Hi Guys,
I am new to property investing forums and it is great to see so many people are involved in the wealth creation. Since I am new and I am very eager to invest. I was hoping to have some advise as to what should I do.
My wife no longer works due to the fact she sometimes have problems with her back. I am currently working 2 part time jobs pulling around $48000 a year before tax, I am also selling socks and hats online although on a small scale, I have manage to turn over around $25000 a year with a net profit of about $16000 a year (using last year's figures). So my total income is around $73000 a year before tax. (Yes, I do have an ABN for the socks and hats as it is registered as a small business)
As you can see we are not rich people by any means, but we do want to invest a bit so we can at least look after our future. We live in a small villa worth about $350000 at the moment with $110000 in owning on mortgages. We have an combined saving of $150000 in the bank. We have discussed a number of times and we have decided not to pay off the house but rather investing in the real estate instead. The problem is it is very hard to get a loan now a days, and we have been to few banks and all they can offer us is $250000 in pre-approval under the condition of we paying a very large deposit on the investment property. The investment property we are currently seeking is a 3 x 2 in the Northern Suburb of Westminster in Perth with an asking price of $3400000 (it is a brand new villa with no strata fees), the real estate agent says the owner is eager to sell and if you offer $3400000, chances are you will most likely to get it. At the moment we are happy to pay $100000 as deposit and borrow the pre-approval amount of $250000. By doing so we will at least get into the IP. My research has made me concluded that the IP should give us at least $350 a week in rent with an repayment of about $325 on the interest only rate of 6.89%. Taken out all the charges we believe our IP will be negatively geared with an annual lose of around $6000. (which we are happy to accept)
After reading all that I am wondering if it is worth it doing it this way? And there is also the problems of names on the IP, I am thinking of doing a tenants in common with my share of 99% and my wife of 1% or the other way around. But I am also getting advise to put the title under joint tenants? Wonder what should I do here or is there a better alternative to all this?
And do I need to pay land tax when the IP value is only $340000?
Any advise from the more experienced will be highly appreciated.
Best regards
Edward
Oh by the way, I just dug my loan documentations out and the loan we are able to secure is called a Low Doc Loan, the bank are not able to do that on the traditional loan because $25000 of my income are through small business. But since we are wtih the bank for a few years and our mortgage are also with them. They gave us a life time discount of 1% on the Low Doc Loans, so instead of paying an hefty 7.89% we are only paying 6.89%, which I believe even comparing to standard loan it is pretty good. But the only thing is we need to put down a deposit of at least 30% on the purchase or they will not lend us the money. Hope this information helps. I see there is another post on the similar situation by Goodonservice but I honestly dont see why would they put down $100000 as deposit? Because I know the more gear the IP has the better it is for the negative gearing. But in my situation where my wife cant work and bank are demanding a high deposit I am bit lost on what should we do or should we just forget about this IP thing altogether?
Thanks again
ED
Sorry why would you put in a $100,000 in as a cash deposit when you have a current non deductible home loan.
Why would you not pay down the existing loan by $100,000 and then borrow $100,000 as an investment loan to get $100,000 of deductible interest.
Richard Taylor | Australia's leading private lender
Agree with Richard. Ask the bank how much they will lend you on LOC against Villa if you pay $110,000 off the Mortgage.
Serviceability could be an issue on LOC that is why I am advising ask the bank.That $150k of savings in the bank you spoke about – please tell me that is in an offset account holding off interest against your home?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Ed, & who said Aussies don't save???
You're alright, man!
The numbers you posted should put you somewhere in the neutral gearing position, with depreciation & -ve gearing.
Please pay attention to the comments about the deposit. The savings should pay off the house asap while the loan on the IP keep increasing.
You do this by 'borrowing' to pay for expenses: rates, water, insurance, weedkiller, insect repellent etc etc
Good luck with it,
KY
im 20 and i was thinking the exact same thing before i read your post richard….
please tell me that is in an offset account.. otherwise pay off your home!!! then find a dodgy broker
Hi Guys,
Thanks for all the excellent comments posted here, especially from Richard. The reason I am not paying off the mortgage is due to the fact I am actually in a fixed interest home loan instead of the variable home loan, we optioned to fix our home loan just 5 months before all the interest rises, I always thought I have made a good decision back then (6 interest rate rises now) but now I am not too sure. Our fixed interest rate wont expire until 2014, which means if I were to pay off the home loan altogether, high penalties will apply and I am not sure if this is the wise action to take. The money is currently in a offset account offsetting against interest. This puts me back into the position I am now in. Because I think paying off the whole mortgage might be out of the question????
I have spoken to the bank in regards to how much I can borrow if I were to pay off the mortgage completely and using the equity in the house to borrow to invest, the figure I got is actually surprisingly smaller than the option they are offering me now due to the fact that my wife is not able to work, and the income I am getting is not sufficent enough to warrant a full borrowing amount of $340000 + Fees, which I think will be around $355000 once it is all finalised.
I was reading some comments by others that a company/family trust might be the way. Not sure how does that works but since my turnovers are so small on the small business (my income still comes from wages mainly), would they even allow me to set up such trusts?
The other thing is how do I structure the names on the IP? I am thinking off going 50/50???? And does an IP worth $340000 attracts land tax? I went to the website on the land tax and it says its 0.09 cents for every $1 over the $300000 mark. Does that mean I need to pay an annual land tax of $3600 a year on the land??????
Thanks heaps in advance guys.
Regards
Ed
Hi Ed,
After having recently read Steve McKnight’s “0 to 130 Properties in 3.5 Years” I have learnt so much and now look at property investing in a very different light.
According to Steve’s book, quickly using the 11 Second Solution shows that this particular property you are considering purchasing is not a wise one to go ahead with. He talks quite a bit about Negative Gearing and does not recommend it unless your tax liabilities are quite high, and judging from the income you’ve stated, I don’t think this applies in your case. You would be out of pocket in more ways than one: the deposit and closing costs (stamp duty, conveyancing, etc), the difference needed to pay the mortgage on the property, maintenance and rates, real estate agent management fees, capital gains when you sell and finally the difference inflation will make on your “profit” between time of purchase and time of selling. Please note that statistics show that it takes the average home ten years to double in price, and this will become an even longer time period as time goes by. Another point to consider is by the time you DO (assuming you would) make a net profit, what will that money do for you in ten years time? I doubt it would provide you with much of a retirement package, re-investment ability or anything else you might have planned for it.I wouldn’t rush into making a quick decision, do your homework, maybe read Steve’s book and then make a more informed decision. There are plenty of other ways to invest in property and make money in a better way than simply to guy a negatively geared property. In fact, I’ve read several times now, both on this website and from other testimonials in Steve’s book, that the first think Steve and his partner advise people to do is SELL their negatively geared properties and invest in other ways.
Only one week ago, I was in the same position you are in. My husband and I were looking to invest our hard-earned money in another negatively geared property. By chance I bought the book and started reading. It answered so many questions we’ve had about why we felt more trapped than we did before investing in the first property and why we’re working harder than ever and not being able to move forward very much. We’re now planning to put our first investment property on the market, and invest in more POSITIVE and PROFITABLE ways.
Read Steve’s book, it was the best $33 I’ve spent in a long time.
Good luck with it all, no matter what your choice ends up being.
Kind regards,
Rosa Cornell
Cornell Concrete Constructions
Cornell Developments
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