Hi All.
Just curious to see what you would do give the following circumstance I expect to find myself in in 2 years time.
Equity just over 100K and yeah Bank Balance of around 80K.
I only have PPOR but intend to begin investing as soon as I return to OZ.
Anyways, all comments and thoughts are wanted to be heard..
Cheers
Matt.Money is just something we’ve made up so I want to make some of the made up stuff!!!
PP,
Well, its hard to say what you should do in january 2007. Things will undoubtedly change in 2 years.
However, if I was in the position you mentioned today, I would be purchasing a property to re-develop (2-3 site development). But of course, I have been investing for a little while and have eventually come to this point. So it depends on your skills and comfort level to do this.
However, I think over the next few years, this will be the best way to create best value in property.
James
I know what’d I do with the first $1000. If you haven’t already buy yourself a good library of investment books and read them. I reckon question will answer itself for you once you’ve got the financial education.
You have a great head start so you must already be doing something right. I only consider my own experience so far to be called controlled experience where I have developed the tools of a successful investor. I am gradually accumulating more wealth and finding strategies that suit me best. There is no magic formula and if anyone tries to sell you one they’re probably ripping you off.
My education so far has consisted of (in this order:
Buying shares in float (good ol’ TLS).
Buying shares on market.
Margin lending.
Positively geared property, refinancing.
Land value – development opportunity property.
Options trading for income.
Renovation to increase cash flow.
Buying vacant land for quick profit (> 12 months turn around).The near future:
A residential small unit development (3 units).
Build a business.
Commercial realestate investment (related to above business).
More options trading.Each of the experiences builds on the previous. I learn heaps out of every experience and problem that crops up.
eg. I had a land tax problem earlier today and thanks to the members of this forum I just cut my annual land tax bill by 66%. I will now be learning all about different ownership structures and the taxation implications of these.
Good luck, I hope you find something to do with all that cash. (I’m green with envy)
James,
A little more info please? Are you suggesting urban infill kind of options such as buying a residential site to knock down and replace with 2-3 townhouses. I’m not into development yet, but believe the old addage of problem+solution=profit. So, would recommend the buy below median, tart it up and rent it out approach. ie. The Peter Spann endless deposit approach.
If you could enlighten me I’d be eternally grateful.
Mogul, cash in the bank is no big deal. Use other people’s money its much more fun. I could borrow up to $2M for investment properties if I needed it, so look at my own money as just covering the deposits. I’ve currently got equity of around $500K and about $50K in the bank. This is peanuts, there’s a lot of people on this forum with a helluva lot more than that.
Padowan, I’d suggest sitting tight for now and building up that equity and cash reserve. In 2 years time you’ll be well placed to reap the rewards of a property market on the turn. Then look to borrow to invest for CG in quality properties. Neutral / slightly -ve even to get the really quality properties that will max your return over the long term.
My 2c (and incidentally my plan),
Michael.If you have $80K in the bank and a PPOR with a loan against it, you would probably be better to pay this loan down to reduce your ‘bad’ debt. Then you can reborrow this money (making it good debt) and use as deposits for more property.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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Terry,
I agree. For me, when I say I have $50K in the bank, its actually in the mortgage offset account so its effectively off the mortgage anyway. I guess I could have said I have $550K equity and no money in the bank? Its just the $50K is liquid as I can redraw without question.
Cheers,
Michael.Just considering what has been said and delving into Offset Accounts.. If a loan balance was say $100K and my Offset Account Balance was then $80K, would I be paying in effect interest and repayments on a mortgage of only $20K??
Money is just something we’ve made up so I want to make some of the made up stuff!!!
Hi Michael,
I’m a big fan of Spann as well.
Padowan,
In your example, you’d be paying interest on only $20K. But your repayments would still be on the mortgage of $100K.
If you had a mortgage of $100K and an offset account with $100K in it then your interest would be zero, but you’d still be making mortgage repayments until you paid it to zero. You could decide to pay it out early with the money in the offset account but this could incur an early payment charge dependent on the terms of the mortgage.
Offset accounts are great if you’ve got the discipline not to consider them as available cash for those splurge purchases that are not investments. I get my entire salary paid in to the offset account, and my mortgage payments are out of this account. The net left over is effectively a payment off the mortgage too as it reduces my net effective borrowings and interest repayments. If I need to, then I draw down on the offset account to pay the bills but we mostly live off my wife’s income.
Hope this makes sense, I was always a bit convoluted.
Mogul, I agree. Spann is a bit of a realist. Any novice could have bought on the recent market rise, done nothing and still turned a profit. Peter advocates doing something, ie adding value to your property. His approach would work even in a flat market, as would Steve’s obviously as it relies on cash flow.
Cheers,
Michael.If you paid the 80k ff the loan properly and didnt hold in an offset account you could ask your lender for a variance on repayment and get your monthly amount reduced. So the cost of the money in the offset account is the loan repayment level being set higher than necessary.
Your choice your call.
DD
PS146 Certified Financial Planner
Don’t sweat the small stuff,and it’s all small stuff!!DD
Just curious.. If I was to do that, although the monthly repayments would be smaller, if I didn’t have the presence of an offset account, would that mean that I would be paying 100% Interest on the balance, even though the balance would be $80K smaller…
As opposed to Offset Account, although the Repayments are higher, technically more is coming off the principal???
Matt
Money is just something we’ve made up so I want to make some of the made up stuff!!!
Padowan,
You’re correct. Whether its in an offset or off the mortgage, either way it reduces the interest repayments. DD’s suggestion is that you might want to pay it off the mortgage and then ask for a variance in your monthly repayments to reflect the reduced amount outstanding over the term. You could do this if cash flow was a problem, I prefer to hold it in the offset and then keep paying the higher than necessary repayments.
Your approach depends on your situation. I can easily make the monthly repayments at their current level so aren’t phased about reducing them. I prefer the flexibility of having the cash in an offset so I can draw it down if I spot the IP deal of a lifetime (equity mate!)[biggrin]. I like having a big emergency cash reserve on hand.
Cheers,
Michael.Thanks for that clarification Michael, I have been off doing renos and not watching the posts as well as I usually do. Yeah it is a personal choice and the best any of us can do is to make informed decisions with the best knowledge we can muster.
This forum always lets me fine tune my thinking by reading posts from others so thanks Michael, nicely put.
DD
PS146 Certified Financial Planner
Don’t sweat the small stuff,and it’s all small stuff!!
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