Okay, I know 1.5 million prob won't get you too good of a house, but would you:
1) spend it all in 1 and use it as a principal home of residence?
OR
2) buy a 750K one to live in (avg home in avg suburb) and buy another one 750K to receive rent?
Factors to consider and open to discussion are: taxation implications, mortgage, etc.
would like to hear what fellow ozbargainers think.
Also consider parking spots and serviced apartments…
(House)boats 'N Hoes
Or I should say, if I have the ability to borrow 1.5m to buy real estates, how would I spend it on?
assuming a avg/livable home is around 800K (in the Sydney Market I'm referring to)
Understand that the banks are better at investing than you are - so if you are being given lending rates of x, that is because the banks feel they can only get x - y return elsewhere. This includes anywhere you might buy a rental property.
Borrowing money for the purposes of investing it is a really, really silly move, unless you are borrowing from someone stupid enough to give it to you without charging interest.
The one possible option you have is buying a really nice place and renting it out, while you live in a shitbox. You can use tax breaks/first home buyer's grants etc to make back the interest you are losing on the loan, and when the mortgage is paid off you are left with a nice property.
Borrowing money for the purposes of investing it is a really, really silly move, unless you are borrowing from someone stupid enough to give it to you without charging interest.
This is literally the worst investment advice I have ever heard given, especially with regards to property.
You expect people to just pay $500k upfront for an investment property? Hahahaha. You're a funny one.
No, you use equity from one property as a deposit for a loan for another property. It's actually quite smart to do this as you can build a very large portfolio with minimal capital investment and low risk.
You do realise that when you are renting out a property, you basically just use that rent to pay the mortgage off? (In some cases you will have to put in a bit out of pocket, but it's still paying off the mortgage). It's what the majority of successful property investors do, lol.
You forgot the flavour of the month round here is that all landlords are the scum of earth, real estate gonna tank real soon and renting is a lifestyle decision.
"I know 1.5 million prob won't get you too good of a house"
Fken hilarious
It must be terrible being forced to live in this sort of squalor.
http://www.realestate.com.au/property-house-qld-auchenflower…
http://www.realestate.com.au/property-house-qld-wynnum-11430…
http://www.realestate.com.au/property-house-qld-chapel+hill-…
Depends where you are talking about. In a lot of inner city suburbs in Melbourne you need at least $1m to get something even halfway decent
That was the case in Sydney. Qld housing price is much cheaper…
I think I'm in love with the second house.
You are talking AUD? Because otherwise this is just trolling.
Am empty section in any reasonable inner melbourne suburb costs you more than A$1.5m
Too many variables to come up with a meaningful conclusion.
Is it $1.5m straight cash? If so, buy a PPOR and depending on your current income and projected rental income, use the rest as 20% deposit for el cheap rentals.
I ain't trolling. Agreed with slow. 1 million will barely buy you an unlivable cottage:
http://smh.domain.com.au/real-estate-news/unliveable-redfern…
So do what any sane and sensible person would do and move and buy a quality house within your means.
Its not hard.
Sydney is not the only place in Australia with coffee shops and jobs.
this site is fast becoming Ozfinanceplanner
But I am not complaining though, some interesting points also from previous posts… keep 'em coming guys.
no… only have 350K cash… so I can borrow to buy a 1.5m home with LVR of approx. 20% and some spare for emergency
You don't have to borrow the maximum that you can..
Can you even afford the repayments in the future when the Interest Rate isn't at a record low?
You'd be smartest to buy a $400-500k place to live in and borrow against the equity to buy a single investment property. Work to pay off your home mortgage and then look at other investment options.
Interest rates are not at a record low at all.
The average since 1930 have been around the same as they are now.
But I agree, pretty silly to borrow the max for what sounds like his/her first home.
Not knowing your income but a $1.2m loan @ 5% p.a. for 30 years (P&I) is $6.5k per month. Stress test it to 7.5% and see if you can still afford it. I think stamp duty for $1.5m will be a bit more than $50k as well.
EDIT: oh and don't forget every subsequent purchase will incur fees…stamp duty, solicitor/conveyancer, body inspection etc which will all eat up your $350k cash.
my 2c..
For place of residence, I'll buy where the capital gain potential is highest, of course taking into account proximity to work, good area to live, etc. This is for long term and savings on CGT later.
The rest of the money, if we're only talking about property investment, I'd go out and find something near city, positively geared, strong rental history, with borrowing of about 70% LVR. Current interest rate is already quite low so if with 70% borrowing the property doesn't return positive right now, I'd say it's not good enough.
Of course this is not including any other tax saving strategy, max negative gearing, etc. Personally, I am not a fan of negative gearing to save tax on salary from daily job. The problem is, you lose everything when you lose your job.
