Morning peeps
Ive been conversing with my financial planner who up until now I have been 100% in agreeance with. He most certainly knows what he is talking about and has alot of IPs under his belt. However I am now left doubting.
Here is my situation …
I am a stay at home mum who handles all the financing and investing. Hubby just signs where I tell him to sign.
Hubby works fulltime on $67,000 a yr. Very secure job. Just got promoted.
We dont pay any rent as we live in a company house, and our only mortgages are our 2 IPs.
IP1 – 2 bedroom unit worth $250,000+. Mortgage is $165,000. Rent is $290 p/w.
IP2 – 3 bed + 3 sunroom Qlder worth $330,000. Mortgage is $200,000. Rent is $340 p/w.
Personal debt is $45,000 (car loan).
Two kids, one more on the way.So initially we were going to buy again shortly, as I was going to be returning to the workforce over the next year or two. But now that we are expecting another baby that wont be happening for about another five years. Its a personal choice that both my husband and I have made, we want our children at home with us until school-age.
This didnt really bother me at all, we would just keep purchasing cashflow positive (or as close to as possible) older style homes that we do some minor renos on after purchasing. We took our time choosing our last home (the QLDer) and waited for the perfect vendor who just wanted it gone. We made a good $80,000 instant equity in that home through a $10k reno and good purchase price. We were hoping to do something similar again.
But when we told our financial planner that we were expecting again he said that we should wait another FIVE YEARS before buying our next property as with a single income its too risky!!! This broke my heart. I so enjoy the thrill of investing in property and Ive only just started
We have all our insurances in order, so if Troy lost his job/got disabled or something more serious happened all our debts are taken care of. Isnt that reducing risk?
So I dont really see the problem with purchasing in the next year. I dont really see the risk. Alot of families are investing in property with only one income successfully. If you were in our situation would you wait 5 yrs or go ahead with another property?
Im quite disappointed.
Oh and let me clarify that I told him my concerns and his reply was that he doesnt advise people to try to get rich quick, but rather to get rich slowly by reducing risk and not playing with a "house of cards that can come tumbling down at any time". But with CF+ homes in a market that really isnt going to go down (Mackay, Central QLD), I dont see the issue.
FPs have to be conservative to protect themselves. Just do your own calculations and analysis and see if you can handle a large rate rise and still survive. If you do get into trouble you could always sell a property or go back to work early.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Karen,
I like the house of cards bit! If you have done the worst case scenario, written it down and figured out how you would cope, if you would cope and you can live with it then go for it. Most people are going to be conservative, especially with houses, money, women who choose to stay at home and do whats best for their kids etc. If the figures do stack up and you feel that you can handle the risk then I don't see the point of staying out of the market. Good Luck and let us know how you go!
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeThe financial planner should alert you to the risks involved and then you can decide if you are willing to take the level of risk involved
like the following.You need to factor in a few risks in your decision.
Losing a tenant from a property for 6 months– Can you afford to keep the repayments going while you fix up a trashed house and re-lease it. Have you got a spare $20,000 in equity to borrow if you have to do an emergency renovation to fix a trashed house.
Interest rate increases – When do your fixed rate loans if you have any revert to variable as the interest rate will increase.
Losing employment – can you afford the repayments in this scenario and for how long .
Dealing with centrelink – Your property income could affect parenting payments, dole payments , ect (You need to investigate impact)
Dealing with family office. – Your property income could affect your Family A and Family B payments or Child Care Rebates.(You need to investigate possible impact)
Selling if in trouble – Have you got enough equity in one of your properties to get out of trouble if you are against the wall !Another point I would like you to consider is how much your kids cost you.
In Five years time you are going to have to pay for school books ($60 at office works primary school starter kit), School uniforms, School Fees, Kindergarten Fees, Food , (possible nappy costs for 18 months to 3 years)thanks for the points duckster.
we have loss of rent cover with our landlords insurance – which reminds me i was going to double check my policies and see if it was adequate. plus would have leftover equity we could redraw.
ive worked out that if i take our current 2 mortgages and add a 3rd mortgage (including stamp duty and all buying costs), then put all loans on a potential 8% interest rate with their current rental return (plus a realistic expected target rent for the new property), and when including into our costs rates for 3 houses, PM fees, $3000 maintenance a yr, and 3 lots of landlords insurances, we are only out of pocket $170 a week. Thats if we get a house for the price Im wanting to pay – which isnt unrealistic.
if hubby lost his job we have insurances to cover short term and long term unemployment. and these payments would cover all our living expenses plus debt repayments.
