Hi there, firstly l must say what a great site. I have just spent the last 2 hours reading as many threads as l could so l do apologise if l am going over old ground. Nevertheless, l would appreciate anyone’s thoughts or advice regarding the purchase of our first IP.
Background – We were going to sell home, repay personal loans & credit cards (that snowballed over the years) and will have $23-$26K surplus. Then plan was to rent nice home, save for 12-18mths (estimated savings of $1200-$1400per month) then use surplus from home sale & new savings to build “the dream home”. Until…I read “Rich Dad, Poor Dad” and l realised that yes, we’d have a lovely big new home, but also a massive mortgage to go with it that we’d be unlikely to repay within our lifetime. Moreover, we’d have no money to spend on holidays, kids educations etc. We would have been living in fear of job losses, interest rate rises (inevitable) and not being able to enjoy life in general.
So l have changed tack completely, though my husband still needs some convincing to let go of the “dream home” idea (for the next 10yrs or so at least). At this very early stage into my research, l figure, we still sell the house & rent a nice home (which will suit our family for up to 5yrs or so). And instead of getting the dream home, we look at buying an IP pretty much as soon as we can.
We will have about $1200-$1400 surplus each month. We’d like to try an get a cashflow+ investment, but from my early investigations it appears that this won’t happen. But we still would be happy if we had to put $200-$300pm towards costs of having IP. I’ve tried different scenarios in trying to get a c/flow+ situation, but havent come up with anything yet.
In reading a lot of articles, internet sites, doing mortgage calculators (which left me no real clue to how much we can borrow _ one said $100,000 and the other & $450K plus??) my head is very foggy and would like some general comments on the best way to do this.
I suppose our goals are – Invest for Income Return, so putting in as minimal and hopefully none $ to service an IP.
We plan to hold onto IP’s, hopefully never to sell and build up portfolio. But where do we start? Do we buy a townhouse/unit which allows us immediate entry with least cost on monthly basis. Or do we go for average home, which l believe have better returns & growth. I dunno, do we go old & central, or modernish? Do we buy now so we get in to market or do we save for a period time & buy better or lower LVR?
One thing is definite, having lived here all my life (Wodonga) and following the property market closely for the past 5 yrs, we will be investing here & will not consider anywhere else for the first few purchases anyway.
I know l have alot of research to do yet, but your thoughts would be appreciated.
Thank you, and sorry if l rambled on a bit.
Cheers
indrielkat
I think the first thing you need to do is clarify your’s and your husbands goals in terms of where you want to be financially in the future. This is will greatly determine the decisions you make today, i.e. do we sell up and get that `dream’ home now or use your financial means to start building your ip portfolio. You don’t specify how much your home is worth and what is owing? Depending on what this is and your loan serviceability capacity you could probably start buying an ip/s now. What you buy will really be determined on how much you can afford. Leading up to this, I would be plugging as much free cash now into paying those high cost debts (cc’s, pers loans etc.), and then, if you can get rid of them. You mention youre a little foggy on what you can borrow. Do yourself a huge favour and see a mortgage broker. In the past I (and as many on these forums will attest) have found them extremely useful in seeing exactly what can be achieved now.
In essence, you really do need to have that discussion with hubby to determine exactly where you want to go. Frankly I would do some delayed gratification and get that dream home later in life.
All the best,
EricThanks Eric for reply,
Although hubby wants the dream home, l don’t anymore and l think the smarter way to eventually get dream home is down the track via IP investing. Will definitly speak to a few mortgage brokers regarding the nuts and bolts of it all in due course.
As we are intending to rent a large modern home (300-$350 is the high range in our area) and are looking to rent for a period of 3-5yrs and most probably longer than that again, l imagine this would be a landlords dream come true? However, because we are potentially saving them $1000’s of dollars over that period (no lost rent due to vacancy, no re-advertising costs, no extra interest repayments due to vacancy etc) l am thinking that l would negotiate a reduced rent, by an amount that would not eliminate their potential savings but maybe meet somewhere halfway, for eg, if annual average savings were say $2400 ($200pm) and rent was $1400pm . Do you think a drop in rent by say $100pm would appeal to a landlord. I would also be looking for the rent to be fixed for that period of time. The way l see it is a still a win-win situation.
