Hi all,

Just looking for a bit of advice here; recently I've become more and more interested in the idea of investing in property, and I think I'm (nearly) ready to buy my first home.

I've read books about investment and properties etc however there's one question I'm left wondering and I believe that those of you who have been on the property ladder for a while may have regrets or "I'm glad I did" that you might be able to offer advice on.

Basically, I'm in a position where I can probably get a mortgage up to about $400,000.

I'm wondering, would I be better buying a house for say $300,000, making it lovely, paying off as much of the mortgage as I can, then selling in say 5 years and moving on - or should I look at buying a unit for say $180,000 and paying off the entire mortgage in 4 years and then selling that?

At the moment I'm leaning towards getting a cheaper apartment and paying off the entire mortgage, then using the money I make from the sale as a deposit for two more properties. It seems to me if take the second option I'm left with $180,000 minimum in the bank when I decide to sell, however if I take the first I'm left with (whatever the house sells for - whatever I owe the bank).

However, as I say, some of you probably know better than me from experience. Thanks in advance.

It seems as though you're looking to hold on the the property for about 4/5 years no matter what you end up doing.
In which case, I'd look at the property prices from recent history in the areas that you're interested in buying and see which is better for that kind of investment.
Personally, I'm more leaning to the buy for $180k and pay of the entire mortgage, then whatever you get, you get to keep.
I also suspect it all depends on the current state of repair of both properties currently and the spec. at which you want to refurbish them to.
Then again, it's easy for me to speculate when this is somebody else's money. (8+)

Mark

Thanks for the reply Mark.

In either case the location would be the most important aspect, I'd be looking to buy in a good location with either property, probably closer to the city if I bought an apartment though. If I bought an apartment I would be looking for something that requires no refurb and therefore no further money spent.


If I bought a house though, I wouldn't mind buying something that requires a bit of extra work as a project.

I'm also leaning towards the apartment investment as like you say I get everything it sells for. However I'm also aware that properties increase by a percentage of their value and therefore a property worth more at the point of buying will have increased by a greater amount at the point of selling.

Unless something gets built between the buying and selling periods that actually reduces the property value in the area.
Generally what you say is as it should work. You appear to have done a good amount of leg work, which is good, because it's not exactly pocket-change you're talking about spending.
Good luck with the endeavour. (8+)

Mark

InB4 Amnesia saying the Aussie property bubble is heavily inflated and will inevitably fall.

Thanks Mark.

I've been doing some hunting today and am still leaning towards the apartment, purely based on the fact that the sale amount at the end should give me enough to buy two properties and therefore start my portfolio off. I may also be in a position to use the equity to buy those two properties and therefore have 3 properties in 5-6 years time. Taking into account I will have done some significant saving in that time I should be able to manage, however obviously taking on 3 mortgages instead of two "half" mortgages is also another aspect.


Matt - the property bubble here may well rise and fall, however over time property prices are only going to go one way. If I end up owning something outright, it's really irrelevant if I have to hold onto it until I break even. When I do sell I'll still be left with a lump sum in the bank and going on that basis, at that point property prices will be on the rise. Therefore buying two more would still be a good future investment.

Taking in rise and fall, the average property price in Brisbane is expected to be around $1m in 10-12 years.

I would tend to agree with Mark, the trouble with a more expensive property and therefore higher mortgage is going to be the interest you pay. If you can buy a property you're happy to stay in for a few years while it appreciates, put a coat of paint etc into it and pay off the mortgage completely then it should be win-win, especially since it's your first step on the ladder. The less interest you have to pay on a loan, the better off you'll be when you pay it off, also try to make sure you choose a mortgage company who calculate your interest daily, and will allow you to make overpayments, it's an easy way to pay off your mortgage faster by adding a bit more each month and reduces your interest paid.

Perhaps get more adventurous with your next couple of steps but go easy with the first one.

Good Luck whichever way you choose.

Yes it is even worse than here. Have a look at the http://www.dailyreckoning.com.au/ and look at their opinions of the aussie property market. The government have been propping the market up with low interest rates and first time buyer grants.

http://www.dailyreckoning.com.au/buckle-up/2010/06/23/
http://www.dailyreckoning.com.au/after- ... 010/06/24/

I bought at the peak of the bubble in 2007. Does it worry me that the value has dropped by £20k? Not at all. I've saved £14 in rent since I moved in, so it'll all level out soon. By the nature of teh population increasing faster than houses are being built for them, prices will eventually go up again.
The old saying is "location, location, location" and it's true. You don't have to buy in the best areas, just not the scummy ones.
When you budget, see what you can safely pay each month, but always recommend keeping some saving in reserve for a rainy day. I did that and it saved me when I was out of work for five months last/earlier this year.
Be prepared to see a lot of houses that don't interest you before you find one you like. You'll know within seconds of walking in if you hate the place.

