hi all,
After years of saving we have finally bought our first business and we are now looking to invest in property. We both have never bought property before so might qualify for the first home buyers. We live in a country town in Victoria and we don’t feel the need to splash out on a big property to live in.
What would be best approach from an investment point of view if we had $15,000 every month to invest? What sorts of properties and locations should we look at.Any thoughts and ideas would be greatly appreciated.
Sounds like you have great serviceability! Do you have a pile of money ready and waiting for use as a deposit? If so, what is the size of this pile? That'll help us understand where you can buy into, and when.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Wow sounds like a good starting point for your business. You could buy a modest owner occupied home first, take advantage of all the grants and stamp duty concessions. Pay your mortgage off quickly with your business profits and then start accumulating investment properties once you have your owner occupied lvr below 50%. Just an idea.
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeHello Gips & All
The gross return on your own business should exceed 25%, + some Capital Gain, the return on property at best will gross say 5% – 7% with little personal exertion if you engage an agent. Just work out your hourly rate of return from both and assess the opportunity cost and risk. Do you feel that you can expand the business by promotion or extra hours work or staying open ? Remember fixed costs such as rent do not usually limit your opening hours. Buying any property involves commitment and serious up front expences and is usually a 5-7 year investment, taking on debt and using at least some of you time.
Compare your business which can be changed without reference to many external factors, in my view you should make a careful fully researched and informed evaluation before taking any investment decision. The more care you spend planning the more likely you will be successful in the venture.Regards to All
The secret of success is in the planning.Yes, it iis time to make real money with property. Your $15,000 will look insignificant in contrast to what happens after several property cycles…..
Thanks for your responses guys.
We have about $50, 000 which we can put down as deposit.
Doing the numbers on growing the business vs other investment, I don’t think there is too much potential to grow the business alot. My plan is to use the business as a cash source to fund other ventures.
What areas in Victoria would people recommend us looking at?
gips
I am in a very similar situation as you.
Just started looking at property investment, and not finding it that straight forward and easy.My situation.
PPOR fully paid up. Est 1M.
Running own biz, paying myself $70K, Wife $35K.
Biz is not fantastic but churns out profit abt 120k per year after all expenses.
The biz will be the cash cow.Line of thot, somewhat inspired after reading abt property investment stories.
Buy some hses, rent out, retire without a worry.
Prefer to buy and hold.
Any advice ?
Thanks.To both scott and gips,
If you are sound in your business but need outlets to offset your taxable income, there still isnt a reason why you cant be doing things like positively geared properties or potential cash cows. My basic feeling is if you have a sound business format and the money is rolling in from the operations, stake up for a couple of steady small investments rather than one big one. If you are not familiar with the expectations and/or costs from property … take on a small amount of property thats quite serviceable regardless of any change in circumstances. Pushing loans to the limit allows for maximum profit in the long run, but its also maximum risk. And the first thing you will find if you arent 100% familiar with how to run an investment property is the UNEXPECTED. Gearing to the maximum wont allow you to take on the flexibility you need for the UNEXPECTED (note how that is in caps?).
I'm assuming for this scenario's sake that both of you have a couple of working years up your sleeve in which to create your investment portfolio. Now regardless whether its short term or long term .. the same rules apply. Buy undervalued, buy with good facilities nearby, buy property with an upside. A good investment contains any one of these aspects, and a terrific investment will usually contain all three.
The worst thing that can set you back from making your goals work for you is FEAR. I had a family friend who inherited 500k and I suggested that she invest in a 440k investment in 2006 returning 24k .. as she was getting close to retirement. She felt that it was taking on too much of a concern and not what she was prepared to do. As of 2011 the property is now 1.08 million and the returns are 45k. And she is now living off that 500k and its now about 410k … note the difference in direction?
