Buying Your Property.

[theunfairadvant]

Below is just my suggestions only.

Staying with your parents is a good start to save as much as 60 to 80% of your income to have a deposit for an investment property.
You don't have to go out every week to get drunk and get smash and spend all your money.
When going out, try not to spend more than 10% of your income on the weekend. I see many people spend more than 60% of their income on the weekend,
and in the end, they got no money left or even save any at all.

Start saving now and buy investment property so by the time you hit 65 or 70, you would have at
least 5k to 10k weekly rental income coming in, so you don't have to rely on the pension for the rest of your life.

My suggestion to you is to buy an investment property first as this way you will get your foot into the door.

It will not cost you a lot of money as the tenants will be paying for most of your mortgage
and might only cost you about $100 bucks weekly for your investment property.

Many people are always trying to save money and buy their own Principle Place Of Residence ( PPOR ) first and are doing it all wrong.
When you buy your PPOR first and start paying it off for the next 20 to 25 yrs,by the time you start investing in property,
you might be over 65 and might find it hard to start investing in property.


When you have saved up some money or have a few friends getting together to get the ball rolling is even better when you are young.

Below are my suggestions for you to get started when you are ready.
1. Set up a Pty Ltd company and a trust to buy an investment property
( IP for short ). Buying under a company and trust is for tax benefits and can claim the maximum tax deductions.
If you were to have 10 investment properties, you would have 10 Pty Ltd companies and 10 trusts.

Only set up the company when you are ready to buy, or you can set up the company now and wait for 2 yrs as some banks or other lenders do lend you money
without having you to show any financials, which is good when you first get started.

They need your company ABN to be at least 2 to 4 yrs old. ( Make sure you remember to file your GST and income tax
and pay for your company registration every year if you were to go down this route.


1A. Do not ever go down doing the negative gearing path. If your income were to be over 80 to 250k then you can go down the path for a few years
till your income changes then do the above on number 1.
Yes, you have to pay stamp duty and everything all over again but the benefits in the long run far outweigh the upfront cost.

When your income were to drop but the rental still getting $1k per week per investment property, plus your income of say $100k so now your income is $150k + $52K rental income
so your income now is $202k and you are on a higher tax bracket.

2. Refinance your IP every 2 to 3 yrs to get the extra equity so that you can buy another IP.

TIPS: When you go to the bank to get refinance to buy another IP, DO NOT, I REPEAT DO NOT tell them that you want to refinance and draw down on the equity to buy another IP
or else they will say you need a new loan. This way, you missed out on drawing down your equity.

Always tell the bank that you want to draw down on the extra equity to renovate the kitchen, bathroom and living area, so this way you get refinance approved much quicker.

If you go to say NAB to get your loan and you or your wife is a 7 Eleven and say it out by mistake, don't worry; just go to another NAB,
and they can get the loan for you but make sure you don't fill in any forms till you can refinance.

3. Buy an investment property every 3 to 5 yrs till retirement.

4. After 15 yrs investing in property, try to get your LVR down to 40% or less. Even you might have an 80% loan, but your LVR is 40%.
E.g. LVR ( Loan to Value Ratio ) means your Investment Property is valued at 1 million. The bank loan is $800k, so your LVR is 80%

If you have paid off $400k, then your LVR is 40%, meaning you still owe $400k, and you have got $400k equity that you can draw down to buy another investment property.

5. Go to attend a few property seminars as it is tax-deductible, or attend a few paid property seminars every year once you have at least 1 or 2 IPs under your belt.
This way is to expand your knowledge in property.

6. After having a few IPs under your belt and when it is time to buy your PPOR, you can refinance and draw down the equity of all your IP and put a large chunk of deposit,
and by that time, it could be 60 to 80% deposit for your own place.

7. Buying an investment property is to buy and hold never ever sell unless the place you believe is a ****hole. There is no more of these places these days
as even Mt Druitt in Sydney and Logan in Brissy. Their house prices were under $150k back about 20 yrs ago, but look at those places now, and you can't buy anything under $600k.

[BENT_8]

My two eldest both moved out at an early age and soon came back home and saved to build.
My Son had his first home built before he turned 22 my 21yo Daughter signed her contract for the same build a few weeks ago, she'll be in just after her 22nd birthday.
Both intend on using them as IP's once they've met the requirements of Homestart, my son already has ticked that box and is now only waiting on his probation in his new job to end before he gets things underway.

