My husband and I are in our mid 40s and I think were in a great place financially. We have a combined income of about $200,000 and are about to pay off the final $20,000 off our mortgage. We built our house 8 years ago with a mortgage of $300,000 and it’s now worth almost $600,000.
Our focus has been on paying off our mortgage. I’ve upped my super payments to cover my couple of years out of the work force to have our kids. Now I’m looking at what we should do next and property is obviously an option. I’m reading everything that I can get my hands on.
I struggle with the idea of negative gearing and find that positive gearing just makes more sense to me.
I think that were in a great place financially as we have a very high clash flow and no debts. I just need to make sure that our next move is a good one. I would be happy to hear your opinions on what you think we should do.
Positive gearing, positive cashflow….
If the property is actually putting money in your pocket each week rather than taking from you (ie negative gearing), be sure there there is capital growth too. At least 7% per annum. The statistics in the rear pages of the Australian Property Investor Magazine can show you how various suburbs have performed each year on average over the last 10 years. You really need the capital growth. Can't stress that enough.
You could loan against your home to fund the deposit on an investment property.
Did you also know you can start your own superfund (SMSF = Self Managed Super Fund) and use it to buy property? And the banks will loan up to 80% of the buy price. Nice! If you and your husband are in your mid 40s, there is probably a decent amount in your superfunds, so it is worth looking at how much you have, and whether it is performing as well as a property would.
By the way, a slightly negative-geared place could actually become neutral or positively geared by means of a DEPRECIATION SCHEDULE. A quantity surveyor prepares one. Plenty of info on this forum about these.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
If you have a house worth $600k paid off then you could obtain an 80% LOC loan secured by your house (ie $480k) which you can then use as deposits for your investment properties. The bank will loan at least 80% of their value, so working on the principle that the LOC loan covers 20% plus approx 5% purchase costs, you could go out and buy up to $1.9Mill worth of property. Not saying you should, but you could.
If they are neutrally geared they cost you very little out of pocket to maintain all that huge mortgage due to all the new rents you are getting. Over time, values increase, and it is all a gain using the bank's money. Agree with JacM totally though that without capital gain as well the gain is going to be offset by increased tax if you earn as much as you do and it is positively geared.
My suggestion is read read read.
Recommend Aust Property Magazine
recommend Steve Knight's book "From 0-130 properties in 3.5 years"- v good overview of benefits of +ve gearing
recommend Michael Yarneys "how to grow a multi-million dollar portfolia-in your spare time" for benefits of capital gain as your main aim
recommend Margaret Lomas' book "20 Must ask questions for property investors.good luck.
I was you 12 months ago.
Hi Blind67
We work our investment strategy on the basis that it will be the equity we own in property that will be our real wealth in the future. However, like you, we've been sceptical about the whole negative gearing "push" over the recent past. Although it does seem that a large proportion of heavily negatively geared properties have had good capital growth. And, as a general rule for us, the positively geared properties seemed to be in low capital growth areas out in whoop whoop.
We ended up stumbling upon vendor finance. This has allowed us to buy and sell properties with vendor finance and create great cash flow to support our (usually) negatively geared buy & holds, in areas we think have good capital growth prospects over the longer term.
This strategy has worked for us as we're not keen renovators or developers, which are other strategies you can use to generate cash flow.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hello Blind67
I encourage you get some education first (e.g. attend seminars, read books, get mentoring etc). You need to define EXACTLY what you are trying to achieve. Therefore, you need to have a GOAL and that goal must be precise, measurable and has DEADLINE.
For instance, first define precisely your goal is then work backwards. For example, you buy 10 properites in 10 years; 5 of those are negatively gear then 5 of those are positively geare hence they become self sustaining IPs.
Without a definite GOAL, you are flying like blind (pardon my harsh comment). Once you decide exactly what you need to achieve, get your education and most importantly, your mentor will help you shape your strategies.
Therefore, define your goal, have an education, get a plan and be mentored to guide you and success will be around the corner.
Good luck and all the best.
Cheers, Leo
DHCP wrote:Hello Blind67I encourage you get some education first (e.g. attend seminars, read books, get mentoring etc). You need to define EXACTLY what you are trying to achieve. Therefore, you need to have a GOAL and that goal must be precise, measurable and has DEADLINE.
For instance, first define precisely your goal is then work backwards. For example, you buy 10 properites in 10 years; 5 of those are negatively gear then 5 of those are positively geare hence they become self sustaining IPs.
Without a definite GOAL, you are flying like blind (pardon my harsh comment). Once you decide exactly what you need to achieve, get your education and most importantly, your mentor will help you shape your strategies.
Therefore, define your goal, have an education, get a plan and be mentored to guide you and success will be around the corner.
Good luck and all the best.
Cheers, Leo
I like the theory of being mentored, I also like the theory of having a goal, but as you read and educate yourself the goal keeps changing and I don't really know what the goal is, most of the time. Is it really so neccessary?
What is wrong with buying some property with as close to CF+ as you can (so it doesn't hurt you to keep it) and then just hold it for a lot of years? Why will I not make money on that? Historical numbers suggest that should work.
Does one really need such a well defined goal? Or a deadline?