The path and choice to wealth will come with making educated decisions at the right time when they are required. Tour these forums, any and all small bits of advice you glean may help you make better future decisions.
gips wrote:hi all, After years of saving we have finally bought our first business and we are now looking to invest in property. We both have never bought property before so might qualify for the first home buyers. We live in a country town in Victoria and we don't feel the need to splash out on a big property to live in. What would be best approach from an investment point of view if we had $15,000 every month to invest? What sorts of properties and locations should we look at. Any thoughts and ideas would be greatly appreciated.Hi Gips,
Your post has a couple of ambiguities in it. At one stage you indicate you think you're eligible for FHOG and in another part you indicate you don't want to live in a big home. The key issue is do you feel the need or desire to live in your own home at all?
The answer to this question (Step A) can really determine what step B & C etc will be.
We are all different and whereas some will pursue the home option first others will pursue the investment option first.
People like Peter Spann, for example, has suggested in the past buy investment properties first and when the profit is sufficient sell up and use the proceeds to buy your home. My wife (equally proficient in financial matters
) was more a buy the home first and then we'll look at IPs type approach.Scot wrote:gips
I am in a very similar situation as you.
Just started looking at property investment, and not finding it that straight forward and easy.My situation.
PPOR fully paid up. Est 1M.
Running own biz, paying myself $70K, Wife $35K.
Biz is not fantastic but churns out profit abt 120k per year after all expenses.
The biz will be the cash cow.Line of thot, somewhat inspired after reading abt property investment stories.
Buy some hses, rent out, retire without a worry.
Prefer to buy and hold.Scot – i think your situation is quite different to Gips as you already have your home tucked in behind you.
Your post indicates you are ready for your next move all you need to do is work out your preferred investment strategy and make some decisions. A key component in working out your investment strategy is actually working out your exit point or end position with respect to your properties.
You state you want to 'retire without worries' – how do you see the properties doing this for you?
Hi All
I hope you all noted the pearl of advice that Derek just gave you,
Its the bit about knowing your exit strategy ……… I see so many people trying to solve the problems that arise from divestment after the event. That is they have a big CGT bill and then ask "what should I do ?" when the coirrect question is how could I have planned my exit for a better outcome ?" but this is for next time.So listen to Derek.
The majority of the advantages of purchasing an investment property lies in the ability to offset any interest payments and depreciation benefits against your existing income. So if you have a reasonable income, the correct approach is to get enough of a comfortable interest bill that you can afford, and use that to minimise your taxable income. Negative gearing is great, if you are on a plastic surgeon's income and you need to reduce your tax bill. For the rest of us, you just need to keep your figures real and manageable.
If you are investing for the long term, go for something like fixed interest, as regardless of the interest rate you pay now .. the figures will change so much that the initial figures wont matter. But the fixed interest part just means you KNOW what you are paying for the period and what you are liable for without any surprises.
And whatever you do .. dont worry about an exit strategy until you are ready for it. Make your best plans based on current circumstances and factor in LIKELY possibilities. The property and tax laws will probably look different by the time you exit your property investment.
I do not have an exit strategy…….as yet anyway.
I am hoping that with the property investments, I would not have to worry about where the money would come from.
That is when I want to stop working.
I could pass on the properties to my children when I am gone.I prefer to pay off the mortgage as quickly as possible.
So with investment properties, regardless of the negative gearing, is it a wise move to do that ?
Some friends say I would be tying up my resources/money when i could be using it for another property etc.
But wouldn't the equity be building up as well, and that could be used to buy another house ?Scot wrote:<I prefer to pay off the mortgage as quickly as possible.
So with investment properties, regardless of the negative gearing, is it a wise move to do that ?Hi Scot
If you want to go down this path – and you have a PPOR, it would be in your best interest to pay down the non-deductible PPOR debt before you move onto paying off the IP debts.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
There are your two streams of thinking with paying off loans. And both are quite valid.
The first is .. to get a loan at the maximum leverage possible and then try to get it down over time combining rental payments and owner contributions, reducing exposure to debt … increasing equity. The banks dont mind it either, as the more money you pay to them is still more money that you are paying to them. Its great, its a form of savings as its placed into your property and reduces your overall liabilities. So its a win-win situation. Banks are happy, owner is happy.
