Buying My First Ever House in Brisbane, please help

[EstatePreneur]

Hello everyone,

I'm a real newbie in real estate and I've got a few questions to ask.

A quick intro about myself and my current financial position:
Firstly, I run a very small business (self-employed) with low income (currently generating approximately gross $15,000/annum), and I work from home. I have my parents to back me up, my dad said he's able to provide 50% deposit of the total house price.

In the next few months/weeks I'm going to buy my first ever house in Brisbane, our budget is from $250,000 to $300,000.

My goals, and what I'll do with the new house:
1. Stop renting (I'm currently paying $90/week in a unit shared with a friend), have been doing this for 6 years now
2. I'll live and work in the house (make a home office and work from there)
3. Do some sort of home stay business (renting the other bedrooms to University students)

What I'm looking for:
A house (not new, since I plan to renovate the house in the future to add values to the property) with the following criterias:

1. Location - As close as possible to a University (5-10 minutes walk), public transport, and groceries stores
2. 3 bedrooms, 2 bathrooms and 1 garage
3. Approximately 10 - 15 minutes from city by car

Please help with these questions:
1. Will I be able to get a decent deal/loan from a bank considering that I'm self-employed and have low income, and that my father is able to provide 50% upfront deposit of the house price?

2. Which suburbs in Brisbane do you think I should be searching/looking at? (I.e. I've always liked the Sunnybank areas since it's very close to the Griffiths University, and there's a lot of asian groceries, restaurants, shopping center, etc)

3. Should I come to each real estate agent/office in the suburb (i.e. Sunnybank) to look for the house that suits me? Or is it sufficient to search via realestate.com.au website?

4. What are the procedures in order that I will be engaged in as a first time home buyer? (i.e. find the house that suits me, and then, negotiate with the home owner, get professional help to value the property, and then building inspection? I'm really not sure about these things, please feel free to write these in details )

5. What do you think about my strategies as outlined above? If it's not good enough, which strategies/things should I improve? (i.e. Maybe I should also start thinking about purchasing second IP and include this in my IP plans?)

6. Is there any other things I should be taking into account before I engage in this property thing?

I'll keep this thread updated, since it's my first ever IP, I'm really desperate to get some help from all you nice and helpful people here.
Thanks very much in advance.
Cheers!

 

[willair]

Estate,P.
The only areas around Griffiths Uni,would be Coopers Plains,Salisbury,
but i do not think you will buy under 300k and walking distance to the uni
the only Low priced area close to the uni and under 200k would be Rocklea,
Archerfield,both about 5 minutes drive fron the uni..
Be very carefull with some of the dominant real estate salespeople
that operate in that area,i know a few good agents that have worked
for me ,if you want a list of the agents that are upfront email me..
start with this link www.matthewsrealestate.com.au..
good luck
willair..

 

[Rolf Latham]

Hiya

on 15 k, borrowing 100 or 125 k over 30 years is likley to be struggle street..................... there may be some lo doc options, but youd really need some additional income to service the loan.

ta
rolf

 

[Peter Parker]

A quick intro about myself and my current financial position:
Firstly, I run a very small business (self-employed) with low income (currently generating approximately gross $15,000/annum)

In the next few months/weeks I'm going to buy my first ever house in Brisbane, our budget is from $250,000 to $300,000.

Stop renting (I'm currently paying $90/week in a unit shared with a friend), have been doing this for 6 years now

Paying a not dissimilar rent myself (though not sharing), I have been doing some number crunching on renting vs buying, and can tell you that the house would need to be an exceptional earner to make it worthwhile unless it has some other 'twist'. This is even if you include as part of its 'income' the $90pw rent you're no longer paying. If you really wanted to fiddle the books, you could include a capital growth estimate, but this won't feed you when you're hungry or keep the wolf from the door.

Letting out other rooms would help, but on a $300k house it's unlikely to be enough. If you're happy with a cheaper house it *may* just be possible, though it would be a real struggle, especially on a precarious self-employed income.

I'll go into more detail, below:

You can buy houses in the very cheapest suburbs of Melbourne for $200k. Assuming it's the same in Brisbane, and dad kicks in with his 50% then you only owe $100k. The FHOG may cover stamp duty etc. P&I payments on $100k would be close to $9k. Then add $3k for rates, insurance and maintenance.

So you're up for $12k, and if you deduct the $90k pw then it's down to about $8k pa. If you got two boarders to pay $4k pa each, it could work (ie break even with what you're paying now). But that's a best case scenario and your mileage may vary.

A flat?