Again my 2c, a wise one would seek professional financial planner advice.
Thanks for your contribution. Great insight.
That's the question I'm trying to see what people think:
1) I can buy a relatively good property at 1.5m, ie decent suburb with good cap gains potential, but I'll be absorbing the mortgage myself no tax benefit - but when it comes to down size later, all the profits are tax free.
or if I purchase something cheaper, say 900K, less of a mortgage - less cap gain potential, but I can then buy another apartment say worth 600K for investment - better cash flow in that regard.
If in that 1.5M is mainly bank's money, I'd worry first whether you can afford the repayments comfortably (taking into account all kinds of *** life might throw at you later) before thinking of about CGT savings, etc.
I'm a firm believer that to profit in property, you cannot afford to be in position that you have to sell against your will (default, losing job, divorce, etc).
Also, why "900K, less of a mortgage - less cap gain potential"? Why cheaper house means less cap gain potential? I always thought generally it's the other way around.
well, assuming if house prices gone up 3X times, then a 100K property would be worth 300K and 300K property would worth 900K (as what has happened in the Sydney market for the past 15 yrs).. hence that's what I think anyway.
a desirable house is always gonna get rarer and more people competing for it later. the opposite vice versa
I see what you mean.
I guess when you're talking a timeframe of 15 years or longer, it's true.
My thinking was more about a property worth 1.5 Mil (expensive) now might not have too much room for improvement in shorter term (eg. next 5 years) especially in economic downturn, whereas cheaper house in genuinely developing area has more potential to grow in price over the same period.
But again, I'd put more emphasis on loan affordability first and foremost. Before making that profit in 15 years time, there's 15 years worth of repayments bill to be paid or the bank will take the property.
Have to be careful with the logic that a more expensive home is more desirable therefore more people will want to buy it. There are certain price points in every market where the price shrinks your market.
I am building my home in the higher price bracket ($1.5 mil) because I could not find any property in that price range that I thought was good enough for the price. I find the more money people have the fussier they become. I personally wouldn't buy an expensive home if I had to have a large mortgage.
In my local market around $500k you can sell practically anything today. The high price range can sit on the market for years.
Speak to your accountant re CGT treatment on PPOR that was an IP previously. You'd be surprised.
so what's your understanding? would like to hear your perspective
Rather not as I am not an accountant.
Getting neg because I'm not giving out info even though I'm not qualified to do so? Hmm this place is getting funny.
Assuming no problems with mortgage repayments.
Buy a 3 million Commercial property, with 50% leverage. Live off the rent, wait for capital appreciation, and buy a nice house for you to live in then. Forget about residential investment, commercial is where the dough is.
LVR's for commercial property are pretty low. Servo's for example only go as high as 60%.
still Mini2, with that cash available, why bother with residential? besides, you know how leases are for commercial. forget about 6 months. at that price range, it's easily years
Why? Vacancy.
I think Commercials are doing It tough at the moment, as most retail shops r going out of business - think oxford street strip.
some mentioned ware houses can be a booming one due to the internet purchases people make these days, but It is prob not my cup of tea.
and I don't have 1.5m, I can only borrow up to 1.5 m to buy something. Residential property is what I'm looking at the moment as it allows a high LVR than commercials, IRs are very good too
Personally, I think you're starting from the wrong end.
Don't start with how much you can spend. Start by thinking about what you want.
What's the bare minimum you can live in? One bedroom condo? Two bedroom townhouse? Dodgy suburb?
Everyone's "bare minimum" is different, eg single girl/guy who doesn't want to get married or have kids anytime soon, vs couple with three kids, vs couple with no kids but need for serious home office and frequent houseguests (ie me). Even if you're single now, are you planning to marry/procreate any time soon? Of course, life can throw you surprises, and you can always move if you need to, but it's nice to able to plan a few years in advance if you've got that luxury.
By the same token, the kind of suburb you can live in will vary greatly. If you're a big guy who works regular hours, you might feel ok living in a slightly dodgy area. A child-free person might prefer an inner suburb with happening night-life, while a big family might want to live near parks etc.
Once you've got your minimum requirements set, have a look around. You'll often find that the minimum requirements come down even further :)
I recommend buying the cheapest place you're ok with (again, "ok with" being something that varies greatly) and then investing the rest of your funds, whether that's in real estate or elsewhere.
I feel like I shouldn't have to expand on this further, but consider this: a more expensive house will come with more housework/cleaning/gardening requirements, higher council rates, uncertain property value increase rates, etc. Other posters have already warned you about the dangers of over leveraging, so I won't repeat that.
If you do decide to invest in real estate, do your homework (it sounds like you've already done a lot already).