Interesting you suggest an IP first.
My Wife and I are heading down this path as we speak, as she is on Workcover its becoming difficult to find lenders who'll accept it as safe income, stupid really as i've never known anyone to be fired whilst on Workcover but thats what we've been told.

She's just recovered from having her first arm repaired and found out last week that the other arm will require surgery so its an ongoing exercise.
We had been discussing a move to the country and a build of around 400k but on my wage alone it wasn't doable, so, we decided to join our daughter and build a townhouse in the same block as it could be done on my wage alone.

We put a good deposit on it and they wont be finished until late next year so the plan is to save every dollar we can between now and then, live in it for 12 months and smash the mortgage until my Wife's workcover is resolved at which point we'll use the equity to buy or build a PPR in the country and rent the townhouse out for around 50% more than the mortgage repayment.
It was either do it this way or continue to rent for another 2 years.

We figure this way gives us an each way bet, if we dont like the country move after a while we can always move back to the city and rent the country property.

We are late to the party in both age and market timing, no doubting that, but it is what it is and by doing it the way we are we aren't over committing and can easily absorb interest rate increases.
Mind you, knowing my luck the bubble will now finally pop so i suggest everyone get out asap..lol

[jaydee]

car10002, are you reading this?

[Moo Man]

Originally Posted by BENT_8

the plan is to save every dollar we can between now and then, live in it for 12 months and smash the mortgage until my Wife's workcover is resolved at which point we'll use the equity to buy or build a PPR in the country and rent the townhouse out for around 50% more than the mortgage repayment.
It was either do it this way or continue to rent for another 2 years.

We figure this way gives us an each way bet, if we dont like the country move after a while we can always move back to the city and rent the country property.

Hi Bent, not sure if you're across this already. If you are please ignore but it may help others reading this thread.

If you're planning to convert the townhouse into an IP down the track don't pay any more than the absolute minimum into the mortgage.

Instead, make sure you get a 100% offset account attached to your loan and pump the extra cash into the offset account. This will have the same effect of reducing the amount of interest you pay on the mortgage now but when you move onto a new PPOR in a few years you can use the money sitting in the offset account for that. The end result is you pay less interest on the smaller loan balance on your PPOR and more interest on the IP, which is tax deductable. If you can get away with a smaller deposit, the same applies, just put any spare deposit money into the offset account as soon as the loan is funded.

Taking it one step further, do the same with an offset account on the country house so if you do decide country life isn't your thing you can maximise deductable interest expenses on the country house if you later convert it to an IP.

You need to be disciplined with money if you go this route; it can be tempting if you have cash sitting easily accessible in an offset account and of course seek professional financial advice before following the advice of a stranger on the internet ;-)

The main takeaway is that once a loan is paid down interest expenses are no longer deductable, worst case scenario is that you end up with a fully paid IP with no interest deductions and paying tax on the rental income while you have a huge mortgage on you PPOR and paying all of that interest out of your after tax income. If you park spare money in a 100% offset account you still save on interest but the original mortgage amount remains unchanged so if circumstances change you can move that offset money into a different account and suddenly interest payments on the full original mortgage amount are tax deductable again.

[BENT_8]

Originally Posted by Moo Man

Hi Bent, not sure if you're across this already. If you are please ignore but it may help others reading this thread.

If you're planning to convert the townhouse into an IP down the track don't pay any more than the absolute minimum into the mortgage.

Instead, make sure you get a 100% offset account attached to your loan and pump the extra cash into the offset account. This will have the same effect of reducing the amount of interest you pay on the mortgage now but when you move onto a new PPOR in a few years you can use the money sitting in the offset account for that. The end result is you pay less interest on the smaller loan balance on your PPOR and more interest on the IP, which is tax deductable. If you can get away with a smaller deposit, the same applies, just put any spare deposit money into the offset account as soon as the loan is funded.

Taking it one step further, do the same with an offset account on the country house so if you do decide country life isn't your thing you can maximise deductable interest expenses on the country house if you later convert it to an IP.

