Hi Scott,

The objective is to have a sufficient income stream in your retirement years. So you want your rents to be sufficient to pay the bills and any outstanding mortgage repayment obligations and still have enough left over to support your own living costs. If you had a few properties you had owned for several years and slowly crept the rent up each year, this should be achievable, assuming you had chosen properties wisely. To some degree, you could say you don’t necessarily need the mortgage to be paid off completely before you hit retirement, but you do want the mortgage repayments to be tiny in size compared to the rent you are achieving, such that there is plenty of surplus left over for you to live off. Does that make sense?

Hi Johann

I'm not disclosing where I am presently buying.  Not in my best interest to cause a flood of investor to buy where I am placing clients. 

Hi KSJA,

As has already been said, you're on a high LVR, so it would be best to batten down the hatches and squirrel money into that offset account for a while.  Build yourself a fortress of cash.  The more you have, the less impact bumps in the road can have. 

You'd want an absolute bare minimum of $65k sitting in that offset account before even starting to entertain thoughts of getting a second property.  That would mean two properties with an LVR of 90% with some spare cash in the emergency tin. 

In order to reach such a target, identify areas that will be easy to make budget cuts.  If you are currently buying lunch at work each day, take home-made sandwiches to work for lunch a few days a week instead.  If you are buying coffee in the cafe each morning, borrow a thermos from someone and bring DIY coffee from home instead.  If you are paying entrance or membership fees for a gym, go for a free jog around the block instead. etc etc.

If you haven't done so already, get a depreciation schedule done on the Springfield Lakes property to help reduce your taxable income.

Local tradies and building inspectors are a great resource for this. The ones that have been around a while can identify a proprty’s age by the materials used, or the style of brick used in their local area. Sometimes they can recall when homes in a street were constructed. I had a building inspector reminisce about having been an apprentice on a job when a particular property was originally built! He even remembered what the original subdivision looked like and where the services were underground

It would cost you a hell of a lot more than $600 to sue.  When you are buying property, it is a good idea to say to yourself "I understand I am buying second-hand property.  Something somewhere will be wrong with it.  I am happy to fix things to the tune of perhaps $2k.".  Keep your eyes peeled for "expensive issues" in the results of the building and pest inspections (by expensive I mean $10k+).  For such things you'd ponder the pros and cons of exercising your right to use your building and pest clause to exit the contract.  But not for small problems.  You'll ever find a "perfect" secondhand property.  Don't sweat the small stuff.  Remember that by the time you find a "small issue", you already have to pay your solicitor, your building and pest guys, and potentially also fees for bailing out of the contract.  So it's not always cost-effective to do so.  This is why it is important to go into it accepting there might be something that needs doing.

You need to be vary wary of vacancy rates in the Werribee / Tarneit / Hoppers Crossing areas.  There is plenty of property available for rent and sitting empty.

Hi mattliasiian,

Jamie mentioned going with interest only with offset account, NOT principle and interest.  Instead of "paying off the loan" on a principle and interest, instead just lump all your spare cash in the offset.  In a way it is the same thing as paying off the loan, because the more money in the offset, the less interest you pay.  When the amount in the offset is equal to the original loan amount, you have sort of paid off the loan, because you would no longer be paying any interest.  The difference is that if you decide to move out the house and keep it as an IP, you'd be able to whip the cash out of the offset and go and spend it on another home for yourself to live in.  You would not need to ask anyone's permission to do so, or apply for a loan to do so, or pay a fee to do so – you'd simply withdraw the cash and off you go.  If however you had literally paid off the loan in the true sense, and you wanted to get your money back to go and buy another house, you would have to apply for a loan (fees associated), and the bank might say no!!

Don't think of it as swallowing your pride Paul – think of it as making a smart decision to surround yourself with seriously clever people who know their stuff.  Leveraging their abilities will take you far

I don't know … $800 doesn't sound like much of a profit to me

A few other issues with renting by the room are things like this:

Someone damages the kitchen or bathroom (the expensive rooms).  You cannot prove who it was, so you cannot really deduct it from anyone's bond.  It will come out of insurance or your pocket.

Someone leaves large items of junk in the backyard, and a big piles of old care tyres too.  You are, after all, running a free garbage collection service, are you not?  Once again, you cannot prove who left it there so you are stuck with the removal and disposal fees (entry to the tip is not cheap these days).

Someone damages the fence.  Again, can't prove who it was.  The same problem will apply to any shared area inside or outside the dwelling.

It is surprising how quickly a high gross yield will get eroded with things like this (and some of the things already highlighted in the post above by god_of_money).