澳洲Australia property Renting and having an IP?? | Sydney


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


Just interested in your thoughts on this topic....

I've had many friends and family tell me that i'm crazy for wanting to do this but anyway.

I'm currently renting with my 2 children in an area that we have lived in for many years, they both go to school here and are very happy.
I can't afford to buy a house for us to live in as it's not cheap around here.

So....i want to buy an investment property that i can afford eg. 2 bedroom unit (probably in Ringwood) and keep renting for now.

Crazy???  

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People do it all the time.
Not crazy.  

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It usually makes the most financial sense to rent and invest if you're happy to do so  

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I agree - not crazy. You can potentially do it at break even or better cost and live in a nicer area.

Downside - you may need to move on to another place when you don't want to.

Regards,

Jason  

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It's a good idea particularly if your budget is stretched for a PPOR.  

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Ok here's my next question.....

Excuse me if it sounds extremely ignorant and naive BUT with my plan of continuing to rent and buying an IP, at what point to i decide '''mmm it might be time to stop renting and maybe buy a place to live?''

Is that something i decide once i've got a couple of IP's?

I never want to end up with just a PPOR and nothing else.  

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Chloe said: ↑
Ok here's my next question.....

Excuse me if it sounds extremely ignorant and naive BUT with my plan of continuing to rent and buying an IP, at what point to i decide '''mmm it buy be time to stop renting and maybe buy a place to live?''

Is that something i decide once i've got a couple of IP's?

I never want to end up with just a PPOR and nothing else.Click to expand...

It's good that you are asking questions before leaping in and buying something. I think the problem with residential investment properties is that the yield can be very low (particularly in Melbourne at the moment). This means that you may be funding the shortfall between the mortgage payments and property expenses for quiet some time before the property stands on its own two feet.

Depending on your income and ability to save, it may take you a while to be able to buy a couple of IP's, let alone a PPOR as well.

Considering you have a reasonable cash deposit, have you considered jumping straight into commercial real estate which has a much higher yield and longer leases? For example, look at this one below:

http://www.realcommercial.com.au/property-retail-nsw-broadwater-500076926

In this example, it says the yield is 14% of the property value.

Therefore:

$550,000 *5% (approx) for stamping = $577,500

Deposit: 30% of property price plus stamping = $192,500

Borrow: 70% of property price = $385,000 @ 9% interest = $34650 p/a

Rent: (Approx) $77,000 less interest cost of $34650 = $77,000 surplus income p/a to put into an offset account and pay down the loan!

disclaimer: I know nothing about this property or the area, it is just an example to initiate thoughts and discussion!

The beauty of commercial is that the tenant pays for the outgoings - which can add up to a considerable amount of money over multiple properties.

This may get you to your destination a lot sooner than buying resi.

Just a thought though......

Regards Jason.  

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jingo i would consider commercial poperty but i really need to research there as it's an area where i'm totally out of my depth.  

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Chloe said: ↑
jingo i would consider commercial poperty but i really need to research there as it's an area where i'm totally out of my depth.Click to expand...
You make a good case Chloe. For me, I choose to invest first, and buy my PPOR later because I want to maximise my tax-deductible debt. Once I have enough surplus money (from the sale of an IP, business income etc) then I can purchase my PPOR with cash (or very little borrowings). This means I can grow my portfolio and use my PPOR for leverage to do so, and keep it fully tax deductible.  

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Is the commercial property shown subject to flooding? I reckon I've driven past this place a few times heading north towards Ballina (on Pacific Highway).

On renting and buying IP be aware landlord may sell the property you are renting at some point or decide to demolish and build again (this happened to me with the last place I was renting).  

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jingo said: ↑
.... have you considered jumping straight into commercial real estate which has a much higher yield and longer leases? ....The beauty of commercial is that the tenant pays for the outgoings - which can add up to a considerable amount of money over multiple properties...
QUOTE]Click to expand...
jingo said: ↑
Hey Jason

We have now hit 14 months with a vacant shop

Prime position. Never been empty before (prior January, 2011). Empty now, but!

Empty means $30,000 less this year through our cash flow. Empty means paying that $30,000 mortgage and all the outgoings ourselves. Empty means considerable 'ouch'. There is no upside to empty.

Please believe me: Residential may not be glamorous but everyone needs a roof over their heads. However, despite my Commercial Manager's best efforts, not everyone needs to start or run their own business and not everyone needs to rent a shop / office / factory

The Penny Dreadfuls, historically, provide best 'bang for your investment buck' and in this instance, as Chloe is in Victoria, Penny Dreadfuls mean ex-Housing Commission in, say, Horsham, or a unit in Traralgon, or a unit in Kilsyth or Noble Park or Werribee


The sooner Chloe gets to cash flow neutral the sooner she can buy again.

Chloe, my Daughter bought her first two storey, two bedroom, concrete block 1960s townhouse in Kilsyth for $136,000 when she had just turned 18.

Since then, she has been to Uni, travelled extensively overseas, chased the job opportunities around regional Victoria, and all the while she has lived within her means - just like any other impoverished student - and the property has just quietly ticked over, improving steadily in rent return and in capital value, tick, tock, tick, tock. Nothing flash, but good, solid, reliable and now worth about $295,000 simply because there is absolutely nothing cheaper than that!

So while she was sleeping, her courage back then has repaid her by about $160,000 and counting.

Not bad for a skinny kid putting groceries into bags at the local BiLo after school and on weekends.

Buy well within your means, buy what you would feel secure living in yourself, and take your calculator with you to inspections

The rent is your lifeblood. You cannot expect much from the first year but if you buy well you may be surprised at the achievable yield in the second year. If you buy well, there will be no need to renovate or spend any further money. If you buy well, the deal will be clear to you from the outset and you will be able to plot out and plan the track of the investment and when you will be able to start on the next purchase

Property investing is really easy. Buy Houses, Make Money is simple stuff.

