My husband and I bought our first home over a year ago for $229,000. We are very interested in achieving financial independence through positive cash flow real estate as outlined in Steve’s book.
Over the past year, we know that our current home has increased in value by $100,000. We would like to get started in property investing asap and would like some advice on how to get started as we have no current cash savings. We are wondering whether we should refinance our loan to get started or should we wait and save up a cash deposit first? Is anyone able to offer their opinion…
Hi Dovie…
As with everything, this is just an opinion…
Why do you feel the need to get started ASAP? I wouldn’t rush to get in unless you’ve done all your homework. Have you researched areas? Identified population trends? Do you know where positive cashflow properties exist? Do you know areas where industry is booming or looking shaky?
How do you know that your home has increased by $100,000? Have you had a valuation done or is it just gut feeling? How much equity do you have in your home (apart from the 100k?)Personally, at this stage of the market, and this is what I’m doing, is trying to pay off as much debt as possible. I am not certain that right now is the best time to be looking for positive cash flow real estate in this country.
Sorry for all the questions, but please, please, please don’t rush in just because you feel you have to… I don’t know what your knowledge base is, but at this point, I’d be doing all the reading I could do before committing myself to anything. Don’t follow the herd, but try and learn as much as you can so you can anticipate where it’s going, and beat them to their next grazing spot.
Cheers
rI agree, get yourself financially literate, keep reading this web site, ask questions if you dont understand what someone is saying, and read, read books ALOT. if you dont understand what they are saying in the book ask questions. alot of people here would have read the book and can answer your questions.
dont jump in, ie if you refinance, do you know your setup and exit costs?, how much are you going to make after you’ve paid off the mortgage on the investment property PLUS the mortgage on your house, how do you get a depreciation schedule?… can you answer these questions right now, if not dont jump into anything, we are about to go into a market slum. and from what i understand is, in a booming market mistakes can be made, you will be saved by capital growth. if the “bubble burst’s” mistakes wont get you out of trouble and it may take years before you recoup your money.
I dont mean to scare you, but at the same time i would hate for you to rush into anything without fully understanding what you were doing.
tread softly…..softly and when the time is right, carry a bloody big stick.Thankyou both for responding so quickly.We have been researching and reading different books. I appreciate your concerns but doesn’t Steve say as an example in the book that once you decide to invest you should set yourself an approximate goal of 30 days to acquire the first IP? We have found a property in a regional Qld that offers good growth potential and fits the 11 sec solution. I am worried that if we snooze, we may lose and we wouldn’t want to miss out on this opportunity. When you say ‘market slump’ does that mean Steve’s strategy only works during a boom? Queensland has been forecast to continue its current growth cycle for the next 3-4 years.
Hi Dovie,
My concern is and probably that of the others is that you currently have no cash savings. Even though a property you buy may be +ve cash flow you still need to have funds in reserve for emergencies. This appears to be an area that is often overlooked. If you refinance at a lower rate and borrow money through equity then try to make the total repayments equal to or less than what you are paying now.
If you are in an absolute hurry to buy then consider what possessions you have that you can do without, sell them and maybe used that as your deposit. For example if you own a car worth 30K and it’s free of debt, then down grade to a 10K car and use the 20K as your deposit. This allows you to buy without refinancing and risking your home.
C2
“Is it true the more you owe the more you grow until the bank steps in?”Hi Dovie,
Someone once said of property that the opportunity of a lifetime comes around once a month if you know where to look…
Don’t worry about “snoozing and losing”… in about 18 months or so or even 2 years, there should be quite a few good deals around. In the meantime, you could keep building equity in your home by saving really hard…
By the way, answer this… what makes you think this particular property is such a winner, and why do you feel you need to act right now… and you can’t just say “cos Steve said to buy within 30 days”… the decision to invest has to be more in-depth than that, because the money is real, and so are the risks… don’t risk your family home just because someone said “buy within 30 days”.
I know a lot people who have been investing in property for 10, 15, 20 years, and very very few of them are buying right now because the market is so hot. That forecast price growth for the next 3-4 years is exactly that, a forecast, not a promise… however I do like Qld as a place to invest.
I’m not buying right now, but if you want to send an email to [email protected] I’d be happy to give you more in-depth thoughts, and don’t worry, I’m not about to run off and buy where you’re looking… I’ve got my bloody wedding to pay for in 3 weeks…
Cheers
rHi Dovie
I am also on the side of caution when buying at the moment but the thing you need to look at first is why do you have no cash savings you have had a year since you bought your property to save up. If you are spending all your available income you may need to look at your budget. Even with a cashflow positve property I would still want some money sitting around for those unexpected things that pop up.
Having said all that ( and you get some money in the bank)if you find a property and the numbers work for it why not buy.Erika
You probably don;t have any savings or cash as you have been putting everything into your home loan??
If you want to go ahead, then increasing your existing loan or refinancing would be the best way to go. Saving up a deposit would not be an efficient way to go as you could be putting htat money off your non deductible debt.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Some interesting advice from everyone! I just wanted to get some of your thougths also. We are kind of in the same position. We bought, done up and are now selling our place. At the end we will have made about $100,000 in the year we owned it. This along with our $80,000 that we originally had gives us quite a bit of money to start our next project. At the moment we are thinking, after much research of buying another do up in QLD for around the $300,000 mark. I have also found areas, although others say there are none left, where I can buy +ve cash flow properties. What is everyones thoughts. Best to use most of the $180,000 for our do up and redraw on that to purchase +ve $ properties? Or use the minimum needed deposit for the do up and split the rest as deposits on other +ve $ properties. Or use the minimum needed deposit for the do up, and buy outright a $80,000 place and redraw on both homes for more +ve cash flow props. Your thoughts would be much appreciated.
