Hello All,
I have a few questions that i am trying to get cleared up. To start with, some background. Have been reading through Steve’s book bundle, attended the webinar last Thursday and reading posts here and there.
We currently have a PPOR the is in the process of being refinanced to ~4.25% and about $120k savings in an offset. We were planning on using that to purchase our first IP. Now, if i have understood my reading and webinar sessions correctly, I need to find an IP that has a higher return than the money sitting in the PPOR offset. Is it as simple as, this is the return % i want eg 6%. So i would then need to find a property than would return around 10.5% or more?
My thinking is, i want a return of ‘x’ (6%) on the IP. So 6% + 4.25% (PPOR rate) = 10.25%. Need a property giving a minimum of 10.5% (+safety buffer).
Also i need to setup myself up correctly for buying IP’s. I was thinking a family trust with a company as trustee (still need to get my head around all of it). However speaking to others, they have said just get a property and make a start. I can make the changes later as needed. Yet on Thursdays webinar with Steve he made a comment of getting it correct from the start, which is what i was thinking.
So, I know i need to speak to someone about the above. What sort of qualifications / experience would i be looking for the person to have?
I think i may be over thinking everything and i am possibly stuck in the stage of analysis paralysis .
Just a few of the many questions i am trying to work out. Thank you for your time and responses.
Kevin
Hi Kevin,
Welcome to the forums, and what a good question (or questions) to start off. At risk of sounding “obvious”, you are finding that property investing is far from a few simple steps. Though the tenet is simple – buy houses to make money – the reality is far more complex, eh?
Now, if i have understood my reading and webinar sessions correctly, I need to find an IP that has a higher return than the money sitting in the PPOR offset. Is it as simple as, this is the return % i want eg 6%. So i would then need to find a property than would return around 10.5% or more?
The way things are today, you will be looking long and hard to find many properties that can provide 10%+ from the word “Go”. Not saying it is impossible, but it is way less likely than it was 15 years ago.
As well as that, I want to expand on your comment above (about having to earn 10.5% interest). I think we would all agree that 4.25% is virtually a “risk-free return” when it is in the Offset account. Once invested in an IP, we would certainly want to gain far more than 4.25%. True? Keep in mind that the total return on an IP is made up of both Income and Growth. So, you might be receiving a Gross Rent of 7%, and perhaps an expected Growth of 4 – 5% in your area. This makes 11 or 12%.
The point I am heading toward is that you do not HAVE TO get 10.25% from the rent return alone to have a “good investment”. See, you might be able to renovate it for $10k and add $20k of equity (and increase the rent a bit too). You might also buy something that allows subdivision into the future, where a larger outlay can generate even more equity.
So, do keep in mind the “possible future benefits” when buying. It may not be a 10% return now, but can it be made into one quite quickly? If so, can you afford to take that step? And/or, can you afford to “hold on” while you get your ducks lined up if taking a longer, more expensive step – e.g. subdviding? These thoughts are all part of that initial investment.
Steve’s “market update” recently went into a lot of this – I’m thinking here of his “4 steps to investing” :-
1. Make the most money
2. In the least amount of time
3. With the lowest risk, and
4. With the least aggravationHis examples showed how just 1. on its own can be a huge trap – and same if just 1. and 2. Get all four right, and you are sweet.
Steve’s example of the couple buying in Moranbah is a great one. They got 1 and 2 right, but 3. was either not considered, or their path was not identified as risky, and that has lead to 4. being HUGE for them in aggravation. With the outcome that occured, 1. has also been turned upside down – they now stand to LOSE a lot of money. It is a horrific outcome after it had started off so well.
Re “Who to talk to”, I’d start with a Mortgage Broker. They can advise on all of the possibilities you have when financing – and you want to be a “full bottle” on this part right upfront. Re “structuring”, this is also important, depending on your proposed path. See, if you are wanting to start a business of property investing, you would want to discuss the structure of such right upfront – that could need both and accountant and a lawyer. If, however, you are starting out with your first IP and are planning to just have “2 or 3 IP’s”, then I would think there is far less need for a complex setup.
Maybe it is better to “get into your first one” from which you will learn SO MUCH, and tweak things as you go. Or you might prefer to school yourself via a worthwhile learning package so that you get all of the good oil prior to starting out. That can be an ideal way for some people too. I believe education is paramount – you can be educated via mistakes, or you can learn from the mistakes of others (on here, or in a course for a fee). Check out Steve’s “Property Apprentice” offering – even just a chat with Jason re that might provide the answers you need.
In case you haven’t found this post already, let me steer you toward someone who DID find 10%+ IP’s right upfront, and has built up a sizable portfolio in just a couple of years (from 2011) – here:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977I hope you stick around, learn a bunch, then share your learnings on here with others starting out !! It is a good place to be,
Benny
PS In case you were looking for the Property Apprentice course, here ’tis –
https://www.propertyinvesting.com/store/property-apprentice/Hello Benny,
Thank you for the reply and also thank you for the link to the other threads. Had a read of Mini’s post and found that these are what we have looked at but lack knowledge as people would in the start. Lacking the typical: costs of areas, finding an area, knowing the cost of getting the project completed, etc.
Our plan is a little mixed at the moment, (residential options, commercial options, the strategies for each type as Mini outlined and Steve’s books) i think we really need to sit down and write it out instead of discussing it. I have been eyeing off the apprentice course, I think there were payment options available so i will look in to that soon. We have decided that we will probably need to invest interstate as our area is expensive (Darwin). Now it’s the old, where, when, what, how and who to trust.
Still have a few books left to read from Steve and a few other sources that have been recommended to read.
Structure wise, yes we are looking at running it for the long term and having it setup as future income for family members many years on i hope. An accountant and lawyer are on the cards. Have been reading a few of Terry’s posts and noting some questions to ask.
So far i have learnt a fair bit from here and the books. As always when you start something new, feels like you walk away with more questions that when you walked in…
Thanks again for the reply.
Kevin
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