At the Starting Line

[nbannon]

Hi All,

First Post, but I've been reading the forum for a while. Massive pool of knowledge here.

I'm looking for some advice and, I guess, reassurance. I'm 26 and looking to get into the Property Market.

I'd like to be able to utilise the first homeowners grant, buy something close to land value,
then use the grant to fix it up a bit and hopefully increase the equity in the property so I can refinance, then buy an IP. How does that strategy sound ?

The next question is, what suburb in Melbourne could I buy a property that is close to land value without living 100 kms away from the city.
This raises the most important question - how much would a bank give us.
I guess this depend on our finanical situation, right?

Well, that doesn't look good:
- My wife and I just consolidated a whole bunch of debts (car,credit card,University Loans Ahhhhh!) into a 35,000 personal loan.
- our combined income is about $65K per year, but this should (please God) increase over the next few years
- we have very little savings (~2000) (I just spent $4500 of my own savings doing an Options Trading Course - worth it though!)

Should we concentrate on paying off the personal loan as soon as possible - this would however limit the amount of money we can save as a deposit?
Is it best to save as much deposit as possible, or only say 5 or 10% and just get into the market.

I can't help but feel if we don't get into a property soon, the banks will start asking us questions like,
what the hell have you been spending your money on over the past 6 years (pretty valid question really!)

Hit me hard with advice, critisism etc - I can take it.

Cheers

Noel.

[PT_Bear]

Hi Noel,

If you've talked to a broker you'll know that the personal loan effects your servicability, so given that your income is good but not huge, it might be helpful to get rid of some of that debt.

Unfortunatly, lenders usually won't consider future predicted income.

Secondly, you'll probably need at least 10% of the property value you wish to purchase as a deposit. If you live there for a period of time, the FHOG can contribute to some of this. The exact savings requirements vary for each lender, but the more deposit you have, the easier it'll be to get the loan.

I was in a similar position at your age. I spoke to a few brokers and lenders. Whilst I didn't qualify for the loan I wanted at the time, but it did help me to establish some short/medium term goals for debt reduction and savings. I bought my first IP two years later.

[Brenda Irwin]

Hi Noel, Welcome to the forum,
I personally would get stuck in to paying out the personal loan asap. Do up a good budget & stick to it. Make that car (if you have one) last a bit longer & DON'T run up any more personal debt.
By really paying off the pers debt fast, your bank will note when it comes to house loan time how much & how well you did getting rid of the personal loan.
Then you can (if you wish) have a bit of an interview with the bank & question with all the hypotheticals like 'how much could I borrow etc' & how much deposit will you need for your first purchase.
Then, using the same budget you used to pay out the personal loan put it away for your deposit.
I know this all sounds like a long time but that personal debt, plus home loan repayments will be very difficult to keep up with.

Cheers Brenda
:)

[always_learning]

You are 26 and between you and your wife built up -33K of assets! A bit of tough love here but "You are going the wrong way!", You just spend $4.5K on a shares trading course right? And now you are thinking about property investment? I suggest you turn around!

Since you are here on this forum asking the question you ask, then it would be reasonable to assume that you do want turn your life around a little.

I personally believe the best way to generate wealth is via property investment...so again you are in the right place.

I also believe that you are thinking the right way in trying to find a reasonable place that needs work, buy it and spend the FHOG on fixing it up.

Naturally few would argue that paying down debt is something you should be working on as a high priority. However after saying that, I tend towards your idea that working towards the purchase of first house is a higher priority. The reason is that I would argue that in the world of residential property a profit of $35K is frequently possible and reasonablity easy for those with skills and knowledge. You can make this money by buying well, cosmetic makeovers etc and there are people on this forum who do it very frequently. So the only thing stopping you is "knowledge, skills and experience" Oh...and the smaller issue of capital.

