Investment Property - Good or Bad Idea?

LKylel39 on 09/02/2020 - 23:35

Hello All,

Looking for some advice on our current situation.

Some background Info;

  • Wife and I both 30.
  • Bought a house with approx $400K mortgage, house worth around $480k - been in almost 2 years.
  • Have around $25-30K in savings.
  • Currently have an offset account with the money sitting in it.
  • Likely stay in our current property for 2-3 years prior to moving into a more 'long term homes.
  • Live in Perth, WA.
  • No huge expenses coming up (apart from something unforseen) bar the usual annual holidays etc.

Question.

  • Should we consider buying an investment property with the savings we currently have?
  • Likely a 1/2 bed place that's easy to rent?
  • Seems the market is pretty low and possibly a good time to buy?
  • Scrap this idea all together, any other advice?

Thanks Everyone

Financial

Comments

  • Donaldhump on 10/02/2020 - 00:04

    Do you think prices are inflated by the low interest rates?
    Oz will be in a recession my April , I’d hold off enjoy what u have and save more

    • popcornready on 10/02/2020 - 06:52
      +6

      Wow. Sounds like a Whirlpool poster.

      I look forward to seeing you a multi millionaire in April as you had backed a recession

    • Skramit on 10/02/2020 - 08:10
      +4

      Oz will be in a recession my April

      Firstly, no chance of this. (personal opinion)

      Secondly, it's technically not even possible as a recession is a "fall in GDP in two successive quarters". So given the previous quarter Oct-Dec 2019 saw no fall in GDP, we cannot be in recession in April 2020.

      • theHMASfriendship on 10/02/2020 - 08:31
        +9

        He didn't specify which April. He also clearly said that it was my April, and it's wrong of you to assume that his April is the same as everybody elses.

        Thirdly, anything is possible if you believe.

        • Skramit on 10/02/2020 - 08:37
          +1

          Points taken.

      • caramellokoala on 10/02/2020 - 10:17

        This is just plain wrong.

        A recession begins when growth goes negative and stops when it goes positive which could be happening even as we speak.

        What you're talking about is when we can define if a recession has occurred or not

        • Skramit on 10/02/2020 - 10:20
          +1

          lulwot?

          Growth is currently positive….

          • caramellokoala on 10/02/2020 - 10:27

            @Skramit: Just stop it you're embarrassing yourself.

            GDP figures for the current quarter aren't released till after the quarter ends. We have no idea if growth is positive or negative.

            We only know LAST quarters growth was positive which has no bearing whether this and next quarters growth puts us into recession.

            • Skramit on 10/02/2020 - 10:41

              @caramellokoala: Haha calm down.

              Agreed, in April, we wont know if we are in a recession. That's what I meant above but didn't articulate that well given how vague the other comment I was responding to was. I was simply responding to the guy who says "by April" we will be in a recession which implies (to me) we will know in April. Which we wont know until July. So I'm still right ;) We are both correct.

              BTW I'll put 1000 eneloops on it that growth is still positive in 3Q and 4Q. So it's a null and void issue anyway. (personal opinion)

              Carry on…

            • arkie0 on 10/02/2020 - 11:34
              +1

              @caramellokoala: lol and this is why financial advice on OzB is shit

          • imagele90 on 11/02/2020 - 07:49

            @Skramit: Growth…As in China is buying more Iron ore and gas . The country is in a Retail recession , Wages are stagnant, the cost of living is on the rise and small businesses are closing .
            They can fiddle the books as much as they want… Australians are hurting.
            Perth's housing market has dropped dramatically since the mining boom finished but the question is will it fall more ? I think it will so i'd wait another 12 months .

    • ronnknee on 10/02/2020 - 09:59

      I've been hearing the Australia would be in a recession since early last year. How can you be confident it will definitely happen in April?

      • LaProblematique on 10/02/2020 - 23:53
        +2

        What has happened since early last year to avoid a recession? 3 rate cuts, drought, fires, flooding, preventing hundreds of thousands of Chinese from entering and quite possibly a pandemic.

        RBA is all but out of silver bullets as any more cuts would be suicidal and do more harm than good in this climate of uncertainty.

    • lubos on 10/02/2020 - 10:11

      Why would recession lead to increase of interest rates? Historically, recession or threat of recession always led to interest rates going even lower. Please explain yourself.

  • funnysht on 10/02/2020 - 00:35
    +3

    You nevr know what will happen…at least pay off your mortgage first…Sure you may gain more by an investment place, but the feeling of relax not having a mortgage is worth more IMO. Also in these times it's hard to say what will go up or go down, unless if you buy inner city…in sydney

  • johndowy on 10/02/2020 - 01:00
    +6

    Need more info.

    How much income are you both on?

    And… Are you seriously thinking about buying in Perth? Better off burying your money in the ground and hope that it grows into a money tree than to buy in Perth.

    • serpserpserp on 10/02/2020 - 08:25

      Are you seriously thinking about buying in Perth? Better off burying your money in the ground and hope that it grows into a money tree than to buy in Perth.

      But it looks like OP bought his house two years ago and according to him its "worth" 20% more than when he bought it! With gains like that he should be buying 5 investment properties…

      • Skramit on 10/02/2020 - 08:39
        +6

        He didn’t say it’s gone up 20%…

        “400k mortgage on a 480k house.” That’s actually probably what the purchase price was or there abouts given a standard hone loan deposit is 10-20%.

        • Kylel39 on 10/02/2020 - 10:45

          Correct, thanks for clarifying Skramit 👍

          • HighAndDry on 10/02/2020 - 18:42
            +2

            @Kylel39: Given that property prices (at least for your ppty) have increased a whopping 0% in 2 years, why would you buy another one as an investment?