The price gap between a small house now and a larger house that you may want to upgrade to in the future will only widen as prices recover. Sure, prices may drop in the short term, but in the long term the population is going up faster than the houses to accomodate them. It's simple supply and demand, prices will rise eventually. You may not be able to afford a bigger house then.
When my wife and I bought our first (and only) house, we went for the biggest and best we could SAFELY afford. No need to worry about higher prices later. Of course if you selling as an investment, you should make more profit on a large house, maybe not in percentages, but in absolute value you will.

If you are buying with the intention of staying there for a long time, and have a repayment mortgage then yes even buying near the peak might be fine. My cousin has cleared his mortgage and the drop in value has not impacted him at all. If the recession deepens then the population might fall as a result of many EU citizens. You are also ignoring the hundreds of thousands of properties that are empty. With councils strapped for cash these might become hit by council tax, and enter the property market. Property should not be treated as an investment.

As I said earlier, we'd be looking to pay of all or most of the mortgage before we looked at moving on or buying the next property.



That's a bit of a broad statement. If the property price does drop, properties owned can still be rented (which, given your about point, presumable they will be?) until prices either rise, or the mortgage paid off. Even then, if the rental income is sufficient, it would be worth holding onto them anyway.

If property prices do drop, you'd expect them to rise at some point, even if it takes 10 years, with property you invest long term as a future plan and potentially extra income if you're renting properties than are owned outright.

I expect them to drop slowly by around 30% over the next three or four years, then stabilise for a decade or more. Only rising by the level of inflation but not more than that. House price booms are not the normal state of affairs, they are a relatively recent thing. Personal debt in the UK is still way too high and needs to come down. So that means saving more and that will mean a slow economy. Since much of that debt is tied up in mortgages that will take years to reduce to manageable levels.

If prices do drop yes they can be rented but what if the rents do not cover the mortgage? Which will be very likely as many potential buy to let investors bought into the market too late, and so will have high LTV. With the government taking a tough stance on housing benefit this will kick away the support that many landlords need to maintain the mortgage. They could be on the market soon after the housing benefit cuts kick in. As these landlords sell they will probably depress the market. Pushing more landlords close to negative equity. Where an area has lots of private landlords these areas could plummet fast as they are foreclosed on. Depressing prices around them.

Even if you are not that vulnerable the rents might fall as well as the economy slows. Then if prices fall by 30% as expected by some then many will be in negative equity positions and that will restrict their ability to refinance. They might also find that the rents might not cover the interest, especially when interest rates return to normal. Without any external threats interest rates might stay low for far longer than most economists think because there has been such huge over investment in properties and many home owners will not cope with any adverse changes. Inflation is not a problem and deflation is the biggest fear of governments. Why do you think that they have been supporting the housing market so vigorously? They would have to nationalise many of the banks.

The threats to the economy are external. A Greek government default will hit a couple of the semi nationalised banks wiping them out completely and the billions that the government invested. They will be nationalised but the damage will have been done. Many European banks are already insolvent, a crisis will just make it more visible. The French and German banks will suffer far more. Interest rates will shoot up and then either the coalition slash spending even further and a 30% drop in house prices might even be mild. Some of the East European countries (particularly Hungary) might decide default is a better option and then the big Austrian and German banks will collapse. Sweden will be particularly hit by a default in the Baltic countries. Any of these could push interest rates higher. Then watch house prices. Also watch everyones retirement dreams evaporate as the stock market plunges.

We are living in very uncertain times.

No chance. The population is going up faster than the houses needed to house them. As soon as the economy steadies itself in a year or two, prices are going to start climbing quickly again.
I recon we'll pass the 2007 bubble price by 2015 at the latest.

Don't forget I'm in Australia, I know I know, but things are going to be slightly different here.

I do expect interest rates to raise fairly shortly, but I'm ready for that. I'll also qualify for the 'professional package' which means I'll get .6% off whatever the rate is at the time.

The first property will probably be owned outright before its rented, whether the rent covers the mortgage on that one or not is irrelevant - it'll purely help pay the mortgage on the next place (which will be PPOR at the time), by this point I'll know what the market is doing and have a good idea of how much profit the rent is turning in. I'll then be in a position to choose whether to invest in more or pay out the mortgage on the newest place. Whether the property prices slump or not, if you own a property outright as well as your PPOR you're going to have something to fall back on.

Demand for property is still high here as far as I can see, estates are being built and houses are being sold. I know from experience that the rental market is competitive in good areas at the moment.

Yes but watch what happens to iron ore exports to China. The big aussie banks like CAB have huge chinese deposits and these have been used to fund aussie real estate. Aussie banks are very reliant on Chinese funds. If that money dries up the prime support for aussie houses disappears as well. Will you be in a position to take advantage of the first time buyers grant there? Or has that ended now?

Aussie interest rates will rise very modestly because they are not as low as here and the RBA has already started small increases, and will continue to do so back towards 5%. And there is already concern of locals being priced out of the lower priced homes. Just find out what the homes worth in comparison to a simple multiple of average income and how that compares to historical averages. If any real estate agent mentions affordability then that is a sign of a bubble and get out of there. Location location location are important and might save you from some of the worst if it all goes pear shaped.