( My friend who is president of commercial development company in Tokyo says anything under $3M is a "rounding error" in the feasibility studies, $35K is under the radar! )

So the always learning plan is:


Sell the car, buy a cheapy
Open a bank account with the title "Investment for a better life"
Put your car's profits into the above account.
On salary day get 30% of your combine after tax income transferred to that bank account.
Don�ft spend the "investing for a better life" savings.
I mean it, absolutely don�ft even think about spending it even on that new DVD player, computer, holiday�canything!
Pay down your personal loan at the current fixed payments level. This is a point that I probably will be different to other advise.
I guess that won�ft leave you much to live on, but get used to it!
Talk with a mortgage broker about your spending limits in regard to property purchase now and what could be in the future. i.e. If you purchased a property (PPOR) with a 95% lend, how much cash would you need for deposit? How much can I get? How much would I need for other costs etc?
Buy books/magazines attend cheap or free seminars anything on property investment, negotiating, renovations etc.
After you have purchased the books, turn the TV off and read them!
I wont and cannot help "where" to purchase in or around Melbourne, I will leave that up to yourself and others.
As to "what" to purchase I agree with your idea. I would focus on a house or unit that looks bad smells bad, dark and dirty, but structurally sound.
Start looking even if you cannot buy right now. Paying down your debts and saving in itself is un-motivational, so to keep motivation and interest start looking at properties and start imagining all great things you could do!

[sbe]

Good advice guys !

[Aceyducey]

Noel,

I'm sure that right now you feel as though you're doing OK - got a nice car, decent paying job, all ready to go and kick butt in the options market.

But the other posters are right - you're in the debt trap right now.

You may think you're living comfortable - but think about it, half your gross yearly wages in personal non tax-deductable debt & no assets to speak of (car doesn't count, they decrease in value & cost you money to keep on the road).

The road to pauperdom is paved with comfort - have you considered where you will be if you continue as you are for twenty years? Personal debt of $350,000 and no assets?

The first thing you have to do is be prepared to change your financial habits. This is the hard bit.

You must learn to live without the latest & greatest & put away 10% of your salary each week as savings as a minimum (personally I prefer 50% but not everyone can do this).

My first advice to you is to go out & buy 'Rich Dad, Poor Dad'. It's not specifically saying invest in property or trade options, but it will give you a chance to look seriously at your spending habits.

Remember, the mindset is the thing. Once you can develop a savings mindset you can move on to the investor mindset. That is, start being open to financial opportunities and how to realise them.

Then you'll be in a position to start learning about ways to become wealthy :)

BTW: You're not unique - we all had to learn these lessons - some by going through much more difficult financial turmoil than you've faced. It is possible and YOU CAN DO IT.

Provided you start!

Cheers,

Aceyducey

[Jakk]

G'Day Noel,

There aint a whole lot more to add than whats already in the preceding posts although they might not be the answers you wanted to hear.

Where you are today is a direct result of your past actions, and it amazes me how some people keep on doing the same thing while expecting a different result or outcome.

To achieve a different result or outcome, one must change what one is doing today.

We all like to do what is fun & easy, but what we should be doing is what might be hard & necessary. Delay the temptation for instant gratification.

you wrote.......
I can't help but feel if we don't get into a property soon, the banks will start asking us questions like,what the hell have you been spending your money on over the past 6 years

My friend, that is the question you should be asking yourself!!!
The banks couldn't give 2 hoots about your future prosperity, but YOU SHOULD.

Now if I were in your position, I would make it my MAJOR DEFINATE PURPOSE for the next 6 months to pay out that loan.
I know you'll whimpishly say "but thats about all we earn in 6 months"
I DONT CARE, ....If your life depended on it, YOU WOULD DO IT!

Do Sell your car (as A L wrote)
Do Hold some garage sales to get rid of all those doodads (you must have acquired a few with all that spending)
Do Live without the latest and greatest (as Acey said)
Do Get a part time job
Do Overtime
Do, Do, Do...........and keep doing, till it's paid out.