Another thing to keep in mind when buying the first property, though, is that suburbs sometimes have crazy prices because of other amenities. For instance, with any luck, I'll be moving to the Camberwell Primary School zone when I've got kids (I love that it's a got a kick-ass French program, among other good things), and house prices there are just nuts. I wouldn't recommend that area for someone who's not set on that particular school - even within the same suburb, houses are often significantly cheaper when they're not within a particular school zone.
Re: the comment above that asks me to buy a 400-500K property. I have a family and want a garden. 500K will barely get u a 30 yr old 2bed unit in a OK suburb in Sydney < 20Ks fr the CBD with good schools/neighbourhood.
i'll have to stretch to a decent 800-900K to afford a 3 BR town house or villa. No house within this price range
20km's from Sydney CBD aren't gonna get you much. Ashfield/Strathfield things out that way have already grown past the $1m mark years ago. Actually, out the Kingsgrove (or nearby like Bardwell Park etc) way might not be a bad idea - still decent houses (perhaps older, ok, a lot older to the point that they might even be double bricked) on a 600m2 block for around 800k. Decent schools in the vicinity. IIRC it's a 25-30 minutes train ride to the CBD.
If this PPOR of yours is gonna be part of a longer term (think 20+ years) investment strategy, think about land banking out west.
Stick it in the bank, wait for the real estate bubble to burst and buy a block of flats.
Best. Advice. Ever. Truly. I logged in just to +1 this comment. :)
I also just logged in to reply. This is excellent advice! I was informed just yesterday the bubble is going to burst and it will be soon. Less and less Australians can afford to pay for these ridiculous prices and now it's nudging an un-repayable debt ceiling.
haha "you're clearly right, someone told me this was going to happen yesterday". Opinions are like assholes, everyone has one.
NOBODY KNOWS what is going to happen. NOBODY. Assuming your friend doesn't have a Delorean with the numberplates OUTATIME in the driveway.
My spin is i think that we're going to see a fair hike in inflation here in Australia (along with the USA etc.. too) over the course of the next few years. Housing isn't going to get more affordable because it goes down in price, its going to get more affordable due to your money buying you less and eventually through wages going up, you having more of it to spend.
I wish it would burst as I cant afford a first home. But the reality is that there is no subprime mess here or mass mortgage defaults as experienced in the US. How can you suggest that Australia could suffer the same fate?
Yeah and look at what happened to Dr Steve Keen.
Everyone's mortgaged to the eyeballs, when interest rates start climbing you'll see a lot of people running for the exit and prices will crash.
The ozbargain way would be…
If I'm going to be staying in a tent for a long time, can I at least splash out on a nice one? :P
You may have a a tent with windows.
Dem windows
Double glazed fly screens
Only in Australia where $1.5 million cash won't get you "too good of a house".
My American friends laugh and think déjà vu.
Lending criteria here is much tighter than the USA.
Relocate to a rural location. Buy a house outright or close to it, and live life that little bit more stress free.
$1.5M supplies you with about $1346 per week in interest (using UBank's interest rate).
Or using the first example at start of thread, spend $500K on your own home, leaves $500K in bank = $450 interest per week. Probably no tax payable, so that's nett.
So if you purchased your PPOR (Principle Place of Residence) cheaper than $500K and spend less time on ozbargain ;-p you could give up work.
That's an easy life without even putting any brain cells into gear. However if you bought blue-chip stocks instead and reinvested dividends… by the time you retire (or much earlier) you'd be flat out spending it all.
Or buy three 4 bd homes near a university. Renovate into 8-10 bedrooms each using the "wasted" area in bedrooms and loungerooms. Rent each room out for ~$150 a week = $1200 to $1500 per week per home for about 38 weeks per year. Lose a bit to a Real Estate and insurance so you don't have to deal with lawns and toilets.
Or buy commercial property/properties. The business pays all outgoings, real estate agent deals with them instead of you again freeing up your time, and the capital gain keeps driving values up, which banks like to lend money on to buy more property.
But I mostly have to agree with j5ive. Buy cheap home in rural (not remote rural) areas. Maybe several even. Rent them out, get a family, relax, spend time with them instead of an employer.
Not married? Maybe buy a $25,000 motorhome/bus on ebay and again live off the interest while you spend the next xx years seeing Australia.
thought the GFC would bring prices down but the gov artificially pour fuel to housing by doubling the grant and therefore there was a mini surge fr around 09-10. then housing became quieter and stopped growing/even dropped by 5% in the 2 years until late 2012 where it has increased another 100k (median price of Sydney houses).
waiting for the crash to occur? don't think it'll happen, mate!
I disagree about the 1st home loan bonuses propping up prices. The bonus was usually less the the stamp duty fees and you would have only seen rises at the lower end of the market if that was the main contributor.
The main things that inflate the market (imo) are negative gearing, no tax on sale of primary residence and demand (psychologically we want a place of our own and exit renting).
