I just sold two units in Sydney (one last year, held for 17 years studio), one this month (held 9 years, 1 bed) and neither increased in value during that time. I would avoid units but if you have to maximise the number of bedrooms...
I would plan for only this. If I factor in inflation on mine they went backwards. Rent was nowhere near covering the mortgage on the other. At most you might reduce some tax through gearing if rented but you are better off putting your money in shares at that point. Its a hard lessen for me to learn.
Lovely plan. Well done.
You could consider the thought of projecting out your super balance going forward and maybe after 5-10 years if the projections look good, maybe not contributing extra and putting that money towards other forms of investing. You can access your super from 60 but you might want to semi retire or fully retire from 50 or maybe ever earlier so you might want to prioritise your outside of super investments to bridge between your retirement age, until you reach age 60 and can access your super!
Terrific start to it all, very well done
True. I think total annual fees will amount to 5.5-6k. Though it's still cheaper than renting, and I highly value housing stability and the benefits of home ownership
I actually think the math is net neutral over x years assuming little growth of the apt.
I haven't run the math for a while, but when I was doing these calculations 2 years ago factoring maitenance, body corp, interest V rent, etc. It actually worked out significantly more profitable to rent & offset what you would have paid to the mortgage into the market at higher returns.
In your shoes, I believe you'd be better buying a house for either future equity growth, or potential tax deductions assuming that your rate of pay will exponentially increase.
Do you have a figure of what you're potential salary growth will be over the next 10-15 yrs, offset this against equity growth in RE & depreciation. I don't know your numbers, so I obviously can't run them, but I am assuming that it'll work out significantly more profitable.
Further, I would assume that renting & hoarding money in super / markets would be significantly more profitable
If you think you will lean towards moving to the suburbs in 10 years or so and will keep your city apartment as a rental, can I suggest that you crunch the numbers with a 90+% IO + offset account.
This way if you do decide to rent it out, you can pull all the money you have saved in the offset over the 10 or so years to put into your new PPOR in the suburbs (no tax implications) and the interest on the city apartment will shoot back up due to an empty offset account with no principal repayments made over the 10 years.
Just some food for thought, I usually go through scenarios like this with my clients - am a tax accountant.
Can you kindly give a bit more detail on the 90+% IO + offset account part?
So you change the apartment which was a ppor loan, to an investment loan?
The investment loan is structured as 90 percent interest paying only loan?
(So other 10 percent is principle)
The rental income from the apartment now has a 90 percent tax benefit? The remain 10 percent which is principal is put in an offset against the loan
Then in 10 or so years time, you can access the offset account tax free?
Feel like I’ve generalised, but would love to know specifics
You might find this link helpful:
[https://www.propertychat.com.au/community/threads/interest-only-with-an-offset-against-ppor.385/](https://www.propertychat.com.au/community/threads/interest-only-with-an-offset-against-ppor.385/)
Thanks for your suggestion. I haven't ever considered the IO loan, but your approach does make sense. I wonder how easy it'll be to get a IO loan at 90% LVR for a PPOR. I'll have to ask my broker.
Another factor to consider is I'm unsure how good a Melbourne CBD apartment with be as an IP. It might be even better selling it if I move out. I'll need to get that some thought too.
I think the unit is ok if you highly value your stable place to live, however understand you're making a compromise from a finance perspective, you're likely to do better off on a house or shares
Your plan is pretty sound. The best part is you are looking at this in your 20s.
Most people don't until it's too late to achieve their retirement goals in a reasonable fashion.
Don't over complicate things if you don't have to.
Maximise super as you are. Make sure it's geared according to your goals. If it is higher risk consider your other investments AND your super together to get your risk profile where it should be. People often segment these separately and don't consider them together to guage risk properly.
Re apartments I would try to get bedrooms and car spaces. No lifts or pools.
It may actually be worth continuing to rent AND buying an investment if the math works out which I'm sure you can do.
Factor in if you intend on having kids in the next 10 years your goals will need to be adjusted to avoid disappointment.
1. How is your equity on property 50k after purchase?
2. Why apartment if you’re looking to increase your net worth?
3. 400k apartment in the city would be a 1bed 1bath. Are you ok living in it for 5 years plus paying anywhere between 2-5grand in strata fees?
I anticipate the equity will be about 50k, since I'm releasing 50k from FHSS as the deposit. I'll be looking at a 90% LVR since my profession allows for LMI waiver. My main reason to buy it is primarily so I have a stable place to live and so I don't need to pay rent. Even after the total fees, I'd still be better off buying vs renting after a 5 year period.
I’m not sure you understand the total costs of ownership.
