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Hi ab,
First of all – congratulations on buying your first home. By the sound of it, your purchase was like my first house purchase -more an emotional decision than an investment one!
Having said that, I assume you borrowed the money through a bank or similar? If so, they would almost certainly have assessed your application quite conservatively (based on the information you provided them), the loan to value ratio (LVR) you describe and your ability to repay. This should give you a degree of comfort that they don’t expect you to fall into desperate straights any time soon (though not a guarantee of course!)
For every prediction of rates going ballistic, you could probably find another prediction that they won’t get anywhere near double digits. In short, as you say, bit like betting on the horses, so don’t beat yourself up worrying about what may or may not happen.
Instead, work out what your worst case scenario is (e.g. rates go up to in excess of 10% and the house drops in value to $100,000) and then look at ways to mitigate the risk. This could include paying extra off your loan each month to build up a buffer (every little bit helps, especially on a 30 year term), or adding value to your new home through small renos or landscaping that will add value in fair to good times and maintain value in bad times. This can then give you an extra buffer in your worst case scenario.
In short – don’t beat yourself up worrying about what might have been. Congratulate yourself for making the decision and following through on it and then plan for the future!
Good luck
Cheers,
MichaelHi,
One of the key things I’ve picked up out of Steve’s latest book is that you need to set yourself some investment parameters and stick to them. If you’re looking for cashflow +ve from day one, then just take the Cranbourne deal, as the Wollongong deal isn’t positive from day one. Easy to say when you’re not involved I know, but….
Also, what is the risk that the adjacent property in the ‘gong won’t come up for sale in your timeframe?
Cheers,
MichaelHi Landt,
Essentially a second mortgage means the vendor provides you with vendor finance for a portion of the sale price, and take security against the property via a mortgage. Should you default on repayments, the primary mortgager (your bank) has first dibs on getting their money back from any proceeds, and once they have their money the second mortgager can take their share (if there’s any left). I think that most (all?) banks would also need to approve the presence of a second mortgage.
You end up making two mortgage payments though – so make sure you still end up positive cashflow. If the property is so far below fair value, perhaps you could look at some sort of joint purchase with someone with the aim of doing some minor cosmetic work before settlement and looking to on-sell.
Cheers,
Michael
