Hi guys,
I know there are quite a few experienced people here as well as brokers etc. I’m just after some advice.
I’m recently divorced – pretty much have to start again from scratch. She got the cash and I got the debt due to my earning capacity.
I have a debt that I’m paying off from the marriage which is now down to $25K (used to be a lot more than this).
I have $3K per month at my disposal after all expenses, servicing debt etc and I have been pouring this into the debt for the last 15mths.
Scenario 1 – I have been talking to a number of friends and colleagues and many have said that I should try and get into property and start accelerating my wealth (borrow, refinance all debt etc). What I’m paying in rent now plus what excess I have and approx $4K+/mth to spend on a mortgage.
Scenario 2 – I have family suggesting I should pay all the debt off first (another 9-10 mths), save for a deposit (maybe another 3-5 yrs) and then buy a place etc etc.
I have no deposit currently as my excess has been going on the debt and can’t see myself ever getting a loan in the short term due to this (I have spoken to a “rigid” bank and a broker a while back).
Going via option 2 – I can’t see myself purchasing property for quite a few years. I have a good credit rating with no black marks against my name and will be a first home buyer.
Does anyone (from within the industry, past experience etc) suggest what I should do? Or how I can cut some corners to achieve my goal of buying a place? Or maybe point me to someone I can talk to.
Thanks in advance.
As an investor I look at problems like this from a different angle.
I look at the rate of return I can get Vs. the interest rate.
So for example if I could make 25%, and the interest rate was 16%, then I’m 9% ahead. Of course there are other factors that go into this, but thats how I look at it.
Of course you might not been in the same position.
I would suggest you get ‘Money Secrets of the Rich’ by J Burley. You can get it at most major bookshops. Look at his Debt Elimination Plan.
Hope this gives you a few thoughts & ideas.
Rgds.
Lucifer_auHi Hobnob,
Well I certainly wouldn’t call myself a mentor at all, but here’s my suggestions for what they’re worth.
You’d need to check again with one of the excellent brokers who contribute regularly to this forum, but my belief is you may not qualify for a “normal” loan thru traditional bank, therefore you’d need to get creative.
Would you be a good candidate for a wrap (as the wrapee)?
Also another option could be a lease option (correct term?) where you rent but have the option to buy at a predetermined price?
Or you could buy a property jointly with someone else you trust, family member, whatever, they could provide the deposit and you could provide the servicing, or however you want to work it.Just some ideas…
Best regards
Hi Lucifer_au,
Thanks for that. I agree with your perspective on my situation. I’ll try and get my hands on that book and keep researching.
Hi Swampy30,
Thanks for your reply. I also agree with your suggestion of “getting creative”, after the responses I received from some banks. Have you used any of the brokers that post info to this site? (any that you recommend in Sydney?)
Also re: being a wrappee – this might be the only way for me to get in the market any time soon. From what I understand it’s not ideal but from what I have researched I am limited in my options – but I’m still looking into wraps etc. Do you know of any reputable wrappers in Sydney?
Re: lease option – I’ve haven’t looked into this but will do. I haven’t seen it offered anywhere.
Re: family – I don’t have any unfortunately that can help at the moment.
Thanks Swampy.
Definitely no expert but my suggestion would be: pay only what you need to service the debt save the rest for stamp duty and associated costs with purchasing a property. Whist not the ideal situation, speak to a broker about non conforming lenders, pepper, blue stone, liberty, their rates are by far a lot higher than average but it is an intermediate solution, after 2 years (depending on break costs) you will be able to switch to a normal lender.
As mentioned by Swampy30 you could purchase a property with another person or perhaps speak to your parents about using a small proportion of the equity in their home to get you back on your feet. As I do not have an understanding of the NSW property market this would only be my decision based on Perth property pricing. Property over the long term will always be a sound investment. I believe there is always ways to get the deal done.
Good luck and all the best. I am sure the forum gurus will be able to provide you will great advice to get you motivate.
[mellow]
Hi Hobnob,
while I’m not that experienced – I am old-fashioned in that I would advise you to clean up your debts and start with a clean slate for your “new life.”
You are doing so well at paying it off and although it must seem like a long, hard slog, however in reality what’s another 9 months?
Then what you save and buy – you will never look back on and “say” – yeah but $xxx is still what I’m carrying from my past.
Hope you get the gist….
Wishing you every success, Dianehobnob- hey
)No mentor here- just an average joe, getting by on wits
I am thinking if you have 25k debt, that’s probably not a huge amount- many people have that kind of debt- like a car debt or something- don’t panic- sounds, from what you’ve written, that you’re doing well in getting it paid off.
You’ve written that you have no credit rating problem, and it seems as if you’re working. I think you could get a loan from a traditional credit provider. I think you’d be eligible for the FHOG, from what you’ve said, and may have to only save for costs.
If you want to buy in sydney… I guess you know how expensive it is. I know you are thinking of being a wrappee… but can you afford a premium and higher interest rate on such an expensive home? 20% premium on a 500k home is an extra 100k. I think that would be a last resort.
kay henry
I agree with Lu,
you are an investor so make investment decisions.
