澳洲Australia property Hello -I am new to the Forum! | Sydney


在澳大利亚 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 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


Hello everybody

I have been reading the Forums with great regularity and have finally decided to start posting and learn as much as I can in the process. At this stage, I might not be able to help many people with answers but it does not necessarily have to be about that, should it ? You can make a useful contribution to the Forum by encouraging people to achieve their goals or maybe congratulate somebody when they achieve their dreams or maybe even offer words of encouragement to somebody who is feeling dejected. Also, a big thank you to Forum members who post such excellent answers and do so with great humility and politeness. It is really refreshing to see that.

Me and wife are aged 30 and 26 respectively with no dependents and a tiny personal debt (car loan). We are both earning good incomes and do not have excessive spending habits. We have now been married for just over a year and we would now like to buy a PPoR and get on to the property bandwagon. All these years, I (like most people I knew) had only one ambition; to buy a PPoR and make extra repayments and pay it off ASAP. However, I always had a nagging suspicion at the back of my mind that buying and owning 1 PPoR at the end of your working life won't mean much because along with your PPoR, everything else would have appreciated in value as well and downgrading at that stage seemed like a poor idea.

At this stage, I decided to buy a couple of property investment magazines and saw case studies about how people used leveraging to become millionaires and it was as if a light bulb inside me just switched itself on. This prompted me to borrow some books (Yardney, Fitzgerald, Somers Etc) and then some more and now I am fascinated and cannot wait to get started. We have decided to buy a PPoR first (want a place to call home) and then be disciplined enough through proper loan structures to leverage that into my first IP in a year or two after that and then build on that. I am working with a great Mortgage Broker who has been extremely helpful and generous with his time and in time I hope to surround myself with a knowledgeable Accountant and maybe a Buyers Agent for my first IP purchase.

I started off with a goal to have enough assets that generate passive income that reduces the need for my job driven income by 50% in 15 years. But after reading some of the amazing goals achieved by many and also because I don't want to shoot too low (lest I reach it) my target now is to be able to retire in 15 years time completely (I might choose to work part-time but that should be my choice). I know it will be hard work but I love researching about property and learning everything I can about it and it does not feel like a chore to me. Also, me and wife don't have an extravagant lifestyle and we are able to save a good percentage of our incomes in addition to paying rent. But the biggest motivation comes from the prospect of finally having a chance to quit the rat race and be financially independent.

Thank you for your time in reading this and also a big thank you for all of you who post here regularly and are generous with your expertise. I appreciate it very much.  

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Welcome to the forum, orangestreet, we'll look forward to following your journey.

I think starting out with a PPOR is a fine idea; there really is nothing like the security of having your own home.

Are you just about ready to buy the PPOR, or do you know what you're shooting for?  

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Best of luck. You've come to the right place to learn.  

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Perp said: ↑
Welcome to the forum, orangestreet, we'll look forward to following your journey.

I think starting out with a PPOR is a fine idea; there really is nothing like the security of having your own home.

Are you just about ready to buy the PPOR, or do you know what you're shooting for?Click to expand...
Thank you Perp.

I am about 3-4 months away from having a decent deposit. I am leaning more towards buying a 3 bedroom house on a decent sized block of land in an inner/middle ring suburb in Canberra. I know I will pay a premium but I think if it can make a good home for my family, I will be happy. Also, I want that be our home for a few years to come. And I am also hoping that the land value of the house appreciates enough and I can then buy an IP (could be in any east coast capital city). But I definitely do not want to over-commit.  

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Orange, you do understand that getting on the property bandwagon doesn't necessarily mean buying a property to live in yourself?  

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[​IMG]

oooooh you've come to the right place, my boy! we're all somewhat of an expert on the real estate ventures!  

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orangestreet said: ↑
But after reading some of the amazing goals achieved by many and also because I don't want to shoot too low (lest I reach it) my target now is to be able to retire in 15 years time completely (I might choose to work part-time but that should be my choice).Click to expand...
Hi Orangestreet,

First off, this being your first post, welcome to the good ship SS forum. You certainly have found your way to the best address on the web to learn from.

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve and in the time frame you want to do it in.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the share market. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

I've basically been purchasing an IP per year. We've been investing for 10 years and to date have built a Multi $Million Property Portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

If you require any clarifications just ask.

Once again, welcome to Somersoft.  

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alexlee said: ↑
Orange, you do understand that getting on the property bandwagon doesn't necessarily mean buying a property to live in yourself?Click to expand...
Hi Alexlee, I do understand it somewhat. But after much discussion with family and MB, I have decided that having a place that we call home is not such a bad start after all. I think we might stick to this strategy (of buying a PPoR) and and building on that to buy IP's in the years to come. I will have to buy a PPoR at some stage, I might as well do it now, I reckon.  