I would love to know anyone thoughts on long-term agreements, and whether this proposal would appeal to most landlords.
Thanks
indrielkat
Hiya indrielkat,
Most people get offended with what I say, so I’ll keep it short and sweet…
1. Without agreeing a way forward with the hubby ‘the plan’ won’t go anywhere.
2. I find it counterintuitive that you wish to partake in a rental market as a tenant at a rock bottom price, negotiating $’s off the rent before you’ve even seen the property and whether it suits your needs…..and in the same breathe want to participate in the same market as a Landlord but are only interested in +CF places ??? What makes you think your prospective tenants won’t have the same “get it for rock bottom rental” outlook.
3. At the end of the day, if the personal exertion income is relatively fixed, the only way to take a quick sprint ahead on the road to wealth is to reduce personal costs….pretty basic stuff I hear you say. Definitely easier said than done, as it always involves impinging on your personal level of comfort…something us Ozzies cherish and are very reluctant to give up.
4. Given your previous choices…snowballed personal loans and C/C debt, along with a dream home and accompanying dream mortgage, I reckon the ‘accumulate wealth’ mindset is currently heading 180deg in the opposite direction.
5. People get very crabby & snaky when someone points out that their previous choices were possibly not the most prudent. Asking for suggestions is OK, just be prepared for some suggestions to not sit well with your current mindset. If it was all honky dorey….you wouldn’t be asking a public forum for generalist advice.
6. My only suggestion is to write down on a list what you are prepared to sacrifice and what it will achieve by sacrificing. With today’s global economy, you could well be a billionaire in 20 years time….but you’ll need to sacrifice plenty to get it. The choices are 100% yours, and the good and woeful that flow from your choices will be 100% yours as well.Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hi Dazzling,
Thanks for your reply.
I am well aware that yes landlords are seeking to maximising their rental returns, what l was basically asking though are landlords willing to reduce rent if they have secured a long term tenant, say 3-5yr period? Personally, l would love to have a long term tenant & realising the savings of such, would be open to reduce the rent should the tenant ask or desire to negotiate it. But, as l don’t have an IP that’s easy to say. So, I was after the views from current landlords regarding this.
I don’t know where you got the notion that l simply walk into an r/e agents office and negotiate reduced rent on a property l haven’t seen & does not suit my needs?. That defies logic. Now because l am not a landlord l don’t know this as fact but is my feeling that a majority of tenants don’t even think about negotiating rent, and that can be said as people as a whole, people are generally too scared to ask ask for discounts or negotiate better deals on anything. My motto is, If you don’t ask you don’t know and you certainly don’t get.
So, If l end up negotiating a better rent with a landlord then yippee, but it’s not the end of the world if l don’t. I’m just exploring as many options in increasing my income & decreasing my expenses.
Yes as a future landlord, of course l desire to have maximum rental return, however l never said that l only want cf+ investment. I would much rather contribute a portion of my income to a neg gear IP than pay off useless personal debt.
So, I don’t think you read my initial post correctly and interpreted my “mindset” accurately. Yes, we do have high personal debt but we do not have a dream home nor a dream mortgage to go with it. Obviously if we did, then l totally agree with your comments, blind freddy can see that. We didn’t & we were not alone in the dream home, keep up with Joneses ideal. However, that was our mindset in the past, but l have obviously learn’t from past choices and decided not to travel down that path anymore. l know bitterly well what we done wasn’t the way to wealth and have learn’t my lessons well.
I have no problem with the rent & invest strategy, & the more l research l do the more hubby is seeing sense in not travelling down the dream home path anymore also. Sure, we’d love that dream home but we’re not sacrificing a massive part of our incomes (and a lot of other things) to support that dream. The rent & invest strategy allows us to live very comfortably & also invest in our long term future.
This is all part of my research and l would love to hear from anyone who has been in a similar situation to ours and find out about the good, bad & the ugly experiences of this strategy, so we too may consider things that we may have missed.
Thanks again for your reply dazzling, and like all advice and suggestions l get, it is appreciated but always taken with a grain of salt.
Cheers,
Indrielkat
indrielkat
You must be logged in to reply to this topic. If you don't have an account, you can register here.