There are too many rich people with influence to see changes to negative gearing.
PS on a $900k home loan you really need to pay around $2k a week to pay if off in under 15 years (assuming no rises), that's a shipload of disposable income required.
the good thing is, over the course of 15 years it will become a heck of a lot easier to have $2k a week spare cash. My first job out of uni was $45k. That same job now, 8 years later is more like $65k (i don't do it anymore, but a friend is the boss of that area now). If i had bought a house then (which i did) and was doing the same job that i was back then (i'm not, thankfully), i would find it quite a bit easier to service the loan due to inflation.
That is one of the beauties about buying a house (amongst all the pro's and cons), inflation will eventually make it easier to pay your mortgage. You can either spend the extra money on crap or pay your mortgage down faster. I did the latter.
There are too many rich people with influence to see changes to negative gearing.
Including most politicians.
If negative gearing makes you spew your cereal, go read up on NRAS…the government even manufactured some pretty epic gravy train for people to take advantage of.
The first rule of trading, whether in real estates, shares….Ebay for heavens sake!…is to BUY LOW and SELL HIGH!. This is the worst possible period to enter the real estate market - its in an uprecedented boom!
If you must move now, my advice would be - buy a "dump" in the best location possible (you can still buy houses, with reasonable sized land for 450K in Sydney, if you're mobile and quick enough…look at deceased estates!) - then do it up to hedge against the inevitable bust, which will follow this boom)
Then you will have a starting point, which will enable you to have the collateral to borrow more and to start your empire.
When you do, watch the CGT - it'll kill you!!!
Unless you keep it as your PPOR
Thats why I said "use as collateral",not "sell" - although you can easily switch your PPOR to the next house you are doing up until you finish with a house you want to spend the rest of your life in!
In the meantime you have rental properties, each of which are "earning" and upon which you can "borrow"
Look, if you embark upon a career of real estate acquisition you are putting yourself in line for market fluctuations like rental, house prices going down, lending rates going up etc, etc….you can earn big or lose…you put up your money and take your chances!
It depends primarily where you got the money and what your goals are as to what your investment strategy should be.
If you have a business earning 1.5m in profit a year and growing buy a nice house for yourself (your income isn't dependent
on property returns).
If you received an inheritance, have a job and are going to be working the next 30 years and have no desire to start
a business, make some investments so you can retire early. More along the lines of the second option.
Are you talking about getting a mortgage for 1.5 million and have a job, then your going to be locked in for a long
time and hoping property does not go down.
Goals might include things like desired retirement date, location lifestyle, risk tolerance etc.
My opinion is don't invest this much in Australian property unless you are flush with cash.
Tend to agree with Wintergirl. Just looked on Domain: 3bed 2 bath house in Hornsby "best over $680K". Dunno what size garden, nor exact location within suburb.
Leaves $$ towards investment property/ies. However, I suggest you read my post regarding dude who wants to borrow $200K off his/her parents.
I suggest you get some equity in your own home before borrowing to invest. You're going to live past 85, so don't get caught in the race to the richest grave.
(Retired Finance Broker)
ps: Don't forget, you'll pay off the $700k home a lot quicker, so you can then refinance, rent it out, and move to your "Dream Home" sooner.
(You'll prob end up not moving, as your kids will have left home and you'll rattle in the "New Mansion" - then again, you might move to a lovely apartment overlooking a beaut stretch of water or Nat Park)
I know 1.5 million prob won't get you too good of a house
LOL. House prices aren't that bad yet – at least, not in Melbourne.
If you have 1.5m to invest i'd suggest you buy a managed business instead. On most businesses you buy at the 1.5m price range you will easily get at least 15% return on investment which will workout to be 225k per year. If you go with businesses like fruit and veg shops where the margins are a lot higher, you can really make a killing. I have a friend in Sydney who started with one about 15years ago and now has 10 grocery stores around Sydney. If you have lots to invest look into investing into businesses. if you do your due diligence and shop around, you can find some amazing businesses that are being sold. The return will be a lot higher, and the value of the business itself will rise with time (if you manage it well anyway).
My 2 cents, but do your own research or talk to agents that specialize in selling businesses.
Good investment theory, but business and home lending are two different things. Your proposal would have the OP laughed out of the bank. Unless you're a business that has stood the test of time you need upfront capital or fully secured debt to do business these days.
This news article seems timely: Australia to suffer 'biggest property collapse since Great Depression'
which state/suburb?
In Melb, I would buy 1 home around $500k to live (outright), then buy 3 - 4 other properties for rental purposes. I would also try and NOT buy them outright and use the funds for something else to gain maximum taxation benefits. Looks like you will need to speak to your accountant.
My 2 cents, as always…Do your own research.