Beginner: Advice needed....

[wallyt99]

I have been looking into property for the last 6 months now...and am yet to buy, and recently have been thinking of holding off.... but......


I am considering buying vacant land in Pakenham ($110,000) and building the cheapest simonds house ($120,000).

$230,000 - $26000 (plus charges....)

Total cost would probably be about 220 I guess. Which seems pretty cheap for a new 3 bedder with a train line.

Rent at 320, and with a few more interest rate cuts, it would be positively geared.



Does this sound ok?

[2BAD4U]

What about floor coverings, painting, light fittings, gardens, etc, etc, all of these need to be allowed for. Also consider the fact that you have to start making repayments while all this is being done and the property will be vacant.

In your cash flows have you allowed for management fees, maintenance, vacancy and other ongoing costs? I usually allow 25% of the rental income as a rule of thumb when evaluating cash flow for an investment property.

Also get advice on taxation to see what you can claim in building v's established (things like depreciation and travel).

Finally, don't count on interest rate cuts. What happens if rates go up, could you survive? Budget for the worse case scenario not the best case.

[bluelabel]

What about floor coverings, painting, light fittings, gardens, etc, etc, all of these need to be allowed for. Also consider the fact that you have to start making repayments while all this is being done and the property will be vacant.

In your cash flows have you allowed for management fees, maintenance, vacancy and other ongoing costs? I usually allow 25% of the rental income as a rule of thumb when evaluating cash flow for an investment property.

Also get advice on taxation to see what you can claim in building v's established (things like depreciation and travel).

Finally, don't count on interest rate cuts. What happens if rates go up, could you survive? Budget for the worse case scenario not the best case.

Good advice Bad (is that an oxymoron?),

I agree with you there, I don’t believe you should go into property banking on interest rate cuts, especially with all the extras that need consideration you outlined above. I think you should be looking the other way and thinking I can get in now and if rates drop then crack a bottle of bubbly. But in the case of rises I think a buffer is important, when I cost things out I look at what the rates are now and factor in at least a 2% rise. i.e., if you are comfortable with the extra 2% then you will be ok, anything over that and you start to re-evaluate things.

I use 2% because a rise of that much isn’t going to happen over night and it should give you breathing space if rates do go up it will give you time to get out if you start to choke.

Also, just a musing on your choice of suburb; I am guessing you are just looking for the rent and not a capital gain out of the property, and others may be able to add to this, I realise you are looking for a way into the rental market, but does anyone else think a bit of research into the future value of the property should be taken into account?

This is a link to my thoughts on your land selection: "http://www.aussiepropertyforums.com/forums/showthread.php?t=19"] remember this is only my thoughts. You may see something there I don't.

Good luck with it.

:)

blue

[Wildkactus]

An other thing to look at is use an LVR of 80, I use this as my rule and have not had any problems with rates going up, values going down etc. and that is always a good level to have when refiancing especailly now as the banks like to know you have skin in the game as well.

just one of the many thing to think about when investing in property.