Hi dDream,

  Currently, have a loan of $350 k with a bought property two years ago. And this will return equity of $85k for today ( as the broker told me).

I presume from the above that the house value is now about $550k (i.e. your equity is approx $200k).  i.e. the borrowable extra amount is $85k if refinancing to 80% LVR.   About right?   (If you only had equity of $85k, you COULDN’T borrow it all).

Assuming that is correct, the next part of your question is whether to buy an OTP house, or an existing one at around half the price.   I can’t advise you, but for me, it has been existing houses all the way.   Here’s a few ideas why I chose that path:-

1.  You can likely buy two for the same investment amount, allowing more equity increases, more rent, and (if one tenant leaves) you only lose half your extra income while you find another tenant.

2.  OTP houses are often highly priced (being new, and “desirable”) and in a new estate that lacks a lot of the usual niceties of a community (schools, shops, transport, etc).  Capital growth is often held back because of the initial high price – the new suburb will be competing for value increases with all the other new homes being built as the estate expands.

3.  With an existing home, various situations with current owners may allow you to “buy at a discount” where a developer may not.

4.  An existing home often comes with manicured lawns, garages, fences, etc all complete and be in a fully functioning (settled) community.   This alone lifts values over time as many families want to rent in a settled area.

5.  Your two can be in different areas – i.e. if one suburb suffers from some unplanned event that devalues its houses, you would be unlucky to have BOTH properties affected if you have “diversified” via buying in different suburbs.

6.  Most times, higher value properties return LESS yield than low value ones.  e.g. a $600k house might return 3.5% where a $300k house may be 5%.   That helps with investing further down the track.

7.  Just as “you can’t sell one bedroom” if you are bit short, if you only own one house and you need some extra cash, you can’t choose “which one to sell” while you keep on with the other.  In a word, having two cheaper allows diversification in many ways.

8.  Those OTP houses can be sold by marketeers who are looking to fleece you – not all OTPs, of course, but if any group offers a “free flight” anywhere, remember free lunches really aren’t.   There are plenty of posts around re these particular OTP traps, so beware.

I’m sure there are more benefits too.  Don’t fall for the old chestnut re “you save on tax, as an OTP can have you claim more deductions”, as the aim of investing is to make money.  Any saving you might make on tax pales into insignificance compared to the very real benefits of buying two cheaper homes (in my opinion, of course).

Well, now that I’ve got up to dance, hopefully others will join in and we’ll get this party swinging !!  :p

Benny

Hi Laura,

There is a series of webinars due to start soon in May.  Call up the office on 03 85920270 and enquire about Deal Club.  As far as I know this will be Steve sharing his findings as he does a deal (likely Commercial) and also advising viewers who are looking at buying properties (likely using STEPS) and want to ask him questions.   These webinars are chock-full of useful tips and ideas – Steve is well-known for providing good value in his responses, often continuing to question the questioner until he is sure that they “get it”.

This webinar series is not free – be prepared to pay for good education.   Just one good tip could pay you back many times over – and Steve will be providing way more than one good tip I’m sure.  It is due to start within a week or so (maybe even days, so be quick),

Benny

PS  Sage quote – “If you think education is expensive, try ignorance instead”.   ;)

Hi jeeakz,

Looks like you have put yourself in great shape to sculpt a really good future in your retirement.  Well done.  Re “what’s next”, I’ll leave that to smarter people than I, but I did want to pop in a question or two so that others might formulate a path that will really suit you.

First, you are talking of retiring – at that time, what kind of income would you want?  At least $35k obviously, but are you aiming for more?  If so, how much more?  $50k?  $100k?   And I’m talking after Tax of course.

Also, are you happy in your PPOR, or would you consider selling that too and (perhaps) moving elsewhere?   I say this, as your PPOR being sold will (likely) be a CGTax-free sale.  Thus you could clear $500k or so to pay off other debt (and perhaps making you positive geared?)   Of course, that means you could start paying tax, but then that is not such an imposition if your income is way up on $35k, is it?   You might also consider moving into one of your IP’s.  e.g. Would you like to move to Melbourne or the Gold Coast?

Would you consider selling ALL Ip’s to parlay into other investments (if they prove to be more beneficial to you by doing that)?  Would you prefer to be completely mortgage free?  That is an option for you as I see it, yet still able to bring in a very nice yearly income.  All because of what you have done so far.

Let’s see what others make of this once you come up with a few more answers.

Benny

Hi HLaura,

Wouldn’t be likely – the meeting is a Brisbane one.  Steve is from Melbourne.

Benny

Hi psaini,

Do you have Steve’s book “0 – 130 properties in 3.5 years” at all?  If so, and it is the 2009 version (the update), go read chapter 9.  It gives a really good writeup of just how and why Steve uses companies and trusts.  He tells me too, that the same system works for both resi and comm – but NOT if negative geared.  The latter would need a complete rethink.

If you don’t have it, do yourself a favour and just buy it (for less than a night at the movies) – https://www3.propertyinvesting.com/0-130-properties

hope that helps,

Benny

Hi Daniel,

I hesitated to add my thoughts for a couple of reasons – 1. because I have never done a subdivision before, and 2. I don’t know Victoria.  But, since no-one else with more experience has stepped in, I thought I’d have a go.  If nothing else, my thoughts might help you to choose your path, based on the questions I ask.

First off, with that size of block, I suspect you would have NO problem subdividing it.  But could it even become three blocks?  Also, if selling, you would likely have to have subdivided the block already – or have you already done that?  If yes, then have you considered getting a DA prior to offering it for sale (I have heard this can add value to the buyer/builder – but it also can add delay at your end – just a thought).

If you HAVEN’T already subdivided, maybe check with a Town Planner to see what your options are (i.e. should you subdivide into two or three blocks, maybe consider building a duplex rather than just a single dwelling on the second block, etc).  In the end, the “numbers” will tell you what is the financially best answer for you.  As well as that, can you afford the TIME it would take to accomplish all of the above (depending on which way you jump)?

Consider too, Steve’s sage mantra – make the most money in the quickest time with the least risk and lowest aggravation.   i.e. the “most money” way might well be to attempt to build a duplex on the second block, but that has an effect on the “time, risk, and aggravation” parts of the equation.  Would you be up to handling those?  Or is it better to “quit this one quick” and go ahead with the Adelaide option?

Good luck with your decisions,  :)

Benny

Hi TG04,

I had a look at that page, and it appears to me that those comments should have referred to after-tax income, not pre-tax.

As you say, there is no way you could cover 100% of pre-tax income using after-tax monies.  Well spotted,

Regards,

Hi dablackkid,

One IP is a good start – not too many even do that.   Do you have a question for us?  Anything we can help you with?

Benny