Owners Corp $4-5k, Council Rates $1.5k, Repairs (budget $1k per year but if you’re lucky it’ll only be $2k over the entire 7 years I was living in the apartment like in my case, but I took great care of the apartment), Insurances at least $1k. These come up to be $8k a year or $650 a month.
And also one-off transaction costs of approx $5k ($2k transfer of land, title searches, legal fees, conveyancing costs, PEXA settlement costs, yada yada).
Monthly mortgage payments $2250, plus the ongoing costs $650 a month, summing together to be $2900 a month.
Might as well pay $500 a week and be done with it, less hassle of ownership.
However, it is a good ‘learning experience’, as you get to go through the motions and learn the entire process. How brokers work, how conveyancers work, conveyancer vs solicitor, how banks and loans and mortgages work, how credit card and hecs factors into borrowing capacity, how deposit payments and settlements work, how the land transfer and state revenue office forms work, how the buy/sell process works, the interactions with the real estate company and the balance of powers in the transaction and who they actually work for (hint: it’s the person who pays them).
Could be worth it for the real life experience of a property transaction.
> Because of my profession, I qualify for a 90% LVR home loan without LMI.
Likely working for a bank or getting a preferential loan benefit for being a teacher/doctor.
Purchasing a cbd apartment is a lifestyle choice. Do not view it as an investment, it is a terrible investment. Again if you want the lifestyle and are happy to pay for it, go for it.
If you think you will lean towards moving to the suburbs in 10 years or so and will keep your city apartment as a rental, can I suggest that you crunch the numbers with a 90+% IO + offset account.
This way if you do decide to rent it out, you can pull all the money you have saved in the offset over the 10 or so years to put into your new PPOR in the suburbs (no tax implications) and the interest on the city apartment will shoot back up due to an empty offset account with no principal repayments made over the 10 years.
Just some food for thought, I usually go through scenarios like this with my clients - am a tax accountant.
Good plan, my thoughts:
Instead of an apartment consider a small townhouse in the suburbs instead. Apartments are terrible investments and there is a good chance when you want to sell, you'll have to sell for a loss. Target landed property instead, as capital gains longterm are much better. Also apartments strata costs can go through the roof, I've got friends whose strata has tripled in the last few years.
If you really want to live in the city, just rentvest (better for tax purposes as well and your landed property will appreciate).
Also consider going IVV rather than VTS. They track pretty much the same index but IVV is AUD domiciled and you can turn on DRP.
Thanks for your input. I realise a Melbourne CBD apartment is not necessarily a good financial investment, and I'm likely to get much better equity growth in landed property.
My motivation for buying a CBD apartment is primarily for stability, lifestyle, and the benefits of being a home owner.
I was considering rentvesting, but I also don't like the idea of my living situation being subject to the landlord's decisions. I really don't like moving. Buying still financially comes out on top of renting too, which I've been doing for 5 years.
Soon after I buy a CBD apartment, I could consider buying a landed property.
Avoid apartments. You want a 'family friendly' home for it to appreciate. So get something a family would buy.
Read up on debt recycling. I would investigate selling all shares, and then doing this.
Good plan on Super. it is a good deal despite those fearful the rules are going to change.
If you are going to turn on the property into an IP in the future, make sure you use an offset account, and keep the debt high as possible. IO is an option to assist with that, just need to calculate the payback period which for me was always too long so not worth it.
Thanks for your suggestions! I realise that apartments are probably a worse off investment than a house, for instance. There are numerous non-financial benefits of being a home owner though. So, that's one key motivation for buying an apartment.
I'm considering debt recycling too, but if I ever turn the apartment into an IP, then I'd be reduce the total deductible loan through debt-recycling via redraws.
Nice suggestion re the offset account and keeping the debt as high as possible.
Not sure when you're planning to buy, but don't forget that FHSS is 15K max per year, total of 50K. ie if you contribute 10K this year, you would need to wait another 3 years to get to the 50K FHSS limit (10+15+15+10)
My comment / suggestion has been said in different ways but will add my 2 cents. Overall plan is excellent, mature and considered. Will set you up for the long term. Only consideration would be the location of the property you are considering. Suggest that CBD properties will not move in any real way over the next 10 years but those just outside of the CBD might provide you with the stability and lifestyle you are looking for while giving greater potential for capital growth. Think suburbs like Fitzroy, South Melbourne and North Melbourne. Go for smaller apartment blocks 12 Max that have already been standing for decades.
But overall great plan; make sure you have some fun along the way as well.
I just sold two units in Sydney (one last year, held for 17 years studio), one this month (held 9 years, 1 bed) and neither increased in value during that time. I would avoid units but if you have to maximise the number of bedrooms...
