Hi all,
I got -146 days and am very concerned!!! I thought I would do better than that. My salary is about 100,000K and my fiance's is 65000K. We have 2 IPs, worth about 615,000 together and we only owe about 400,000 so we are in front there. Our family home (no kids) is worth about 560,000+ and we owe about 340,000. We are both 28 years old. I was very happy with the way we were going. I bought my first IP 5 years ago and the second 2 years ago. Both of those are doing well with the first now cashflow positive (I think) and with a great appreciation (bought it in Logan near Brisbane for 155K about 5 years ago, I owe about 130K now and its value has almost almost doubled – makes $280 per week in rent). The second property is a unit in canberra which i bought off the plan in Jan 06 for 252K and it has only just now settled – its worth about 330K and rents for 325 per week, therefore it is cashflow negative but I am confident that with the canberra market it will continue to appreciate soon and also start to become cashflow positive … one day.
Although we've bought these houses we have never really thought much about the science behind it, or even what we were really doing. Surely, as time goes on our wealth score will get better, even if we do nothing esle (i.e. our home loan will gradually reduce while the house increases in value – same goes for our investments – they are gradually being paid off with rents only going up over time). Am I right here? Is the main factor in the wealthscore just the amount owing your own home – a positive wealth score indicates that if you sell everything (except your family home) and pay off all debts that you would own your own home outright and have some cash left over to live on … if this is the case then I am not too worried, I presume that non investors are not wealth score positive until their home loan is paid off (usually over 25-30 years). If our investing helps us to reduce that 25-30 years then I presume we are in front of, and doing better, than non-investors … obviously the quicker you can reduce your debts the better.
Quick question: I am halfway through Steve's 1-100 in 3.5 years. He obviously thinks that cashflow positive properties are the way to go. Am I right in thinking that over time every cashflow negative property will become cashflow positive assuming values and rents go up (i.e. over time the amount owing and interest on the property will reduce while the rent coming in increases …. )
Sorry all, I am brand new to this and am rambling … how am I doing? I am right about the wealthscore?
Looking forward to any thoughts or comments.
Cheers, Chris
2 things;
1. I did the wealth score and came up with +140 I think, but it didn't factor in rent income, so I wouldn't put too much weight on it. I think you are better off than you realise.
2. The 1-100 in 3.5 years was written a long time ago (early 90's from memory). The target area was Ballarat, where there were loads of sub-$100k properties with work needed, and rent returns of 10% and more. Different world.The good news is that over time rents and vales do go up; it's just a LOT harder to buy "off the shelf" cashflow positive properties these days.
So let me do a quick number crunch for you;
Income:
You: $100,000
Partner: $ 65,000
Rent: $ 31,460
Total Income: $196,460Assets:
PPoR: $ 560,000
IP#1 + 2: $ 615,000
Total Assets: $1,175,000
Liabilities:
Loans: $740,000
Total Liabilities: $740,000Your LVR (Loan to Value Ratio) is a reasonably healthy 62%. (Banks get nervous when you hit 80%). You could actually borrow more to invest again, but you would want to have a very good cashflow (rent, tax deductions and depreciation) to not put too much pressure on yourselves, and without increasing your LVR too much more. keep it within safe levels is my view.
Assume repayments on the Loans at 7.72% – $4,760.66 p/m interest only.
Allow for 20% of the rent to be eaten by holding costs (other than loans). nett rent is $2097.33 p/mWithout adding tax deductions and depreciation (you do have Depreciation Schedules for the I.P's?), your shortfall on the total loan repayments is -$2663.32 p/m.
Based on the "traditional" formula of $35% of gross income for payments towards loans (as set by Banks ; actually, I think it might even have been 30%), you are well within that percentage. 35% would put you at $4,125 p/m repayments.
I don't know what other debts you have such as credit cards and cars etc.
Bottom line though is you want to clear any personal debt and your home loan as fast as you can as this debt is non-tax deductible.
Investment debt is tax deductible, so you would just maintain the minimum repayments on this part of the debt.