Keep it Simple and you will find it interesting, fun and profitable

Hope this helps
KristineClick to expand...
 

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Chloe,

Your Residence is a Lifestyle decision.
Your IP is a Financial decision.

The interest you pay on your PPoR = Lifestyle choices
The rent you pay for the PPoR = Lifestlye choices

If the interest on your PPoR was working out to 40,000 per annum and the same house could be rented for 25,000 per annum then you are saving 15,000 per annum by Renting.  

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Chloe said: ↑
Ok here's my next question.....

Excuse me if it sounds extremely ignorant and naive BUT with my plan of continuing to rent and buying an IP, at what point to i decide '''mmm it buy be time to stop renting and maybe buy a place to live?''

Is that something i decide once i've got a couple of IP's?

I never want to end up with just a PPOR and nothing else.Click to expand...
For us, it was after we felt financially comfortable enough - which also coincided with the time our landlord wanted to sell the property we were renting.....

Put this way - if you had enough ip's you could

1. always move into one of them if required (this might influence your choice of IP too - i.e. maybe your strategy might be to only buy something you could live in if required)

2. sell a few if they have gone up in value to buy your PPOR with very little loan (or outright!)

The Y-man  

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Chloe said: ↑
Ok here's my next question.....

Excuse me if it sounds extremely ignorant and naive BUT with my plan of continuing to rent and buying an IP, at what point to i decide '''mmm it might be time to stop renting and maybe buy a place to live?''

Is that something i decide once i've got a couple of IP's?

I never want to end up with just a PPOR and nothing else.Click to expand...
Buy the kind of house you would like to live in eventually in the area you want to live in. Rent it out, renovate it towards the end while you can claim deductions and depreciation. Move into it.

My next purchase will probably be along these lines, happy to keep renting for the moment as its beneficial to cashflow and borrowing. My lease is about up and I will be signing for another 12 months at least.  

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As others have alluded to, the choice of renting & owning IP versus owning PPOR only (I realise it isn't that black & white) is imo opinion primarily lifestyle choice versus deferred gratification/short term sacrifice.

I did it from 2002-2008 and I think it served me well. However I answer this question of living in Melbourne metro & investing predominantly in Melbourne and being single most of that time.

The degree of financial success or benefit from choosing renting over owning is predicated on;

* high marginal tax rate ie the more negatively geared you are, the less the benefit
* the marginal tax/chasflow impact of the renting out of the PPOR
* renting property that is cheaper than the existing mortgage payment. If you are choosing a rent that is in line with your mortgage, you are simply giving yourself the opportunity to move at your discretion (subject o leases of course). This of course when you are young may very well be of great benefit

Some other thoughts/observations

* the prevailing interest rate doesn't make a high difference to the relative merits of choosing between the two.
* if whilst living in your PPOR you are paying P&I and then move to I/O on that loan when you rent, this does allow extra cashflow for either lifestyle or paying down other non-deductible debt (personal loans, credit cards etc)
* went to an auction in Sth Melbourne a couple weeks back and the property was a lovely renovated Victorian not far from the beach etc. It sold after the auction for $1.15m. The auctioneer's spiel before the bidding started was that you could rent one of these properties for 800-900pw. The best advertisement for renting and not buying that property!

The nerd in me has just done a substantial review and spreadsheet on this exact scenario as am I revisiting this option now. In the end for me, the financial benefit is the difference between mortgage v reduced rent, but this means downgrading. Financially its the right thing to do, emotionally & lifestyle it is debatable.

I would encourage you to take some time and map it out financially and then at least you know the number impact  

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The dilemma is that i can't actually afford to buy a house where i'd like to live (Mitcham, Vermont, Ringwood etc.) that would suit me and 2 children unless houses all of a sudden dropped in price by $200,000 tomorrow.
The bank can only lend me so much based on the income i have now.

So i'd rather still buy something less expensive and have someone rent it out while i continue to rent for now. I feel this is the only way that i can get into the market.
I'd rather have something now than wait for another 2-3 years to buy something.
By then i'd like to have purchased another property....or 2.  

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I am really considering this at present. I know it's better for us financially but the psychological aspect of continuing to rent is a bit annoying. Not sure how to approach it.  

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I'm a happy renter with IPs.

I haven't yet settled on an area I want to live, so I move around. Innerwest of Sydney, lower north shore (current) , northern beaches, central coast, Newcastle (the next move).

It allows me the freedom to work out which area I want to finally settle in while also meaning that I have more freedom to invest the money in property in more financially attractive areas. For example, the mortgage repayments on my current rental would be $980 a week. I rent it for well under half of that. And it is a pretty modest place, but in a nice area.

I could afford that mortgage, but I'd prefer to spread it over other properties that have better prospect for returns than a unit that has dropped close to 100k in value in 4 years.  

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Chloe,
Is your borrowing capacity based on a PPOR or an investment property? With an investment property, some lenders can include the likely rental, and the negative gearing benifits to increase the amount you can borrow. Some may also decrease this amount by the rent you are paying ATM too.

You might be in the odd situation of being able to afford the property you want, but only if you rent it out. this might work for you, perhaps rent it for a year or two then more into it yourself and pay the full mortgage without the rent to help.

Cimbom, Psychologically owning an investment property will blow your mind. it will spur you on to bigger and better things.
Like other posters have said, its just a stepping stone, and taking stock and dealing with yoru reality now means you dont have to take stock when most people do, ie when a life changing event means they have to reconsider why they have been spending their income on doodads and consumer items for the past decades and now have nothing to show for it, or only the roof over their heads they cant access until they sell.  

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