First Investment Property

Besides the obvious things such as location..etc........what are some of the things which first time investmen property investors should look out for:

* Tax
* First Home Buyers Grant??? I'm still confused with this

 

I would suggest:
1) Dont overload yourself - get a property you can afford. Dont put a $500 a week negative cashflow strain on yourself if you dont have income to support it.
2) Read - all the property books you can find - Peter Spann, Michael Yardney, Margaret Lomas, that +ve cashflow nerd from NZ, jan somers. Read them all, not because any is necessarily better than the other but it will give you different ideas. The more knowledge you have the more informed a decision you can make. I thought chocolate was good until I found out what sex was. I thought +ve cashflow was a good idea until I found out how much of a difference capital growth makes.
3) Talk to a broker. Preferably one that knows what they are talking about (very few around, they usually wear hen's teeth bracelets)
4) Know your area, or hire someone who does. Research on the net, go to home opens. After you look at a few hundred properties, you get a reasonable idea of what is available for what price.
5) DO IT

 

1. Capital growth forcasts
2. Initial net yield which will lead you to physical areas and what you can afford.
3. complete a detailed budget of personal expenses and projected for an Ip
4. sensitivity analysis - interest rates, vacancy, major r&m - stress test your budget.

Once you know all of this you can then start digging deeper into physical attributes of a property. By doing this first you reduce the chance of creating an unrealistic expectation. Creating an unrealistic expectation is dangerous if you are the sort of person who has trouble letting go.

 

1. Budget and cashflow position (as others have already said).
Talk to your broker and accountant, who will also be able to assist with FHOG and taxation questions.

2. Determine your risk level and what your purpose in investing in property is ie: are you a buy and hold type, potential developer/renovator, city/regional investor? Do you prefer old or new? Units or houses? Residential or commercial?

3. Location- after you ascertain your spending budget (and costs) and what you require as a return on your investment in terms of cashflow (how much can you afford to pay out each year both before and after tax?) look at cap growth rates and yields historically to build up a picture of strongly performing areas (Residex is best for purchasing this data) so you are comfortable with where you can buy.

4. Micro level: If doing it yourself, get to know the areas you've narrowed down, intimately. Subscribe to local papers, drive around, visit several agents and inspect several properties, ask lots of questions, chat to council/locals/police/shopkeepers and pinpoint good/bad areas. Shop around for PM's whilst you're out property shopping as well.

5. Buy postcode sales for the last 12mths from companies such as residex, homepriceguide or rpdata to see comparable sales and help determine if what you're offering constitutes fair market value.

6. Be organised before you go making offers on property. Have finance at least pre-approved, a solicitor/conveyancer ready to go and all your paperwork in place in case you find something you like sooner rather than later.

7. Wear comfortable shoes and be prepared to wear out a lot of shoe leather. Buying property and doing your research thoroughly is very time consuming and hard work Trust me on this!!

Best of luck with it all!

 

Is there a broker anyone can recommend in the Melbourne area or a reputable large firm in Australia?

I'm confused as to how I should engage, or when to engage a solicitor regarding paperwork in comparison to when I should take out a loan.

If the investment property is my first home purchase and i'm taking out the home owners grant....i do need to live in it for at least 6 months right?

Do you think it's OK that during those 6 months that i rent it out...and just pretend i'm living there. Is there a way i can make it seem as though it's my PPOR and not be held to break any laws (even though i am)...

 

I know a police officer who done this and has been convicted of fraud once the state government found out. Had to pay back all money + interest and since he had a criminal record also lost his job....

If you go to a shop and steal something but minimise the risk of being caught (where a baseball cap), but get stung should you be punished? Your ultimately doing the same thing with fraud..

 

OK. Maybe not the renting

Though who would really know if I live in there a couple days a week (and go back to my parents for the rest) or just not live in there at all but have all my mails directed there?

In other words, what does it mean to have PPOR?

 

From what I've read on the about the FHOG - you can collect rent on people living there - as long as the property is still your PPOR.

So you can't continue to live at home and rent out the place - but you can live in your new property and rent out a room or two.

That's the general idea I got from my father (who works for Office of State Revenue) - but you'd want to call them yourself and check first.

 

Oh - I plan to buy a PPOR next year and claim FHOG. I will still eat and sleep at my parents house though.

As soon as the property is legally mine I will send a notification of change of address to the electoral commission. Then 6 months later I will send another of me moving back home.

I won't be renting the property out - but I will be visiting it to keep the lawns mowed, etc. The FHOG should help me cover the holding costs for the first 6 months while I'll have no tenants.

 

Thankyou for your advice....I'm really keen on learning more about property.

I hope to purchase one next year. Looks like i've got a reading to do..i feel so stupid.

Where should i start?

 

Hmm.. is stamp duty tax-deductable?

 

nope but adds to your cost base...

best part if you move in you get the 6 year rule... however if you move in and rent rooms out you lose part of the ppor 6 year rule exemption.

Also a test case went to court where the 1st home buyer connected electricity however never used it and the government claimed it was not his ppor as the electricity bills detailed that nobody occuiped the property. However easy solution is leave a light on a timer...

7k = means a loan of price of less than $164,705.88 using Interest rates of 8.5%. However this doesnt factor in how much your would be behind in a 6 months of negative gearing (or stamp duty), or how much the 6 year rule is worth to you. This will depend on tax brackets where you estimate how much it will be worth and how much you earn in 6.5 years time.

You need to number crunch before writing off the IP first idea. As the 7k will be given to you later (so think time value of money) but the stamp duty is forgone......

Too many questions not enough information....

 

Can someone explain what the 6 year rule is?

thanks

 

I'm hoping to get into the market sometime mid-2008. Though I don't think i'll be able to pull a deposit together and avoid LMI.

I don't know, should i just bite the bullitt and pay the LMI?

 

Check out Making your home a rental - RP Data Property News

Cheers,

Dan

 

Think outside the box.

Think of ways to add value to the property to generate more income, which always adds more value.

If you can, buy a property that can be developed or turned into commercial. Even if you have to buy out your neighbours in the future. Play monopoly

The only properties I have left now can be turned into commercial, which doubles the return.

Congratulations for getting started.

Oh, don't be afraid to bite off more than you can chew.

Cheers
The Stig