Just FOCUS on getting rid of that debt!! You can do it, you know you can!

The sense of achievement that you will feel once having paid out that loan will be the springboard that will catapult you into a new mindset and hopefully far enough away from the old one to make sure you never return there.

Remember, every dollar not spent and used to pay down the loan is a dollar less that is owing.......you only need 35,000 of them....and I will help you start.........

PM me with your address or bank account details and I will contribute the first dollar towards turning your life around.

there you go, only 34,999 to go.........see how easy it will be

regards

[geoffw]

Originally posted by always_learning
Buy books/magazines attend cheap or free seminars anything on property investment, negotiating, renovations etc. No, get yourself into the "don't need to buy" mentality early!

Try the local lobrary first. (Sorry Jan).

Buying even the "little" things can hurt if you're trying to save like heck.

I was forced into the saving mindset because of a huge (and unjustified) tax debt.

The mindset has helped me a lot now in helping me to save.

But now I have paid off the ATO debt. I have to try to find the balance between frivolous and necessary spending.

[bundy1964]

Originally posted by Jakk
G'Day Noel,

PM me with your address or bank account details and I will contribute the first dollar towards turning your life around.

there you go, only 34,999 to go.........see how easy it will be

regards

Jakk

Your a legend

Have a couple of cold ones on me -

http://www.somersoft.com/forums/photopost/showphoto.php?photo=123&password=&sort=1&thecat=500

bundy

[nbannon]

Hey everyone,

Wow - tell me what you really think. ;) . I agree with you all 100%, as bad as it sounds.

I do have to come to my own defence though. There are legitimate reasons (as opposed to me living like a movie star) that have resulted in me being in the financial position that I am in right now.

-I finished Uni in 2001, worked for 6 months, then took six months off and backpacked around Europe from Nov 2002 - March 2003 with my wife. This was a big part of the debt I accumulated.
-Then, to add to that, we got married in September 2003.
-My old car then blew up, so we bought a $10,000 second hand car - probably should have just fixed the old one, I know.

Anyway, I just wanted to say, that although I haven't been poverty strickened, I haven't been living the life of luxury that my debts may otherwise indicate - in saying that, I am also under no illussion that I can just keep living the way I am living. I bought and read Rich Dad Poor Dad in February this year, then I did the options course, and now I am trying to educate myself in property also. I am definitely going to work on paying off that debt as soon as possible. I'm looking for a Part-Time job now, but my work involves some travel - often with very little notice. I will sell the car ASAP (should free up about $5,000). I have $5000 worth of shares in the company I work for also, which I will be able to sell for a large profit next year. (Maybe I should use that to pay off the debt also ?)

Thanks everyone for the TOUGH LOVE :( . I'll keep you posted on my progress.

Noel

[CAD Guy]

Hi Noel,

I may as well chip in with my 2 cents as well (everyone else has ;) )

And my 2 cents says to save your 2 cents! There's an old saying that if you look after your cents your dollars will look after themselves. And believe me, it works!

When you're next buying groceries, buy the cheaper brand where you can, even if it only saves you 10c on the item. At the time "it's just 10c, it doesn't matter", right? But all those 10c's add up to a sizable amount at the end of the year. This doesn't mean you have to live like a scrooge. You still buy the same items, you just save on each one. And buy in bulk, you've probably heard all of these little tips 100s of times. But do you actually DO THEM!?

I was in a very similar position to you less than 12 months ago, now we have a PPOR (we were renting) and enough equity to be looking for our first IP. Belive me, we're no great example or rare case. we just GOT STARTED!!!

My advice, and my encouragement to you, is to do the same. You don't have to be a "rare breed" to make it in this world, you just need to find a goal and stick to it.

Good luck, and keep us all posted.

CAD Guy.

[Bill.L]

Hi Noel,

I have to agree that all the advice you have been given is excellent.

