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First Investment Property

Discussion in 'Real Estate' started by archangelsupreme, 16th Nov, 2007.

  1. archangelsupreme

    archangelsupreme Well-Known Member

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    Australia
    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
     
  2. coopranos

    coopranos Well-Known Member

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    Perth
    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
     
  3. Dr Lobster

    Dr Lobster Well-Known Member

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    Location:
    sydney nsw
    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.
     
  4. Jacque

    Jacque Team InvestEd

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    Sydney
    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 :D Trust me on this!!

    Best of luck with it all!
     
  5. archangelsupreme

    archangelsupreme Well-Known Member

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    Australia
    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)...
     
  6. DaveA

    DaveA Well-Known Member

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    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..
     
  7. archangelsupreme

    archangelsupreme Well-Known Member

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    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?
     
  8. samaka

    samaka Well-Known Member

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    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.
     
  9. samaka

    samaka Well-Known Member

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    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.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If it is not rented out and the utilities (water/electricity etc) are connected in your name, then you have a pretty good case for claiming that you live there.

    If you happen to spend a lot of time elsewhere, then so be it.

    It's more important that it is not rented out - you can't be seen to be using it as an investment property.

    You have to do the sums - is it going to be better for you to get the FHOG and miss out on valid tax deductions or to claim the property as an investment property from the word go ?
     
  11. archangelsupreme

    archangelsupreme Well-Known Member

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    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?
     
  12. samaka

    samaka Well-Known Member

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    Hmm.. is stamp duty tax-deductable?
     
  13. DaveA

    DaveA Well-Known Member

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    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....
     
  14. myarhidia

    myarhidia Member

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    Location:
    Kingsgrove
    Can someone explain what the 6 year rule is?

    thanks
     
  15. archangelsupreme

    archangelsupreme Well-Known Member

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    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?
     
  16. AsxBroker

    AsxBroker Well-Known Member

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  17. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Personally, I always gear my property to about 90% ... actually it ususally works out to be around 89.9% ... the cost of LMI usually jumps significantly at and above 90% LVR.

    I just pay the LMI - it's a matter of working out at what point the cost is too high to justify the extra equity you can access ... and it very much depends on what you plan to do with the equity. Given this is your first IP - it generally comes down to either you can or you can't afford to buy.

    If we're talking 80% vs 90% LVR (for example), then for a property worth $400K, we're talking about $40K difference in deposit. If you really can't afford to wait and save that extra bit, then perhaps you can't afford to hold negatively geared property anyway ? Or were you talking about a 100% loan ? If so - I would strongly recommend against that.
     
  18. The Stig

    The Stig Well-Known Member

    Joined:
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    Location:
    Central Coast NSW
    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