澳洲Australia property 1st IP: unit in Melb or house in Bris.. |


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


Hi everyone! I’ve been lurking around here for a few days soaking up as much information as possible, in the months I’ve been researching property this forum is the best resource I’ve found. Terrific website.

Here’s my situation.

I’m currently deployed in Afghanistan with the defence force and while I’m on good money with limited expenses I’ve paid off my personal debts and I’m saving a deposit for an IP. When not deployed my wage is quite modest, but hopefully by using sensible investing techniques I can slowly create wealth as others strive to on this forum.

Once I’m home I should have a $90,000 deposit set aside.. exciting. :D

I am considering two options for my IP, both very different in terms of investment strategy and I would like your thoughts on which one is the wiser choice.

Option 1: Conservative cash flow biased. (Income left over to save for another deposit: I’d estimate $200 a week/ 11k p.a.)

Buy an off the plan two bedroom unit in Highett, Victoria (close to my home town) from a friend who owns the property and is developing it. I believe the price is favourable (I will review Residex to confirm, at the moment I am relying on domain.com.au recent sales.)

The location is excellent (close to public transport, the beach, parks, schools, local shops and a major Westfield shopping centre) though being a unit capital growth would probably be sluggish. Yield would be excellent however (my repayments to service the mortgage at 8% interest would be $20 a week) and it doesn’t hurt that a friend works for the local real-estate agent and sources tenants for rental properties.

Option 2: More aggressive, higher LVR, gapital gains biased. (Little (..nothing) left over for savings depending on how high I leverage.)

I’m based in Brisbane so I could buy a house to live in taking advantage of the FHBG plus $17,000 ADF Home Purchase Assistance Scheme (the grant is taxed so 10k in reality) I would employ a buyer’s agent recommended by this forum to source a suitable property. Buying a house I would need to increase my loan amount – securing something in decent condition to avoid high maintenance costs down the track. I would live in the property for 12 months (HPAS requirement) while renting out one of the bedrooms to help service the mortgage.

Does one of these options stand out above the other? I understand that generally the primary reason to invest in property is for capital growth but option one is just so straight forward. I would like to grow an investment portfolio in the coming years as a primary means of wealth creation, equity doesn’t seem like a problem as I’ll have over 100k by the time I want IP2.. having the deposit to bring down servicing IP2 may be more of a challenge as with a position in the defence force my wage will only slowly crawl up towards $60,000. It will take some time to put another deposit together if I can only save 11k a year.

Any light that can be shed on which investment makes more financial sense or any other useful observations would be greatly appreciated. :)  

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Hi start-up and welcome to the forum!

A reoccurring message on this forum is that one should define their strategy including exit strategy at the start. That’s to say, how many ip’s you think you’ll need, how will you finance them, will you pay them down, sell some, live off equity etc etc.

What kind of investor are you? More hands on, so you may want to subdivide/develop, renovate, or just sit back and forget about them.. Once you’ve answered some of those q's you may know which may be better, an off the plan unit in Melbourne, or house in Brisbane. Both are so different. I think there have been some pretty good unit vs house threads you may want to check out?

I’m more in favour of starting out with properties that are more cash flow + from the start. Obviously this helps you finance more properties sooner.. You could also use a mixture e.g. starting with a high yielding fully furnished unit or multi dwelling student house, then buying a bigger block with the intention of developing.. I get the impression that you’re relying on capital growth? Capital growth is never guaranteed.. Since you’re from Brisbane why not use your local knowledge instead of using a BA?

Hope I’ve given you some more food for thought?  

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start-up said: ↑
The location is excellent (close to public transport, the beach, parks, schools, local shops and a major Westfield shopping centre) though being a unit capital growth would probably be sluggish.Click to expand...
startup - I agree that Highett is a great location and one of the top in Melbourne for that distance from the CBD due to it being only a few km from schools, shopping, beach etc. It's also near much dearer areas eg Sandringham. Its main drawback are the trains - it doesn't get the express services Mentone and Cheltenham get.

I don't think we can assume that units = low capital growth. In many cases they have performed as well as stand-alone houses.

