Forum Replies Created
- Originally posted by as41:
I understand your frustration. TOTALLY. Husband and I spend out 2’s drinking and partying (never thoughtou about investing until 2 years ago). Now we are early 30’s and I am the main income earner. My husband is on a very average wage and we would like to have kids. I am havng anxiety issues with wanting to have achild and wondering how to do this on one wage and pay rent and pay IP. Our IP is an older house (newly renovated) cost us 270K and rents for 285p.w (value $320K) but because we used equity from parent we have a large amount to pay out of our own pocket after rent (about $130p.w). SO: $130 for IP, our own rent and bills = all of husbands wage… HOW CAN I AFFORD TO GO ON MATERNITY LEAVE… And I’m not getting younger… How do people manage???[inlove]
Snowflake
Snowflake,
As you’ve already figured out having kids is a huge financial drain pretty much from the time you are pregnant. I have a 5 & 2.5 yr old and we found the whole maternity leave thing extremely tough financially. Luckily both pregnancies were planned so we had the chance to save a bit of $ before the first child as well as not taking a/leave for about 18 mths so we had the benefit of about 6 weeks paid leave when I went on maternity leave. We downsized the car to a 2 door hatchback, made our own nursery furniture and the cot was bought from Vinnies for $40 – it was a well used timber cot that after lots of sanding and varnishing came up a treat. Pram, high chair etc was all purchased at Big W or KMart on layby plan. Everything was reused for our 2nd child.
At the end of the day it is hard to manage during maternity leave and even after you return to work daycare fees are a killer. With baby #1 I had 9 mths m/leave but only 4 mths with baby #2. It was all we could afford. And yes, the credit card balance went up both times. I don’t believe there is ever a perfect time to stop work and start a family – you just have to plan as much as possible, be frugal and bite the bullet. You will survive financially – just about everyone does. And don’t forget you get the maternity allowance from the govt. these days – $4 or $5K??? That can certainly be stretched out quite a bit with good budgeting. Unfortunately I missed out by 4 months with baby #2.
As hard and expensive as it is, I can recommend parenthood [inlove]
Flatout
Peter & Paul,
I understand fully you’re frustration but I don’t sympathise. You are both in good positions with uni degrees and starting incomes of $40K. That’s more than a large percentage of the population will ever earn in any given year. Not sure what you do Paul, but Peter with your accounting qualifications you’re income will be up, up and up with each year. As an accountant myself, I know what I’m talking about. And you’ve both entered the workforce at a time of record low unemployment and a major skills shortage.
Paul you say it will take you a year and a half plus to save a deposit – is that all! For many people their first home or IP is probably the single biggest purchase they’ll ever make in they’re lives. Whoever said it was supposed to be easy? And don’t forget you’re talking about single incomes. Presumably you will find a partner one day and then you will have the power of combined incomes.
You’re probably sick to death of hearing “in my day” but as a gen X’er my own story is not all that long ago. I finished high school in 1986 entering the workforce on minimum wage ($130 pw for 5.5days). I worked 2 jobs just to make ends meet and staying home with the folks wasn’t an option. They rented and as the youngest kid, my coming of age spelt they’re independence. At 18, I was told I’d have to find somewhere else to live as they were giving up the house to do the grey nomad thing around Aust. (BTW, I’m not complaining, I have loving, caring parents). After I met my husband to be, we saved like crazy for a deposit. We were paying $130 pw rent (as cheap as we could find), not all that much less than you can still rent a unit or small house for today in Mandurah. It was about this time that the banking industry was deregulated but there was still very little competition to the big 4 banks who all demanded minimum 10% deposit plus legals/stamp duty etc. To top it off the country was in recession and interest rates were at 18%. Over the course of a year we saved a total of about $6K and feeling close to our goal I rang all the banks and was totally disheartened to learn that once we had saved another $10K or so (another 18 mths at least) we could possibly borrow about $60K on our income. With low end houses costing about $100K in our region we thought it was a lost cause and at the time it was.
Eventually we came to realise that if we really wanted our own home, we were going to have to 1) our income and 2) find cheaper housing. We did what Bernie Fraser was criticised by many for suggesting a few years ago – we left north Qld and all our family and freinds and headed for WA were housing was cheaper and employment opportunities greater. We then both enrolled in full-time uni (I was 26, hubby 32). Our deposit money quickly went on moving and uni costs and by 2nd semester we were both racking up HEC’s and FSS loans which we are still paying off. Three years later we graduated into jobs paying not much more than we’d been earning as minimum wage earners but we knew that this would change. Our incomes have risen steadily and now we earn more than we’d ever thought possible. It took us another 3.5 years after graduation to be able to buy our first home – a very modest 3×1 in need of a lot of TLC. At the time I was 31 and hubby 38. 6 years on we now have 3 properties worth $1.25M and a 70%LVR.
