Ok, breif background. Me 32 in Geelong Vic,with an 18month old and 2month old (dont even go there) oh and of course a great partner. Bought our first place in March 2001 for the handsome price of $85,000. Very happy there typical DINK family and living the life both in our mid to late twenties and probably drinking and partying away our hard earned money! Twelve months or so later got one of those anoying “have you thought about selling your home lately?” flyers from the local RE. We thought it would be a hoot to see what the value had risen by so we phoned up and to my amazement were told that the property had DOUBLED in value! Now dont get me wrong this is NOT a great house old weatherboard, 2br, and in one of the worst suburbs in the area. I now know that it was just that the market was in a boom.
So in a bit of shock, and a little hesitantly we phone the bank to see if we could get a second property. No problems there so we did and moved in and started on our new journey of being landlords. (btw still renting this house out to my sister for the very low price of $140 pw. Take it from me don’t rent to family without an agent between you but thats another story)
Then a year later we came into some money and found ourselves with two options. 1: it was enough to pay off one property or 2: buy something else!
I managed to talk my partner in to the second option and we purchased the freehold on a Gymnasium with a residence out the back that (with the large deposit we had) was actually a +Ve investmant (b4 I had ever heard of such things as +CF)
Now comes the meat and Veg!
Some one fell pregnant! (ok I admit I had something to do with it) and we were suddenly looking at managing three loans with only one income. In perhaps a knee jerk reaction I arranged for both the investmant properties to switch to Interest only, and this helped ease the burden, and infact turned the commercial property into an investment returning over $800pm, and the other with my sister in it to around $70 per month.
So, I am in New York last month for a wedding (left the partner with a 16month and a two week old behind. B4 you start I am still paying for it) and on the way back I buy this book of Steves to help with the long flight. In it i read all sorts of alluring things and realise that I am now one of the small percent who actually own three or more properties, and in a way I have some +ve CF properties.
Dilema starts now! I have seen the light! I have set the goal to be able to retire at 40 (I am happy to work till then to set my self up and help with the extra costs) But I have one property due to go back to Principle and interest in a few months, and the other in 2009. So do I re negotiate the Interest only terms on the commercial seeing that it has quite a return, and pump that extra for a few years onto something else, or do I let it go and start the hunt for something else?
Wow I have dribbled on! What do people think of Interest only loans with the idea of further increasing the positive return, and then using that to pump into another existing property to reduce the interest repayments and therfore the increae positive returns? I know that it is only temporary and in the end you have to go back to P&I but for a few yeasr it could help?
(sorry I got carried away, anyway it is nice to be here with you all)[biggrin]Phew…What a great story. Very entertaining!
Finally sifted through it all and I would re-neg the IO loan on the Commercial if poss.
I have a couple of my developments on IO, but having said that I genrally off-load the project after 12-18 months.Any little edge you can get to re-invest into other IP’s is a good thing!
cheers
hutch
[biggrin](BTW- Did I understand that you purchased Steve’s book in NYC? Is this correct?)
Thanks for your reply, I definately will see if I can get a further few years on IO. Yes I found Steves book at JFK airport. read it from cover to coever in one sitting!
Hi Puddlegum
If you have set a goal to retire at 40, you will hopefully have worked out what income you need to be bringing in to live on. Assuming you don’t yet have enough properties to generate that income, then generally, investors that are in the growing/accumulation phase will opt for IO loans, as the principal you might have otherwise paid can be put towards another loan on another new IP which can also be growing in value over time, and possibly bringing in income from day one. Reverting to P & I is not inevitable. Our lender has said that they recognise that many investment loans will never be P & I as this is not the best use of some investors’ money.
I feel that paying down a loan, or putting extra money in via a higher deposit in order to achieve +CF is giving you a false sense of return. Sure, on paper that property looks +CF, but how much harder could that extra money you contributed be working for you elsewhere?
If you are at your serviceability and equity limit at present, or don’t feel ready to buy right now, you might want to continue to pay down an existing loan, or put the money into an offset account, but I would still consider renegotiationg the IO term, as this gives you the most flexibility.
Congratulations on being in that “top percentage”. I’m sure you’ll reach your goal!
Wake.
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