However newer properties do depreciate and may not necessarily appreciate as fast as established properties in the same area.

New vs old might well have a greater difference in capital growth rates than houses vs units.

The risk of buying poorly could be reduced by comparing prices of new properties with established properties (with same number of bedrooms and land area).

Eg If a new unit off the plan costs about the same as an older house on 4 times the land in the area, my guess is the house will do better long-term (although its cashflow might be inferior due to less claimable depreciation).

But if the new unit is much cheaper than houses in the area and no dearer than an established unit on a similar land area then it might be a good purchase. And a new unit in a small block in somewhere like Highett would probably be lower risk than one in a large CBD-fringe block.

So it could work provided the new unit represents good value compared to what's already there in the suburb and is cheaper than a house on more land.  

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Thanks very much for the replies Spiderman and vbplease.

Spiderman said: ↑
Eg If a new unit off the plan costs about the same as an older house on 4 times the land in the area, my guess is the house will do better long-term (although its cashflow might be inferior due to less claimable depreciation).

But if the new unit is much cheaper than houses in the area and no dearer than an established unit on a similar land area then it might be a good purchase.

So it could work provided the new unit represents good value compared to what's already there in the suburb and is cheaper than a house on more land.Click to expand...
I believe the unit falls into the advantageous category you outlined, its 200k cheaper than 2 bedroom homes for sale in the area, and well priced against older units in the area too.

Your point on old vs new in relation to capital growth was very useful, I'll spend more time considering it.

vbplease said: ↑
Hi start-up and welcome to the forum!?Click to expand...
Thank-you. :D

vbplease said: ↑
What kind of investor are you? More hands on, so you may want to subdivide/develop, renovate, or just sit back and forget about them.. Once you’ve answered some of those q's you may know which may be better, an off the plan unit in Melbourne, or house in Brisbane. Both are so different.Click to expand...
I think I am more of the sit back and forget type. I am leaning more and more in favour of the unit.

vbplease said: ↑
I’m more in favour of starting out with properties that are more cash flow + from the start. Obviously this helps you finance more properties sooner.. You could also use a mixture e.g. starting with a high yielding fully furnished unit or multi dwelling student house, then buying a bigger block with the intention of developing.. I get the impression that you’re relying on capital growth? Capital growth is never guaranteed.. Since you’re from Brisbane why not use your local knowledge instead of using a BA?Click to expand...
I think the cash flow from the start approach has merit, as a beginner it feels like a safer option and will grow my savings faster so I can buy IP2 in say 3 years. My local knowledge is actually in the Bayside area of Melbourne, I'm just based in Brisbane with the army so reviewing property there is more daunting because of my limited knowledge of the region.

vbplease said: ↑
Hope I’ve given you some more food for thought?Click to expand...
Lots of useful food for thought thanks! Hmmm, my next quandry is to work out if I should put all my savings (90k) into the IP or just use a reasonable deposit (60-70k) and hold the rest of my cash in savings, grow it to 30-40k and then use it as a deposit on IP2.

Is there some sort of formula/theory for how much deposit to place on an IP and how much to save for the next investment, or is it all definded by elastic/complex factors such as how much serving the mortgage will cost..  

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start-up said: ↑
I think I am more of the sit back and forget type. I am leaning more and more in favour of the unit.

I think the cash flow from the start approach has merit, as a beginner it feels like a safer option and will grow my savings faster so I can buy IP2 in say 3 years. My local knowledge is actually in the Bayside area of Melbourne, I'm just based in Brisbane with the army so reviewing property there is more daunting because of my limited knowledge of the region.Click to expand...
Sounds like the Melbourne unit is the way to go provided you've done the due diligence you mentioned earlier and you understand the pitfalls of buying off the plan.

start-up said: ↑
Lots of useful food for thought thanks! Hmmm, my next quandry is to work out if I should put all my savings (90k) into the IP or just use a reasonable deposit (60-70k) and hold the rest of my cash in savings, grow it to 30-40k and then use it as a deposit on IP2.Click to expand...
I think the best approach would be to put down the minimum deposit (20%) in order to avoid paying lenders mortgage ins. Do you know all about offset accounts? In a nutshell, you put all of your spare cash in this account which can be your savings for your next ip which can be withdrawn anytime you want.. If you decide to save another way, you would need to get a better return than the interest rate you would be otherwise paying on your 1st ip loan, plus the tax (at your marginal rate) these savings would attract.. Hope this makes sense??