And in regards to centrelink we dont count the family benefit payments into our regular income. We get this at the end of the year and we consider it our lil bonus to put onto debt. We only count the money we generate ourselves as we dont believe in relying on the government to raise our family. So we have always kept this payment seperate from the family budgeting. We try to live as self sufficiently as possible. My kids dont go into childcare so I have no rebates from that.
Once you take out the potential $170 – $200 a week out of our own income we are still left with a managable budget. Especially considering we dont pay any rent where we live. We have that added advantage up our sleeve. And if the property was ever vacant shortterm we are fine cos we have about $5000 emergency funds for this purpose, plus we have all our debts paid a month in advance so we are able to skip a whole month of mortgage payments if it comes down to that. That is how we have structured our shortterm emergency relief.
We are very frugal livers. We buy where we have to, but only on the good stuff. We are very good budgeters. School is free here cos there is only a public option in the whole town. Kindy is over now, that was relatively cheap. And u mention nappies … my kids are cloth bum kids
i adore a cloth bum haha. Plus soooo much cheaper than disposables. $60 of terry towel nappies lasted me both my last two children! I guess this is an indication of our frugality We do holiday quite a few times a year (about 10 times a year we go and stay with family and have mini-breaks, and about 3 times a yr we go on longer camping holidays), but we stay with family where we can, and when we cant the kids get to go on a tenting adventure.I really think we have all our bases covered.
terry – what is ur worst case scenario with rates? am i ok just putting it at 8%. If it goes to 10% that would be scarey. but itd still only be $270 a week out of pocket expenses.
(also, my comments above dont include tax returns, just normal annual expenses)
In today's paper they were saying – or guessing – that rates are going to peak in 2011.
http://www.smh.com.au/business/interest-rates-tipped-to-peak-in-2011-20091208-kgxj.htmlThe estimate was 1% more than at the moment. so around 7%. But I would factor in much higher, say 10%, and see how the figures look then. Also assume you have a vacancy for 6 months and see if you could handle it.
Maybe try to keep at least 6 months worth of payments in cash (if offset) handy for an emergency and borrow a bit extra now if you can. I can't see things getting worse than that – but you never know.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Personally, I think the Financial Planner is in the right track
Your IPs and the job is in a fairly risky single industry regional area (Coal). Say if coal prices plummet (Copenhagen this week.. who knows what'll come out of that), then all the risks can materalize all at once.
1. Loss of job. Maybe partially recovered with income protection insurance (how long would the claim take to sort out ?)
2. Loss of rent-free accomodation due to loss of job.
3. Likely loss of tenants on both properties for possibly long periods. This isn't unusual in regional areas when the primary industry gets hit hard. (on the plus side you can relocate to a vacant IP). Landlord insurance won't cover this.
4. Forget selling as you'd probably be in negative equity by this stage.As for interest rates. I'd expect 8% to be likely.. 10 to 12% to be worst case.
I also noticed you have a fairly large car loan. Thats a pretty high interest, non deductible debt that I'd focus on nailing first.
And you certainly should take out the emotional factor of the decision, investing is not about thrills. Wait a few years, increase your income.. payoff the car loan, then consider your next IP.. preferably in another state for diversification (and avoiding land tax threshold).
I admit hubby's job is single industry area – as we live in Moranbah, a mining town. The situation you described above is more likely to hit Moranbah, not Mackay. Hence why we chose not to invest in Moranbah.
But Mackay is thriving. Its got lots of industries like the sugar cane, tourism for the whitsundays etc etc. We arent concerned one bit about investing in Mackay. Its going nowhere but up. So we arent concerned about house prices plummeting or having houses sit vacant for months on end etc. Hubby and I grew up in Mackay and lived here til a few yrs ago so we know the area very well.
Yeah the car loan we hate, but its got the same interest as the home loans as we made the decision to cross collateralise back when we knew absolutely nothing and trusted the bank to not lead us astray (HA how we've learnt) … and I also left the decision making up to hubby about what car to get. Even he admits now that he shouldnt have gotten such a ridiculous car. Boys and their toys haha.
karen. wrote:thanks for the points duckster.we have loss of rent cover with our landlords insurance –
Does it cover loss of rent only for malicious damage ?
