Not sure where to start, but need some wisdom, guidance and perhaps some encouragement.
About 2 years ago we (husband and I) took the plunge and decided to start an investment portfolio. We have a PPOR in Melbourne, mortgage 321 bank valued then 550 (current market value 750). We burrowed 204 against the equity to complete some renos on the PPOR and payoff car loan (64) and 140 to purchase land and build in QLD following buyer advocate recommendation (another story)… area was supposed to have terrific growth… positively geared (forecasted rental income of 5-650/wk for 4 bdrm).
Our PPOR is currently 257k P&I and 64 IO which is set against an OA that currently has 15K in it. My monthly salary of 2900 goes into this account. Our IP has a 462k mortgage IO and a 140 investment loan with an offset account of just 11k also IO.
At the completion of our build, I went to inspect and secure a property manager. The house is terrific, PM great, but I could see then that there was a glut of properties and was anxious that we’d made a mistake (overly optimistic advice). We were able to get a tenant fairly quickly but income was only 430/wk with a 6 month lease. Second tenant 6 months again but 450/wk. But as I feared things have continued to spiral downward with over 600 vacancies in the Gladstone area, literally a dime a dozen. We’ve been advised by our PM to drop the rent to 380 just to get it tenanted which we have agreed to and also offering two weeks free rent.
With our outgoings for the IP of 2.5k/mth, we have less than 6 months left in our offset account before we are “out of pocket” … that’s the worst case scenario. This year returned to work 4 days/wk and my salary will just cover it if the interest rates don’t go up.
My questions are:
1) Where should we be putting any extra income? By extra income, I’m talking about part of my salary, tax returns of roughly 7k, additional income streams of roughly 6k and additional part-time job income from here and there. Should this all be going into the offset account for the 64k IO loan related to our PPOR until we refinance next year (it was all a 3 yr loan) or
2) Should we put the extra directly on the P&I loan for the PPOR which we can put up to 10k/year which would go directly on the principal?
And/or
3) Should we have our PPOR valued again and burrow against additional equity to pad out the investment loan so it can cover the shortfall of our negatively geared property to not affect our cashflow?
Original plan was to revalue to purchase 2nd property but I’m just not interested because it just feels too risky and I don’t trust myself to understand the process.
Admittedly I feel pretty silly and foolish listening to very slick guys talking wealth creation lingo. I thought I did my due diligence but I’m probably more risk adverse than I thought. Perhaps the situation is more in my head than reality. But we’re in our 50’s, have teenagers and not a lot of super so this was to be the beginning and I feel like I’m already at the end.
Thanks in advance… just needed someplace to put it out there to hopefully learn from my mistakes and try to make the best of a difficult situation that isn’t the worst that it could be.Hi & welcome, I hope that you get a lot of useful feedback for your particular situation.
I wont make comments regarding your decision to purchase property in Gladstone as I’m sure that you are not alone in making that move.
What I can reply to is your question regarding where to put in any extra money that you earn.
Generally the priorities of where to put extra money would go in this order:
Priority 1. Pay off Non-deductible debt first and in order of highest interest rate to the lowest interest rate.
eg: Firstly pay off credit cards @20% interest & next pay off PPOR loan @5% interest. Important Note:In regards to putting the extra money into PPOR, it is much wiser to put the extra money into an offset account connected to the PPOR loan rather than to put the extra money directly into the PPOR loan itself. The reason for this is that putting the extra money into the offset account gives you many more options later on if you so choose them. The interest savings are exactly the same when you are putting money directly into your loan account or putting money directly into an offset account but you have the future option of accessing funds from the offset account without requiring permission from the lender – it is considered your savings. On the other hand, if you were to put the extra money directly into the PPOR loan, you would need to make a bank application whenever you would want to access these extra funds any-time in the future. **You may not need those extra funds available to you now but, all things being equal, you should take the path that gives you the most freedom**.Priority 2. Pay off Deductible debt in order of highest interest rate to lowest interest rate.
eg: Firstly put the extra funds into an offset account for an IP loan @6% interest & next you should put the extra funds into an offset account for an IP loan that’s charging @5% interest.The reason for the above is that deductible debt does not hurt your pocket as much as non-deductible debt can so non-deductible debt should be paid off first.