You need to be disciplined with money if you go this route; it can be tempting if you have cash sitting easily accessible in an offset account and of course seek professional financial advice before following the advice of a stranger on the internet ;-)

The main takeaway is that once a loan is paid down interest expenses are no longer deductable, worst case scenario is that you end up with a fully paid IP with no interest deductions and paying tax on the rental income while you have a huge mortgage on you PPOR and paying all of that interest out of your after tax income. If you park spare money in a 100% offset account you still save on interest but the original mortgage amount remains unchanged so if circumstances change you can move that offset money into a different account and suddenly interest payments on the full original mortgage amount are tax deductable again.

Yes this is the plan although you explain it much better than me.

Right now I needed pre approval to secure the land and build, as some of our deposit is still tied up our broker said to use a lender who require a lower deposit for this purpose.
We arent eligible for FHOG so have had to fund full associated costs etc.

As the build doesnt begin until March we dont need to actually secure the finance until then at which point we'll have the funds to secure a loan through a bank at lower rates and therefore lower repayments as our current PPOR to begin with.
This will free up more money and we'll be basically setting aside an additional 3x the fortnightly repayments via an offset account to lower the repayments even more over the 18 month period and then using that to kickstart the next PPOR build/buy.

[Moo Man]

Originally Posted by BENT_8

Yes this is the plan although you explain it much better than me.

Right now I needed pre approval to secure the land and build, as some of our deposit is still tied up our broker said to use a lender who require a lower deposit for this purpose.
We arent eligible for FHOG so have had to fund full associated costs etc.

As the build doesnt begin until March we dont need to actually secure the finance until then at which point we'll have the funds to secure a loan through a bank at lower rates and therefore lower repayments as our current PPOR to begin with.
This will free up more money and we'll be basically setting aside an additional 3x the fortnightly repayments via an offset account to lower the repayments even more over the 18 month period and then using that to kickstart the next PPOR build/buy.

I sort of gathered you had it under control but good to get the info out there for others. Your kids are certainly on the right path with their properties at such a young age, you must be proud as punch

Good luck with the build next year, we're looking at replacing our existing place with a new build next year, so far it's equal parts excitement and dread!

[Jack91]

Helluva lot of stress and living povvo hoping you make it long enough to reap the potential benefits. What better way to spend your prime time than stressing about finances, tenants and the economy as a whole. And who wouldn't just love a property seminar?
I always wonder who is actually affected by small interest rate rises but I guess there it is, I'd love to see someone lose it all due to over commitment and greed.

[BENT_8]

Originally Posted by Jack91

Helluva lot of stress and living povvo hoping you make it long enough to reap the potential benefits. What better way to spend your prime time than stressing about finances, tenants and the economy as a whole. And who wouldn't just love a property seminar?
I always wonder who is actually affected by small interest rate rises but I guess there it is, I'd love to see someone lose it all due to over commitment and greed.

I actually agree with you here, which is why i've lived life in reverse.
Instead of busting my guts and going without when i was young enough to want to enjoy it and then dying of some ****ty disease or unfortunate incident before i could enjoy it i spent my youth in semi retirement partying hard and blowing every dollar i could making sure there was just enough to help my kids get going.
And go they have, now 3 of 4 have flown the coop and i dont need to fund a 5 bedroom home to keep them all satisfied we can live a simple life on 2 fulltime wages with plenty spare to cover whatever might come up.
We wont have to worry about whether an interest rate rise will mean we have to feed the kids baked beans as the kids are buying their own baked beans..lol

[BENT_8]

Originally Posted by Moo Man

I sort of gathered you had it under control but good to get the info out there for others. Your kids are certainly on the right path with their properties at such a young age, you must be proud as punch

Good luck with the build next year, we're looking at replacing our existing place with a new build next year, so far it's equal parts excitement and dread!

Under control...where's the fun in that..lol

Always happy for advice/input, i get the principal just not all the terminology.

Im so proud of the kids, both stepped out and had bad experiences of one kind or another and this helped them realise that you look after no1 and depend on no one but yourself.
Its actually cool to be going through the process with our daughter as its become quite a competition, she's even encouraged her best friend to build in the same block with us so we are playing Monopoly in real life, will own half the street between us and then theres our Son in the next street.