If dad is willing to help out with 50% of $250 or 300k, is he willing to pay the same amount to buy you a cheap 1br unit (say $125-150k)? Then you'd have no mortgage at all. But your maintenance/rates/body corp costs would be (say) $2k pa, which is not much less than the $4.5k pa you're paying. So effectively with this option your dad is paying at least $125k so you can save $2.5k, which is a very small return. Your only hope is that there will be capital growth to make this investment worthwhile.

The other thing I'd consider is the business. Relocation can be disruptive and expensive. Flash new or larger premises do not necessarily equal higher income.

An IP?

With dad's 50% deposit on a $200k IP getting $200pw rent, you've got $10k pa of rent to pay interest on a $100k loan. Add holding costs, etc and you're not far off cashflow neutral. You can always sell up if times get tough, but you've always got your parents place for the business, and the $90pw cheap dive to live in. So selling the IP won't be as disruptive as selling a PPOR/busines premises. A key consideration though is if the IP is a 'fixer upper' needing work is whether the same effort expended in your business would provide superior returns.

Conclusion

Though dad's kind offer is exceptionally generous, to me using it to buy a PPOR is very high risk. Him buying you a flat is less risky but returns are poor. You're also squandering one or both of the no-risk advantages you have in the $90pw rent and use of parents premises for the business. The value of these should not be underestimated given the business income.

If you could retain these while using Dad's money to buy an IP then this might be a good way forward, but the low income limits the ability to be able to hold on if there are problems with the IP and as Rolf said there may be serviceability issues.

Sometimes doing nothing is the best option, but if you want to do something, then the IP option presents fewest disadvantages IMHO.

Peter

 

[arriety]

I bought in Sunnybank at end of '04 - 4 bedroom house low 200K - I thought it would be good for uni students as it is within walking distance of train. However I was told students (most) will only rent within walking and biking distance of Uni and this seems to hold true. They will share a bedroom around the corner from Uni but will not go 5 train stops away to have their own room! A 4 bedroom house 2 bthrooms suitable for renting to students sold a few months ago in Sunnybank for about $290K but as I said not sure if you can get them -

I liked the look of Rocklea but it is prone to flooding and the house I looked at did flood (but not badly so the agent confessed eventually) but it is a cheap area for good houses.

You have to have a good buyer's agent or go yourself. The house I settled on was never on realestate.com

 

[willair]

I liked the look of Rocklea but it is prone to flooding and the house I looked at did flood (but not badly so the agent confessed eventually) but it is a cheap area for good houses.

Arriety
we have a rental property in Rocklea,yes the area does flood,in the
last 6 years the water from the creek floods the park and some
houses maybe 15 houses ,rocklea does have high areas,but the bottom
line is you can still buy a 2 bedroom house on a small lmr block in
rocklea for 180k, i have been trying to buy another property but
just can't seem to find a property for 170k or less but time will tell..
the property i looked at 2 weeks ago was on the market for 190k
i offered 160 cash the vendors wanted 179k,i think it went under
contract for 180 k late last week so the cheap ones are still
around you just have to find the properties......
good luck
willair

 

[arriety]

Willair,
Yes I think you're right. Rocklea is so close to city, how can you lose if you get something under $200K? Maybe Bris council will be forced into doing something about the river (Oxley is it?) now that it is doing so well financially and not just rely on Federal funding
http://www.questnews.com.au/article/2006/01/27/6077_southern_news.html

One of the most prestigious and expensive areas of Adelaide had flood damage 2001 due to poor maintenance. There is a lot of pressure to fix it because of the expensive properties.
http://www.unley.sa.gov.au/site/page.cfm?u=387

Obviously different reasons for flooding but despites the risk of floods, I think Rocklea will boom one day - when the light industries move away.

I'm coming over this year in June so will have another look around the area!
good luck to you too.

 

[Qlds007]

Another thing to consider is whilst it is possible to obtain a No Doc loan at a competitive interest rate these days your weekly payments will still be considerably more than your rent.

I guess the question you need to ask yourself is just becauase you can arrange the loan can you afford to pay it back.

Keep us informed on how you go on your journey.

 

[willair]

In the next few months/weeks I'm going to buy my first ever house in Brisbane, our budget is from $250,000 to $300,000.

Estate,P,
imho.
I had a look at this property yesterday,at Coopers Plains,a 2/2 bedroom
duplex,on 615 res a land,ucv 109k,rental return about$175 per week
per duplex.I'm not sure if this property will stand up to a building pest,
but it is worth a look,they did not like my offer i made yesterday
someone may want this property.www.allenlee.com.au.
i have nothing to do with this property..
good luck
willair

 

[EstatePreneur]

My Progress So Far

Another thing to consider is whilst it is possible to obtain a No Doc loan at a competitive interest rate these days your weekly payments will still be considerably more than your rent.

I guess the question you need to ask yourself is just becauase you can arrange the loan can you afford to pay it back.

Keep us informed on how you go on your journey.