Dovie, I’ll chuck in an alternative perspective here.
Investment is *risk* and if you wait to pay off your home, you won’t be investing for many years to come. But before you can probably make any changes anyway, you need to know what your house is *really* worth. Did you get a market appraisal from a real estate? (These are often inflated because the RE wants you to sell with them) or are you speaking of a bank valuation? The bank will value your home based upon past sales etc. To determine your equity, you will need to know true value- or the value your bank gives you, whichever is the latter
)You haven’t said how much you have paid off your loan in repayments over the year. If you’ve paid off extra, that’s even more equity for you!
And now here’s the kay henry opinion: :o)
As a non-homeowner myself, but knowing if I ever want my own home, I have to take some risks, and that means borrowing on my IP’s. For you, it’s borrowing on your home to get an IP, for me it’s borrowing on an IP to get a home- same story really- just done differently.
If you do have 100k equity, you could get a cheapy IP (it’s usually the cheapies anyway that achieve the pozz cashflow) and you’ll have two houses instead of one, with not much more risk on your loan.
I do not have the “sit for two years and do nothing” mentality. I believe there are always good properties to be found- in any climate. But the exxy, off the plan B-grade apartments are a disaster, in my opinion- in any climate. I think my attitude to buying now or whenever, is because I started property investment late in life, and there are only so many years one can work and buy.
Also, cash is a thing of the past- equity is cash just waiting for a purpose. Equity is the new cash
I have no doubt the others that have answered you are more experienced than myself. Ultimately though, it’s up to you- it’s your money, your plans and your research (please read more than one book!!) that will determine your actions.
kay henry
Hi Kay Henry,
An interesting thought. Also, cash is a thing of the past- equity is cash just waiting for a purpose. Equity is the new cash
I would think that cash is still king. Equity needs to be borrowed and incurs interest. It may be a taxable deduction, but cash incurs no interest and helps create equity.
C2
“Is it true the more you owe the more you grow until the bank steps in?”C2, Thanks for your reply :o)
I do believe equity is like cash. So alike, in fact, that it *is* cash
)As a person who rarely has a cent in my bank account, I rely on equity to realise future financial freedom. To me, there’s not much difference in saving 20K or paying off a mortgage quickly and having the 20k in equity. I put all my money into my mortgage, and can’t imagine using that money to sit in an account as a “deposit”. Paying off a mortgage quickly reduces interest and reduces the time of repayment of the loan.
It’s comme ci comme ca for me. For others, they might want the cash in a savings account.
I am wondering how many others are like me- single income, no kids (a SINK) who don’t have much cash, but that doesn’t impede them from buying an IP. (Dovie, I hope you don’t feel this question hogs your initial question- it’s really the same as you’ve asked, and I’m sure a lot of us are in a similar position).
kay henry
I do believe equity is like cash. So alike, in fact, that it *is* cash)Kay, what happens if interest rates rise and your property drops by 15% – is your equity still the same ?? Is it still as good as cash ?? [
]Sorry, cash is king – especially at the moment. If my house drops in value my equity is reduced (duh !!). However my cash in the bank actually increases my wealth if this was to occur due to increased buying power for my dollar… [
]Hmmm, did that make sense ?? [
]Cheers,
Paul…“I want to be rich, and stupidly happy – so far i’ve only managed to achieve the stupid part…”
Hi All
Kay if you make extra repayments on your mortgage so that you can redraw 20k for a deposit is the same as saving the money in a savings account when you take this 20k out it doesnt increase your monthly repayments. This is different to equity that you get thru your property increasing in value. To beable to utilise this money requires you to pay interest on it when you do use it. So using equity is not like using cash it is locked up in your property until you sell it or pay the bank for the right to use it.When you borrow this money from the bank it must be making atleast your homeloan interest rate to break even.
I asked about why Dovie8 dont save because from their post they dont say we make extra repayments which is the same as saving, if they do make extra repayments they should have a redraw facility so that they can retrieve that money when they want it without having to refinaance.
ErikaI get what y’all mean and thanks for commenting :o)
I am into paying off my properties as fast as I can. It makes me feel safer in case properties *do* reduce in their value. But what can I tell you? I have no cash! Some of us put it all into our mortgages. This is a strategy used by many, I’m sure. Now you’re telling me to put 5k into my mortgage and 5k into a savings account at the same time? Sorry- cannot do :o)
If property prices reduce, they will probably reduce across the board. There will, of course, be exceptions. If my values reduce, but I have paid off my properties 3 times more quickly than required, I’ll be happy.
Remember good debt and bad debt? Well, I’m up for getting into good debt- as much as I can afford, and then paying it off so I’m not in too much financial stress. Then, if I need to, I have redraw- “cash” if you will, for a rainy day
Not really very radical strategies. It just works for me.
kay henry
)
)
]You must be logged in to reply to this topic. If you don't have an account, you can register here.