One of the most important points is to change your mindset. If you don't think you have been "living the life of luxury" then you are kidding yourself. You spent 6 months in Europe ON BORROWED MONEY, you spent $10,000 on a car ON BORROWED MONEY, you spent $4,500 on an options course ON BORROWED MONEY. You now have to pay interest on after tax income of around 9%.

After all the do's by the others, I would like to add one DON'T. Don't be tempted to borrow more to put the knowledge you think you learned from the options course into action. You can play with that info in 5 to 10 years time when you have built up some assets and losses won't hurt you.

Good luck on your savings and debt reduction plan.

Remember rule 1/ change mindset.

bye

[always_learning]

Originally posted by geoffw
No, get yourself into the "don't need to buy" mentality early!

Try the local lobrary first. (Sorry Jan).

Buying even the "little" things can hurt if you're trying to save like heck.

I was forced into the saving mindset because of a huge (and unjustified) tax debt.

The mindset has helped me a lot now in helping me to save.

But now I have paid off the ATO debt. I have to try to find the balance between frivolous and necessary spending.

OK, look in the local library first to see if you can find it for free ( I live in Japan so property investment books in English in public libraries are not an option).

More important than debt, I believe is investment in idea's, be it from books, seminars, people you meet, courses etc ie knowledge that can generate ideas. I think books are cheap, if they contain powerful ideas. Jan's $20 book for me was worth $100K. For example a bad salesman doesnt have much money so decides not to buy books, attend courses to improve his sales skills... he is doomed to be a bad salesman forever. I have over $500K of debt, I am buying and reading everything I can!


What is wrong with this flow ?
Knowledge -> Ideas -> Results

Once you have good ideas then you must act upon them. A key and unpleasent point is missing :
Knowledge -> Ideas -> Work -> Results.

Unless your knowledge and ideas have degenerated into plan old "hard work" then nothing will change as nothing actually happend.

[Aceyducey]

Originally posted by CAD Guy
When you're next buying groceries, buy the cheaper brand where you can, even if it only saves you 10c on the item.

Here here!

The kids & I play a game of trying to fill the trolley entirely with No Name branded foods :)

Saves at least $10 per week & teaches them financial management at the same time.

BTW: Noel, I went overseas for a year when I was 24 - Did it on savings from my job & worked o/s but still came back with no assets (not even a car), no job & credit card debt of about $2,000.

Now 8 years on, own my PPOR (not a waterfront mansion however by any means), a number of IPs, kids in a private school & work full-time in my investment business (and do a lot with the school).

Not rich yet & still focused on saving & channeling funds to investment, but it is possible :)

Cheers,

Aceyducey

[WillG]

Hi Noel,

It takes guts to write your situation on paper and ask for advice. Lots of great advice. Saving & debt reduction is a good way ahead to get your PPOR & 1st IP.

Saving ...
I don't believe no-name food will work for everybody. Good food and good time with your wife is where it is at. Eat at home and make your lunch. Buy fresh unpackaged food where possible (it is cheaper and better than the supermarket rubbish)
If you travel with work you can save a lot from your daily allowance & it is tax free.
Avoid drinking at Nightclubs, Pubs & cafe's. Have dinner with friends at your place.
Consolidate bank accounts to reduce fees.
Get rid of mobile phones if there are no payout fees

Debt reduction ..
Lots of great advice already. Nothing to add. Just pay the debt off ASAP. Your $35k debt @ 9% (personal loan) is costing you $3150 after tax every year

Good luck

[bagg]

Noel,

Agree with Will - good on you for posting. The first step of change is realising change is required.

Something I would add that I don't think has been touched on - be VERY careful trading options. I have traded extensively after a large 4 year education in the markets and am yet to turn a profit. I know you've done a course. So have I - many. (And I'm not an idiot :) ). However, my accidental property investments have more than paid for my trading losses. Property investing is very forgiving, trading is very unforgiving. The lure of trading is fast money. It is an illusion. Real estate produces slow but massive wealth.