Child number 3 is an interesting situation, complete contrast to the other 3, a black sheep as they say but a heart of gold who just wants to do life his way, i respect that, if/when he arrives at the point the others did we'll be there to help him too.

[slowsnake]

Originally Posted by Jack91

Helluva lot of stress and living povvo hoping you make it long enough to reap the potential benefits. What better way to spend your prime time than stressing about finances, tenants and the economy as a whole. And who wouldn't just love a property seminar?
I always wonder who is actually affected by small interest rate rises but I guess there it is, I'd love to see someone lose it all due to over commitment and greed.

Smartest words I have read so far on this thread, and so bloody true......

[Captain Stubing]

Originally Posted by theunfairadvant

Below is just my suggestions only.

Staying with your parents is a good start to save as much as 60 to 80% of your income to have a deposit for an investment property.


7. Buying an investment property is to buy and hold never ever sell unless the place you believe is a ****hole. There is no more of these places these days
as even Mt Druitt in Sydney and Logan in Brissy. Their house prices were under $150k back about 20 yrs ago, but look at those places now, and you can't buy anything under $600k.

I haven’t done any seminars or anything, but decided to take out a small loan to build a rental property about 10 years ago. Since then it has grown modestly to more rental properties.

I still get to buy stuff to have fun with, like my F Truck project. It all pays for itself, and tax time is happy days.

[Peter B - CV8]

Originally Posted by BENT_8

My two eldest both moved out at an early age and soon came back home and saved to build.
My Son had his first home built before he turned 22 my 21yo Daughter signed her contract for the same build a few weeks ago, she'll be in just after her 22nd birthday.
Both intend on using them as IP's once they've met the requirements of Homestart, my son already has ticked that box and is now only waiting on his probation in his new job to end before he gets things underway.

Interesting you suggest an IP first.
My Wife and I are heading down this path as we speak, as she is on Workcover its becoming difficult to find lenders who'll accept it as safe income, stupid really as i've never known anyone to be fired whilst on Workcover but thats what we've been told.

She's just recovered from having her first arm repaired and found out last week that the other arm will require surgery so its an ongoing exercise.
We had been discussing a move to the country and a build of around 400k but on my wage alone it wasn't doable, so, we decided to join our daughter and build a townhouse in the same block as it could be done on my wage alone.

We put a good deposit on it and they wont be finished until late next year so the plan is to save every dollar we can between now and then, live in it for 12 months and smash the mortgage until my Wife's workcover is resolved at which point we'll use the equity to buy or build a PPR in the country and rent the townhouse out for around 50% more than the mortgage repayment.
It was either do it this way or continue to rent for another 2 years.

We figure this way gives us an each way bet, if we dont like the country move after a while we can always move back to the city and rent the country property.

We are late to the party in both age and market timing, no doubting that, but it is what it is and by doing it the way we are we aren't over committing and can easily absorb interest rate increases.
Mind you, knowing my luck the bubble will now finally pop so i suggest everyone get out asap..lol

Commonwealth Bank will accept Workers Compensation as eligible income for a loan + they will lend up to 95% (inclusive of Mortgage Insurance) for house/land. Valuation is determined with the "end Value" of the property - but for all practical purposes is the combination of land cost + construction cost. Has to be a Contract build - they avoid Owner Builder type loans.

[oldel]

The 1990s called and wants it's post back.
This is old news and the reason why housing prices are ridiculous now. IE those that could bought heaps of housing up. This boom started in the 90s when parents houses were big enough for the kids to stay living in while they were in their 20s, mining boom kicked off, interest rates dropped, wives started working longer so double income households, yet another reccession put people off the stock market.

And 30 years later here we are, housing is stupid priced, mums and dads landlords that shouldn't be because they're broke/tight and not landlord material. When everyone with the means wants 2-3 houses there isn't enough to go around and prices go up. It's self perpetuating and the numbers lock good, no one wants to miss out and prices go up even more. This is locked up money and the banks get most of it, it's making the personal debt in this country too high and the banks too rich.

Smartest guy I knew that invested in property always did commercial. Don't have to pay much in upkeep, commercial tenants are responsible for almost everything and no government body protecting them, unlike residential.

Besides that, yeah, buy a house ASAp. It's a freebie from the gov, protected from asset tests etc. Besides, no one wants to be renting as a pensioner.