My point is home ownership is not easy to come by and never has been which is why some people never attain it whether they be baby boomers, Gen X or Y. It is also the reason that those people in their early to mid-20’s who do manage to buy a home are very rare. It takes time. I won’t say I wish you luck because I believe luck has very little to do with it. Instead I wish you both focus and determination.
Flatout
curr_01,
You’re forgetting that the tax cuts actually reduce the amount of tax payable so you have more money in your pocket before any negative gearing kicks in. So although the tax deduction has been eroded because of the lower tax rates, the negatively geared investor actually has more money in there pocket to start with.
Here’s some examples based on various gross incomes and 13K of deductions from a -ve geared IP:
Using your suggested $65K gross income – $13K deductions = taxable income of $52K:
Current rates: Tax payable incl. Medicare = $12,240 leaving net income of $39,760
2006/07 rates: Tax payable incl. Medicare = $11,730, leaving net income of $40,270Consider the same scenario, except this time the investor has an individual gross income of $100K:
Current rates: Tax payable incl. MC = $26,145 leaving net income of $60,855
2006/07 rates: Tax payable incl. MC = $23,955 leaving net of $63,045It also works for lower income levels, this time someone with a gross income of $40K…
Current: Tax payable incl MC = $4,365, net income $22,635
2006/07: Tax payable incl. MC = $3,855, net income $23,145As you can see, the ability of the -ve geared investor to service the -ve geared loans has actually improved. I think its a fair assumption to say that most -ve geared investors look on the tax breaks only as a tool to aid servicibility and reduce holding costs whilst they wait for capital growth on their investment. -ve gearing for the sole purpose of reducing tax payable is not in itself an investment strategy but even if this was ones motivatation, th reduced tax rates will still put more money in their pocket.
On a personal note, we have a combined income of $150K so the new tax rates will put about $55-$60 a week more into our pocket. This comes very close to covering our out of pocket cash expenses associated with our most recent -ve geared IP of about -$75 /wk. Outcome is we’re now searching for another IP which will probably also be -ve geared.
Flatout.
Tinker,
My reply may be a bit late but if you haven’t already painted the doors, go into your local Bunnings or paint store and tell them you want a roller for painting doors. Most of them stock very fine rollers specifically designed for this task. Sorry I can’t recall what they are called but the end result is excellent and much better than if you use a standard roller for only a few $ more.
Flatout
Micsha,
I think it depends on what your investment strategy is. I am currently investing for high short term capital gains in the booming WA property market so I’m happy with my current returns of 4.3% and 3.7%. As I’m also in a high tax bracket, I get significant tax offsets which keeps the cash holding costs low despite the low yield. On a longer term buy and hold strategy with long term steady CG’s I’d be looking for at least 5% initially with a view to steadily growing the rent through natural indexation and value adding. A CF+ investor would probably not accept anything below 7.5%.
Flatout
IMHO an interest rate rise will invariably cause rents to rise if for no other reason than investors will look to pass it on to their tennants. It will probably take awhile to filter through though. Whether or not 0.25% rate rise will cause home buyers to hang off purchasing I would speculate that the rise isn’t significant enough on its own although it may cause buyers to lower their budgets a bit. I think we’ll see another interest rate increase before the end of the year and IMHO that will have more of an impact than the latest rise in terms of cooling the market. Potential buyers might decide to hang off buying (for awhile anyway) and possibly those existing home owners that overstretched during the good times will be forced to sell. Probably be a good time to pick up some bargains.
Flatout
Ever read “A Town Like Alice”? Similiar kind of storyline…
Flatout
Originally posted by Chris.R_WA:Thanks for that flatout,
That was very inspiring. Seriously. In terms of goal setting and seeing a long term plan come to fruition.
I can only hope that our plans flows as smoothly as yours did.
Chris.R
Pleased to help…but no, it hasn’t been smooth sailing. We’ve had setbacks along the way including a health scare that near crippled us financially, unexpected job losses and a child who at age 5 has already undergone 6 surgeries and another to go. But we’ve also had some good fortune such as the WA property boom. But if you’re committed to your goals when bad times hit you just pick yourself up, dust yourself off and keep going and then you’ll be able to create opportunities and take advantage of them when they come along.
