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Advice needed for young Investor

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Desert Fox | 10 Feb 2013, 11:15 AM Agree 0
Hi all,

Im looking for some advice and mentoring on what direction i should be heading on my investment journey.

Im 23 years old, have no debts at all, live for free at my mums house (not spoilt so please dont think that) have a deposit of 150k and i am currently saving 11k a month and paying huge amounts of tax through my job.

I am looking to purchase my first Investment and am wondering what strategies people in my situation have took or would approach. Thanks heaps for any advice i still have a lot to learn.
  • VN | 11 Feb 2013, 09:18 PM Agree 0

    I'm a 25 year old with 2 investment properties. I still have a lot to learn as well but from my experiences so far these are the advises I can give you

    - Don't be afraid to borrow more than 80% of the value of the property and pay lenders mortgage insurance. Lenders mortgage insurance (LMI) is a small expense that will give you more money left over to invest with. For my properties I use to think paying LMI was a waste of money, but now I realise if I borrowed only 90% and paid LMI I would have more money left over today to invest in more properties.

    - When you get the loan pay interest only. I've been paying principal and interest for a few years and am changing it to interest only. Paying interest only will allow you to have more money to invest with. The savings you make from paying interest only can be placed into your offset account and taken out when you have accumulated more to invest in.

    - As a young person who doesn't want to feel tied down with a mortgage, rental yield is important to me. I want the rent to be able to pay off most of my mortgage repayments so I have more money left over from my income to play with. But it seems you are quite comfortable and wouldn't worry too much about the yield?

    Do you mind if I ask what industry you are working in? You get paid so well! I think I need to change my job! :p
  • | 19 Feb 2013, 12:46 PM Agree 0
    Hi, well done on saving 150K, first you need to decide what you want out of investing in property.
    Are you trying to replace income so you can retire asap, are you trying to minimise your income tax etc.

    I suggest you do some more research on the forums, read your investment property magazine and speak with your parents.
    Then come up with a investing plan and action it
  • Jodie C | 24 Feb 2013, 03:59 PM Agree 0
    You are in a truly excellent position and my hat is off to you! Look at cashflow positive investments returning a rental yield of over 8% and calculate your repayments on a higher interest rate than what they are currently, so that you know you can cover the repayments with rent when the rates go up. Be sure to get rental appraisals before buying the property if you can. There are a few mentor groups that deal only in cashflow positive housing so have a look at Cashflow Capital and Metropole Property.
  • Lost | 02 Mar 2013, 08:03 AM Agree 0
    Hi All, I have similar issue as well. I have 150k saving, on 90K base wage. No debt or nothing, and yes I do get tax a lot too. I would like to purchase an investment property in Sydney region, however, it seems that most properties are overpriced or at at least $600 range for a house. My query is I am not sure where to start, location, property type (prefer house), etc. My purposes of investing are to increase my equity (in long run, having a decent CG), same time, have a good rental return and maximise the tax offset. (seem asking too much? who doesn't lol) Any advice? please. thanks.
  • Eos Property | 03 Mar 2013, 11:47 AM Agree 0

    You are at a stage we all went through when we first started out. Overwhelmed and not knowing where to start.

    When I work with clients we start at the end point and work backwards. To a certain extent you have already done this as you have indicated a preference for CG but with reasonable cashflow.

    These attributes should determine where and what you buy. I am not convinced that houses are necessarily the right way to go - especially at a time when the family size is in decline and higher density living closer to the city is in increasing demand. Having said that if you can grab a block of land with sub-division potential going forward then you may have a winner.

    Simply buying and holding and waiting for the market to move is the slow journey. The key to success at the moment is for investors to look for some value adding component to their strategy. If you can get something which can be renovated, sub-divided or value added then you are on the right track. It is this belief that led us to developing a JV approach to property investing which gives both CG and cashflow to clients even in a flat market.

    Not only does the value adding component increase equity it often always increases your rent return. Both of these are keys to your success going forward.

    While $600K seems a lot when buying a property - I can assure you it is all relative.

    I remember paying $49K for our first house in Perth in 1986 and thinking 'sh....' that is expensive. Looking back now and $49K seems like pocket money.

    The key for you now is to start refining what you are currently thinking. At the same time I have seen people over-analyse and doing nothing while they continue to look for the perfect property.