I often read that best thing you can do is start. So I started. Since starting, my goals have changed. Should I not have started? Should I have read and educated etc etc until I had ultra-clearly defined goals? ( I think not, because here we are a year after starting to educate myself with several IPs and no clear goal. A bit of a goal, but nothing too concrete (beyond let's borrow as much as we can and buy as many as we can so we can make as much as we can in the long term) Had I waited for the goals to crystalise I would be stuck still figuring that bit out)
The other issue is mentors. Where does one find these elusive gems? I would like one too.
(BTW Leo, not criticising, just being devil's advocate with genuine questions)
Sounds like a good situation to be in, quite young, almost debt free and two healthy salaries!
Blind67 I think there are a lot of people in your situation more or less, and plenty have come onto forums like this asking for guidance, so there is a lot of good advice to be dug up by doing some searching, also attending unbiased and no pressure property networking events in your local area is a good place to learn ideas for taking next steps.
Negative gearing is just something that can be used as part of a strategy, not a destination in itself. More important in my opinion than these concepts is digging down a few layers deeper and working out where you want to be, then you can work out what you might use to help you get there.
House Call wrote:DHCP wrote:I like the theory of being mentored, I also like the theory of having a goal, but as you read and educate yourself the goal keeps changing and I don't really know what the goal is, most of the time. Is it really so neccessary?
What is wrong with buying some property with as close to CF+ as you can (so it doesn't hurt you to keep it) and then just hold it for a lot of years? Why will I not make money on that? Historical numbers suggest that should work.
Does one really need such a well defined goal? Or a deadline?
I often read that best thing you can do is start. So I started. Since starting, my goals have changed. Should I not have started? Should I have read and educated etc etc until I had ultra-clearly defined goals? ( I think not, because here we are a year after starting to educate myself with several IPs and no clear goal. A bit of a goal, but nothing too concrete (beyond let's borrow as much as we can and buy as many as we can so we can make as much as we can in the long term) Had I waited for the goals to crystalise I would be stuck still figuring that bit out)
The other issue is mentors. Where does one find these elusive gems? I would like one too.
(BTW Leo, not criticising, just being devil's advocate with genuine questions)
I don't know about you House Call, it appears you are new to goal setting? As said, goal must be clearly define, measurable and has deadline. To educate you about goal setting technique (BTW House Call, not criticising, but it appears you are lacking on this area, so don't take this personally), here's how you approach the property investing using:
Goal: Financial Independent
Measurable: 10 properties
Deadline: 10 years.Why I say education is the most important? As you learn and learn more about real estate investing, you become good investor (i.e., you use the figures rather than emotion when making decision). Further, part of learning is to have EXIT STRATEGY? Why you ask? Well, what happening if something goes horribly wrong, if you don't have a back up plan, you could potential lose even your house (e.g., cross collateral loan). I'm sure you have heard of tenent from hell ? How do you protect yourself IP for this kind of event? What happened if you bought a CF IP which is leased by a particular entity and if the lease was not renew after it expires, then you found out, your IP giving you CF turns out to be negative gearing if it lease on the market because the previous entity who leased your IP paid above the market price? What happened if your IP turned into negative equity, so how do you about such think from occuring? Do you want me to go on……….???????
THAT IS WHY EDUCATION HELP TO MAKE YOU BETTER AND WISE INVESTOR PLUS IT MITIGATE YOUR RISK IN REAL ESTATE INVESTING.
The premise of sorounding yourself with smarter people (e.g., mentor) they could accellerate your wealth creation hence guide you to the right path hence avoiding buying a lemon.
Learned from Robert Kiyosaki which he often say (BTW if you read all his books), investing is about planning, start only if you have a plan because if you don't it is sure way to lose your money. Losing money is easy but making it is hard.
Lastly, why reinvent the wheel when someone else has already shown you the successful way of investing in real estate investment.
BTW, House Call, if you haven't heard yet, 80-90% of wealth creation is Psychology, the rest is only Strategy. What this means? Well it goes back to the fundamental of education again…the more you learn, the easier it gets.
Eventually, applied education is the key to wealth creation.
Ciao, Leo
Blind67 – firstly, congratulations! I am always happy for people who can tackle their principle mortgage (at such a young age!) and also maintain a good cashflow.
There is some fantastic advice posted above, and my only added advice – is to keep getting advice! There is nothing like making an informed decision and based on your current figures, you have many investment options to consider.
In terms of "opinions", and not to be taken as advice as this depends on each individuals situation, but I know what I would be doing and that would be using existing equity to continue duplication. That could mean finding 2 or 3 properties in the below-median range that are great potential for growth to secure retirement.
I agree with your comment regarding negative gearing, and believe any investor should only use it as a 'tool' for growth – not for specifically targetting tax back. I always target neutrally geared/positively geared properties, but if the leverage causes me to go negative – and the potential mid term growth outweighs the gearing, then I go for it (I ofcourse take due diligence in property type, location, median price for suburb, owner occupied ratio, age of property)
Regardless, its a very exciting time for you – good luck.
I agree that the 3 books mentioned in one of the first few posts are a great place to start and the idea of educating yourself as much as possible in the next few months is a must. That way you can work out a strategy you are comfortable with and what works best for you. It may also crystalise the purpose and goals you have. For a bunch of free resources and tools for property investing, try a site I have set up especially for people starting out ( and for others ).
Best of luck
Ian
http://theblockblog.com
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