Buying a second property

[bunsen burner]

The $135k is the total amount we have left on the mortgage.

Let's recalculate:


Scenrio 2 - sell and upgrade

Sell: $380 - Selling costs: $10k= $370k
$370k - $135k debt = $235k
$235k x 0.6 (your share) = $141k
$141k - CGT (say $7k) = $134k

= $134k for deposit

At 80% LVR you can afford a property for about $640k (stamp and buying costs will take it up to about $670k)

But that means you will have a loan for about $535k. Faaaark. You should be able to get a loan right now at about 6%. That's about $40k per year P&I. And then you need to budget for rates going up another 2%. That's about $55k pa. * you need to negotiate about a 0.8% discount on your loan.

You could maybe rent a couple of rooms out at $180pw. That's about $15k.

I don't know how much your on but I suspect serviceability will be your problem. Still, not a bad position to be in early.

Unfortunately this is not going to get me much in terms of where I want to live!!!

You need to do more research and find a scenario that works. Very few people get to live where they want early on. Most people have to make compromises - that's just how it rolls. If you have to buy a bit further out or downgrade to a townhouse then that's a necessary step. Don't lose sight of the end goal just because you can't get it your own way straight away. Sacrifices and compromises will have to me made

 

[we57st]

Bunsen- you are not wrong when you say you suspect serviceability will be my problem. Although I am very good with saving money (am currently pumping about 55% of my income into my mortgage), the scenario you have outlined would certainly put things into the realm of the virutally impossible.

When I eventually bought my flat, that was a compromise in itself as I had initially wanted a house.....when you are young and delusional you think you can do anything! Now I am not so young but still almost as delusional it seems........

I think the best option is to stay where I am for the time being, pay off my mortgage as soon as possible then start saving again. I understand that compromises need to be made but one thing I don't want to compromise on this time round is having a house instead of a flat - I am willing to go for a villa unit-type thing if need be - but I want my next property purchase to be where I stay until I retire, so I need to be reasonably happy with it - and that includes having a backyard!

Thanks for all the advice though, it's certainly given me food for thought and put me back on the straight and narrow...............

 

[Lyyynnnchy]

My plan
Buy under market value and renovate to create equity to buy again

IP # 1
Feb 09 Purchase price $340,000
Feb 09 IO with offset $307,000
Reno $5,000
Feb 10 bank val $427,000
Feb 10 IO loan with offset $307,000

Bang theres $35,000 odd in available equity in 12 months

Learnt a lot doing the reno and about the whole purchasing process so should be able to do even better for the next

Hopefully at least 1 investment property every 12 months

 

[bunsen burner]

I understand that compromises need to be made but one thing I don't want to compromise on this time round is having a house instead of a flat - I am willing to go for a villa unit-type thing if need be - but I want my next property purchase to be where I stay until I retire, so I need to be reasonably happy with it - and that includes having a backyard!

You're being short sighted. You're in a much better position of most for your age so wanting a place to satisfy you for the next 40 odd years is asking too much and too little at the same time.

By all means, pay down and wait until you can afford what you want but I have a niggling feeling the market will exceed your saving. By the time you have enough for that $600k place with a yard it will be $800k.

The other problem is what you want now will not necessarily be what you want in 10, 20, 30 years. You might meet someone, have kids, want a bigger back yard, maybe something more suburban etc.

I know heaps of people who were unwilling to compromise in their 20s and by the time they were nous enough to realise they weren't going to be able to afford in the area they grew up in they moved out to the suburbs (in their late 30s). The others who copped it on the chin early were able to move themselves and their families back into the desired area in their 30s.

You're not far off getting what you want just make sure it doesn't slip away because the market moves faster than your saving/pay down.

 

[Simon_Nesbit]

My plan
Buy under market value and renovate to create equity to buy again

IP # 1
Feb 09 Purchase price $340,000
Feb 09 IO with offset $307,000
Reno $5,000
Feb 10 bank val $427,000
Feb 10 IO loan with offset $307,000

Bang theres $35,000 odd in available equity in 12 months

Learnt a lot doing the reno and about the whole purchasing process so should be able to do even better for the next

Hopefully at least 1 investment property every 12 months

5k investment results in a net 87k gain?

How much of that is repeatable (due to the reno), and how much is just good timing (price increases due to factors beyond your control)?

 

[we57st]

You're being short sighted. You're in a much better position of most for your age so wanting a place to satisfy you for the next 40 odd years is asking too much and too little at the same time.

