tolerable for a place you live in (i.e. keeping up the maintenance/repainting periodically etc.), but it would be no picnic to have to deal with it 'remotely' in an investment property far away. Personally I love Darwin/NT and in fact I hope to live there some day, but I don't reckon I'd buy an investment property there.
  Queensland might be OK, but I think it 'boomed' in the not too distant past (about 20 years ago? I could be wrong about this), so perhaps there won't be any real increases in property values there for quite some time.
  I don't really know enough about Tassie to comment on it… maybe someone in the know could provide their thoughts on whether Tassie might be a cunning place to invest in?
  So that just leaves Adelaide. Really nice city to live in, currently very affordable house prices, relative to other cities… IMHO in Adelaide, 'the only way is up' for house prices.

  AS I said I'm no property expert though. I'd love to hear the thoughts of others re what Australian city/cities they think would be best to invest in at the moment. Or what about buying a block of land somewhere 'semi-rural', where there's a reasonable expectation that the 'urban sprawl' will extend to in not too many years? Resulting in a big jump in the value of the property? Or is that sort of thinking 'overly simplistic' for some reason? I'm thinking the benefit of the OP doing sommat like that would be they would not need to borrow nearly as much; their deposit would constitute a much larger percentage of the initial purchase-price, so they'd own a much bigger percentage of their investment property, from the outset.

  • 

    djkelly69 on 16/08/2015 - 08:08

    +1

    "Steer clear of the ACT, it's a pretty crap place 'culture'-wise/ no one really wants to live there so I can't see it appreciating much any time soon (or ever?)."

    LOL

    Edit to say that is not because I am offended, it is because it is just wrong.

• 

  Peck on 16/08/2015 - 00:49

  +3

  Sometimes it is those who go against the flow who make the money. Getting caught up in the latest 'boom' is courting disaster. An old adage springs to mind "Buy in gloom, sell in boom". In a few years time it might be the share market booming! Who knows??

  • 

    [Deactivated] on 04/09/2015 - 12:36

    Jesus

• 

  djkelly69 on 16/08/2015 - 08:14

  OP, rather than putting all of your eggs in a rather large basket (plus more than likely ruling yourself from any benefits when you buy your first PPR), have you considered shares or managed funds?

  If you are sure property is what you want to invest in, you can buy into a property fund which gives you the exposure to property without the illiquidity and lack of diversification.

• 

  slewis69au on 16/08/2015 - 08:48

  Vanguard ETF's.

  They are tradable in Australia and a great place to start your first Investment.

  http://superannuationfreak.blogspot.co.nz/2014/10/everything…

  http://www.mrmoneymustache.com/

  Real estate can be a great investment, but you can also lose big if you don't do your research.

  My first real estate investment was a clanger and after allowing for opportunity cost i lost a significant amount of money.

• 

  Connections on 01/09/2015 - 11:43

  Even if you have 10% of the loan you can still get it tho the insurance on the loan will not be cheap. You dont have to invest in Sydney you can get a broker like these guys who we used in the past - http://performanceproperty.com.au/ they find a cheaper place for you say in Brisbane or Melbourne and do all the paper work.

  Or you can go find an unit or something in west Sydney for your price range, tho close to CBD will be very hard for 430k range I will admit.

• 

  Mamaof3 on 04/09/2015 - 12:20

  1. Yep I just checked and thats about right. You could actually go slightly higher towards the $500K with one of the banks but I'm not sure what your liabilities are (e.g. credit cards, personal loans, etc) so I was working off you simply having none of that and a straight forward salary/income of $44K/year.

  2. 20% deposit is the 'norm' however most investors who aren't cashed up go the maximum LVR possible which used to be 95%LVR + capitalised LMI (lenders mortgage insurance premium) however with all the recent changes surrounding APRA most banks have reduced investment lending LVRs down to around 90% - some banks allow you to capitalise the LMI premium above that 90% (normally its the non-bank lenders that allow you to do this) but if you work on 90% LVR inclusive of LMI (this effectively means your loan works out to be approximately an 87% LVR and the remaining 3% will cover your LMI) you should be right.

  3. Yes that is correct, how much savings you have does not change how much you can borrow. Your maximum borrowing capacity (and this varies between lenders) is all based on your income and what your liabilities are as this is what determines your ability to afford the loan. The amount you have saved up only helps cover your deposit and can reduce the LVR you borrow from the bank (i.e. the more deposit you have the less you might want to borrow from bank). Keep in mind though for a purchase of say $433K in NSW, your stamp duty alone is already $15,304.

  If you borrow 90% LVR on a $433K purchase you'd have to come up with around $67K to settle on the property (this includes your 10% deposit, stamp duty, legals, conveyancing etc). The LMI premium can be capitalised onto the loan amount so you don't have to come up with this fee upfront, the roughly $7K premium will simply be added to the $389,700 loan amount.

  If you move into the property as an owner occupier there may be stamp duty concession available if its your first home so call your state revenue office for clarification. Also grants may be available for purchases of brand new dwellings but again, each state is different so check with the revenue office.