Buting an investment property

I agree with your broker-you have a combined yearly income of just on $56k and want to take on debt of close to $500k??? Are youcompletely nuts or have I missed something? Plus you have 3 kids to provide for???? Sorry if I seem rude but how on earth do you expect to get by?

Danye,

I understand your passion and desire to create a 'portfolio' however you really need to weigh up the risks, your current position and not dreams get in the way of reality. I shoot from the hip so here goes-as it currently stands you would be paying close to $450a week on repayments-doesnt leave much left to provide for a family of five-I dont know how you do it. Now if you did happen to get a 'positively geared' property (good luck) that would all be well and good-BUT you need to factor in two very important factors a) what would happen if there was  a period of no occupancy-how long could you afford to pay both mortgages? and b) what would happen if either you or your husband lost your jobs-wouldnt take very long at all before you would be in deep poop.

Basically what Im trying to say is its all very well and good to 'want' to achieve sucess in property, or in deed life in general, but at the same time I like to weigh up the risks and take all factors into account, and not just do something becase its what the Jones are doing. Hope it all works out for you though and please dont take my comments to heart-I just want you to go in to whatever you do with your eyes wide open-mortgage foreclosures are at an all time high…how did these people get themselves into those positions is somethingthat always has me baffled, and more often than not, actually 99.99% of the time it is due to people buying beyond their means..?

I agree with Blogs on over reaching financially; especially where families are involved. Finding a CFP property is harder at the moment as well.

There are several "non-traditional" loan products around now that lenders and M.B's will get you into without too much of a problem.

Many are designed for people with no or little financials, or people who are borderline for qualifying for traditional loans, or bigger amounts. Add to this Mortgage Insurance and the new loan product can put the recipient in a precarious financial position and should be avoided in my opinion.

Interest on $250k at 8% per year (allowing for fees and another rate rise or two) is approx $384 per week. Most properties of $250k around the traps are going to rent for $250-300 per week if you're lucky. At $300 p/w that's a 6.2% return. I know there are some that are higher, but not all that many.

Allowing for 20% of the rent to be eaten up by holding costs etc per year, which also includes 1 month's vacancy (this is a reasonable estimate for safety), even at $300 p/w the nett rent is around $240 p/w.

Good "on-paper" deductions will close the gap, but not completely I don't think. As you said; you cannot afford a shortfall.

To be really safe, you would want a property that is returning around 9-10% at least, with good on-paper deductions as well to consider a purchase. Highly unlikely, unless you buy in a 2-dog town with no cap growth anytime soon.

If you are really desperate to get into property investing soon, and you want to minimise the risk, consider using your PPoR as your first I.P, and move out to a rental place for yourself. Many people won't do this because of the emotional attachment to their own house, but this strategy can accelerate your financial position and get you into another I.P much sooner and with safety.

It would depend how much rent return your PPoR would provide and whether you can get past the emotional attachment.

Hello Sienna

I don't want to add to the negativity but really have to ask you this.

Do you really believe that the rent on your residential IP will go up by $60 -100 per week over a 4 year period? Maybe in a boom town but I have never seen such an increase without a renovation in that time period.

I also got lost as to how you were planning to finance the other  4 – 5 investment properties over this time period and why you believe they would be generating income when your first IP is negatively geared.
 
I'm not trying to shoot you down. I just really want to know. 

Cheers
Elka  

To answer sienna1's question – It looks a bit tight, especially if you need to spend money on your PPOR also.  I would be doing heaps of overtime now and decide if thats the way you want to live.  I think it would be possible to buy IP now but you would probably have to make heaps of sacrifices to do it.  I also think it would probably be more likely that you would be able to afford to purchase 1 more IP about every 3 years.  I'm no expert, just speaking from my own experiences.  I don't think accumating IP's is as easy as everyone thinks.

First, Sienna said "don't listen to the negatives" and then went on to talk about more positive thinking stuff. That's all well and good, and everyone needs those thoughts, but having positive thoughts and investing with SAFETY are not always a match.
My earlier post was not negative, but advice based on quite a few years of experience and making mistakes that cost money. I and others are trying to make you aware of the dangers and hopefully steering you away from them.

Second, the money you have put aside for an emergency will work much harder by being in your current loan. Unless it is in an account or other vehicle earning more than your mortgage interest rate, you are still losing money. It is better to have it parked in either an offset account to your mortgage, or in a redraw facility attached to your loan. This way, it is still accessible in an emergency, but you will have a much smaller interest bill every month to have to cover. You may have to refinance to get this set up, but the benefits will outweigh the initial set-up costs very quickly.

millions – Nope, just the equity from the one boarded up home. Brilliant huh? It helps to have a large chunk of readily available cash or cash equivalents. And only works if the optimistic prophecies come true.

What's more, the more people that followed my plan (thanks HG!), the less houses would be available to renters! This would make yields rise, stir up investor confidence and push prices to the stratosphere!

Note: I actually will not be implementing this plan. My firm belief is that the cost of capital over the next decade or so will be considerably higher than the returns from debt-backed assets. What’s more, such a plan relies on the ability and willingness of lenders to frequently revalue the house and extend further credit. The assumption that this will always be possible based on the ability to do it now is tenuous at best.

Think about this:
* If person a borrowed $160,000 against a $200,000 house on an income of $60,000 how would the bank rate her risk?
* If person b borrowed $320,000 against a $400,000 house on an income of $60,000 how would the bank rate this risk in relation to person a?
* If person c borrowed $3.2 million against a $4 million dollar house on practically no income, how would the bank rate this risk?

Supposing we have a credit crunch – say a simple slowing of credit creation (as opposed to an actual contraction in credit, which is not only possible but also a plausible future scenario given our current record level of indebtedness). Who do you think the banks would be lending their now limited money to?

Now suppose I told you that such a credit crunch is absolutely inevitable?

I’m not trying to poop in the punch-bowl, just begging people to ask the hard questions.

ka-ching,
F. [cowboy2]