By all means, pay down and wait until you can afford what you want but I have a niggling feeling the market will exceed your saving. By the time you have enough for that $600k place with a yard it will be $800k.

The other problem is what you want now will not necessarily be what you want in 10, 20, 30 years. You might meet someone, have kids, want a bigger back yard, maybe something more suburban etc.

You're not far off getting what you want just make sure it doesn't slip away because the market moves faster than your saving/pay down.

Sometimes I look back and regret that I didn't wait for my first property purchase a tiny bit longer until I had a few more $$$ so I could afford an actual house. Back then, $350-$420k could have achieved this, and that is pretty well unthinkable these days in the inner city.

I'll give you a bit more of my background so you understand my situation a bit better. I am currently 29, bought my 2BR flat for just under $300k when I was 23 with my sister. I am in a long-term relationship but my boyfriend lives in regional Victoria. He has lived there all his life, has family there etc so I can't see him moving to Melb in the near future. Even if he did, he has no savings or discipline/ability/desire to save so buying a house together in the future is really not an option. And we definitely don't want kids!!!

Maybe you're right............maybe saying that I want my next house to be the one to see me through retirement is being short-sighted. I am definitely on the lookout at the moment if a viable opportunity presents itself, but whether I will be able to handle it financially is another matter, as we have seen.

Because I was so driven to buy property at a young-ish age, I missed out on the main thing that people do in their early 20s - travel. I have no burning desire to travel overseas but the idea of travelling around Australia for a while holds some appeal for me. I thought once of selling up, quitting my job and doing that one day.............

 

[Scotland]

Because I was so driven to buy property at a young-ish age, I missed out on the main thing that people do in their early 20s - travel. I have no burning desire to travel overseas but the idea of travelling around Australia for a while holds some appeal for me. I thought once of selling up, quitting my job and doing that one day.............

Owning a house and travelling don't have to be mutually exclusive.

Servicing a sizeable mortgage and travelling is tough, but there's no reason you can't rent out a property and travel.

In your position having purchased 6 or 7 years ago and having built up equity I'd be very surprised if you weren't able to rent out your place at a profit, let alone have to worry about covering the gap between mortgage and rent.

If it's what you want to do, get a tenant in, draw down $20k in equity, buy a Kombi and head up the coast!

 

[1eye]

My plan
Buy under market value and renovate to create equity to buy again

IP # 1
Feb 09 Purchase price $340,000
Feb 09 IO with offset $307,000
Reno $5,000
Feb 10 bank val $427,000
Feb 10 IO loan with offset $307,000

Bang theres $35,000 odd in available equity in 12 months

Learnt a lot doing the reno and about the whole purchasing process so should be able to do even better for the next

Hopefully at least 1 investment property every 12 months

Note being smart- but what does a $5K reno get you these days? Paint?

 

[Lyyynnnchy]

Helps when you have 2 good mates who are an electrician and plumber

Painted the walls and ceiling throught - $300 - 6 tins of paint @ $40 from bunnings and a few rollers
Painted bathroom wall tiles white - Free from parents reno (came up a treat!)
Ripped up bathroom floor tiles myself
Pulled out old shower screen and towel rails myself
Plumber to pull out toilet and vanity - $100
Tiles - $150 (smallish bathroom but tiles where only $15sqm)
Layed the floor tiles with the help of plumber - $100 (2 sets of 3 odd hours)
Cement + grout - $80
New vanity from bathroom auction in Maylands - $240 (rrp $400)
Taps - $75
New corner bend toilet (double the price of normal s-bend or u-bend ) - $240
Toilet & Vanity installation - $150
New shower head + taps - $175 - easy to do yourself
Shower screen - $800
Towel Rails - $50
Toilet roll holder - $20
Bits and pieces (soap holder, toilet brush etc) - $25
New lights and installation - $300
New door - $120
Timber blinds throughout house - $540
Paved outdoor courtyard with paving from maylands auction - $100
Pots and plants - $300
Outdoor table and chairs - $300
Outdoor heater and bbq pack - $400
Outdoor lighting and installation - $250
Relaminated kitchen bench and new doors - $400

Tad over $5000. Rounded most of the prices

I always aim for every dollar you spend to make at least $3 on the val of your house

 

[SolidTiger]

Because I was so driven to buy property at a young-ish age, I missed out on the main thing that people do in their early 20s - travel. I have no burning desire to travel overseas but the idea of travelling around Australia for a while holds some appeal for me. I thought once of selling up, quitting my job and doing that one day.............

