Current Situation
• Share a house, rental $130 per week, I do not want to leave the house I am at.
• Earn about $1700 after Tax per fortnight.
• About $5000 available for deposit.A possible Plan
Problem is I do not have a large deposit for the kind of property I want to invest into, so I was thinking of getting a small investment unit, to pay off as fast as possible; I do a lot of overtime in my job so would negative gearing the property possibly work well for me?Purchase 1 Bedroom Unit 60K
• Current rental of $100 per week.Borrow around $50K from bank as I would use the following,
• First Home Owners Grant of $7000 (Lease to finish before 12 months)
• My Deposit of $5000I plan to sell my car for about $13K as I do not require it. I currently get picked up and dropped off at home for work where I currently live, another reason I don’t want to move out.
After selling the car, say I have $37K left over, put in about $1000 per fortnight including $200 from the rent. Hopefully by the end of the year, say paid off another $13K the loan would be $24K.
When tenant moves out, I would live in the property for a little while if I had to, so I am not abusing the $7000 FHOG system and spend maybe $5000 (Is this too much?) to try adding some extra value to the property. Rent the property out again.
Say if the place increases in value by $10K, does this mean with $24K left on my loan that I would have $46K that I could use as a deposit to purchase another property?
Another possible idea I was thinking of was maybe I could then borrow $25K personal loan to pay out my mortgage; the rental from the unit would be enough to pay off the personal loan.
The reason I would prefer to do it this way, is that I know that I would never be able to save close to $46K by the end of this year. I find it harder to save then paying back a loan, especailly with the great holidays you can buy for $10K.
Do you think this is a reasonable sort of plan or is it stupid?
All sounds reasonable except:
I wouldn’t recommend getting a personal loan to pay out your mortgage as I can’t see what that would achieve. You still have a liability as far as the banks are concerned as they take all loans into account and the interest rate would be higher than a mortgage. Therefore I think you’d be able to pay out the mortgage quicker by leaving it as a mortgage.You can have more than one mortgage ie: when you are ready to do your second IP then you’d approach the bank and ask to borrow the full amount of the new IP and use the equity you have in the unit as your security.
Good Luck, and well done for considering different ways you can achieve your goal.
PK
I agree with Purplekiss,
Why would you pay 12% on a personal loan, maybe 14% coz no security for it when you could fix your mortgage on about 7% for the next five years??I certainly would prefer to pay the scum bags at the bank less, not more… You would have heaps more flexibility when it comes to getting hold of the equity you have accumulated in the property, I dunno via redraw facility or something??
Have a think about the car situation… Would you really cope without one or would you be better off with a cheaper car to get you from A to B? You can get hold of some half reasonable cars for under $2000… I had one for 5 years with no probs! Cost me hardly a thing the whole time…
Success is 1% inspiration and 99% perspiration.
Originally posted by darkon:Current Situation
• Share a house, rental $130 per week, I do not want to leave the house I am at.
• Earn about $1700 after Tax per fortnight.
• About $5000 available for deposit.The reason I would prefer to do it this way, is that I know that I would never be able to save close to $46K by the end of this year. I find it harder to save then paying back a loan, especailly with the great holidays you can buy for $10K.
Think of the great holidays you could have every year if you bought enough assets to give you $10k pa in passive income.
Let’s see: $1700 fn = $850pw income, $130pw rent, difference >$700pw.
Of that you should be able to save $400-500 per week easily (more if you sell the car). That would give you at least $10-15k more by the end of the year which is enough for a 10% deposit on something.
My final thought: It’s no use investing if you haven’t developed good money habits first!
Regards, Peter
IN the current climate I would keep doing what you are doing and save, save, save. Look at getting rid of your car if you don’t need it and then sit on your cash for at least another year. The market has peaked and now is not the time to be buying property. There is always a time to sit on the sidelines and watch the game unfold. Now is this time. So keep up the good habits and in a year or two time you will have the foundations for a good property millionaire start.
Rob, it was my understanding that with the FHOG legislation, you could move into the property later in the year and then claim the FHOG….
darkon, if you buy an IP first, and never live in it, you will still be eligible for the FHOG when you do buy a place to live in. On your income, it doesn’t sound like you really need to rely on the FHOG anyway.
Personally, I think your idea sounds reasonable – a lot of people need the ‘forced’ saving, cos if it builds up in your bank account, there are many ’emergencies’ that seem to come along and help you spend the money.
Property is forgiving, so if you can find a unit for that price that rents well, it’s not a bad start for you.
Cheers
MelThank you all for your comments and suggestions, it is great to get some feedback rather then just stressing about it.
After everyones comments I agree, it is kind of stupid to pay out the mortgage with a personal loan, but the only reason was maybe so the bank would lend me more as I would of almost paid out the mortgage and the PLoan repayments could of been payed by renter.
darkon, if you buy an IP first, and never live in it, you will still be eligible for the FHOG when you do buy a place to live in. On your income, it doesn’t sound like you really need to rely on the FHOG anyway.
I didn’t know that, that works out a lot better for me as I could now use the FHOG on a place I would like to move into. Do they have a limit on how many IPs you are allowed to have that you dont move into?
Well thanks again guys.
Originally posted by darkon:darkon, if you buy an IP first, and never live in it, you will still be eligible for the FHOG when you do buy a place to live in. On your income, it doesn’t sound like you really need to rely on the FHOG anyway.
I didn’t know that, that works out a lot better for me as I could now use the FHOG on a place I would like to move into. Do they have a limit on how many IPs you are allowed to have that you dont move into?
You might like to check this with your Office of State Revenue. AFIK it’s innacurrate, but i’ll happily stand corrected.
Have you thought about approaching the owner and asking whether they would like to sell the place you’re currently occupying? If nothing else you will avoid Capital Gains Tax when you sell.
You couls borrow up to approx $125k inclusinve of stamp duties etc with the deposit you have and avoid costly mortgage underwriting.
Madhun, I should probably clarify and say that the property you have bought as an IP cannot have been bought before July 2000 when GST came in, but other than that my post is absolutely correct.
Cheers
Mel
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