澳洲Australia property IP 1stor PPOR 1st? I'm 20... | S


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


I am contemplating if I should buy a IP first of a PPOR first?

The way I see it is that I will back back in Perth in July and after I have been learning about property investing for a few months I will have enough knowledge to locate myself a good cheap 2 bedroom unit, hopefully in a area that is showing some semi decent appreciation also and possibly with 0 down or a low down payment so I don't have to save for to long. I will pay off the home loan and have a flat mate move in paying the home loan off aswell, possiby charging about $80/week ($95 including bills approx) or something like that.

This stops me from renting with a friend and loosing that money and actually paying off the home loan of the appartment that can appreciate and if it doesn't when I sell I get my money back basially + the other person way making half my payments...

How will this affect my IP's?

I'm only 20 (on the 28th of Feb) and I really would like to do this, I know you should not let emotions get in the way but I see it as a good this business wise and also personally (emotionally) If I do I see it as a good start instead of wasting the next 5 years ($26,000 @ $100/week or more...) spending money on rent and then finally getting a place.

Will this disadvantage me in the world of IP's or would it be to my advantage or would I really be sitting in a neutral position?

Another bonus I can see is that after 6 months if $200/week is paif off and after intrest and all the rest of it I might have about $5,000 equity to work with in my first IP + if the property appreciates even 1% that could be an extra $2,000 equity to work with.

Opinions?

Thanks guys. :cool:  

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Hi there Dominik,

I have not read your post in its entirety but i think i see what you are getting at.

I brought my first IP when i was 19 and have not purchased a PPOR at all since then (I am 22 now), and dont plan on it either! But that is what works for me.

As for your idea of buying a unit and renting the spare room to a friend, this was originally my plan but i found an opportunity that i decided was a better option and it has paid off for me. I dont plan to buy a PPOR until i can afford my mansion in Point Piper :D

As you are pretty keen on that idea (so it seems), may i suggest looking for something under value that can be renovated for an immediate capital/equity gain?

This way you can use the added equity to get into your first IP whilst still getting a PPOR unit.

If you want to talk about what i have said and your options, or any questions etc please feel free to PM me.

Hope that helps mate

Jacob  

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Playing it by the numbers:

1) Perth rental yields is still very low. By renting, you pay, maybe 4%.

2) There are properties in other states that yield 5-6%+. There are older houses in Brisbane / GC corridor that yield 6%.

Assuming a simple example of 100% LVR:

Buy PPOR:
1) You pay 7% in interest (not deductible, remember)
3) You don't get deductions on body corp, rates, insurance, etc which may add up to 2% of the cost of the place.
4) You DON'T get depreciation

So on this basis, your after tax return is -7%-2% (no adjustment for tax since nothing is deductible) = -9%. In simple terms, you lose 9% of the property in CASH. So if the PPOR is $300k, you lose $27k AFTER TAX.


Buy IP and rent:
1) You pay 4% in rent
2) You get 6% in rent on the IP
3) You pay 7% in interest
4) 2% in costs and fees
5) Depreciation (say 2% of the property price, most likely more if it's a newish unit)

Property CF: (6% - 7% - 2%) x 70% + 2% x 30% = -1.5%
Less rent = -5.5%

So everything else being equal, buying a PPOR costs you an EXTRA 3.5% (on a $300k property that would be $10k) a year compared to renting and buying an IP.

Note the assumptions: you buy an IP that's worth the same as where you live. If you share, the rent you pay is much less than 4%. It assumes your IP has 6% yield which may or may not be the case. It also ignores a lot of things like Lenders Mortgage Insurance, etc. The general idea works, though.

Bottom line? Buying a PPOR costs you a LOT more. At your age, are you sure you won't just run overseas in a few years for a working holiday? Or move to another city to work? IPs are a lot more flexible than PPORs, and you don't get emotionally attached.

I've had IPs for a few years and NO PPOR, mainly because I've been working overseas. Realise that most of the PPOR's value is emotional. Much more important when you have a family and/or are older but as a 20 year old, your plans will change. What you want is build up as much in assets as you can. Buying a PPOR will seriously affect your serviceability.

Incidentally I bought my first IP at age 22, and I'm turning 30 this year. I'm only planning to buy my PPOR this year because I plan to have a family. Most importantly, what I wanted to live in at age 22 (probably some unit in the inner city) is NOT what I want now (house in the suburbs with a big yard).
Alex  

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I just read through your post more thoroughly, and a couple of things i might say;

Do not be affraid of paying rent, it is just a living expense. Just dont go crazy with it (e.g. dont spend a large part of your paycheck on a $500 p/w penthouse)

As for paying off a loan to get equity, this should not even cross your mind as an investor. Equity should be coming from value adding activity and/or capital gain, not through P&I principal payments. Most serious investors use IO (interest only) loans, this will keep as much cash as possible free, and in many cases the IP's rental income will cover this interest, which will provide minimal holding cost, and maximum exposure to equity gains which can then be drawn upon for future activities.

Another bonus I can see is that after 6 months if $200/week is paif off and after intrest and all the rest of it I might have about $5,000 equity to work with in my first IP + if the property appreciates even 1% that could be an extra $2,000 equity to work with.Click to expand...
To quantify what you were saying; if you purchased something for say $200,000 with a 10% ($20,000) deposit, you would have an outstanding loan balance of $180,000, using an interest figure of say 7.7% p/a, you would have interest payments of $6930 over the initial 6 months.