My circumstances are a little different, but I brought my first property three years ago when I was 25. I concentrated on paying as much as I can into the mortgage and reduce my repayments. Now my repayments are low enough that I plan on saving to do the things I sacrificed in my early 20's, such as travelling overseas. If I did it the other way (travel in my early 20's and then buy a house now) I would find things much more difficult because I would have to pay a lot more for the same house compared to three years ago.

 

[Scotland]

My plan
Buy under market value and renovate to create equity to buy again

IP # 1
Feb 09 Purchase price $340,000
Feb 09 IO with offset $307,000
Reno $5,000
Feb 10 bank val $427,000
Feb 10 IO loan with offset $307,000

Bang theres $35,000 odd in available equity in 12 months

Learnt a lot doing the reno and about the whole purchasing process so should be able to do even better for the next

Hopefully at least 1 investment property every 12 months

Sound strategy, provided you can do it. Buying a property worth $380k (valuation from the other thread, from memory) for $340k and having it increase in value to $427k within 12 months is going to be very hard to replicate. If you can keep doing it while others can't then you've got an eye for a bargain and are a keen negotiator. If everyone can do it then we'll be in a right mess!

RE: the renovations, $5k is chicken feed if you pay anyone to do them for you, but doing it yourself as you did makes your money go a hell of a lot further. You can still buy a fair amount of stuff for $5k, but you won't get much in the way of labour, particularly if it's skilled. On the $3 improvement for $1 spent thing, do you plan on trying to document/quantify that as you go?

 

[1eye]

Helps when you have 2 good mates who are an electrician and plumber

Painted the walls and ceiling throught - $300 - 6 tins of paint @ $40 from bunnings and a few rollers
Painted bathroom wall tiles white - Free from parents reno (came up a treat!)
Ripped up bathroom floor tiles myself
Pulled out old shower screen and towel rails myself
Plumber to pull out toilet and vanity - $100
Tiles - $150 (smallish bathroom but tiles where only $15sqm)
Layed the floor tiles with the help of plumber - $100 (2 sets of 3 odd hours)
Cement + grout - $80
New vanity from bathroom auction in Maylands - $240 (rrp $400)
Taps - $75
New corner bend toilet (double the price of normal s-bend or u-bend ) - $240
Toilet & Vanity installation - $150
New shower head + taps - $175 - easy to do yourself
Shower screen - $800
Towel Rails - $50
Toilet roll holder - $20
Bits and pieces (soap holder, toilet brush etc) - $25
New lights and installation - $300
New door - $120
Timber blinds throughout house - $540
Paved outdoor courtyard with paving from maylands auction - $100
Pots and plants - $300
Outdoor table and chairs - $300
Outdoor heater and bbq pack - $400
Outdoor lighting and installation - $250
Relaminated kitchen bench and new doors - $400

Tad over $5000. Rounded most of the prices

I always aim for every dollar you spend to make at least $3 on the val of your house

Impressive

 

[Simon_Nesbit]

As a comparison, I've recently done an upgrade of my home - normally this means you get a much lower ROI (better quality materials/finishings), but still:

Patio (retaining wall, 7 tons of dirt/gravel/dust/etc, pavers) = $3200
Master BR/Ensuite (converted dbl garage, allready plumbed and power - so walls, plaster, paints, materials, labour for plumber/electrician/carpenter) = $17,500

Previous Val - $335k
New Val - $385k

So spent about 10k on materials, and the same on labour for a 50k growth. I did all the non-technical labour myself (won't touch sewerage, or electrical anymore...and can't cut a straight edge to save my life! so just put it together).

 

[Scotland]

Previous Val - $335k
New Val - $385k

How far apart were the valuations done?

If your house was worth $335k in January 2009 and $385k in 2010 for example, how much of the increase in value is due to the move in the market and how much is due to the improvements made by the renovations?

Good work on the reno's, they sound like they've really improved the house.

 

[Simon_Nesbit]

About six weeks. The market down here is stagnant, or sliding slightly according to RE valuations (our bank vals generally holding steady)

I work in the industry, and was using the updated valuation for further lending, so it wasn't hard to get a bank val done twice for the purposes of that application.