I think the problem with a lot of people is getting sidetracked. For instance when we wanted to buy our first home, we were gobsmacked at how much money the banks would lend us – certainly enough to buy a fancy home in a prestigious suburb (for our area anyway [blush2]. It could have been very easy to throw common sense away and go for it but the huge mortgage would have put paid to any plans of starting a family , holidays and no way could we have afforded to invest as we have. I’d be lying if I said we weren’t tempted for about 2.5 seconds [ohno]
Sometimes lately hubby and I have had to pinch ourselves and say “can you believe…” It still seems almost surreal to actually take stock and realise that we are now at that far off place that dreamed about so long ago. We are now setting new goals and making new plans – the things we didn’t dare even dream about way back when are now on the agenda. PPOR paid off in next 2 yrs, 5 or 6 investment properties, a share portfolio and the 28 ft sports cruiser is looking “do-able” [thumbsupanim]
Flatout
Actually, a long settlement might work in your favour if the property is bought by an investor. Most investors won’t mind having a long settlement as they secure the price today and may get some CG in the time it takes to settle. Of course, this means you’ve sacrificed the CG but you may be able to negotiate a high selling price based on this. Out of curiousity, where is the property located?
Flatout
Yep, my husband!
[thumbsup2] Flatout
Doing it tough? No not really. In fact I have to say that 2005/06 has been the best 18mths of my adult life both personally and financially (both intrinsically linked). My partner and I are now starting to reap the rewards of a plan that has been over a decade in the making starting with when we moved from Qld to WA to make a new start. We both became adult students, got our qualifications, got better more highly paid jobs, managed our careers, bought our first home, built our equity, upgraded to a larger home and started a family. We now have two beautiful children and I’m back at work 30-35 hours a week after 5 odd years of irregular, part-time income. We own our 4WD, campertrailer, boat, have sustantial equity in our PPOR, have 2 IP’s and a growing superfund. We are able to enjoy the fruits of our labour guilt free because at the same time we balance our spending with investing activities and are steadily building a nest egg for our family. Last year we took an extended family holiday (8 wks) which was the culmination of many years of dreaming. We have 4 weeks holiday every year (cheap camping holidays but we love it). Because we find it too expensive to pay babysitters we prefer to do something that involves the kids so our family treat is lunch on the weekend ($25) and that is about all we spend on entertainment. We don’t have the widescreen TV, don’t exchange extravagant gifts and only bought our first DVD last year ($80). I don’t have much in the way of jewellery, applicances, clothes etc and apart from the grocery shopping you won’t find me hanging around the shops. We buy strictly on a “as needed” basis. We’ve never entered an interest free purchasing arrangement, bought our fridge 2nd hand when the 26 year old one packed up. And yes, we watch every penny.
So I guess my message is this – decide what you really want in life and then make a plan and stick to it. Eg. If you’re a young couple who want to have children, plan for the financial effect in advance and don’t overcommit on a huge mortgage. If you want more than you can afford either revise your list of wants or figure out some way of making it affordable without resorting to oppressive, option limiting high levels of consumer debt. But just make a plan – there’ll be hiccups along the way but there’ll also be unexpected bonus and best of all is the satisfaction of achieving your dreams.
Flatout
After the reno on your flat you might find you have made an instand CG through value adding and hence, more equity than you currently have. Could be worth getting the reno out of the way first, then get a new valuation and see where you stand.
Flatout
Have you considered getting you windows tinted? Also have a talk to you a good window furnishing place. Some products you can see through quite well because of the light coming in the window behind the curtain/blinds, but won’t allow people to see inside from outside. Off course at night when you have the lights on you’d need a block-out option but at least you’d still have your views during the day.
Flatout
Well I’m in the clear. No one in my family has got a zack to rub together[blush2]. Seriously though, this hasn’t always been the case and money has caused a lot of problems within the family – thankfully all overcome now. I was too young to be involved but after years of observing all the troubles I made a vow with myself never to mix family and money and I will stick to it. However, this is just my family. I often hear about successful joint venture partnerships within other families. Whether or not this is an appropriate option in your case will depend on your family, your relationships, how much/ little money/equity is available within the family group and how you feel about asking for a loan/equity partner.
Flatout
andymitchell,
Another option is you could split the loan so you have a fixed component and a variable component. We’ve recently done this on our PPOR. Kinda like having a bet both ways.
Flatout
A work colleague of mine bought into a off-the-plan motel 7 years ago in Port Hedland, WA. First 5 years was not too bad as they were guaranteed minimum returns. They tried to sell out during this period but couldn’t find a buyer. Since the guarantee period expired their returns have plummeted to almost nothing most of the year. They and every other unit holder has been trying to sell without any luck (no surprise). As a group they’ve now resorted to trying to sell the motel in its entirety. Last month they finally had an offer but my colleagues share is only $43K for their unit. They still owe $90K+ (not 100% sure what they actually paid for the unit in the first place) so they are in a very difficult situation. They could cut their losses but have no other security to offer the bank for the shortfall and despite being on a combined income of $130K plus can’t get an unsecured personal loan to pay out the shortfall. Obviously not all hotel/motel/serv’d appt deals are this bad and obviously my colleague made a very poor decision to buy in in the first place but it just highlights the pitfalls of this type of investing.
