Hi
I new to this, but have been reading the forum for a while. I am looking from some advice or guidance
as to whether I am in a position to dip into the investment property field !Currently have house with my wife and 3 children valued at $920K, mortgage of $600K
($300k is fixed at 6.99 for 5 years, the other $300k is at variable rate 7.6% at the moment)Annual gross income of around $130k (me 120k, wife 10k) , with around $10k in savings.
We don't have any fixed ideas about CG or +CF at the moment, so open to suggestions too.
I'm just wondering what (if any) options are open to us for getting into IP's, and in terms of the type
of finance we could raise. Indeed, should we as part of the structure, be looking at changing our existing finance structure to facilitate investment in property.Many thanks
Neil
Wow Neil……you leave me stunned by the amount of personal mortgage you carry on your home: While I appreciate that it will be going up in value, you are working fairly hard I'd say just to pay the tax man, and the bank. What's the long range plan? Will the house ever be paid off? If not, then do you plan to sell and scale down upon retirement putting the equity in a freehold unit or apartment type residence? Would it be possible to readjust your domestic affairs to include a much less expensive home, (with a much smaller mortgage) and then commit the balance of the funds currently funding your personal mortgage, into IP mortgages? My view is that you'd have a larger investment footprint due to the fact that your IP costs (such as exceed your revenue) are mostly tax deductible. You could step out further from there as you feel appropriate.
I'd be interested in other forumite's views here also.
Wilrose
Neil,
As wilrose said i too think the mortgage on your PPoR is too much..based on the fact that you are only one earning for the household do u have any plan in case anything goes wrong.. no man its not to scare you but something to think of for sure as they say that we should have approx 6 months of repayments secured before we move onto IP JUST IN CASE…Rest if you guys can get pass emotional attachments to your house why not move to bit smaller house and get same value of loan and keep your lifestyle the way you are except your house you will live in… that way you can get few IP like may be think of moving to 450k-500k house and then buy 2 IP worth 200k each may be neg geared and then build on it. Some thoughts not an expert.
Bharat.
wilrose wrote:Wow Neil……you leave me stunned by the amount of personal mortgage you carry on your home: While I appreciate that it will be going up in value, you are working fairly hard I'd say just to pay the tax man, and the bank. What's the long range plan? Will the house ever be paid off? If not, then do you plan to sell and scale down upon retirement putting the equity in a freehold unit or apartment type residence? Would it be possible to readjust your domestic affairs to include a much less expensive home, (with a much smaller mortgage) and then commit the balance of the funds currently funding your personal mortgage, into IP mortgages? My view is that you'd have a larger investment footprint due to the fact that your IP costs (such as exceed your revenue) are mostly tax deductible. You could step out further from there as you feel appropriate.I'd be interested in other forumite's views here also.
Wilrose
Thanks Wilrose.
Its something we have always done – basically buy the most expensive house we can, its generally served us well
over the last 15 years or so.I guess the longer term plan is that my wife will return to work in say 2 years when the youngest starts school.
I'd expect that to add another 20k per annum.Sure, we dont plan to live in a 4 bed house for ever, as soon as the kids leave home (although that could be 20 years time !) we do plan to downsize significantly.
We also plan to put the money we currently pay for school fees to pay off the mortgage quicker as the children leave school / university.
Thanks for the comments though.
Regards
Neil
bsgupta wrote:Neil,As wilrose said i too think the mortgage on your PPoR is too much..based on the fact that you are only one earning for the household do u have any plan in case anything goes wrong.. no man its not to scare you but something to think of for sure as they say that we should have approx 6 months of repayments secured before we move onto IP JUST IN CASE…Rest if you guys can get pass emotional attachments to your house why not move to bit smaller house and get same value of loan and keep your lifestyle the way you are except your house you will live in… that way you can get few IP like may be think of moving to 450k-500k house and then buy 2 IP worth 200k each may be neg geared and then build on it. Some thoughts not an expert.
Bharat.
Hi Bharat
I agree with you ! If something happens to me, I guess we sell up, buy something smaller and cheaper and see where
we are then.You raise some interesting ideas, which I will think about.
Thanks again
Neil
i agree with Bharat..
if you really want to be a successfull investor you must free up your LVR by either moving into a smaller house or into a unit. Your problem is not the property value that you live in but the ability to borrow because you owe soo much money!