So if you wanted to pay roughly $200 p/w off of the principle to arrive at your projected $5000 equity after 6 months, you would be looking at around $467 p/w which seems like an expensive savings plan to me! lol :)

*Remember that I am not amortising the mortgage so as to simplify the figures; in reality the amount of principle will decrease slightly each period (and you pay off more per payment as you go), so in reality the figures will work out slightly different.

Hope this all makes sense! sorry if theres a bit of jargon in there.

Cheers

Jacob  

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Dominik, you're 20. You can look forward to literally DECADES of capital growth and rental growth. Your first priority right now (I'm assuming that you have few essential expenses such as kids, family to support, etc) is to build as much gross assets as possible within your cashflow constraints. In your case, if your property might be negatively cashflow to start with, I wouldn't care. You should be looking at the 7% a year for the next FIFTY YEARS.

Your PPOR v IP boils down to this: do you want more property (gross assets and net assets) in the future, or do you want less?
Alex  

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The wealth of knowledge is so great on these boards. I'm so glad i've found it, thanks again guys.

Makes sense now to now get a PPOR and start with IP's + the fact that i'm only 20 and "do" want to go over seas and check out the world doesn't make it the hottest idea.

Thanks again ;)  

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Yes I guess everyone has pretty much answered your questions. But let me ad my 2cents worth. When I was 22 I bought my first IP. Actually its my only IP. I plan to own a few IP's before looking at buying a PPOR. IT is true as Alex says that what you want in a PPOR will change over the years. I am 26 and newly married and we are still trying to decide on a nice suburb for a PPOR.
Because the ongoing costs associated with PPOR are not tax decductuble then you would want to save up a good deposit. More than 25% I would be aiming for. Save for this Deposit for PPOR either via saving or buying IP's and drawing down on equity during the booms. Thats my theory anyway. Im currently looking for IP's whilst not forgetting that purchasing my PPOR needs to be withing reach.
Cheers
G  

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alexlee said: ↑
Playing it by the numbers:...Click to expand...
Did you forget mentioning FHOG and taking it into account in your calculations, Alexlee?  

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Special Forces said: ↑
Did you forget mentioning FHOG and taking it into account in your calculations, Alexlee?Click to expand...
FHOG is useful, but I don't believe it should affect the decision between FHOG and IP. Those are SUNK costs. For me it's about the cost of holding, AND how that affects future total assets. Having to pay stamp for the IP isn't a big cost if it means you have lower holding costs and can own extra properties that appreciate for 20 years.

I don't always agree with people buying with the FHOG and living in it for 6 months. Mainly because you lose deductibility for 6 months, and you in effect pay 10% interest. Personally, it makes more sense to just buy the IP straight, and claim FHOG later when you actually do buy a FHOG. At this rate the FHOG is likely to go up so you might get more advantages using it later.

Though it's probably just a case of sour grapes for me. I don't qualify for anything anymore.
Alex  

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alexlee said: ↑
I don't always agree with people buying with the FHOG and living in it for 6 months. Mainly because you lose deductibility for 6 months, and you in effect pay 10% interest. Personally, it makes more sense to just buy the IP straight, and claim FHOG later when you actually do buy a FHOG. At this rate the FHOG is likely to go up so you might get more advantages using it later.

AlexClick to expand...

FHOG isnt the sweetner of the deal , it is the fact that no stamp duty needs to be paid. Once you add the FHOG and the stamp duty your looking at a $15,000 saving on a $300,000 property . .. . .  

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young_gun said: ↑
FHOG isnt the sweetner of the deal , it is the fact that no stamp duty needs to be paid. Once you add the FHOG and the stamp duty your looking at a $15,000 saving on a $300,000 property . .. . .Click to expand...
And for 6 months you pay an extra 1.5% in interest (3% x 1/2 year because you can't deduct tax), lose maybe 2% of depreciation because you can't deduct it, and lose some additional money on rates, etc that you can't deduct from tax.

It may turn out that your savings from the FHOG are only half of what you think they are. You can still claim the FHOG later, if you buy an IP now.
Alex  

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Whats FHOG stand for?  

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Dominik said: ↑
Whats FHOG stand for?Click to expand...
First Home Owners Grant. Search for it on the net. The Govt pays part of your costs if you're a first-time home buyers. General rule is that you and your spouse / de facto cannot have owned a PPOR before, and neither of you can have owned a property (PPOR or IP) prior to June 2000.
Alex  

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I though it was something to do with that, it's like $7000 or something like that isn't that...

Can you use it on IP's? or just PPOR's?  

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Dominik said: ↑
I though it was something to do with that, it's like $7000 or something like that isn't that...

Can you use it on IP's? or just PPOR's?Click to expand...
7k+7k, I think? Read the rules. Just PPOR (think about it, would the govt really want to help property investors further?), but you can buy an IP, live in it yourself for 6 months, and claim the FHOG. Hence my discussion above. If you claim it as a PPOR for 6 months you can't claim any interest or expenses, nor get rent.
Alex  

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alexlee said: ↑
7k+7k, i think? Read the rules. Just ppor (think about it, would the govt really want to help property investors further?), but you can buy an ip, live in it yourself for 6 months, and claim the fhog. Hence my discussion above. If you claim it as a ppor for 6 months you can't claim any interest or expenses, nor get rent.
AlexClick to expand...
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