Another point to consider…I used to work as an accountant in an inner-city hotel where all the rooms were strata-titled and owned by investors. Most seemed happy enough with their investments but the reality is that they have virtually no control over the way the business is managed. Poor management will lead to poor occupancy rates and this will hit your hip-pocket directly and not really a lot you can do about it (certainly not quickly anyway). I for one do not like the idea of not having good control over the performance of my investments.
Just as an aside…To add insult to injury in my colleagues case, they also had an IP in Kambalda and another in Kalgoorlie. As they grew up around there and were living and working there at the time they made the investments they had good knowledge of the area and mining etc. However, they lost money here also with high vacancy rates and in the case of the Kalgoorlie property, a long-time empty house attracted unwanted attention from vandals. In the end they managed to sell one property for what they owed and the other at a loss which they are still having to cover. Currently they have very negative equity and all their servicability is tied up just covering the shortfall and PH IP. Basically they are screwed financially for many years to come.
We hear plenty of success stories on this and other forums, API magazine etc and with the boom it is easy for people to start to think that anybody can make money through property investing but this is not the case. Yes my colleague made some very bad investment decisions and the reason I am relating this story is to serve as a warning to all would-be investors to be very careful and do your due diligence before committing your $$$. And if your gut feeling is telling you not to go ahead, then walk away.
Flatout
Hi Newstart,
Can’t comment as a buyer as I’ve never made a cash offer. However, we sold our first IP to a cash offer. Initial offer was 88% of our asking but eventually sold for 96%. From a vendors point of view, the fact that the offer was cash wasn’t significant enough to induce us to sell a long way below asking. Had we been desperate for a sale or early settlement, it may have had more sway. I guess what I’m trying to say is that how much difference a cash offer makes to the vendor will depend on their unique circumstances. The state of the market (boom, bust or flat) will also impact the price. I don’t think you could apply a blanket “first offer at 20% below asking price” just because you’re offering cash. Rather I think the advantages of cash is that it gives you an edge over most other buyers who are subject to finance and may enable you the buyer bring in some other conditions that the vendor might oherwise be reluctant to agree to.
Flatout
How would you enforce it? Tennant says no I don’t smoke, then takes up the habit. Standard lease condition is that tennants have carpets cleaned and rest of property left clean and tidy when vacating. A good PM would not release the bond unless entirely satisfied with condition of property and that includes window treatments, walls, ceiling etc being clean. If they are stained or smell of cigarette smoke then the PM would be within their rights to demand that they are cleaned. As a point of interest, a work colleague recently lost some of his bond for this very reason. He wasn’t happy as he had put in plenty of effort to leave the place clean but the PM reckoned the ceiling was stained from his smoking and needed cleaning and that was that.
Flatout
Tajee & others,
As a Westralian, my comments and feeling on the market are based on what I am seeing and hearing everyday. The resources boom is having a major effect over here – virtually verywhere I look the level of activity is frenetic. And I’m not just talking residential housing…industrial and commercial buildings and new businesses are being established every day. I drive through several new and developing industrial/commercial area’s on my way to/from work and the growth is staggering and that means jobs. Jobs = population growth = demand for new and established housing.
Having said that, sooner or later the new resource and companies servicing this sector will have taken up their full workforces, demand for new housing will have caught up and the boom will come to an end. When exactly that will be I can only go on the 12-18 mth prediction that smarter people than me are saying. As with any boom there will be investors who bought at the height of the boom expecting quick CG and they will be disappointed.
We are still buying for CG but realistically we know that most of our profits will probably come in the next 12-18mths. The trick IMHO is to avoid a possible fall in values after the boom has ended and buy in lifestyle locations where steady CG’s should still be achievable after the boom. Even if values stagnate for a short time after the boom, we should still have achieved enough CG in the short term to grow our equity for future investments.
So when you think WA, don’t fall into the trap of thinking Perth only. Look for lifestyle destinations outside the metro area, with good infrastructure and still within easy reach (say 400km’s radius). Places like Mandurah, Bunbury, Busselton and Margaret River will continue to attract sea-changers and generation-X’s seeking lifestyle improvements well into the future. The ABS population forecasts predict all these places will experience well above average growth for the next 10-20 years or so. There are also several major infrastructure projects either planned or underway which will only serve to cement the attractions of these destinations. Current median values are still lower than Perth although I think that will change before very much longer. I honestly can’t see these destinations “overshooting”. If there is a correction it will IMHO be relatively minor before settling back into a steady growth pattern.
Flatout
Hi Dream,
Lucky you! All comments so far very valid however I would recommend you spread your risk across more than one class of asset. $100K will get you a good foothold in shares, a managed fund and property. Good luck!
Flatout