That's one thing that I've just taken into account very seriously.
And I've just taken another job (part time) last week, night shift 5 days/week.

I've done some very quick and very rough calculation (coz I'm not 100% sure how to do all these calculation stuff properly yet, I'm learning how to do it properly though)

Let's start with current financial position / income:
1. My small business is currently generating average $15,000 gross per annum
2. My new part time job (I'd consider this as fixed income) generates roughly $250/week or $13,000 if I'm going to work non-stop in the next 52 weeks.

Possible income once the house is purchased
3. I'm planning to purchase a house with 3 bedrooms, and rent the other 2 bedrooms out at $100 for each room / per week, so that gives me $10,500 (rounded up).

Total gross income once the house is purchased will be $38,500 (I use this 'after house is purchased' case because I'll be servicing the loan after I have a mortgage, common sense hehehe)

Ok, the not so good thing, the expenses, ehm ehm yehaaa
1. Food, daily needs, phone, electricity, internet, etc, roughly about $300/month
2. Rent $360/month (as I share a 2 bedrooms unit with another person)


Once the house is bought, I'm 100% sure that the expenses will increase (especially electricity, council, etc). But that $360 rent money will be no longer part of my expenses. Let's say, rough estimate of total expense will be $800 (electricity, daily needs, food, phone, internet bills, etc, etc).

So...
Total gross income = $38,500 / annum
Total gross expense = $9,600 / annum
==============================
Available funds = $28,900 / annum

Would somebody say if that $28,900 would be enough to service the loan ($300,000) please?

If not, then I'll have to ask for a back up from mummy and daddy

I was thinking to avoid all the hassles of having a mortgage and avoid paying all the interest like everybody else by proposing to borrow from my parents and pay cash altogether (note: my parents wouldn't mind to lend me these money without interest though. I know because I'm their son, hehehe *silly* )


Thank youuuu, thank you so very much to everyone who has helped giving me advice, feedback, comments, etc.

I'm a 26 years old (yeah getting older ) estate newbie trying to learn as fast as he can before purchasing a house sometime this year, so please help before I get too old, hehehe.

 

[Les]

G'day EP,

Might be able to help a little (just ideas, mind - no advice here...)

Would somebody say if that $28,900 would be enough to service the loan ($300,000) please?

First off, in today's climate, an IO loan on $300k will be ~$21k (WAY under $28,900). But then, this is only for an IO mortgage - if the Bank stitches you up with a P&I loan (Don't let them!!) it will be significantly more....

And then, if Dad has come to the party with a Deposit (say 20%) then your mortgage won't be $300k anyway (more like $240k??) In which case, the IP mortgage will cost ~$16,800 pa. Leaves a bit of change from $28,900 doesn't it? Which could help as a "buffer" to handle Maintenance, Insurance, etc.

Hope that helps somewhat,

Regards,

 

[alexlee]

EP on $38,500 income, your tax would be approx $8,500. Also, how long have you had that level of personal expenses? i.e. how likely are your personal expenses to increase?

Buying property is a serious investment that requires a lot of discipline. Banks, unlike parents, won't 'understand' if you're late in the payments, and won't care about your excuses about how you didn't make enough sales that month. To them, you're just an (account) number. As for getting the money from your parents, please see my other post(s).

I think you should have a much clearer idea of what goes in and out of your bank account before you buy property. Do a personal balance sheet and P&L statement and match it against your bank statements.

e.g. your P&L says you should have a surplus of $20,000 a year. Your 1 Jan 2006 bank statement should show $20k more than your 1 Jan 2005 bank statement. If it doesn't, your P&L is wrong. Remember that cashflow is KING.
Alex

 

[flatout]

Ok, the not so good thing, the expenses, ehm ehm yehaaa
1. Food, daily needs, phone, electricity, internet, etc, roughly about $300/month

EstatePreneur,

Are you for real? $300/mth for food, clothing, medical, electricity, gas, phone, transport, internet, entertainment etc equates to $69/wk. Now I know it's a long time since I've been single but unless you live on bread and water I just don't see how this is possible.

Flatout

 

[sue78]

If you have 50% deposit you won't have any problem securing a loan since the bank is safe. If you default they are sure to get their money back. From a bank's point of view, it's low risk.

If you really want a loan, then you could always tell them it's an investment loan so they will take into account your anticipated rental income. This is how we get all our loans approved. Our income is low but we have cash yet the bank doesn't really take savinsg into account even if there's a substantial amount i.e $250k because it could be in your bank today and gone tomorrow.
Anyway that will bring your income to about $25k p.a.

As to how you will service it...If you can't afford to service a $150k loan then you really can't afford to buy a house as even units cost more than $150k. $150k is considered very low already.