You both earn good incomes, and have no kids, so I would go hard for a couple more years on that plan, then you will be in a very good position.i think you any very good position as marc stated earlier.
you both aern good incomes, you are young, your properties appreciated and you got less debt owing.
Don't worry too much about steves formula as his decision was to go positively geared and as he done it in the right time cheap buys were everywhere in early 90's!
As a result he was able to get quite a few properties before the boom happened which helped him even more to purchase more +ge properties!
In your case you have 2 ip that are worth 600k+ and you owe only 400k. there is no problems with your 2ip and what you should concentrate on is paying of your home that you live in so that you will be able to breathe easier and buy more ip so they can work for you in the short and long term to bring you god income.
Be careful not to be greedy and purchase an investment that is a lemon which you might pay 500k as this will bring you backwards few years and you will miss the opportunities that will exist in the meantime!
if you keep on going the way you are so far you will be in a very good shape in 5-10 years time!
good luck
Thanks a lot Marc, I appreciate the time you took to reply. Its comforting to hear from other investors, the only people I have really spoken to are other 'beginners' like myself and real estate agents who obviously have an agenda. Yes I had forgotten to factor in the rental income! We have also just signed up for a 1 bedroom unit in the middle of the city in Canberra. My initial plan was to buy it now and onsell prior to settlement just top make the capital gain, but I can reassess that later. It cost 429K (yes I know it is a LOT of money for a 1 bedroom place and yes I am nervous about it) but I think the market in Canberra is quite unique. Actually I might put the details in a new topic and broaden the topic a little cos I have a few questions about it …
Thanks for the advice, feeling much better!
Cheers
ChrisL.A Aussie wrote:2 things;
1. I did the wealth score and came up with +140 I think, but it didn't factor in rent income, so I wouldn't put too much weight on it. I think you are better off than you realise.
2. The 1-100 in 3.5 years was written a long time ago (early 90's from memory). The target area was Ballarat, where there were loads of sub-$100k properties with work needed, and rent returns of 10% and more. Different world.The good news is that over time rents and vales do go up; it's just a LOT harder to buy "off the shelf" cashflow positive properties these days.
So let me do a quick number crunch for you;
Income:
You: $100,000
Partner: $ 65,000
Rent: $ 31,460
Total Income: $196,460Assets:
PPoR: $ 560,000
IP#1 + 2: $ 615,000
Total Assets: $1,175,000
Liabilities:
Loans: $740,000
Total Liabilities: $740,000Your LVR (Loan to Value Ratio) is a reasonably healthy 62%. (Banks get nervous when you hit 80%). You could actually borrow more to invest again, but you would want to have a very good cashflow (rent, tax deductions and depreciation) to not put too much pressure on yourselves, and without increasing your LVR too much more. keep it within safe levels is my view.
Assume repayments on the Loans at 7.72% – $4,760.66 p/m interest only.
Allow for 20% of the rent to be eaten by holding costs (other than loans). nett rent is $2097.33 p/mWithout adding tax deductions and depreciation (you do have Depreciation Schedules for the I.P's?), your shortfall on the total loan repayments is -$2663.32 p/m.
Based on the "traditional" formula of $35% of gross income for payments towards loans (as set by Banks ; actually, I think it might even have been 30%), you are well within that percentage. 35% would put you at $4,125 p/m repayments.
I don't know what other debts you have such as credit cards and cars etc.
Bottom line though is you want to clear any personal debt and your home loan as fast as you can as this debt is non-tax deductible.
Investment debt is tax deductible, so you would just maintain the minimum repayments on this part of the debt.
You both earn good incomes, and have no kids, so I would go hard for a couple more years on that plan, then you will be in a very good position.Thanks Michael, funny you should mention not buying a 500K lemon … we just signed up for a 429K 1 bedroom unit in Canberra (on Glebe Park). I'll write a new topic about it asking opinions … its a lot of money but I tihnk it is worth it.
Thanks for your advice
Cheers
Michael4 wrote:i think you any very good position as marc stated earlier.you both aern good incomes, you are young, your properties appreciated and you got less debt owing.
