Need help starting!

Hi,
I am 23 years old, still living with my parents and hoping to enter the property market. I am looking to purchase a property around Western Sydney area for approx 340-350K. I have about 75K saved and wishing to get a loan for about 270K. I am on a salary of approx 47K. I have several questions:

1. I am planning to live in the property for 6 months so I am eligible for FHOG and save on stamp duty and then convert it into an investment property and move back in with my parents. Does this sound like a reasonable thing to do?

2. I am unsure about the type of loan that is best for me ..I am currently looking at NAB choice package which included 100% offset account and an option of 5 year interest only period ..should I take advantage of interest only period? Or try to pay off as much P&I as I can off the loan?

3. I am still unsure where to buy, Blacktown is getting expensive! I am looking for a house around the Lalor park/Marayong area but trying to stay away from Mt Druitt/Doonside etc. My other option is to purchase a unit, townhouse or villa around Parramatta, Westmead or Wentworthville. Any thoughts regarding these options?

Thanks in advance
Mark

 

Hi Mark
I'd probably borrow up to $300K so that I wouldn't have to pay mortgage insurance.
Where do you live and work at the moment and how do you travel to work?

 

Thanks
Yeah I am planning to borrow approximately 270K, that way I wont have to pay mortgage insurance becuase it's under 80%, correct?
I live in Western Sydney near Blacktown and work in Ryde, I drive to work.

 

Yes that's correct
What about this one?
14/81 Lalor Road, Quakers Hill, NSW 2763 - Townhouse for Sale #107509258 - realestate.com.au
You should be able to get it for $319K
I own 1 in the same complex and I'm getting $370/w rent
Strata is $450/q
Rates are $270/q
and there is no major work to be done in the complex

 

Thanks. Definitely will check it out.

Would you think that a house around the Blacktown/Marayong/Lalor park area for approx 340-350K would be a better investment? ..I guess it would be an older fibro/clad home in that price range.

I don't know a lot about townhouses as investments and potential growth.

 

Mark

Unless you somehow value add to the property, a house in those suburbs will have similar performance.
The house won't have strata fees but will have a bit higher rates $290? pq and insurance $700? pa
But you'll probably be getting $30pw lower rent and will probably have higher maintenance.

When you put it all together there is no difference so don't be concerned too much about the type of property or the suburb. If you like the property and you could live there yourself if you had to, then that's the property for you.

Good luck

 

Thanks Bill,

So if you were too buy again now, would be buy a townhouse or something like this:

http://www.domain.com.au/Property/For-Sale/House/NSW/Blacktown/?adid=2009033031

What would others do?

I think I over-estimated how much the bank would give me, so I think realistically I can only afford something that is 310K-320K, so maybe a townhouse would be best.

Can someone also explain the difference between a townhouse and a villa?

 

Mark
This meets my requirements because it is walking distance to Westfields and train station ( it is a bit of a long walk but it can be done)
Its up to you.
I'd probably look at the location and the yields more than the type of property itself.

Townhouse is 2 levels
Villa is single level so it is ideal for older people
Both will have strata fees

 

Sounds like you're wanting to pretty much do what I did when I was 21. I'm now 24 and looking at buying my second IP. You won't regret it!

Correct, this is definitely the smartest thing to do. You don't even need to live in it for that 6 months either, just get an electricity bill for the property in your name, stay living at home and don't "officially" rent the place out until the first 6 months has passed.

I personally would always set my loans to IO, simply because it means you're obligated to pay less. You still pay more than just the interest to knock down the principle of course, but say for example there was a month or two where you needed to save up or spends a lot of money, with the loan set to IO you're only obligated to pay the interest, so for that month or two you'd have more accessible income.

A loan package with an offset account is also very useful as it allows you to effectively knock down the principle, but still be able to redraw the funds and take advantage of full tax deductions, I'd definitely go for something with an offset account.

I'm actually looking at refinancing when I purchase my second IP and I'll probably go with the ANZ Breakfree package, you should take a look at it.

You won't get a townhouse/villa in parramatta for the kind of money you're looking at, you could get a 2br unit.

Figuring out which area to buy in is a little bit of hit and miss, you can make educated choices and buy in an area that you would expect to go up in value, but at the end of the day it's all opinionated and you can't control or predict all the variables that come into play.

Just make sure you find something where you're getting a good net return, that's close to schools, shops and public transport and you should be fine.

 

Thanks for all the advice ...I think I am leaning towards a house in blacktown!

I had an interesting chat with a lender at NAB today. My borrowing power based on my salary alone is 250K. However, she recommended that if I get a letter from a real estate agent saying that potential renal income will be X amount per week then my borrowing power will increase to approx 430K.

Can I do this and still claim the FHOG? I guess it will be a struggle to service the loan for the first 6 months that it's not rented out (but my parents will help) ..I definately wont borrow 430 but borrowing 350 + my deposit can definately buy a nice house in blacktown!

So can I get a loan with the bank that is intended for an investment, live in the property for 6 months and still claim the FHOG?