However, being in Sunnybank, you can always rent rooms out to International Students. Though girls prefer a modern and clean house.

It will be like yor situation now, house share, except you are the landlord.

Goodluck

 

[EstatePreneur]

Ok, the not so good thing, the expenses, ehm ehm yehaaa
1. Food, daily needs, phone, electricity, internet, etc, roughly about $300/month

EstatePreneur,

Are you for real? $300/mth for food, clothing, medical, electricity, gas, phone, transport, internet, entertainment etc equates to $69/wk. Now I know it's a long time since I've been single but unless you live on bread and water I just don't see how this is possible.

Flatout

I'd better correct this quickly before somebody think I'm nuts (which some of you might have done so maybe hehehe)
My average monthly expenditure is around $600, it's now $700 I must say, the landlord has increased the rent again

Well Flatout, as it's written somewhere in a book, Man doesn't live on bread alone (and the next one is my version) but also on vegies, fruits, milk, eggs, red meat (no fat please), all healthy food

G'day EP,

Might be able to help a little (just ideas, mind - no advice here...)
Quote:
Originally Posted by EstatePreneur
Would somebody say if that $28,900 would be enough to service the loan ($300,000) please?
First off, in today's climate, an IO loan on $300k will be ~$21k (WAY under $28,900). But then, this is only for an IO mortgage - if the Bank stitches you up with a P&I loan (Don't let them!!) it will be significantly more....

And then, if Dad has come to the party with a Deposit (say 20%) then your mortgage won't be $300k anyway (more like $240k??) In which case, the IP mortgage will cost ~$16,800 pa. Leaves a bit of change from $28,900 doesn't it? Which could help as a "buffer" to handle Maintenance, Insurance, etc.

Hope that helps somewhat,

Regards,

G'day Les!
Sounds like doable, but I would have to say $28,000 is my best case estimate.
I'll have to see how much I earn in total at the end of this year.
But dad's kick in with 20% deposit and possibly even more (say 50%) is for real

By the way what is a IO loan and P&I loan?


Sue78, you're right, the reason I choose Sunnybank is that there's a lot of International students living in that area. I'll also try to find a house that is as close to the Market Square place as possible although it's going to be more pricey.
From my studies of property investment so far, there has been said by many sources that location is what should concern me the most.

Alex, I'll never get tired of reading your posts/advice, thanks heaps for that Alex.

I'll keep updating this thread...
It seems that I still got along way to go, but alas! I'm already dreaming being a savvy property investor like you all here.
A giant step is always begun with one little step, I guess I'll focus on how to get my first home first, and I'm really hoping to do it right at my first attempt.

Cheers!

 

[alexlee]

By the way what is a IO loan and P&I loan?

It seems that I still got along way to go, but alas! I'm already dreaming being a savvy property investor like you all here.
A giant step is always begun with one little step, I guess I'll focus on how to get my first home first, and I'm really hoping to do it right at my first attempt.

IO = Interest only loan. You only pay interest. So a 7% rate on a $200k loan you would pay $14k and that's it.

P&I = Principal and interest. You pay interest + a bit off the original amount of the loan. Ends up to be about 2% of the amount. So a 7% rate on a $200k loan you would pay around $18k.

In a way, buying property is easy. It's being able to hold onto it that is more difficult. In some markets (such as now) banks are more willing to lend money. However, just because they are willing to lend you, say, $200k doesn't mean you have the means to repay it, especially as circumstances change.

You don't necessarily have to buy your own home first. The tax advantages from IPs means it can make sense to buy IPs before you buy your own home, especially if you can rent cheaply. I've been buying IPs for 6 years and I don't have my own home. My main concern in your case is your income / job situation. If you bought an IP, the rent would pay a good chunk of your interest, making it much safer.

I know that in my case I really have to analyse my spending to save. Property investment is both easier (buying phase) and harder (keeping phase) than it looks. There's nothing wrong with wanting to buy musical instruments, but you have to realise that the bank isn't going to take that as an excuse why you missed a payment.

In your case, I would say better to buy a little later when your income is more stable, than get in over your head and get burned. However, your attitude is WAY better than most people, and as long as you're careful you'll be successful with time.
Alex

 

[asy]

Just caught up with this thread...

You may find a house under $300k on the Nathan side of Orange Grove Rd in Salisbury.

Also, Contact Jarrod Lane, who's "liverpoolharryk" on the forum, he's a brilliant agent, and just happens to have a Real Estate office in Salisbury!!!

asy

 

[lll]

Gday

from what i have been told, the north part of Brisbane in the clontarf area could well grow dramatically in the near future. I have heard that the area is undervalued.

I am pretty sure the government is building another bridge out to the peninsula, and this always adds value to the area. So check that area out

cheers

Lozza