Does this make sense to you? (I tend to write a lot and overuse words – my apologies).
Cheers & hope it all goes great. Wishing for more wealth to you.
Hi 5102,
Sorry to hear what has happened – but then, as you said, this is not as bad as it might have been, so hold tight to that thought.Original plan was to revalue to purchase 2nd property but I’m just not interested because it just feels too risky and I don’t trust myself to understand the process.
ANYTHING is risky if you haven’t educated yourself ahead of time. Consider getting behind the wheel of a car without learning first HOW to drive….. even if a friend says “You’ll be OK”.
Spend some time here – just read up on a number of threads on a number of different subjects – you will be amazed just how easily you can learn of “good ways and bad” to invest in Real Estate. Steve cites a valuable lesson when he says “Buy a problem, sell a solution”. i.e. Don’t buy new, but instead, buy the “Possibility of extra growth” (the problem). It could be – an old house on a large block that needs to be developed, or it could be rundown, so selling cheaply – it could be MANY differing things. But if YOU can fix whatever needs fixing, then YOU can command the fee for fixing it.
That might sound like “Oh, I couldn’t possibly do THAT” – but look for what you CAN (or COULD) do with Real Estate, and search for a way to claim $$ from it. For some, it may be “Buy and Hold” (knowing that more infrastructure is to be built, and/or more development is to be allowed per block). Or you may know that “Shared homes” are in big demand in an area but no-one is supplying it (and you could!!) Or you might read up on, and meet up with those doing, development of land.
Admittedly I feel pretty silly and foolish listening to very slick guys talking wealth creation lingo. I thought I did my due diligence but I’m probably more risk adverse than I thought. Perhaps the situation is more in my head than reality. But we’re in our 50’s, have teenagers and not a lot of super so this was to be the beginning and I feel like I’m already at the end.
You are only at the end if you choose to be. Your situation could do with some specialised help – an accredited adviser in money matters. e.g. There MAY be good reasons to “cut your losses” with this property in Gladstone – but then, there may be other good reasons to “stick with it”. Someone who is fully aware of your total financial situation (and has nothing to “sell” you except their expertise) would be a useful ally right now.
Get some “second opinions” on what is the best thing to do right now. From the little I know of your circs, you are in a position where you CAN still recover, and quite well. We do hear some really awful stories, where the prognoses are VERY gloomy. I am not so gloomy re you, 5102. Take a deep breath, read a bit more, and start talking to those who can help.
And do consider putting some $$ toward properly educating yourself in whatever money-making scheme you want to try. I well recall an axiom that reads “If you think education is expensive, try ignorance !!”
Thanks in advance… just needed someplace to put it out there to hopefully learn from my mistakes and try to make the best of a difficult situation that isn’t the worst that it could be.
Welcome here, 5102 – I hope the various replies can offer some meaningful and useful thoughts for you.
Check out some of the thoughts in the link below – they might help to steer you to some useful early learnings:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Regards,
BennyThank you both for taking the time to respond to my request, I really appreciate it. While our situation isn’t brilliant, I do feel a bit more clarity on how to move forward. The issue in Gladstone is sad really and I know there’s a whole community up there who were looking for positive growth and prosperity that are likely more disappointed than we. Trusting another individual to have “your best interest at heart” is fraught with danger when they may have much to gain or loose based on your decisions. But, we’ll move on wiser and stronger for it.
I’ve spoken to our mortgage broker to ensure that we’re getting the best possible interest rates on our loans, looking at tenanting our property regardless of how low we need to go to contribute to the mortgage payments… we simply can’t sell. Future investing is off the table for now, but I’ve got Steve’s books and video presentation to contribute to our education.
Kindest regards,
5102-
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5102.
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