Hi,
I started investing at a very young age and would appreciate some direction to make further progress. My situation:I’m 23 and live in Brisbane.
I own three houses valued at a total of $890k and have a debt of $708k. In total they rent for $690/wk. My gross salary is $55k/yr and because I still live with mum and dad, my living expenses are almost negligible. I’ve got about $10k in the bank.A quick crunching of my numbers will reveal that my debt is almost exactly 80% of my portfolio and my cashflow (excluding salary) is around $-10k/yr. In fact its closer to $-16k/yr after you factor in all the other expenses – and that’s a lot for someone on my salary.
The ideal solution to allow me to continue investing might be positive gearing properties but I’ve not found any. Even out woop woop, break-evens are scarce, so I figure there must be other paths to take. Does anyone have any advice on what I should do to progress from here? What are your thoughts?
Cheers,
Looking at your portfolio buying a residential +CF ain’t going to help much (the best I’ve found is around $2K p/yr cashflow). Also because you are losing $10k per yr, and your portfolio is only $4k away from 80% LVR I don’t think the banks are going to lend you much more than what you’ve got (esp. if you are losing moeny on it).
I guess my advice would be to sell one of them. Although this is aginst the grain of many, if you sold one (perhaps the one with the highest cashflow drain) then you use the money to either repay the debt or invest in +CF (probably more commercial deals). You are still young, so you’ve got time on your side (which is the most valuble asset), and if you pay down your debt your other properties could be netural (i.e. not positive, but not negative either).
Hellman
Thanks for your response, Hellman.
You certainly raise a good argument for selling a property – something I haven’t even considered until now. My main concern is, selling a house will only really increase my cashflow by around $3300 per year. Given that now is not a great time to sell, it might be less messy for me to simply try to raise my salary to $65k – which I think I’m in a position to do.
That would only leave the issue of getting deposit money together. Does anyone have any experience of borrowing money without 20% deposit? Will lenders allow this for borrowers with proven ability to make the repayments on large debt?
Congratulations, you are in a fantastic position, especially considering your age.
My advice is ……. do nothing. You are exactly where you should be, pushing 80% LVR. You have done the hard work, now let time grow your asset base and as it does borrow more and continue to gear into more property or shares.
Selling is simply absurd, I can’t understand that logic.
Originally posted by shake-the-disease:Congratulations, you are in a fantastic position, especially considering your age.
My advice is ……. do nothing. You are exactly where you should be, pushing 80% LVR. You have done the hard work, now let time grow your asset base and as it does borrow more and continue to gear into more property or shares.
Selling is simply absurd, I can’t understand that logic.
I wouldn’t be totally dismissing selling one of the property/s! springchicken really hasn’t given us a proper insight into how being sixteen grand per annum in the red is effecting him. How much longer will the folks allow him to stay at home? What if they want to sell up and go bush??
Springchicken, you’ve done well accumulating property at such a ripe age however I think you now need to re-evaluate your portfolio.
Losing sixteen grand every year is absurd!!!!
Hiya springchicken,
As requested, please find a couple of comments based on your figures presented ;
1. Well done on where you are right now. At 23 you are going great guns.
2. Let the debt hang for a while. Grow accustomed to it for a wee while.
3. Your breakeven percentage is only 1.8% (16/890). When I started, my portfolio breakeven rate was identical at 1.8%, it was a reasonably successful strategy. Frowned upon by the +CF kings, but successful nonetheless.
4. If you sell one prop for say 300K, your breakeven percentage rises to 2.1% (12.7/590), i.e. you are worse off. Assuming of course your goal is to make money.
5. If you have a cracker of a year – say a 15 or 20% cap. increase year, (133K or 178K), you’ll be kicking yourself you sold down to say 590K holding, (88K or 118K) to gain 3.3K in cashflow. Make sense ??
5. I agree getting your salary up higher is probably the thing to concentrate on.
6. You’ve probably read my opinons before on this, but personally I think 23 is pretty old to be living with Mummy and Daddy. I’d be sacrificing some of the economic benefits of living with M&D to break out on my own. The lessons you learn from this are also valuable.Good luck with your endeavours.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hi neo25x5,
Yes, losing 16k is obscene! Lucky I get a fair bit back in my tax return, but still…To answer your questions:
Losing 16k doesn’t affect me too much personally since I live with the parents and I keep my life fairly simple – so if I wasn’t interested in investing any further, I could carry it off indefinitely. From an investment point of view however, shaving 16k off of my net salary greatly reduces my ability to expand my investment portfolio or get financing.
My parents aren’t going anywhere. And if they had their way, I wouldn’t move out until I got married – so no danger of being kicked out
As stated earlier, I think increasing my salary is probably easier and more effective than selling a property given (1) where I am in my career and (2) the current state of the property market. Obviously I can’t increase my salary indefinitely, so I will need to adopt a new strategy sooner or later. I suppose this is the most common problem of anyone who adopts the buy-and-hold strategy?
Re-evaluation is definitely needed. Any advice you can give is most welcome!
Hi Dazzling,
Thanks for your advice. Your approach is pretty much spot on with the advice I got to get to where I currently am. Given that I’m pretty much at exactly 80% LVR, logic dictates that I should just sit tight and let the capital grow.
But you know how young the restless can be. I suppose I just want to use the waiting time to explore the other approaches to making money with property, especially if there’s some way I can take advantage of my current position.
In response to your final point: I always say “I’ll move out as soon as I scrape some cash together” and when I do save up some money, I invariably end up putting a deposit on another IP. It’s almost like a sickness
Dazzling..I spent the weekend at a girlfriends [gorgeous]back in my youth and when i came back my parents had changed the locks..[saywhat]
If I had my way I’d stay at home until I was at least 60[hypocrite]
Plus living with your parents gives you free babysitters..[wink2]
[joker]
REDWING“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator
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