Also, getting into the property market is pretty important imho. The thing that enabled us to buy our 2nd, 3rd etc IP's was the the growth in the 1st one!

Just to balance this, my opinion is that there will be some sort of property "crunch" coming but not until rates rise (maybe 6-24 months). In that time you should be brimming with knowledge and have made a good start on debt reduction.

I think AL's post above is very good!!!!

cheers,

bagg

Read, Read, Read and ask, ask, ask. You will receive.

[Amarantha]

Getting rid of the mobile is debatable, depending on your usage style and how badly you need a landline. My last mobile bill was $15. If I had a landline, it would have been $30 just for the connection, and then calls and voicemail on top of that.

[sbe]

Great contributions all !

Some tough love, but great advice ! Especially the simple things - like take lunch to work and drink work's coffee. Doesn't kill you (too fast;) ), and will save around a good $50+ per week. My first Investment Property cost me $20 per week after taxes etc, so take my lunch to work and buy a property - sounds like a good deal to me !!

All the best,

Simon

[Peter Parker]

(more 'tough love' stuff follows)

Noel - Your household income is more than about 80% of Australian households so you have huge opportunities for improvement.

Some wealth books say save 10% of income per year. That's better than nothing, but a household in your position should be able to do more.

How about setting an aim of saving $15-20k per year? This will wipe your debts in 2 years. I know it sounds a lot, but two prudent adults should be able to live for approx $30-35k/year. In a further two years you will have enough deposit for one or even two cheap cashflow positive properties that you'll be able to pay off within 10-15 years.

TVs and videos cost money, but that's not the most important thing. Their biggest cost is your time they take from you, never to return.

I say keep your mobile phone though. When you buy a property it will become incredibly important so that banks, solicitors, RE agents, etc can call you. And the message bank thing is handy. Just don't make calls on it when you don't need to. Vodafone No Plans Prepaid is a bargain - $25 will keep you going for a year if you only use it to receive.

I would have used the $4.5k seminar fee to reduce your debt. But too late now. But I agree with spending some money on education. An allocation of $200-300 per year should be more than sufficient. $200 or so should get you a pile of good books on investment that you should read and reread. Also this weekend's Property Investment seminar (Fri-Sun) at the Exhibition Centre @ $14 for displays and many lectures (Margaret Lomas, Monique Wakelin, Paul Clitheroe, Noel Whittaker, etc) looks great value and should get you on the right track. Don't miss it!

The income your household has is higher than for most Aust households. Yet many have done better than you. Fortunately you're still young enough to change things around. If you take control now, you have time to get one and possibly two IPs before you're 30 and have no (non-property) debts by then! Do it!

Peter

[Peter Parker]

Rereading my last post - the investment expo is on all aspects of investment, not just property.

As well as the speakers mentioned, some of the ASX lectures also discuss property, so look these up as well.

Can't wait for it - just bought a big notepad!

Peter

[astroboy]

Geez guys, Noel is 26 give him a break, he has time on his side.

I would say keep your car, a 10K vehicle is by no means extravagant. Work on getting rid of that debt by all means, but don't think you have thrown it all away just because of a lousy 35K of bad debt, if you choose to you, will be rid of it in no time.

Read, learn, save, invest. You have obviously seen the directions to the road to wealth. But please have a life.

Good on you for the Europe trip, it will be one of those things you and your wife will look back on with fond memories for many years to come.

There are no trial runs in life, this is it, please enjoy it.

astroboy

[WillG]

Hi Astroboy,

I totally agree with 'Have a life' as you say.

I don't believe anybody is being hard on Noel; they are simply responding to his situation and goals to get an IP or 2 within 5 years. They have probably been in similar situations and are sharing tools & techniques they have used to get where they are today.

I consider saving money, reducing debt, buying IP's and learning more & more techniques to become 'financially free' as 'having a life'. You can do these things, go on overseas holidays & buy plasma TV's with a little discipline & a plan.