 

As long as you don't have to sign any paperwork stating you will rent the property within the first 6 months, then you shouldn't have an issue. The bank is basically just trying to cover it's backside; if it's going to lend you more money, knowing you can potentially receive a good rental yield from the property simply means you should be able to service the larger loan.

The only advice I would give you, and this is just my personal opinion:

1. Never borrow more than you can handle. Think of the worst situations that could occur and if in those situations you couldn't service the loan, avoid borrowing that amount. Things such as vacancies, interest rate rises, emergency repairs to the property, unemployment for a period of time.

2. Try to borrow as little as possible to get what you want. You'll be paying less in interest which means you'll be able to pay more in principle, meaning you'll not only be able to pay off the loan quicker, but also save a lot of money in the process.

For example if you net $750 a week and have a $300,000 mortgage at a 7% rate, you'll need to pay $403.85 a week in interest, leaving you almost $346.15 to spare, which you could potentially put towards the principle.

Whereas if you had a $400,000 mortgage you'd be paying $538.46 a week in interest. leaving you with only $211.54 to put towards the principle.

This is a $134.61 difference per week, which adds up to be $6,999.72 per annum. Of course there can be other variables and expenses, but it still remains comparitive.

Which is why, even though you may very well be able to service a larger loan, you should try avoid it if possible.

Like I said earlier, I pretty much did the exact same thing as you. In my case I tried finding the best thing I could for the cheapest possible price. Now 3 years on I'm making money on that property and looking at buying my second.

Save the bigger loans for when you have the equity, right now you want to build equity ASAP.

 

Thanks for the advice Sketchy ..I will definitely sit down sometime and work out the maximum amount I can service and try to borrow well below that!!

I just wasn't sure that I could use potential rental return to get a larger loan without it affecting my FHOG ...but looks like I can!

Do you mind me asking where abouts your investment property is located and what kind of property it is?

Mark

 

Not at all mate, it's located in Caringbah. Which is literally about 5-10min from Cronulla beach and about a 20-25min drive from the city.

It's a small old 2br unit, the strata plan said approx 700 sq ft which equates to about 65sqm, but I recently had someone do up a floor plan and it turns out it's more around the 58sqm mark.

I actually wrote up a few threads on how things started and progressed for me here. It has links to the earlier threads too if you're keen on the entire story.

I'm now looking at buying my second IP. I'm looking to buy a little closer to home and diversify my portfolio a bit, so I too am looking to buy out west.

As long as you make sure you don't buy a 1 bedder and buy close to shops/transport you should be fine. The west is a developing area, so I can't really see it ever dropping in value any time soon.

 

Can I offer opinion on #3?
Would you consider eastern suburbs? Eastlakes is great buy in eastern suburbs as the most affordable. Their median prices is around $350K which is significantly lower than Maroubra, Kensington and even Kingsford.

Location-wise, it is next to Mascot and 20 mins by bus away from CBD. There is apparently a big development of retail and apartments coming up by the developer Crown International, so there is a potential upside in growth there.

 

Thanks for the suggestion Mr Photon!

I would have thought that units near UNSW would attract short term tenants ..most likely uni students? Possibly a poor choice of tenants?

I have managed to stretch my budget to approx $380K so I think a 3-4 bedroom house in either blacktown or lalor park would be my best bet! But I am still definitely considering other locations.

 

Bit of a catch 22 really.

Good in the fact that you can usually get a bit of a premium rental return. Especially if you rent the place out room by room.

Bad in the sense there can be a high turnover, meaning vacancies throughout the year. If you go through an agent they usually charge the first weeks rent when they have to get a new tenant, so this can also be costly.

Also bad in the sense, uni students aren't exactly the cleanest most reliable types of tenants to have.

I personally think it's just a lot easier when you find decent long term tenants, less to worry about, less hassles and minimal vacancies.

With my IP I've had the same tenants since I rented the place out about 2 years ago and haven't had a single issue or had do do anything aside from replace a dead cooker and fix a few leaky taps.

 

So I'm in the middle of the fun process of looking for my first investment property!!

I am currently looking at this property but have a few questions - Blacktown, address available on request - House for Sale #107565921 - realestate.com.au

My main concern is that when I go to the blacktown council website and have a look at the land plans, the rear of this property has an area under the category of 'low flood risk'

If you have a look at fern place blacktown on google maps, there is a small river in the park behind the property that runs all the way too eastern creek

Any thoughts regarding the property and low flood risk properties?

Thanks
Mark

EDIT: property is located in fern place blacktown ..not too far from sunnyholt rd

 

Hi Mark

I think you are talking about No 10.

There wouldn't be any risk of creek water entering the house.
Considering the slope of the block and the size of the creek it doesn't look possible to have a major flood the type we had in Qld

I actually own a unit which is loser than this to a small creek but I did my own risk analysis and decided that it wasn't a concern

 

Thanks Bill,

Yes it's 10 Fern Place Blacktown.

Thank's for your advice ... I didn't think it would be too great off a flood risk either but just not sure what the implications are for insurance etc

What do you think of the property and location?

 

Mark

I don't know the street so I can't comment.
Its far from the train station but is close to schools.
Its a leafy area so that's good but how much rent can you get for it?