start-up said: ↑
Is there some sort of formula/theory for how much deposit to place on an IP and how much to save for the next investment, or is it all definded by elastic/complex factors such as how much serving the mortgage will cost..Click to expand...
I think a 20% deposit is a good rule to work with, unless you can source deals that are cash flow + with say a 10% deposit with LMI capitilised?? Lenders have their serviceablilty formulaes that work out how much you can loan based on your deposit, salary, portion of rental income.. But with a 20% deposit, steady salary, and good choice of ip you'd be fine :)  

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Just to illustrate why I think it's better to save for your next ip in an offset account look at these two options..

1) 100k saving in offset account.. net position after 1yr = 100k

2) 100k savings in whatever (term deposit, shares etc)

return of say 11.67% pa = 100k x 1.1167 = 111.67k gross return
minus tax at your marginal rate (40c ??) = 111.67 - (11.67 x 0.4) = 107k
minus the interest you're paying on your ip (assume 7%) for not having your 100k savings parked there = 107 - (100 x 0.07) = 100k net position

So you need to achieve a return greater than 11.67% to get a better result than your offset account.. doing so may involve risk and some work :p  

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That's fantastic info vbplease. I had heard of offset accounts but I had not recognised that it was clearly the best place for additional savings. Based on your handy calculations there is no way I would bet on making more than 11% p.a. on say a share portfolio (particularly when planning on accessing it in just a couple of years.)

The hurdle that now springs to mind is the 20% deposit, I can cover it easily but if the aim of the game is to use a minimal deposit and then offset other cash is it hard to find lenders who will accept say a 10% deposit, or are they only in the realms of low-doc loans these days? If it's helps drop my required LVI loading I can get my parents to put up their house as guarantors.. if that's a smart idea.

I just had a quick look on NAB's website to find an example and it does indeed say a 20% deposit is needed or you can use 'NAB Family Guarantee' (more than likely equity in the family home.)  

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start-up said: ↑
The hurdle that now springs to mind is the 20% deposit, I can cover it easily but if the aim of the game is to use a minimal deposit and then offset other cash is it hard to find lenders who will accept say a 10% deposit, or are they only in the realms of low-doc loans these days? If it's helps drop my required LVI loading I can get my parents to put up their house as guarantors.. if that's a smart idea.Click to expand...
Most here have different opinions about using a deposit less than 20% and paying LMI. I’m more in favour of not paying it.. You have the initial outlay and you’re more likely to be –ve geared, in turn costing you more.. But hey, you may be able to source a really good deal, and LMI is tax deductible (spread over a couple of years). So you need to crunch the numbers.. check out how much LMI to pay here.

I don’t think you need to worry about a lo-doc or using a guarantor.. 10% deposit LMI capitilised should be ok, through a mortgage broker that has a 4 star+ rating.. One of the MB’s could confirm?  

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One factor to consider - when you return to Brisbane will you be eligible for defence department housing?

If so, you may like to take advantage of cheap rent rather than buy a PPOR at this stage.
Marg  

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vbplease said: ↑
Most here have different opinions about using a deposit less than 20% and paying LMI. I’m more in favour of not paying it.. You have the initial outlay and you’re more likely to be –ve geared, in turn costing you more.. But hey, you may be able to source a really good deal, and LMI is tax deductible (spread over a couple of years). So you need to crunch the numbers.. check out how much LMI to pay here.

I don’t think you need to worry about a lo-doc or using a guarantor.. 10% deposit LMI capitilised should be ok, through a mortgage broker that has a 4 star+ rating.. One of the MB’s could confirm?Click to expand...
After considering the 'Paying Down Strategy' I'm going to err on the conservative side and put all my cash into the one IP for a year or three, so I can comfortably avoid LMI.

Marg - you're right I am eligible for rental assistance, has been very handy over the last couple of years.  

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