Forum Replies Created
Hmm I thought Tassie market was dead. Now you got me thinking. But what are rents like ? I don’t think you can beat Brisbane.
Matt, as a first time investor ? and at your age, I would suggest tread carefully indeed.
Matt, something called risk management, which my ex boss made me never forget was embedded in my mind in a job interview I had many years ago and failed to get. It was one of the questions that came up about a work situation and it never entered my mind that risk management would be an important factor in that situation. I have since learnt, I hope, that it is crucial that you manage your exposure to risk.
Investment experts are always talking about diversification of your investments, and the importance of it etc… Diversification is a means of managing your risk exposure to events that could adversely effect the performance of your investments. Instead of being completely wiped out when things dont go your way, diversification helps you minimise the impact, by limiting your risk exposure.
That all said, and hopefully understood, I would suggest avoid the whole block of 3 units as a risk management measure or matter of risk management principal. Now the block may be fine, absolutely nothing wrong with it. But then if it ain’t fine, you could be stuck with not 1 not 2 but 3 expensive lemons. That could sink your ambitions as a prospective investor. Perhaps just buy the best one of the bunch, if it checks out ok, then move on to another location.
If there is a fire and the whole block is wiped out, where would that leave you and your investments. Even if insured, the delays in investigation and repayment could prove costly from an investment perspective. For an old pro with many blocks of flats and other investments, no biggie, but for a new starter a potential disaster.
I suggest you start small and spread your risk. I suggest buy in different geographical areas for one.
Always think risk management and diversification of investments.
good luck
Urm as I understand, the whole point about investing is that you invest to make a profit and increase your net wealth both short and long term. In your situation short term profit appears desirable, so you can pay off your debts. If you pay off your car loan and this delays your investment opportunities, it could take you even longer to clear all your debts, than if you invested wisely.
We are of course assuming that you are in a position to borrow more money and that you are able to make a sound investment decision that will yield a net positive cash flow. If this is indeed the case, then it stands to reason that investing could be a viable option. As I said, a sound positive net cash investment will pay off your debts for you.
If however you do not make a sound investment decision, then you could be in trouble. Thus the real risk lies in your ability to make this sound investment decision.
9.5% pa on $15000 = $1425 flat rate interest
is nothing compared to $3000 net cash flow on your investment, plus even a measly 5% capital growth on $100,000 = $5000 flat rate capital growth.NOTE: you would normally use a compound rate, but both sides are treated the same so the point is clearly demonstrated.
Now if you netted $3000 pa on your investment being $57 per week, you could easily cover your interest bill on your debt and have some left over to reduce the balance. $15000 @ 9.5% pa calculated daily = $27.35c per week
Thus your $57 net cash flow per week would cover this interest and reduce your debt and thus further reduce the loan balance and hence further reduce your interest bill each week.
In the mean time your land value is appreciating at a conservative ( but realistic for your type of cash + investment ) say 5% capital growth pa, being $5000 in year 1
Thus you are achieving several goals at once. You are reducing debt by passive income from your net revenue generating asset. You are also increasing the yearly value of your asset holdings. You are also freeing up your disposable income, to further be used to reduce your car loan even faster.
The lynch pin really hinges on your ability to make a sound investment decision. If you feel this cannot be achieved, then yes pay off your car. But when you have paid off all your debts remember ;
1) you may have delayed or missed an investment opportunity.
2) you will still have to make a sound investment decision, if you then decide to invest at that time.
3) finally there may well be other factors that could impact on the level of risk attached with any decision you make. As mentioned, if you are not comprehensively insured, then this may be one factor impacting on your decision.
But my comment on that would be go get comprehensively insured ASAP. Then go and invest wisely, when you feel confident. Otherwise go do your research and when you feel comfortable, then consider a net cash positive investment solution. If however paying off your car loan improves your ability to borrow to invest then also consider that as an option.
Horses for Courses.
good luck
I’m told you need a trust arrangement
Thanx Del, at times I do try. Indeed lets just hope its largely a figment of our imaginations. Richmond I see your point and in part tend to agree. The world can be quite unpredictable sometimes and advice from experts, well we all know where that leaves us at times. Best of luck in property. May it reign surpreme, for now at least.
Well according to the cash flow game, you would maintain the car loan and invest in property or something that generated income. Thus, if that has any credence at all, I wouldn’t be jumping so quick into making such a decision.
It would depend on a range of financial circumstances pertaining to your situation. If you are not into property investment then yes car loan.
If you are into property investment then think carefully and explore your options. If you had a cash positive investment of say + $3000 per year then that money could go to pay off your car loan whilst your assets land value appreciates with capital growth.
Try factoring in your yearly car loan repayments against a cash positive property, plus capital growth and projected future revenues based on rental yields and holding costs.
CashFlow would say use the money as a deposit on a net income generating asset. Obviously the income needs to be such that it justifies the investment. Let the asset pay for your car or boat etc… This then helps free up your disposable income, to help pay your car off even quicker.
The view expressed through this game is that if you forgoe a good investment opportunity and only focus on paying off debt, it will take you longer to acquire wealth. It’s a bit like only paying off your home loan for the rest of your life and not investing at all.
last but not least, the numbers have to work. so do the numbers, do the tax etc…
On the face of it car loan seems the obvious choice in terms of cash flow analysis. But there may be more to it than that.
