Current Situation – Would like advice

Hi, Congrats on the bub and the new car.

The $30,000 loan will also restrict your borrowing power. I’m assuming it’s high interest. Get rid of it.

OK the car- yes a new car is nice but will it do anything the old one won’t? In the end it come down to what you want more financial security or a nice car. To me “things” don’t give me as much enjoyment as being financially free to travel, spend time with my family etc. What are your priorities? Especially given the fact that you are having a baby soon.

When I was young I had the opportunity to buy my first house but I had no deposit. I sold my 6 month old car (I cried for weeks) and that was my deposit. I drove a bomb for the next 4 years but I had a house. House prices doubled within 5 years and I never would have been able to get my first home.

BTW $20K won’t buy you a house. And you only get the FHOG on new houses. You really need the money from that car. $13K will be mostly gone on the stamp duty and solicitor etc.

What price houses are you looking at? And what area? There has been a lot of growth in the last few years. You may be wise to wait until the hype dies down.
You also need to crunch some numbers to see whether you are better off weekly staying where you are (is that possible with the baby?) and getting an IP. It depends where you want to live VS where you want to invest. It’s cheaper to rent than buy in expensive suburbs, then buy an IP with high yield to offset your rent.
Lots to consider. Post again with your thoughts.

I think you already know the right move Scottyboy,

For your first investment I would opt for something with a land component, with low holding costs, close to neutral as possible. Preferably with a value add option to employ when you’re ready to engage it. Brisbane is more likely to offer this option within your price point as the yield is much higher than Melb & Syd.

I can imagine the excitement of a flash new car, but long term it will definitely be worth less, where as a property has good prospects for growing in value.

In five years time, you’ll be pretty pleased with yourself for making the right decision, and your bank balance will be thanking you too!

WOW, thats a great prize. Bugger about the $30,000 debt, thats the elephant in the room. While you are wasting $1000 per month on interest and only saving $1500 per month your not getting ahead.

If I was you I would sell the new car ASAP and don’t buy another car until you have bought a house or an investment property. If you do buy another car, pay cash for it.

As far as your question should I Purchase a Principal Place of Residence or Invest First?

The age old question: “Should I buy a principal place of residence first and invest later or should I invest in property first, rent and buy later?”

In order to make some sense of this question we will conduct a comparison on the following basis:
1. Analysis conducted over a 10 year period.
2. Capital Growth for both Investing and the Principal Place of Residence is calculated at 5% p.a.
3. The income of the purchaser is $80,000 per annum
4. The purchser has $130,000 in cash savings for the transactions
5. The base cost of the Principal place of residence and the investment properties is $420,000 in year 1, then increasing by 5% p.a. (compounding) each year after that).
6. Rental Income is 5.2% of the portfolio value (gross)
7. The maximum loan to value Ratio across the portfolio is 80%
8. Interest Rate of 5% p.a. on all loans taken out for PPOR and Investment loans
9. Purchaser has a goal of achieving $1,500 per week income from their portfolio in 10 years (after all expenses and tax are taken into account)
10. Cashflows in each scenario include expenses for either rent or mortgage interest repayments and household expenses (rates and maintenance)

Example:

Scenario 1 – Buying PPOR and then Investing
Purchase Years
Purchase Year – Purchase Price – Number of Props Purchased – Type Of Purchase
1 – $420,000 – 1 – PPOR
5 – $510,513 – 1 – Investment
6 – $536,038 – 1 – Investment
8 – $590,582 – 1 – Investment
9 – $620,531 – 1 – Investment
10 – $651,558 – 1 – Investment

After 10 years in running this scenario, the outcomes are as follows:

Portfolio Value – $4,661,503
Cumulative Debt – $3,668,078
Cumulative Expenses – $219,758
Net Equity (After Expenses) – $606,541
Loan to Value – 79.39%
Net Cash-flow After Tax – -$17,129

Example:

Scenario 2 – Investing and Renting First
Purchase Year – Purchase Price – Number of Props Purchased – Type Of Purchase
1 – $420,000 – 1 – Investment
2 – $441,000 – 1 – Investment
4 – $486,203 – 1 – Investment
5 – $510,213 – 1 – Investment
6 – $536,038 – 1 – Investment
7 – $562,840 – 1 – Investment
8 – $590,582 – 2 – Investment

After 10 years in running this scenario, the outcomes are as follows:

Portfolio Value – $6,515,579
Cumulative Debt – $4,961,299
Cumuative Expenses – $130,000
Net Equity (After Expenses) – $1,424,280
Loan to Value Ratio of Portfolio – 76.15%
Net Cash-flow After Tax – $3,435

In summary, by investing in property first based on the variables mentioned above being identical in both scenario’s, you would in fact be $817,739 better off from an equity perspective (Total assets less total debt) and $20,564 per year at year 10 better off from a net cashflow perspective as well as $89,758 better off from an expense/cost of living perspective over the 10 year period. This of course would put the example purchaser here well on their way to achieving their financial goal of $1,500 per week income after all expenses and tax have been taken into account and then give them a greater choice as to where they would buy their principal place of residence if that’s what they wanted to do.

• This reply was modified 10 years, 1 month ago by  Modernity Investing.

Definitely sell the car.

If you can sell your old car also and upgrade to one that suits your needs better for $5k, you’re going to be $45k better off and have a car that suits your needs. In 5 years time you’re going to end up with a not brand-new car anyway so you’d rather be $45k closer to financial freedom.

Once sold, get rid of that $30k debt. You’ll then have $28k savings. Then put the head down and keep saving.

I would err on the side of buying an IP. It sounds as though you have a comfortable living situation and buying your own place would be more of an upgrade than an investment decision.

Realistically, now is the time for your to delay gratification. Preferable now that when you have a baby on the scene. Use this windfall wisely.

You don’t need a car worth $50k. You can have a perfectly good new car for around $15k if needs be. I agree with the others. Sell the car and put the money into an investment.