Do your financials and work out what debt you have and what equity and assets you have and your living costs. Then figure out what you could improve. I don’t think asking people’s opinions is really going to help you, unless you do the numbers. There are too many opinions out there anyway, and the only one that counts is yours really.So let’s say you live in Sydney in the ‘average’ 800K or more house (hahaha) – the difference between you BUYING the property with say 100K down interest only, plus rates and maintenance and insurance, compared to INVESTING the same 100k in 15 percent returning CF properties elsewhere i.e. NZ!!!!! HAHA how did you know I was going to say that? –
(properties are better than cash deposits because the capital tends to hold it’s value and property is considered to be the least risky asset class because EVERYBODY needs somewhere to live no matter what the economy is doing – )if you can grasp that by renting the exact SAME 800K house instead of buying it, and investing the 100k elsewhere, you could be 60K or more better off financially in a year, and suffer absolutely no loss of life-style, then you will be able to unravel the mysteries of what money and equity you have, what it’s doing now, what it could be doing, and sort out exactly the kind of fast track that your friends speak of.
Paying off one’s own home is an emotional thing I reckon and a left-over from the 50’s paradigm.
there is absolutely no financial decision to do that rather than rent – I know this because I have done the numbers over and over to test my hypothesis. people pay a fortune for their emotional peace of mind, and if they only realised….good luck starting a new life by the way.cheers-
miniPS Though I consider Steve McKnight to be my mentor, I reckon we are all eachother’s mentors to some degree)
joy to the world
Hi Hobnob,
For what it’s worth I am in a similar position. [blink]
I read the John Burley book a while ago and can thoroughly recommend it. It has a lot of great advise. I followed the steps in the book (prior to divorce) and it turned my financial situation around at the time.
Although I’m no mentor and don’t know your finanical situation, I can at least let you know what I’m doing:
1. I pay myself first (10% minimum) and put it into a bank account that returns 5.25% pa with interest paid monthly. Once there is enough this then goes into investments that yield a higher return pa.
2. If things get tight, which they often do, I be my own loan shark. That is I loan myself money from the investment account and pay it back next pay with 10% interest. I even write up a simple contract with an expiration date. (This ensures that my sub conscious knows that it is a business transaction and it must pay it back.) It also deters me from wittering away my hard earned savings. Because believe me, you can spend the money a heck of a lot faster than you can save it!
3. I extended my investment loan and invested it ( as I can bring in a higher return than the interest beng charged).
3. I am currently settling on our property, and will rent it out. (The property will be positive cashflow and will pay for itself). This also converts my bad debt to good debt and gets me into the property investment market.
4. I am also looking into asset protection and will put in place a structure that will ensure that I don’t end up in a similar position later in life.
5. Once the divorce is finalised I will draw up another will.(Because wills become null and void on marriage and divorce)
6. I pay the minimum repayments on my investment loan until I am in a better position.
7. I will continue renting, and servicing my debt. When I get more cash from my 10% and investments I will then start to buy more property.
I am not interested in purchasing another property to live in for the time being as I feel I don’t want anymore bad debt and it will slow me down.
However, this is just what I’m doing and it suits my situation, but you will need to work out what is best for you.
Hope it helps in some way.
Bernie [biggrin]
Fantastic post bwiemers!
Your on your way already!
Rgds.
Lucifer_auThanks for those kind words Lucifer_au.
I’ve learnt so much in such a short time while attending these forums and I try to contribute where possible.
Young Hobnob,
I’ve been told by the Mortgage broker that I initially employed that to pay off the bad debt faster than you need to isn’t in your best interest to getting a house. We were discussing the purchase of a PPOR!
He suggested to me that I should pay the minimum monthly repayments and then put all else into a savings account (paying yourself first kinda deal). With the FHOG, and I think NSW has a special extra deal going at the moment of a further $5K (?!?!), you should be able to buy a house that for the initial FHOG period is your PPOR. Then rent it out once you’ve completed the qualifying criterion and rent else where. This will aid you in your Tax situation freeing up more of your money. If you look for cash flow and focus on that, all else will fall in place.
Yes I like CG! But whatching a friend of mine (a former Boss) who soley focuses on cash flow in everything he does, I can’t help but believe that it is more important than CG (shoot me now!). I mean focus on cashflow (hopefully +ve= into your pocket).
Yes it will mean that the $25K will take longer to pay off, but you’ll get into the investment “scene” (for want of a better word) a heck of a lot quicker.
Personally, we have refinanced a couple of times for better cashflow, and it has paid dividends. We now have our own house (two years ahead of schedule) and I can feel an IP comming on in 6 months or so.There is infinite good advice on this forum (and others) pick out the bits that fit YOU the best! Then act on it. It’s the only advice I can give you! Kick Butt!
Cheers
C@34
Hobnob,
Who did your divorce? Did it end up in court or was it a mutual agreement? Do you have kids? This would have changed your split ratio. Without kids your wage doesn’t come into it. You should have got out of your divorce exactly what she did (50 / 50 on the debt and 50 / 50 on the assets).
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