Putting it against your home loan may change your equity to debt ratio which may carry more weight with the bank than the car loan, even though its repayment rate is higher. Not sure on this either.
This may be looked upon more favourably, especially if the bank has nothing to do with your car loan.
I guess you could sell the car and get a bomb, just for 12 months to get your first investment property happening.
I played the CashFlow 101 game and found it was interesting. I played it with the National Property Investors club. Cost me $10 for casual entry, as I’m not a member. It was amusing.
The one thing that I did’ not like so much was the element of luck in involved. I admit luck is in real life, but I just felt it could have had less focus on the luck element and more focus on the developing good investment strategies element.
Also its focus was on investment in general rather than solely property investment. I mean you could end up with a gold coin from the deck of cards, or shares, or property, or baby expenses etc…
I’m not sure I would spend $345 on this game.
I’m sure it serves a useful purpose, but I would like to play a game that was more oriented to just residential property investment. I have yet to see one that meets that criteria.
Happy to hear from anyone who knows of one.
Banks tend to do as they choose anyway. If they really want your business, they will bend over backwards and crawl thorough flaming hoops, whilst reciting the National Anthem. [
]Stu when will your masterpiece be complete ? re; unlimited finance article ?
Yep I use AON for Landlords Insurance, similar premium to EBMs Rent Cover plus about $240. That said Westpac now offer a cheaper version about $180 pa.
Brendan, difficult to assess ones personal circumstance from here, but is building a bungalow out of the question ? just wondering if the tax department may view this as a separate dwelling and then by making your mother a tenant you could negative gear it ? I’m not sure.
Also you may need to have your mother living inside with you so she can get the extra love and care she may need. I guess even if your mother eventually needs to move inside, you could possibly rent out the bungalow to a tenant.
It could have its own kitchen and ensuite, rented out for say $80 per week. Possibly even a double story Bungalow to save land usage ! Bed upstairs and ensuite upstairs, lounge, kitchen downstairs and a small laundry.
Would $50K cover that ? Incidentally, I calculate about $58 per week interest at 6% interest on $50K. Thus if rented for $80 a week you cover the interest and a bit left over to cover adjustments to your home insurance premium, landlords insurance, electricity and water usage. Plus you may get depreciation on the brand new building with fixtures and fittings.
Say construction cost is $40,000 builder sells for $50,000 and makes $10K to cover wages and profit. This covers wages of $1500 a week for say two men over say 5 weeks work, leaving $2500 profit for his business.
Anyway getting back on track, depreciation on $40K @ 2.5% being $1000 plus say fixtures and fittings totalling say $10,000 thus say you get about $1500 pa depreciation on them. Thus your total depreciation being $2,500 in year 1. Thus you may get back about $1000 in tax. It could virtually be cash positive straight up.
Offer an electrical package ( i.e. TV, Washer, Dryer combo or other combo ) JohnD mentioned in another thread, and bump the rent to $100 / week. Structure it so the package would suit the tenants needs and pay itself off in 12 months. i.e for the extra washer and dryer may cost you about $1000 especially if you bought them together from the same retailer as a package.
If you mum moves in there then you may not need the package.
I think those rules should be taken with a grain of salt. There are so many other variables that will over ride such simplistic rules. Try using a decent negative gearing calculator. That will give you a better indication of where you stand, becuase it can project your cash flow position into the future several years ahead.
Aahhhh good idea to get those title deeds back ASAP. At least on the roof over your head.
Thanks Terry
Dont trust your spouse ?
Hmmm ….. that’s a worry.
Anyway, I guess as they say if you want something done the way you want, then do it yourself.
On another note, my property is interstate, so I am leaving it all to my agent. I may run the electrical package idea over him with my next property which settles in a few weeks. he may be able to use it as a negotiating tool to get better rent.
cheers.
Dont trust your spouse ?
Hmmm ….. that’s a worry.
Anyway, I guess as they say if you want something done the way you want, then do it yourself.
On another note, my property is interstate, so I am leaving it all to my agent. I may run the idea over him with my next property which settles in a few weeks.
cheers.
Just be careful with hidden repair expenses with old positive cashflow IPs. You do the numbers and it looks positive then after you buy, you find out you have to pay for various repairs possibly into the thousands of dollars. This can make such property cash flow negative at times. Conversely, a brand new IP may start out negative, but can sometimes turn positive after a few years of good CG and rental increases, combined with lower maintenance overheads.
Something to think about.
Will sounds like you’re on track to me. Just divert any excess cash flow to pay off your non tax deductible debts first. That’s all I can suggest at this stage.
JohnD interesting ideas.
Do you deal with tenants directly ? or through a real estate agent ? I was just wondering if through agent, how would they react to some of your strategies, such as the TV, stereo, dryer, dishwasher type deal with higher rent agreement and ownership after two years etc..
Sounds like an interesting strategy
spend $1500 on TV dryer and washer etc.. then charge $20 per week extra. thus you gain $1040 per year extra in rent by half way into year 2 they have paid themselves off. so you get another 6 months extra rent increase of $20 , plus are they tax deductible or depreciable ? so you may save a bit there also.I definately like this strategy. in 2 years time CG has kicked in creating upward rental prices so when you renegotiate the rent, you are in a stronger position. You have also secured a 2 year lease which gives you more stability in your investment.
Will I have no idea. It may require some research.
cheers,
Dave
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