My partner and I are relativly new to the investing concept, we both still live at home with our parents and working fulltime.
However, I do have a investment property that is woth about 230k, which is rented out for 210 p/week. I have a mortgage of 190K owing and continue to chip away at, which i'm getting sick and tired off.The property works with the concept of negative gearing, which I was lead to belive is the best way to make money.
Me and my partner have been together for some time and would like to live together but not sure whether we could if we want to invest
a) should I sell my negativly geared property?
b) should we live in my property?
c) should we stay at home, continue to save and invest?
d) should we rent for the sake of living together and try to invest?At the end o f the day, 1. we want to be able to live together under the same roof 2. be in a position to achieve positive cashflow. Most importantly not work another day
Hope someone can drop a line of advise, as I'm really confused on what to do
So you would be paying off the principal amount of this loan. With a weekly expense of around $330 a week based on 8% interest rate and annual costs of $2000. With $210 in rent you are negative about $120 a week. Based on a 30% tax rate on your wage you can claim $36 a week. Depends on your tax rate on your marginal rate of tax !. So you spend $120 a week to get a tax saving of $36. What fact is missing- is what does the property's capital growth rate increase by each year. Usually negative geared properties experience more capital growth than positive geared properties. Property is not a get rich quick scheme it takes time. As an example if you could either make more payments off the loan and reduce the loan to $110,000 you now have a positive investment. If you had an offset account you could save up to $80,000 and have the amount reduced for the interest calculation for your loan – check with the bank! .
Also rents have been increasing lately. Has your rent been increased lately ?. Now if your property grows at 5% a year in capital growth in 5 years time your house would be worth $280,000 that is $50,000 capital growth while paying off the loan at the same time.
If you sell you pay capital gains tax, real estate seller commission and stamp duty to buy the next property .
While living a home you can save money to reduce the loan or build up a deposit in an offset account to reduce interest on the investment loan.
A small increase in your repayments may seem like it is not paying off your loan but over 20 years that extra payment has a compounding effect. Say you managed an extra $40 a week that is $2000 a year for 3 years $6000 over 20 years that is a saving of approx $8000 in interest at 7% without taking the compounding effect into account.
If you can get the loan down you can eventually have an investment property that costs you nothing to hold.
Positive geared houses are much harder to find to purchase.!positive gearing – plenty of them here in DXB… try these figures for ROI
purchase price – 400 000 , may 04costs per annum 30 000,rent total over four years (net of fees etc) 240 000current value – 1,100,000no other outgoings…you tell me what you think of that positive gearingoh – borrowed funds at around 7.5% at 80% LVR. 20-30 % deposit.Good investing!MM
May i ask where you are getting funding these days at 7.5% irrespective of the LVR.
ARB Cash rate is 7.25%
Richard Taylor | Australia's leading private lender
Hi, your purchase isn't all that bad. It looks pretty normal to me. How much rent would you have to fork out if you don't live with your parents? Doesn't that answer your question already?
The 'not work another day' bit, that's what you need to concentrate on. Suppose your living costs = $30000 p.a., you'd need to have a net worth of $600000 not including your own home. If you have that, then you don't ever need to work again.
You only have $40000. That's a long way off.
Duckster is right. Look at his comments again.
I'm not trying to be facetious. I wanted to 'retire' at 40. Never happened. No matter how I twisted & turned the numbers, I still stared at $750000 to be financially independent.
Your best bet is to scrounge, beg, borrow or steal to pay down the principal. Every $ down = 8.9% immediately. Compounding in reverse. FYI, I moonlighted @ 2 jobs to pay down an 18% loan.
I regard a mortgage as "I gage till it morts". Gagner till mort. Pay till it dies.
Chin up. It's Ok to feel discouraged, specially when you work like a dog. Your position is OK, OK & OK
Hope you feel better,
KY"I'm not trying to be facetious. I wanted to 'retire' at 40. Never happened. No matter how I twisted & turned the numbers, I still stared at $750000 to be financially independent."
This is what I would like to achieve. What prevented you from retiring at 40? Did you start investing too late? Was the income from your job not enough? or something else?
Hi all
It depends on what you are trying to achieve.
Have you worked out what you end goal is in dollar terms and length of time you want to achieve that goal in?
Then you need to look at whether you want to be a passive investor or active investor. Passive ivestors often buy Negative geared poperties in good growth areas and sit ans wait for the ship to come in in terms of returns. Active investors get out there and make an ordinary deal into a great deal by renovating or sub-divinding and or building on that land.
Postive cashflow properties as just a buy and hold rental are few and far between these days but they can be made with creative strategies such as suggested above and others.
If you are looking at negative gearing, have a look at Steve Mcknights article on Negative Gearing and also his books and you will see that is not the sort of strategy that he promotes and for many good reasons as you will see in the articles.
If you are unsure of which is the best approach nd are willing to spend time learning more about all this sort of thing then why not have a look at the RESULTS program promoted by Steve, it is a great program ( I've been on it for two years now) and there are some interesting people to network with and obtain support from including your own coach. By te way this years RESULTS participants have done deals to a combined total of around $50m yes you read right that is a big figure. this years Graduates have done deals to the tune of around $8m but there are a whole lot less Grads than RESULTS 3 people on the program at the moment.
I encourage you to look at all the options before comitting yourself to the negative gearing path which for many had led them to see the negative side of this strategy and the positive side of other ways of doing property investing.
Warm Regards
SueMIT | Owen Real Estate
Email MeGW, from your post you don't have the patience to be in the market (any market) long term {gen Y? – want it all today!}. There is no magical cure, if you have debt either you pay it off or you don't (capital growth may go some way towards easing the pain however it will be making the additional repayments on P&I loans/or saving the additional sum in an offset a/c which will reduce the amount of interest payable and increase your equity faster).
As for not having to work, dream on. Unless you have a very low income or quite a few properties you will have to keep working for quite a while.
Hi investor Eddie, I actually 'retired' @ 42 i.e. stopped working .
I couldn't retire because I didn't plan. I just vaguely thought I'd like to retire @ 40. Maybe thought a knight on a white horse would appear!
I discovered $250K wasn't quite enough to retire on. When I went back to work, I caught up with a vengeance.
I didn't have to SAVE half a million to make up that $750K for financial independence because my 4 houses did that for me. I did eventually have that half million from my business but by then the 7 figure beckons.
Through all of this, the most important is the self confidence & belief that I can achieve. I now enjoy myself trying not to be facetious & daily giving thanks to a higher being that gave me the chance to enjoy life!
KY
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