 

[Lyyynnnchy]

Sound strategy, provided you can do it. Buying a property worth $380k (valuation from the other thread, from memory) for $340k and having it increase in value to $427k within 12 months is going to be very hard to replicate. If you can keep doing it while others can't then you've got an eye for a bargain and are a keen negotiator. If everyone can do it then we'll be in a right mess!

RE: the renovations, $5k is chicken feed if you pay anyone to do them for you, but doing it yourself as you did makes your money go a hell of a lot further. You can still buy a fair amount of stuff for $5k, but you won't get much in the way of labour, particularly if it's skilled. On the $3 improvement for $1 spent thing, do you plan on trying to document/quantify that as you go?

Going by my calcs $1 for every $3 the Reno would have bumped it to $400,000 (i'd say a touch more though) and then $400,000 to $427,000 in 12 months time.

Sooo much cheaper doing it myself with help from friends. For example just finished of laying timber flooring in my gf's apartment. 6hrs of work for the both of us (72sqm - bathroom) and it's finished. Quoted over $1000 for someone to come in and do it.

Knocked out a small wall and gyprocked it myself, by the way I am one of the most unhandiest guys going around. Hadnt picked up a drill before I did the reno on my place, used youtube . Quoted between $2200 and $3500 to knock out the wall from 3 different people. cost = $200 for materials and 1 day's labour to do it myself.

Simple stratedgy

Most important - 1. Able to unlock plenty of equity with a max $15,000 reno.
3. Suburbs close to train and/or freeway
4. Close to something appealing. Beach/River/City/Uni/Major attraction.
2. Look at suburbs surrounded by more expensive suburbs
5. Close to schools and shopping
6. Go on the government website of suburbs I am interested in and see what development they have planned for the suburb

Renovate, wait for 6 - 12 months of growth (hopefully) and use the equity to buy again.

I have documented all the costs for this reno but as I didnt do anything over the first 6 months of having the house it's hard to get an after renovation valuation but from the 12 month valuation I'm putting it down as equal to if not more then $3 for every $1 spend

Would never buy a house at market price unless it had an exceptional capital growth outlook and/or exceptionaly high yield

 

[Simon_Nesbit]

yep, that gigh yield is definitely one to watch!

 

[Lyyynnnchy]

Haha to slow

 

[Lyyynnnchy]

Master BR/Ensuite (converted dbl garage, allready plumbed and power - so walls, plaster, paints, materials, labour for plumber/electrician/carpenter) = $17,500

Previous Val - $335k
New Val - $385k

Adding a room, especially converting a garage with power and plumbing already in it, is by far the best thing you can do for the valuation for your house.

My next project. Find a house in need of a little tlc (painting, flooring, cleaning) with a powered double brick garage with rear/side access. Convert to a granny flat and build a wall myself between the house and new granny flat.

Then rent both seperatley!

 

[Simon_Nesbit]

A prospective client of mine does exactly that. Has five dual-income properties, all of which are converted single residence/double garage (under or seperate) properties.

Don't know if they've done it themselves, or purchased that way, but they are looking for exactly that type setup to reno themselves now.

Good way of building income....not so good way of building the bank's interest in your investment portfolio (generally dual income considered a higher risk than single income properties).

 

[Scotland]

Going by my calcs $1 for every $3 the Reno would have bumped it to $400,000 (i'd say a touch more though) and then $400,000 to $427,000 in 12 months time.

Sooo much cheaper doing it myself with help from friends. For example just finished of laying timber flooring in my gf's apartment. 6hrs of work for the both of us (72sqm - bathroom) and it's finished. Quoted over $1000 for someone to come in and do it.

Knocked out a small wall and gyprocked it myself, by the way I am one of the most unhandiest guys going around. Hadnt picked up a drill before I did the reno on my place, used youtube . Quoted between $2200 and $3500 to knock out the wall from 3 different people. cost = $200 for materials and 1 day's labour to do it myself.

There a plenty of shonky operators out there. It helps to know as much as you can about any job you're considering paying someone else to do. Stuff like painting, gardening etc. really isn't difficult, so there's little point paying someone hundreds of dollars a day to do it if you can do it yourself.

Simple stratedgy

Most important - 1. Able to unlock plenty of equity with a max $15,000 reno.
3. Suburbs close to train and/or freeway
4. Close to something appealing. Beach/River/City/Uni/Major attraction.
2. Look at suburbs surrounded by more expensive suburbs
5. Close to schools and shopping
6. Go on the government website of suburbs I am interested in and see what development they have planned for the suburb

Renovate, wait for 6 - 12 months of growth (hopefully) and use the equity to buy again.