What happens if the place is just left with two garbage skip loads of crap and the place has wear and tear ?
Also some Landlord insurance requires tenants on leases !
Is there a excess to pay on a claim also ?Been caught this way myself
(cost me 3 months and $20,000 to fix a house (while at Uni on single income of wife )
(also my parents have just had a place trashed also that I am going to help in January for a week to help repair the damage)karen. wrote:ive worked out that if i take our current 2 mortgages and add a 3rd mortgage (including stamp duty and all buying costs), then put all loans on a potential 8% interest rateI was paying 10.5% on my mortage in 1996 so it could get this high
karen. wrote:with their current rental return (plus a realistic expected target rent for the new property), and when including into our costs rates for 3 houses, PM fees, $3000 maintenance a yr, and 3 lots of landlords insurances, we are only out of pocket $170 a week. Thats if we get a house for the price Im wanting to pay – which isnt unrealistic.if hubby lost his job we have insurances to cover short term and long term unemployment. and these payments would cover all our living expenses plus debt repayments.
Is this income insurance policies because some of these only pay if you cannot work not if you have no work. I do not know if an insurance covers unemployment or retrenchment so you may have this one covered as you stated.
karen. wrote:And in regards to centrelink we dont count the family benefit payments into our regular income. We get this at the end of the year and we consider it our lil bonus to put onto debt. We only count the money we generate ourselves as we dont believe in relying on the government to raise our family. So we have always kept this payment seperate from the family budgeting. We try to live as self sufficiently as possible. My kids dont go into childcare so I have no rebates from that.I used to think I was self sufficient until I made the mistake of going to University for three years and thinking the Government would support me with Austudy as I was improving myself. My second mistake was thinking I would get a job due to having 12 years of experience in other fields. So the only reason I do not claim Family B payments each week is the stupid degrading requirement to have to report to Centrelink every six weeks like a naughty school boy. I also could get a healthcare card but the 17 page form and the extra required Form D for self employed people was intrusive and had to be filled in every 6 months.
Also if you could get CCB via work/ run a business or do training for at least 15 hours a week your kindergarten fees are covered by CCB. !
karen. wrote:Once you take out the potential $170 – $200 a week out of our own income we are still left with a managable budget. Especially considering we don't pay any rent where we live. We have that added advantage up our sleeve.I am in a similar boat to you . I am at home looking after two 5 year olds and running a part time business. My kids do one day a week family day care since they were 6 months to give me a break and help me run a part time business. Also this gives the children the experience of missing me so they will cope better with going to school without seperation anxiety. (they are going to school next year !)
Also I live rent free however when I go to the bank and check out how much I can borrow as only a single wage the bank uses a standard formula in their lending computer program that doesn't take into account that we do not pay a main residence mortage or a main residence rent and that we have $260,000 in our balance sheet after subtracting a minimal debt. So I can not borrow large amounts of new finance for property investing. It seems that if I had owed a couple of million before I stopped working I would still have the debt but because I paid off most of the debt and reduced my negative gearing by disposing of a negative cash flow property and paying down debt I can't borrow more money.karen. wrote:And if the property was ever vacant shortterm we are fine cos we have about $5000 emergency funds for this purpose, plus we have all our debts paid a month in advance so we are able to skip a whole month of mortgage payments if it comes down to that. That is how we have structured our short term emergency relief.A really good way to achieve a buffer is to pay more off the loan as you are then ahead of the loan.
When I took out a loan for another property because I had heaps of equity the bank forgot to take repayments for the loan. It took about 4 months for me to realise no repayments had been made and fix it. The bank didn't care because of the huge equity I had.karen. wrote:We are very frugal livers. We buy where we have to, but only on the good stuff. We are very good budgeters. School is free here cos there is only a public option in the whole town. Kindy is over now, that was relatively cheap. And u mention nappies … my kids are cloth bum kids i adore a cloth bum haha. Plus soooo much cheaper than disposables. $60 of terry towel nappies lasted me both my last two children!I wish I could have coped with doing up the safety pins as I was showed at hospital but the disposables were so much easier even though they are expensive.
Good luck with which ever way you go and don't give up it does take time !
Have a great Christmas also !
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