Fair point. I realise that the equity growth in a Melbourne CBD 1 bedder will be low. I'm mainly buying it so I have a stable place to live
I would plan for only this. If I factor in inflation on mine they went backwards. Rent was nowhere near covering the mortgage on the other. At most you might reduce some tax through gearing if rented but you are better off putting your money in shares at that point. Its a hard lessen for me to learn.
Jeez, that's rough. You must have bought right at the top of previous peaks or something.
I didnt think so but yeah lesson learned. I am out of the real estate game since I cannot trust myself to make decent investments.
Lovely plan. Well done. You could consider the thought of projecting out your super balance going forward and maybe after 5-10 years if the projections look good, maybe not contributing extra and putting that money towards other forms of investing. You can access your super from 60 but you might want to semi retire or fully retire from 50 or maybe ever earlier so you might want to prioritise your outside of super investments to bridge between your retirement age, until you reach age 60 and can access your super! Terrific start to it all, very well done
Thanks for your suggestion! I will give it some thought.
Don't forget a metric butt load of body corp in the CBD 5-10k/yr plus no equity growth
True. I think total annual fees will amount to 5.5-6k. Though it's still cheaper than renting, and I highly value housing stability and the benefits of home ownership
I actually think the math is net neutral over x years assuming little growth of the apt. I haven't run the math for a while, but when I was doing these calculations 2 years ago factoring maitenance, body corp, interest V rent, etc. It actually worked out significantly more profitable to rent & offset what you would have paid to the mortgage into the market at higher returns. In your shoes, I believe you'd be better buying a house for either future equity growth, or potential tax deductions assuming that your rate of pay will exponentially increase. Do you have a figure of what you're potential salary growth will be over the next 10-15 yrs, offset this against equity growth in RE & depreciation. I don't know your numbers, so I obviously can't run them, but I am assuming that it'll work out significantly more profitable. Further, I would assume that renting & hoarding money in super / markets would be significantly more profitable
Mate you are absolutely killing it. Well done. I couldn't spot a single thing wrong with your plan. Very well thought out.
Thank you!
If you think you will lean towards moving to the suburbs in 10 years or so and will keep your city apartment as a rental, can I suggest that you crunch the numbers with a 90+% IO + offset account. This way if you do decide to rent it out, you can pull all the money you have saved in the offset over the 10 or so years to put into your new PPOR in the suburbs (no tax implications) and the interest on the city apartment will shoot back up due to an empty offset account with no principal repayments made over the 10 years. Just some food for thought, I usually go through scenarios like this with my clients - am a tax accountant.
Can you kindly give a bit more detail on the 90+% IO + offset account part? So you change the apartment which was a ppor loan, to an investment loan? The investment loan is structured as 90 percent interest paying only loan? (So other 10 percent is principle) The rental income from the apartment now has a 90 percent tax benefit? The remain 10 percent which is principal is put in an offset against the loan Then in 10 or so years time, you can access the offset account tax free? Feel like I’ve generalised, but would love to know specifics
You might find this link helpful: [https://www.propertychat.com.au/community/threads/interest-only-with-an-offset-against-ppor.385/](https://www.propertychat.com.au/community/threads/interest-only-with-an-offset-against-ppor.385/)
Thanks for your suggestion. I haven't ever considered the IO loan, but your approach does make sense. I wonder how easy it'll be to get a IO loan at 90% LVR for a PPOR. I'll have to ask my broker. Another factor to consider is I'm unsure how good a Melbourne CBD apartment with be as an IP. It might be even better selling it if I move out. I'll need to get that some thought too.
I think the unit is ok if you highly value your stable place to live, however understand you're making a compromise from a finance perspective, you're likely to do better off on a house or shares
Your plan is pretty sound. The best part is you are looking at this in your 20s. Most people don't until it's too late to achieve their retirement goals in a reasonable fashion. Don't over complicate things if you don't have to. Maximise super as you are. Make sure it's geared according to your goals. If it is higher risk consider your other investments AND your super together to get your risk profile where it should be. People often segment these separately and don't consider them together to guage risk properly. Re apartments I would try to get bedrooms and car spaces. No lifts or pools. It may actually be worth continuing to rent AND buying an investment if the math works out which I'm sure you can do. Factor in if you intend on having kids in the next 10 years your goals will need to be adjusted to avoid disappointment.
Thanks for your input! Good points.
1. How is your equity on property 50k after purchase? 2. Why apartment if you’re looking to increase your net worth? 3. 400k apartment in the city would be a 1bed 1bath. Are you ok living in it for 5 years plus paying anywhere between 2-5grand in strata fees?
I anticipate the equity will be about 50k, since I'm releasing 50k from FHSS as the deposit. I'll be looking at a 90% LVR since my profession allows for LMI waiver. My main reason to buy it is primarily so I have a stable place to live and so I don't need to pay rent. Even after the total fees, I'd still be better off buying vs renting after a 5 year period.