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Rixter said: ↑
Hi Orangestreet,

First off, this being your first post, welcome to the good ship SS forum. You certainly have found your way to the best address on the web to learn from.

If you require any clarifications just ask.

Once again, welcome to Somersoft.Click to expand...
Rixter, much thanks for your detailed reply. Will go through it in detail and PM you should I have any questions. Appreciate your offer to help.  

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orangestreet said: ↑
Hi Alexlee, I do understand it somewhat. But after much discussion with family and MB, I have decided that having a place that we call home is not such a bad start after all. I think we might stick to this strategy (of buying a PPoR) and and building on that to buy IP's in the years to come. I will have to buy a PPoR at some stage, I might as well do it now, I reckon.Click to expand...
Hi orangestreet. Your approach works. Buy a PPOR now (since you need to live somewhere anyway and paying rent is helping someone else pay off their mortage when you can use that money to pay off your own). Once you have built up enough equity (through paying it down and capital growth), you can buy IPs with the extra equity (instead of saving up a deposit coz for most ppl that's bloody hard).

I know a few people who started this process 12 years ago and are now retired millionnaires.

If I was to start all over again, for my first property, I would consider buying a house on decent block of land with enough room to erect a granny flat (there are some active grannflats threads at the moment which suggest you can build one for $100k-$120k and rent them out for $200-$250).  

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Welcome to the forum and best of luck on your investment journey - I hope you do well :)

Cheers

Jamie  

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orangestreet said: ↑
I started off with a goal to have enough assets that generate passive income that reduces the need for my job driven income by 50% in 15 years. But after reading some of the amazing goals achieved by many and also because I don't want to shoot too low (lest I reach it) my target now is to be able to retire in 15 years time completely (I might choose to work part-time but that should be my choice).Click to expand...
if you want to be able to retire in 15 years you're going to have to commit around a 100k pa to investing. do you have the income to do that?  

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Ed Barton said: ↑
if you want to be able to retire in 15 years you're going to have to commit around a 100k pa to investing. do you have the income to do that?Click to expand...
EB, how did you derive that figure?

OrangeStreet hasn't stated what size asset base, nor what income level he requires generated from that base in that time?

Can you show your workings?

I'm perplexed with your statement.  

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Rixter said: ↑
EB, how did you derive that figure?

OrangeStreet hasn't stated what size asset base, nor what income level he requires generated from that base in that time?

Can you show your workings?

I'm perplexed with your statement.Click to expand...
well i was just throwing it out there based on an average PI and what i think you would need to 'retire'. some wild assumptions in my thinking. unless you are willing to commit a large part of your earnings to invest you won't retire in 15 years.

workings on 100k investment pa, assuming you would want 100k pa in retirement. my thinking is based on no debt, so a lot different from others.

yr1 - save 100k
yr2 - save another 100k. buy something for 200k. rent at 5% = 10k pa
yr3 - save 100k +10k=110
yr4 - save 100k +10k=220
etc etc etc

model it with borrowings?  

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Ed Barton said: ↑
well i was just throwing it out there based on an average PI and what i think you would need to 'retire'. some wild assumptions in my thinking. unless you are willing to commit a large part of your earnings to invest you won't retire in 15 years.

workings on 100k investment pa, assuming you would want 100k pa in retirement. my thinking is based on no debt, so a lot different from others.

yr1 - save 100k
yr2 - save another 100k. buy something for 200k. rent at 5% = 10k pa
yr3 - save 100k +10k=110
yr4 - save 100k +10k=220
etc etc etc

model it with borrowings?Click to expand...
Geeze I dont know how any average income person could save $100k p/a... The average person only earns half of that p/a. I've never saved that amount total ever in my years on this planet.

To generate $100k p/a a person would have to save $1,000,000 over and above their cost of living and purchase property outright. :eek:

Seems like a very challenging task for me but not impossible if you in the top 1% income earners I suppose.  

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Ed Barton said: ↑
my thinking is based on no debt, so a lot different from others.Click to expand...
Holy moley, talk about trying to do things with both hands tied behind your back! :eek:  

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orangestreet said: ↑
Hi Alexlee, I do understand it somewhat. But after much discussion with family and MB, I have decided that having a place that we call home is not such a bad start after all. I think we might stick to this strategy (of buying a PPoR) and and building on that to buy IP's in the years to come. I will have to buy a PPoR at some stage, I might as well do it now, I reckon.Click to expand...
It's not a bad start, but why are you going for the 'not bad' option? Are your family wealthy and does your MB deal with a lot of investors?

My bet is that if you buy the PPOR first, it'll be years before you buy an IP. That's years of potential growth you don't get. On the other hand, buying IPs first means there's more chance you'll have a bigger asset base before buying your PPOR.