The second is to get a loan at the maximum leverage possible and then be quite satisfied paying the interest only and the bare expenses. Why is this sort of measure attractive? Because the payments from the rental tenancy eventually cover the interest payments and that means that the contribution from the owner is nullified. Its more of a long term solution as you need time and inflation to crack that interest/rental scenario, but it means a minimal contribution from the owner, who can park his next load of hard earned capital in his next property. Its more a OPM scenario .. and for some people this just works fine.
Both solutions are valid.
Steve tends to go with the first in his books due to the fact it leaves borrowable equity in the property. I like to contribute 3% of the property value over and above the loan/interest payments.
As you might guess .. the scenario you choose really depends on your personal situation and how YOU view your investments. The other thing I'd recommend .. regardless of your scenario choice .. is to build a sanity bucket. Its the OOPS tray that you dive into when either income .. expenses or insurance doesnt work. Its just an emergency account that contains enough to support a property for a month (it should contain the equivalent of 2 months interest payments at least. I had my one OOPS without it and scrambled for my payments for a month … never again.
Scot wrote:I do not have an exit strategy…….as yet anyway.
I am hoping that with the property investments, I would not have to worry about where the money would come from.
That is when I want to stop working.
I could pass on the properties to my children when I am gone.I prefer to pay off the mortgage as quickly as possible.
So with investment properties, regardless of the negative gearing, is it a wise move to do that ?
Some friends say I would be tying up my resources/money when i could be using it for another property etc.
But wouldn't the equity be building up as well, and that could be used to buy another house ?Reading your comments it would seem as if having some debt is an issue for you – not to worry this is not unusual for someone who has paid off their own home.
Have seen it before – so start small. After all it is only one step at a time.
You may wish to look at a combo strategy – that is balancing growth & cashflow properties so the net effect is neutral.
Notwithstanding my earlier comment about 'one step at a time' you can keep your portfolio neutral through this balancing act.
I do agree with your friends about tying up resources paying off your properties.
Some people I know have placed surplus cash in an offset account linked to one of their IP loans. This has the effect of reducing monthly interest bills while at the same time maintaining access to cash resources in times when cash is required.
If you pay the IP loans down and then need additional cash you can compromise tax deductions by redrawing from an IP loan. At the same time if the cash resides in an offset account it can be used without restriction and maintain any deductibility of the core loan.
At this stage you may not need a lot of spare equity as you have plenty in your own home.
Hi All
This is a good place to see how others think and highlights how we are all different in how we think.
I have a couple of useful thoughts as follows:
It's generally held by these forums that debt is good AND bad.
Good is deductible interest, bad is non-deductible interest.
But in my view any expense is still a cost – "good" debt may cost a bit less but it still costs.
Capital outlays as in debt reduction are almost always after tax.
The only time you can generally reduce capital debt at a lower tax rate now is with a deductible sum such as super. contribution but it is a reduced tax cost not nil, and this strategy is complex for most people to achieve, or
if you pay off capital debt with a capital gain where the tax cost is reduced to a lower rate than usual..
So my belief is that – paying down debt is all good, it reduces stress, financial and personal.
It allows redraw in many IO and LOC loans. You can always pay down the loan to say $5,000 – $10,000 so you can extinguish it from your cash at bank or even from a CCard and you can re-finance without setup costs. So its always a safer position if your cash flows change.
Regards to AllWow ! Thanks for all the insight and time taken to explain the various approaches.
It has helped me to understand a lot more as to why it is done differently.
Not being one akin to debt, I will be paying off the loan as quickly as possible for the IP.
Thanks again for all the contribution.Scot.
Scot wrote:Wow !
Not being one akin to debt, I will be paying off the loan as quickly as possible for the IP.Scot.
Before committing yourself to a certain path you may wish to do some maths to see what the difference between I/O and P & I is. Even on a $400K loan it can be quite sizeable – the difference could be used towards a second IP in the future.
Just a thought
) was more a buy the home first and then we'll look at IPs type approach.
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