Investing in property

My hubby and I have just purchased and moved into our first home (3br, double garage) five months ago. It was an off the plan building as part of the ACT's affordable home owner sceme, so we had no say on it's development besides choosing between three different colour schemes offered. It is a brand new suburb and ours was one of the first houses built. Anyway, we purchased the property with a 100% variable rate home loan. It cost us $308 000, the bank has valued it at $350 000. Other houses (on the same size land, which the same specs) being built in this new suburb atm are currently going for $400 - 500 000. The house next door is renting for $400wk - it is smaller then ours; this is pretty typical of rents in the area. Canberra's housing market really hasn't suffered much due to the economic crisis. We are currently paying off Double our minimum mortgage repayments (if we got serious budgeting we could pay more). My hubby and I are in our mid-20's. Other then this we have no other debt. Our house should be paid off completely in 7-8years.

Now, our goals are this:
*Upgrade our residential property (we have two young kids, one on the way and plan on another)
*build a rental investment portfolio that would support us in the long-term (ie, I am a SAHM so have no super, so we would like to be able to retire and travel on the income, as well as help with our childrens tertiary education in 15 odd years time, overseas travel.)

We are not looking to get rich quick, but a long term stable secure way to support us and let us enjoy a comfortable lifestyle in the future.

So, I see to different ways to proceed from here:
1) We pay off our current residence, and then use it as our first investment property when we purchase a new property to live in. building up our investment properties after the purchase of our new residence.

2) Invest in another property at this point, and worry about purchasing our next point of residence after we have established a small property portfolio.

If we go option 1 the risk to us financially is pretty much no-existant, but it would be a slower journey to our goals.
If we go option 2 the risk is greater, we would be much more limited in what we can invest in for our first investment property (we aould be eligible at this point in time to borrow aprox $160 000 - without taking into consideration any rental income), Our larger home may not happen for slightly longer period. But we may time end up having a greater portfolio over all.

So, Am I missing another option I haven't considered?? Does what I have said sound right to everyone?

And most importantly, what are your opinions on my options??

thank you!

Hi, we invest in property and currently have 2 investment properties plus our own residence. What we did was wait until we had reasonable equity in our first home and then borrowed against it to buy the 2nd house and then did the same with the 3rd house. The thing you need to watch out for being a SAHM is that if the loans/investment properties are in both names then even though your not employed you still need to declare your income to Centrelink & the ATO. You need to include any interest you receive from the bank and 50% of the rental income. This amount then affects what FTB A & B you receive. Currently with both our investment properties I only receive $21 a fortnight which includes both FTB A & B so you need to make sure that you can still afford on one wage your own mortgage costs as well as those of the investment property plus the extra additional loan costs and then you have the management/maitenance costs of the rental and then your usual bills and shopping etc.

We got a financial advisor and have our tax done by an account who specialises in property investments. We are currently in the process of changing over our investment properties to just being in hubby's name as with no wage the deductions that I claim are pointless but if hubby claims the whole 100% then it lowers his taxable income down so that we can still claim a small amount of FTB A & B from Centrelink & we don't have to pay as much tax. It's well worth spending the money on a financial advisor who can advise what is the best way to go for your current situation and also explain whether it's better to positive or negative gear for your current circumstances. I also find the property magazines a great source of info for tax implications & rental laws in different states and if you get a subscription it can be claimed as a tax deduction if you do own an investment property.

Thanks very much for your reply - You have certainly given me something to think about, that I wasn't aware of previously. Maybe I should go and talk to a financial advisor...

Definitely talk to a financial advisor. We are in economically uncertain times at the moment - it'll probably be a bit rocky for the next 2-4 years before things stabilise. You need to think about things like - whether a ppty bought at this time will *really* hold its value in a shrinking economy, whether the tenants are going to be able to sustain paying the amount you are thinking of (and whether you can "wear" several months of a tenant defaulting on their rent, or several months of ppty vacancy - which can happen), and also you need to factor in the costs associated with maintaining a ppty over a period of time - everything from replacing water heaters to fixing fences and repainting etc as the ppty ages.

Another thing to think about is - the possibility of purchasing an ex-govvie house (from Defence Housing Authority or similar). They have ppties for sale with a set lease-back period, it means your income over that time is guaranteed and they also maintain the ppty to a higher standard before handing it back to you than in the average rental scenario where you pay for everything.

We are a defence family and I wouldn't recommend buying a DHA (Defence Housing Authority) investment property until you can financially afford to pay more than the property is worth. The bold sections are from the DHA website.

DHA properties are significantly more expensive than private homes. This is because DHA work out the market value of the property and then add on to that their own overheads, what they could be expected to pay in rent if the property is vacant and also any end of lease provisions such as repainting or recarpeting. Even though it sounds good that you get these things done at the end of the lease, your actually paying for them upfront in the sale price. DHA homes are sold on a fixed price, so you can't negotiate the sale price. New policies now also state that you must be the lease holder for more than 6 years for DHA to repaint your property. While they will do general maitanence to the property and replace faulty appliances your still responsible as the owner for the majority of repairs which includes anything which can be claimed on insurance. Your also responsible for upgrading the property to meet DHA tenant expectations.

We currently pay 8% for our management fee with a private real estate agent which is also negotionable. DHA currently charge 16.5% management fee. For our 8% our properties are inspected every 3 months, DHA only inspects once every 12 months & it's a myth that all defence families are good tenants. It's just like the normal rental market some tenants are better than others. DHA quite frequently place families with 4 children in a 3 bedroom house and also allow families to have pets of any kind. Just because a family is employed by the defence force doesn't make them a more considerate or better tenant that someone outside of the ADF (I've seen many a DHA house trashed).

As a defence family and having lived in quite a few DHA houses you don't get your money's worth out of a DHA lease.

If you purchase a DHA property that has a lease in place for say 3 years for example and you pay $50,000 more than the market value just to have a DHA investment property and at the end of that 3 years DHA decide to not renew the lease then because it's less than 6 yrs they won't repaint it (the property has to be leased for a minimum of 6 years before they will repaint it), so your up for these costs before you can place the property on the private rental market.

If you decide to sell, the property will now only be worth market value and if the suburb hasn't increased in price, you may end up selling for a loss because you paid that extra $50,000 for the DHA lease.

I hope this makes sense.

How is the sale price calculated?

The sale price of properties is calculated based on an independent market valuation, and takes into account DHA overheads, end of lease provisions, and above all, the value provided by the DHA lease.


Is the sale price negotiable?

No, the sale price of DHA properties is fixed.

[B]What management and maintenance fees will I have to pay?

DHA charges you a single fee to cover the cost of property management and most day-to-day maintenance.

The management/maintenance fee varies depending on the type of property.

DHA currently charges:


16.5 per cent (inclusive of GST) of the gross rent for houses, or
Between 12 and 14 per cent (inclusive of GST) of the gross rent for apartments, units, and most townhouses where a body corporate or similar entity is responsible for exterior maintenance.
The management/maintenance fee is fixed for the term of the lease, and is deducted from the rent paid to you each month. [/B]


What repairs and maintenance costs will I be responsible for?

The DHA lease excludes a number of items from DHA?s maintenance responsibility, including:


.repair of structural defects and damage
.major landscaping such as tree removal and fence replacement
.work which is subject to a warranty
.work which is the responsibility of a third party (eg body corporate or similar entity), and
.work which is covered by insurance that you are required to have.
.In the event of an insurance claim you would be responsible for the cost of any excess that applies to claims under your policy.

More info can be obtained from the DHA website Home - Defence Housing Australia