'I'll have buy a PPOR at some stage' doesn't make sense. With more assets in the future, you can buy a BETTER PPOR.  

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alexlee said: ↑
It's not a bad start, but why are you going for the 'not bad' option? Are your family wealthy and does your MB deal with a lot of investors?

My bet is that if you buy the PPOR first, it'll be years before you buy an IP. That's years of potential growth you don't get. On the other hand, buying IPs first means there's more chance you'll have a bigger asset base before buying your PPOR.

'I'll have buy a PPOR at some stage' doesn't make sense. With more assets in the future, you can buy a BETTER PPOR.Click to expand...
alexlee said: ↑
It's not a bad start, but why are you going for the 'not bad' option? Are your family wealthy and does your MB deal with a lot of investors?

My bet is that if you buy the PPOR first, it'll be years before you buy an IP. That's years of potential growth you don't get. On the other hand, buying IPs first means there's more chance you'll have a bigger asset base before buying your PPOR.

'I'll have buy a PPOR at some stage' doesn't make sense. With more assets in the future, you can buy a BETTER PPOR.Click to expand...
Definitely not wealthy. We will have to build everything from scratch. And yes, MB does deal with investors along with being an investor himself.

Does it really take years after buying a PPoR to acquire the first IP? Out of curiosity, does buying an IP first means kissing the FHOG goodbye? Also, buying an IP would mean having at least a 10% deposit + buying costs? Not that rustling up a 10% deposit would be the very hard now that we have started saving. Also, does it not mean that when we do want to buy our PPoR in the future, we will have to pay a much larger amount to go with a much bigger non deductible debt?

You have given me some food for thought for sure. Would welcome any ideas or thoughts on either school of thoughts from anybody who wants to contribute.

OS  

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orangestreet said: ↑
Definitely not wealthy. We will have to build everything from scratch. And yes, MB does deal with investors along with being an investor himself.Click to expand...
My point is, why take advice on becoming wealthy from family members who aren't wealthy? When I get advice, I want explanations on why. Why do they think buying the PPOR first is better?

orangestreet said: ↑
Does it really take years after buying a PPoR to acquire the first IP?Click to expand...
That's from my observations. In theory, it shouldn't, but generally, people who by PPORs overcommit. They buy too much house and end up taking on an uncomfortable level of debt. They look at the big block of non-deductible debt and want to pay it off ASAP, which means they're not using money towards buying an IP. They want to improve the PPOR. They 'nest'.

The average couple buys the PPOR, then after the kids are gone think about investments. That's 20 years of experience and investing they'll never get back.

orangestreet said: ↑
Out of curiosity, does buying an IP first means kissing the FHOG goodbye?Click to expand...
If you didn't own property prior to 2001 and bought IPs only, no, the FHOG is still available. However, stamp duty concessions will probably be lost.

orangestreet said: ↑
Also, buying an IP would mean having at least a 10% deposit + buying costs? Not that rustling up a 10% deposit would be the very hard now that we have started saving.Click to expand...
You might be able to borrow more than 90%. Will it be more difficult to rustle up a deposit when you're trying to pay off the PPOR debt?

orangestreet said: ↑
Also, does it not mean that when we do want to buy our PPoR in the future, we will have to pay a much larger amount to go with a much bigger non deductible debt?Click to expand...
I'll give you an example. Your 'dream' PPOR is now 500k. You can either buy that, or buy 3 x 250k in IPs (because you get rent and tax deductions to help you). In 10 years, the 'dream' PPOR is 1m. How much is your portfolio? 1.5m, at least. So the dream PPOR is now relatively cheaper (compared to your portfolio) after 10 years. Will the non-deductible debt be bigger if you buy the PPOR later? Sure. There are strategies for this, and it's a lot cleaner if you have equity in the IPs.

Look, you do what you want. Maybe you or your partner really want a place of 'your own'. Just remember that a PPOR is usually an emotional purchase. And emotional purchases rarely make good investments. A PPOR is an ok asset, especially if you compare it to not buying anything at all, but there are better ways.

Second, how many PPORs can you live in at any on time? One. How many IPs can you have? If you assume that property prices go up over time (plenty of disputes about this), is it better to have more property or less?  

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alexlee said: ↑
My point is, why take advice on becoming wealthy from family members who aren't wealthy?Click to expand...
All fair points. Thank you for your considered and balanced opinion. I will give this a good think and I still have some time as I am in deposit saving mode and I have a few months before I make the final call.

I think this is where I have lucked out. I am learning about the basics of investment before starting my property journey. And I can't wait to learn fast enough. As long as I don't fall into the trap of analysis paralysis, it can only help me.  

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