I don't think anybody has suggested he has 'thrown it all away'

Cheers

[astroboy]

Originally posted by WillG
You can do these things, go on overseas holidays & buy plasma TV's with a little discipline & a plan.

I don't think anybody has suggested he has 'thrown it all away'

Cheers

Ahhh WillG,
Thanks for putting it so succinctly, that's what I was trying to say.
With the right approach you can have your cake and eat it too. ;-)

astroboy

[WillG]

mmmmm. You said cake ?

I'll have ....
double choc mud cake with cream & ice cream accompanied with a slightly chilled desert wine (late harvest reisling, tokay or musket) from the Rutherglen

[Gordon Gekko]

Hi Guys and Girls,

I have been following this thread with interest.

I agree, it ia all about mindset !!!

Hope this is relevant :) Does anybody have a good household budget plan. Plans are great but how do you stick to them?

Has anybody put a excel spreadsheet together which might help others with household budgets.??

Get that right and wealth should follow :)

[Sam_H]

Noel;

My thoughts.....

Just want to agree with Will/Astroboy in saying you have to live life...and travelling europe is fantastic--> I'd much prefer to borrow the money and travel versus not travelling and hence not incurring debt!

Can you sell the car and get a cheapie?
I drive a car worth $500.00 tops....does the job...and I can chuck my surfboard/wetsuit/greasy bike in the back without a worry!

That may reduce your debt to say $27k (allowing a $2k car)

At this point I think you have 2 options:

1) Approach family and plead them to loan you money at a low interest rate (eg family who have equity in their homes.....ask for say $27k...at the rate they pay on their LOC...eg 6.4%) -whole lot nicer than paying cc rates of 18%

2) Goto one of the lenders that will loan you something like citibank at the moment.
Im in the proecess of transferring the balances of a few cc's across onto their gold visacard which lends money at 6.9% on the balance transferred.
See www.citibank.com.au for details


Cheers

Sam

[phm]

Hi Gordon

I believe simplicity is the best budget.

Get your REGULAR a/cs for the last 12 months out- elec, phone, rates, mortgage, insur, regos, loans, memberships, savings, Christmas club etc. Add the 12 months worth of each one together (ie 12 months worth of elec bills) and divide by 52. This tells you how much a week they cost you. Do the same with each one of your REGULAR a/cs. Add another, say $10. Tally these amounts up and transfer (or leave) this amount into an account, out of your weekly wage. DO NOT TOUCH this unless you are paying one of the above bills.

Using regular a/cs rather than things like, guestimating your yearly takeaway food and videos, makes your figures more accurate.

This budget gives you peace of mind in knowing your regular bills are always covered and whatever money is left is allowed to be spent on other things.

[coolstyle]

noel,

Well done for getting on the forum ...
You are obviously planning to do something, and revealing all on this post is a great start.

What do i recommend you do?

Three simply guidelines and set some goals:

1) If something you have to buy is not an income producing asset, then save for it first - do not break this rule for the next 3 years.

2) Look at the money you 'invested' in the options trading course... if you have committed to this, then focus on making money using the strategies you have learned.

3) Continue to have a presence on this forum, read books (borrow from library), and invest time in learning as much as you can about property.
I beleive you do not need to spend any money on your education with all that is available on the web etc.

Stick to the above rules and SET SOME CLEAR short, medium, and long term goals.
such as..

1) Monthly goals - push yourself a little to save an aggressive amount each month. Save what you plan first, then spend on what you have left over ... not the other way around.

2) 6-12 monthly goals - aim to pay of xx $ on your loan at each 6 month interval.

3) Long term goal - to keep you motivated, you must write a long term goal of x $ or x number of properties in x many years ...
--> spend a few hours with your partner and write this long term goal .. frame it and post it up on the wall where you can't miss it .

See you around ;)

Coolstyle.