  • TheBilly on 10/02/2020 - 08:42
    +1

    Talk to a broker to see if you can even afford to purchase as lending capacity dictates a lot of your decision making. Savings seem a bit low. Likewise even though there is access to things like (LMI) I would discourage going more than 80% LVR.

  • Kail on 10/02/2020 - 09:08
    +2

    Your plan sounds like you're putting all of your eggs into one basket, with no investment diversity at all. That's not really a solid financial idea in my personal opinion.

  • Seraphin7 on 10/02/2020 - 10:31
    +2

    With the current level of equity you have in your home, I'd be looking to get that paid down by quite a margin more before looking at investment property.

    You have no ability to access any equity in your home (i.e. your LVR is north of 80% even on your own numbers) and you have only $25-30k in buffer to cover anything that might crop up. That could basically disappear if you were out of work for 3 months. Combine that with an unforseen $10k expense and you're behind on the mortgage, got the bank on your back, and the walls start closing in.

    Given you want to upgrade your current property in 2-3 years, that's where your focus needs to be. Plough as much coin as you can into your current mortgage, build up your equity there and attempt to limit your debt levels when you upgrade.

    I'd suggest the investment property is a good way off at this stage.

    • thirtysixd on 10/02/2020 - 10:45
      -1

      Ignore this person he/she is obviously too sensible

      With 80k equity and 25k savings you can easily take out two new interest only loans
      Sydney or Melbourne apartments are great!
      800k purchase price with a $300 per week rent is what I would look for

      Remember maximum leverage = maximum profits!

      • Bonbi on 10/02/2020 - 11:54
        +2

        800k purchase price with a $300 per week rent is what I would look for

        what

        • thirtysixd on 10/02/2020 - 13:24
          +1

          Some people struggle with sarcasm I guess

          Obviously op cannot afford an investment property since they can only just cover stamp

          • thirtysixd on 10/02/2020 - 13:28

            @thirtysixd: 2 years approx might be time to refi?

            Punting on your equity you probably bought @ high lvr…
            Theres some nice deals/rebates at the moment

  • Kylel39 on 10/02/2020 - 10:51

    Thanks for all the comments, all things are pointing against an investment property.

    Some further clarifications to help assist;

    • Combined wage approx $180k.
    • Both have pretty steady and safe jobs.
    • Was considering investment properties likely around $280-350k
    • No plans for Kids anytime soon - probably 4+ years away.

    Thanks

    • netjock on 10/02/2020 - 12:35
      -1

      Weight up your options.

      You could buy an investment property. If you buy an apartment / flat it could be cash flow positive. Or a house which will be negatively geared (it will drain cash (which you might need for your upgrade).

      Put your savings into a high savings account for your upgrade.

      Alternatively invest $1k regularly into an index fund using a low brokerage options like Comsec Pocket App.

    • eclaw on 10/02/2020 - 19:47
      +7

      Combined wage $180k (assuming each person earns 90k each) is worth around $11,500 post tax per month.
      Mortgage of $400k works out to be around $1,750 per month (@ 3.29% interest)

      OP can definitely borrow to buy another property.

      Only concern I have is if you only have 30k savings after two years; what on earth are you spending your $10,000/month on with no kids or dependents?

  • SmiTTy on 10/02/2020 - 17:23

    Here's an option to consider

    Look at places to buy for the next place you want to live in (if u can work that out now). Make it an investment property for 2 to 3 years before you turn it into your principle place of resident and turn your current place into an investment

    There are tax implications with the above so make sure you understand it. Obviously also pros and cons to this so u need to work that out for yourself.

  • Kylel39 on 10/02/2020 - 22:21

    Thanks all for the comments and advice.

    With regards to our spending habits, we've just got married in January so a lot of money went there unfortunately - I know….not very OZB of me but oh well.

    I don't think we could afford to buy in the area for our next house unfortunately 👎

    • AncientWisdom on 10/02/2020 - 23:38
      +1

      Are the rest of your finances T'ed up? No other debt? Living off 60% of your income?

      I'd be smashing that mortgage if I were you, that's a safe 3-4% saving, and you got (negative) compounding going on.

      • Kylel39 on 11/02/2020 - 00:00

        Yeah pretty much, all the wedding is paid off and the only other debt would be a small car loan - maybe $10K.

        Do you think it would be advisable to pay the money to the mortgage or leave the money in an offset account - as aren't they doing the same thing but we can access it in the offset?

        Sorry for all the questions, not particularly clued up financially….as you can tell!!

        Thanks

        • AncientWisdom on 11/02/2020 - 00:16

          It depends on your specific mortgage, in my case I got free withdraws so I just put it in the mortgage. Technically an offset account is the same, but I think psychologically there's a difference, if that makes sense.
          If you're not doing it already, it pays to put salary in offset and pay yourself weekly out of that for running expenses.

          What's the interest on the car loan?

          • Kylel39 on 11/02/2020 - 01:39

            @AncientWisdom: I'd have to check that out as I guess it would be worth checking and as you say, having a little piece of mind.

            Both salaries already goe into the offset so we were switched on enough to arrange that.

            I'm not entirely sure but it's not particularly high, I would say 6-7% if I was guessing - 37 months left to go I think.

            • AncientWisdom on 11/02/2020 - 15:32

              @Kylel39: Yes, then pay it off ASAP with your savings assuming no exit fees 🙂

  • tulip99 on 11/02/2020 - 09:37

    I would be paying off the car loan first if they don't penalise you in some way, like an early exit fee, then keep saving for a while, or like someone above said, put a monthly amount into an index fund, etc.

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