Would never buy a house at market price unless it had an exceptional capital growth outlook and/or exceptionaly high yield

Agree strongly with steps 2-5. Location, location, location.

Not convinced that 6-12 month periods will consistently provide sufficient growth to buy new properties, but time will tell.

By market price do you mean market valuation or list price? If you won't pay market price you'll never buy anything. If you won't pay what a property has been valued at then you're relying on a moron sellers not valuing their property or accepting below what their valuation said and forced sales. If you won't pay list price then fair enough, as more often than not a seller will try and get more than their property is worth.

 

[Lyyynnnchy]

There a plenty of shonky operators out there. It helps to know as much as you can about any job you're considering paying someone else to do. Stuff like painting, gardening etc. really isn't difficult, so there's little point paying someone hundreds of dollars a day to do it if you can do it yourself.



Agree strongly with steps 2-5. Location, location, location.

Not convinced that 6-12 month periods will consistently provide sufficient growth to buy new properties, but time will tell.

By market price do you mean market valuation or list price? If you won't pay market price you'll never buy anything. If you won't pay what a property has been valued at then you're relying on a moron sellers not valuing their property or accepting below what their valuation said and forced sales. If you won't pay list price then fair enough, as more often than not a seller will try and get more than their property is worth.

Quite simple to buy below market price, you just have to know your seller.

When I brought my place I new the vendor was getting depserate to sell and was also a Doomsdaye in regards to the GFC. The place had been on the market for 6 months and the selling price had dropped from $429,000 to "offers above $480,000. 2 months previous a townhouse in the same complex albeit a larger courtyard had sold for $429,000.

2 months after I brought my townhouse, an identical townhouse in the complex sold for $380,000.

The bank even valued my townhouse at the time of purchase at $380,000. A bank will not value a house 15% higher then purchase price inless it is worth that much more.

Deceased estate & mortgagee auctions is another way. Although I have seen these go for a higher price due to the fact they usually attract more buyers

Check out www.nathanbirch.com.au. He makes a living buying property under market valuation. He consistantly hugely 10% + under market price. Read some of his storys on somersoft.com.au. He provides proof of his purchases as well

 

[Scotland]

Valuation ≠market price.

While I agree it is regularly possible to buy properties for less than their paper value, market price is what buyers are willing to pay at a given point in time.

If another offer of $360k for your place was accepted that would've been the market price. You got a good deal (from a complete numpty it seems), primarily from finding a seller who was always going to sell and buying when demand was low.

I'm in a similar position to you having bought at 24. Bought for 85% of the original list price, and lesser quality comparable properties in the area are now listed at 20% more than I paid. How much is due to market movement and how much is due to ambitious selling agents remains to be seen.

 

[Lyyynnnchy]

Valuation ≠market price.

While I agree it is regularly possible to buy properties for less than their paper value, market price is what buyers are willing to pay at a given point in time.

If another offer of $360k for your place was accepted that would've been the market price. You got a good deal (from a complete numpty it seems), primarily from finding a seller who was always going to sell and buying when demand was low.

I'm in a similar position to you having bought at 24. Bought for 85% of the original list price, and lesser quality comparable properties in the area are now listed at 20% more than I paid. How much is due to market movement and how much is due to ambitious selling agents remains to be seen.

You're a vendor. Your house has decreased in value and your loan is now leveraged at over 100%. The bank is knocking on your door an wants you to either pay some cash to get it down to 90%, sell or they will reposses your house within 60 days. You can't afford to bring the loan down so you need to sell.

Someone offers you $340,000. No subject to clauses, finance ready and with a 30 day settlement. Someone offers you $360,000 subject to finance, building & pest with a 6 month settlement.

What do you take? What is market value?

You would take the $340,000 but the house value would be closer to $360,000

Happens all the time

Easiest way is to give your name to realestate agents so when they get a property on there books that needs to be sold asap they give you a call before listing in on realestate.com.

Good Buyers Agents consistantly buy under market value.

 

[Scotland]

If the value of the property falls below the loan amount and you continue regularly making repayments, why would the bank force you to sell?

If banks are going to enforce sales due to cases of negative equity then we could be in for some trouble in 2010 given the number of first home buyers who jumped in in 2009, the sharp rise in house prices, rising interest rates and continued economic uncertainty.