    I'll let you into a secret - there is no perfect property. At some stage you'll need to take action.
  • hardwork | 07 Mar 2013, 02:41 PM Agree 0
    Desert fox you are in a very fortunate position!
    On the other hand my pay is 100k and i've only recently moved to Oz and live in Victoria. I had put some money in shares last year only to lose it all.The savings I have so far are 40k with no debts or credit card payments. I am now looking at buying property and wondering with the small deposit I have I should look at buying in the 350-400k range. As i dont have any other equity, should I be living in it and paying both interest and principle and then further down the track 3-5years buy against it? Any advice?
  • Eos Property | 07 Mar 2013, 05:11 PM Agree 0
    Hi Hardwork - would love to chat with you (& desert fox and lost) to provide some more concrete commentary but this forum will have to suffice.

    Not sure what your short and long term property plans are, nor your age etc but let's have a stab at offering you some advice.

    Based on the figures you have provided you should be in a position to afford something. A good broker will be able to crunch some numbers for you and come up with a range of options. You will have to pay lenders mortgage insurance to get something of substance.

    Been awhile since I was familiar with the Victorian Govt First Home Owner's Grant. If you are eligible then buying your first property as a home and then moving out when you have completed your obligations under this scheme. Mind you I am not overly excited by the Melbourne/Victorian markets in general. If you can find a nugget in amongst all of the dirt this may be an option worthwhile exploring.

    There are significant advantages to you using an interest only with offset loan structure initially. The advantages primarily lie around you maintaining flexibility of funds as you move forward. If you do pay off your loan on an P & I basis then any redraws you may make in the future if/when your first property becomes an investment property are problematic.

    While your options are somewhat limited by the size of your deposit - you do have options.
  • Hardwork | 08 Mar 2013, 08:23 AM Agree 0
    Thanks Eos. I've bought a property last night, it did take me about 6months of research & planning.
    My long term plan is to have passive income that I can rely upon. Im 30 at present and would like to achieve my goal by the time Im 40. I like my day job and will continue to work but after 40 I'd like to ideally have/run own business or be an independant contractor which has its pros and cons but having a passive income can limit the cons.
  • Eos Property | 08 Mar 2013, 04:15 PM Agree 0
    Well done - tell us a bit about it and what you have worked out for yourself.
  • Hardwork | 12 Mar 2013, 08:27 AM Agree 0
    Eos, i've kept to the budget, although my borrowing ability is more Due to the savings I have at present I had a budget of 370. So I found a property in an area where the average is 430 for a little less than my budget. I am spending approx 5k on a white wash and minor up keep. Given the size of the property and others I have seen in the same area I am confident I am able to get the average within a short period.
    The idea is to build equity with this one and use it to invest on a 3yr cycle and looking at a 9 year plan. I have identified two key investment markets which appeal to me and will go for that after the equity is available.
  • Eos Property | 12 Mar 2013, 11:04 AM Agree 0
    Well done on your Hardwork.

    Are you living in this property? Is there a chance of this property becoming an IP in the future? If the answer to either of these questions is yes then you should consider an Interest Only with offset account loan structure.

    This way you'll retain maximum flexibility of your cash. You can grab some of the cash and use it as you see fit without compromising the deductibility of your loan. If you were to pay down your loan with a redraw facility and redrawings for personal items will compromise the core loan from a deductibility point of view.

    If you used a broker they should have explained this to you.

    But - all in all. A job well done. You are now a property investor and in the market.
  • Berber | 13 Mar 2013, 01:21 PM Agree 0
    Hi folks!
    A great deal of info to be learned in reading all your Q&A, thanks guys.
    I purchased my own home 5 years ago in Harris Park NSW, now I built enough equity and saved on more as well to purchase a Brand New unit in Newstead QLD on an NRAS scheme, good deal as I will be positive cashflow for the next 10 years at least given the fact the government will reward you with $120k in the 10 years. The settlement should occur this week.
    Now, I know that I can purchase another property straight away, why wait!
    My question is: What area to buy in 2013 and what type of dwelling?? This seems to be moving around the country constantly. Also, old and renovate or Brand new with peace of mind?
  • Eos Property | 13 Mar 2013, 03:21 PM Agree 0
    Hi Berber,

    Congrats on your soon to be purchase. Make sure you really can afford another property - while the banks says you can borrow more they are using very low interest rates in their calculations so you will also need to know you can afford the same when rates rise.

    I have seen people being aggressive and buying up big when rates are low. When rates return to more normal levels they can get bitten, big time. On that note it may be worth considering fixing your loan/s (or part thereof) to give you certainty of payments into the near future.

    As for buying now - I would be looking at something that you can add value to. Renovations are one such strategy. JVs are another, small scale developments another again. Each of these does have the capacity to fast track your investing through an increase in equity and/or rental income, both of which you will need moving forward from here.

    If you prefer something new understand you may be paying a premium for the product and then your property will only track the wider market for that area. Certainly avoid, like the plague, off the plan purchases at the moment.

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