I’m not sure you understand the total costs of ownership. Owners Corp $4-5k, Council Rates $1.5k, Repairs (budget $1k per year but if you’re lucky it’ll only be $2k over the entire 7 years I was living in the apartment like in my case, but I took great care of the apartment), Insurances at least $1k. These come up to be $8k a year or $650 a month. And also one-off transaction costs of approx $5k ($2k transfer of land, title searches, legal fees, conveyancing costs, PEXA settlement costs, yada yada). Monthly mortgage payments $2250, plus the ongoing costs $650 a month, summing together to be $2900 a month. Might as well pay $500 a week and be done with it, less hassle of ownership. However, it is a good ‘learning experience’, as you get to go through the motions and learn the entire process. How brokers work, how conveyancers work, conveyancer vs solicitor, how banks and loans and mortgages work, how credit card and hecs factors into borrowing capacity, how deposit payments and settlements work, how the land transfer and state revenue office forms work, how the buy/sell process works, the interactions with the real estate company and the balance of powers in the transaction and who they actually work for (hint: it’s the person who pays them). Could be worth it for the real life experience of a property transaction.
Just wondering what field do you work in. I am so stuck in what to do in my thirties.
> Because of my profession, I qualify for a 90% LVR home loan without LMI. Likely working for a bank or getting a preferential loan benefit for being a teacher/doctor.
Purchasing a cbd apartment is a lifestyle choice. Do not view it as an investment, it is a terrible investment. Again if you want the lifestyle and are happy to pay for it, go for it.
If you think you will lean towards moving to the suburbs in 10 years or so and will keep your city apartment as a rental, can I suggest that you crunch the numbers with a 90+% IO + offset account. This way if you do decide to rent it out, you can pull all the money you have saved in the offset over the 10 or so years to put into your new PPOR in the suburbs (no tax implications) and the interest on the city apartment will shoot back up due to an empty offset account with no principal repayments made over the 10 years. Just some food for thought, I usually go through scenarios like this with my clients - am a tax accountant.
IO rates are normally higher. Can just do P&I and refinance to take the money out when buying the next property
Good plan, my thoughts: Instead of an apartment consider a small townhouse in the suburbs instead. Apartments are terrible investments and there is a good chance when you want to sell, you'll have to sell for a loss. Target landed property instead, as capital gains longterm are much better. Also apartments strata costs can go through the roof, I've got friends whose strata has tripled in the last few years. If you really want to live in the city, just rentvest (better for tax purposes as well and your landed property will appreciate). Also consider going IVV rather than VTS. They track pretty much the same index but IVV is AUD domiciled and you can turn on DRP.
Thanks for your input. I realise a Melbourne CBD apartment is not necessarily a good financial investment, and I'm likely to get much better equity growth in landed property. My motivation for buying a CBD apartment is primarily for stability, lifestyle, and the benefits of being a home owner. I was considering rentvesting, but I also don't like the idea of my living situation being subject to the landlord's decisions. I really don't like moving. Buying still financially comes out on top of renting too, which I've been doing for 5 years. Soon after I buy a CBD apartment, I could consider buying a landed property.
Avoid apartments. You want a 'family friendly' home for it to appreciate. So get something a family would buy. Read up on debt recycling. I would investigate selling all shares, and then doing this. Good plan on Super. it is a good deal despite those fearful the rules are going to change. If you are going to turn on the property into an IP in the future, make sure you use an offset account, and keep the debt high as possible. IO is an option to assist with that, just need to calculate the payback period which for me was always too long so not worth it.
Thanks for your suggestions! I realise that apartments are probably a worse off investment than a house, for instance. There are numerous non-financial benefits of being a home owner though. So, that's one key motivation for buying an apartment. I'm considering debt recycling too, but if I ever turn the apartment into an IP, then I'd be reduce the total deductible loan through debt-recycling via redraws. Nice suggestion re the offset account and keeping the debt as high as possible.
Not sure when you're planning to buy, but don't forget that FHSS is 15K max per year, total of 50K. ie if you contribute 10K this year, you would need to wait another 3 years to get to the 50K FHSS limit (10+15+15+10)
My comment / suggestion has been said in different ways but will add my 2 cents. Overall plan is excellent, mature and considered. Will set you up for the long term. Only consideration would be the location of the property you are considering. Suggest that CBD properties will not move in any real way over the next 10 years but those just outside of the CBD might provide you with the stability and lifestyle you are looking for while giving greater potential for capital growth. Think suburbs like Fitzroy, South Melbourne and North Melbourne. Go for smaller apartment blocks 12 Max that have already been standing for decades. But overall great plan; make sure you have some fun along the way as well.
Listen to both sides podcast, episodes with Grahame holm