Before you do anything you should know what your short and long term goals are as this will determine which is the best option for you.
One option is to hold on your existing property as you might think that it will appreciate in next boom depending where you live.
Then after you wife starts working in one or two years then decide to buy a positively geared property or very close to being there.
Alternatively you might decide to buy another negatively geared property but you will have the same problem as you are having now.If i was in your situation i will look to maximise my IP portfolio and the profit by selling the property you live in now, move into the smaller house, use the cash and LVR to purchase 2 or 3 IP that are in a booming area and are close to positively geared as possible.
By doing this you will get more rental, appreciation and you will be able to invest after a year or two after again so in 10 years you will be bale to pay most of your IP and have a great rental returns.
Another reaso is the ability to claim depreciation, management costs , accountant cost, reaovations etc.
hop this helps
michael
Michael4 wrote:i agree with Bharat..if you really want to be a successfull investor you must free up your LVR by either moving into a smaller house or into a unit. Your problem is not the property value that you live in but the ability to borrow because you owe soo much money!
Before you do anything you should know what your short and long term goals are as this will determine which is the best option for you.
One option is to hold on your existing property as you might think that it will appreciate in next boom depending where you live.
Then after you wife starts working in one or two years then decide to buy a positively geared property or very close to being there.
Alternatively you might decide to buy another negatively geared property but you will have the same problem as you are having now.If i was in your situation i will look to maximise my IP portfolio and the profit by selling the property you live in now, move into the smaller house, use the cash and LVR to purchase 2 or 3 IP that are in a booming area and are close to positively geared as possible.
By doing this you will get more rental, appreciation and you will be able to invest after a year or two after again so in 10 years you will be bale to pay most of your IP and have a great rental returns.
Another reaso is the ability to claim depreciation, management costs , accountant cost, reaovations etc.
hop this helps
michael
Many thanks Micheal
Some good things to think about there.
it seems that selling our current property is the recommended way forward.
To be honest, i' am loathe to do this at the moment, so I may have to hold back a year or two before
looking at delving into property investment.Regards
Neil
Hi Neil!
Firstly, I'm not going to recommend you sell your property!!
I think you've done really well for yourself, if you bought your property at around the $600K mark and have had it appreciate to around the nine level.
Whilst you would have more money to play with if you had a smaller house, you have a great big asset in your huge house – and whilst it's not tax deductible, if you borrow against your equity for the purposes of investment, that is very likely to be fully tax deductible (but check with your accountant!)
You have quite a bit of equity in your home and there are certainly several ways that you could use that to jump into the property arena, in fact with your current committments you could still comfortably look at buying property now.
Everyone's comfort zone with payments etc are different. But needless to say… where there is a will, there is *usually* a way.
Lia
Neil,
I'm sure you didn't submit your post hoping that people would advise you to sell your family home. Why would you? People shouldn't aspire to be a "successful investor" for the sake of being a "successful investor". If you're like me, the reason you're thinking about investing is to improve and secure your financial future.
Most property investors start from a position a little like yours. They have a house and some equity. They take out a new loan to harvest that equity which forms the deposit for their first rental property. Beyond this, I'd make three suggestions…
(1) Your own home is a very high growth / very low yield asset so it would seem sensible to look for investment properties with a higher yield (like units) which will will assist you to service the loans.
(2) Positive cash flow properties kinda don't really exist any more so make sure you borrow enough to cover the monthly shortfall that negative geared property brings. Use debt to fund all investment related expenses (and interest) while directing all rental income into your personal home loan – recycling your debt.
(3) Find an investment savvy mortgage broker who understands this structure and can help you set it up.
I'm not a guru but I was in your shoes twelve months ago.
Good luck – Ben
liahayes wrote:Hi Neil!Firstly, I'm not going to recommend you sell your property!!
Lia / Ben
phew – I was beginning to think I was a million miles from reality and the only one in my situation.
You are right Ben, I want to start looking at some financial security, and yes, Lia, I was sort of hoping
that I could use some of the equity in our home as a way to start investing.Hopefully a mortgage / accountant savvy person will come along and offer some advice too !
Many thanks
Neil
Hi (again) Neil,
you have been very broad-minded in your reaction to the various responses…mine included. (Good on you). I didn't really think it likely that you'd seriously consider down-sizing your home: it was just a consideration possibly worth running by you.
All the best
Wilrose
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