Don't worry too much about steves formula as his decision was to go positively geared and as he done it in the right time cheap buys were everywhere in early 90's!
As a result he was able to get quite a few properties before the boom happened which helped him even more to purchase more +ge properties!
In your case you have 2 ip that are worth 600k+ and you owe only 400k. there is no problems with your 2ip and what you should concentrate on is paying of your home that you live in so that you will be able to breathe easier and buy more ip so they can work for you in the short and long term to bring you god income.
Be careful not to be greedy and purchase an investment that is a lemon which you might pay 500k as this will bring you backwards few years and you will miss the opportunities that will exist in the meantime!
if you keep on going the way you are so far you will be in a very good shape in 5-10 years time!
good luck
One thing I caught from your post was that it seems you are paying priciple and interest repayments on your investments while you still have a debt on your Own home,…
I recomend you put you investments on interest only repayments and put the extra money of your home loan because that loan is not tax deductable so you should want to pay that one off the quickest,
I would not pay a single $ off any of my tax deductable investments while I still had non tax deductable personal debt outstanding,
hahaha – I've re-read my post and am surprised that you were able to catch anything from it! Thanks a lot, good thinking. I'll do the numbers but what you're saying makes sense …
Hi Chris, looks like your in a great position, good for you. One thing I would correct you on and that is the fact you are no longer a 'beginner' and I'm sure you dont think like one. You have reached the minority of investors by having more than 2 IP's. Is the new unit the ones adjacent to the old bus depot / markets? They look beautiful, great spot. Personally I dont go for units / town houses / villas as they have minimal land content and less depreciation. Do you have a good mortgage broker? It can get a little complex and I agree with going interest only. Good luck….
Hi Chris
Canberra just seems crazy to me at the moment, and I am a newbie as I only have one IP and that was my original PPoR but we came to Canberra for work.
Appreciate any thoughts you might have on the Canberra market. Particulary if you think it still has further to run? Any thoughts on the new areas like Gungahlin? (I notice the units in the Gungahlin town centre are now going for $320K plus!).
Hello ChrisACT
You are in a fabulous position as not only are you young, earning a great income between you but have also started on your wealth building and based on the information you have provided, doing well. In your position I would certainly not be worried at all.
As others have already said, the first priority now should be to eliminate your non deductible debt. This means paying off your PPOR and on your salaries this should be a breeze. If you never intend to convert this property into an IP you can pay it off directly via the loan but if you are not sure than a 100% offset account coupled to this loan will do the same thing and still give you the flexibility to decide later. This offset account is also the best place to have your salaries paid into.
A very good read is a thread on InvestEd about debt recycling. Here is a link to the site. I wanted to give you a link to the thread but the site is down for maintenance and rather than risk losing all that I have already typed I will let you search for the thread yourself. If I get a chance later I will post the direct link.
I suggest a talk with a good MB (there are several on the forum that would get my vote) about your loan structure and a talk with a property savvy accountant about ownership structure (trusts etc.) would be a wise thing to do at this stage if you haven't already done that.
Cheers
ElkaI wouldn't be too worried – we are roughly the same age with good salaries and a few IP's – Time is our friend and if you take a ten year view, it is all positive. Remember that super is a larger contributor to the GenX/Y than in the past.
http://www.invested.com.au/2/advice-best-direction-here-16862/
This is the thread I meant which I found explained debt recycling clearly (for me). Obviously you don't need to buy shares to use this strategy. You just need to use the funds for investing.
G'day Chris…
I am also 28 and with my partner (26) we have two IP and pretty much jumped into it before we had researched a lot. We are both on salaries of $70,000 and although we might not have done the research, we feel we made a few good investments. Having now read a few books, magazines and been reading and writing in these forum topics and researching through the net, I feel that the most important thing was getting into the market. Our rent is paid by the government along with all power and water bills as we are living and teaching in an aboriginal community in the NT, so all our wages pretty much go into paying our mortgage principle and interest. With 2 negative geared properties and a block of land, our next move is to purchase a positive cash flow property in the next 12 months and then build on the block in the next 2-3 years. Onwards and upwards. cheerstuggerwaugh
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