after a few ideas.
so far i was thinking
50k for a deposit
50k on shares
50k 7% interest in bank account.
Mat.
so far i was thinking
50k for a deposit
50k on shares
50k 7% interest in bank account.
Mat.
best way to invest 150k
- Thread starter JustaDreamer
- Start date
Yes, this does seem a bit aimless.
How much property are you going to buy with that 50k deposit, for example? At LVR 95% you can buy up to a $500k property. At 80% LVR you can buy a $200k property. What do you want from your property?
What're your short and long term goals? Would your long term goals be better served if, for example, you take on more leverage now? How much debt will your income support, and would it help to have interest and dividend income as well?
You don't have to give us the details, but you should definitely think about it yourself.
Alex
Seems as though you've had too many people talking "diversification" and its safety merits. As Alexlee hinted, leveraging is the way to maximise your gains, ... or losses 
, for that you'd usually look at property. Certainly the banks generally will lend more freely on property.
More the moment decide which avenue you wish attack then give it your best shot. At any rate its a happy problem to have ... excess funds.
, for that you'd usually look at property. Certainly the banks generally will lend more freely on property.More the moment decide which avenue you wish attack then give it your best shot. At any rate its a happy problem to have ... excess funds.
What's your servicability like?
If I was you I would buy an investment property in a high growth area for approx $600K.
Your $150K will cover the deposit, stamp duty etc. and you will stay under 80% LVR (Loan/Value Ratio) so you wont pay LMI (Lenders Mortgage Insurance). Use an interest only loan.
Buy in a high growth area. You can find plenty of areas in Sydney, Melbourne and Brisbane that will return 10%+ per annum average over the next 5 years. Get a Residex report to pick the good growth areas.
After a couple of years you would leverage approx. $125K to 150K equity gain on this first property to buy a second property.
Repeat until your servicability runs out.
In 5 years time your first property could be worth approx $960K, and you could have two other properties worth approx $800K and $660K
You would have approx $1.4M debt and $2.4M worth of properties.
So your initial $150K would have grown to approx $1M of equity.
At that stage, consider diversification into shares. Shares are risky right now. Wait until after the next big crash.
Don't bother with savings accounts - you'll just go backwards. You pay tax on the interest, and inflation eats the rest.
Cheers,
Shadow.
Disclaimer: This is just my opinion, and I'm certainly no expert! My figures have been rounded for simplicity and don't take into account your individual circumstances... rental income, tax situation etc.
If I was you I would buy an investment property in a high growth area for approx $600K.
Your $150K will cover the deposit, stamp duty etc. and you will stay under 80% LVR (Loan/Value Ratio) so you wont pay LMI (Lenders Mortgage Insurance). Use an interest only loan.
Buy in a high growth area. You can find plenty of areas in Sydney, Melbourne and Brisbane that will return 10%+ per annum average over the next 5 years. Get a Residex report to pick the good growth areas.
After a couple of years you would leverage approx. $125K to 150K equity gain on this first property to buy a second property.
Repeat until your servicability runs out.
In 5 years time your first property could be worth approx $960K, and you could have two other properties worth approx $800K and $660K
You would have approx $1.4M debt and $2.4M worth of properties.
So your initial $150K would have grown to approx $1M of equity.
At that stage, consider diversification into shares. Shares are risky right now. Wait until after the next big crash.
Don't bother with savings accounts - you'll just go backwards. You pay tax on the interest, and inflation eats the rest.
Cheers,
Shadow.
Disclaimer: This is just my opinion, and I'm certainly no expert! My figures have been rounded for simplicity and don't take into account your individual circumstances... rental income, tax situation etc.
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Not quite. 20% deposit, stamp duty + legals etc would put it closer to $175k. Big question is could that loan be serviced?
It's a good theory but if things always worked out that textbook we would all be billionaires by now
There's going to be a crash??
There's going to be a crash??
There is always a crash... it's just a question of when...
Hmmm... sorry, yes my calculations were a bit off... I wrote that post after a few glasses of wine
I should have said buy a property for $600K. I will correct the post! Still... it was the principle I was trying to convey.It's a good theory but if things always worked out that textbook we would all be billionaires by now
Generally, the theory should work out... at least, that's one of the reasons we're all here on a property investment forum... because we believe property is one of the lowest risk ways to invest. Of course there is always some risk, but the risk of doing nothing is higher. I think the risk of shares is also higher right now. And with savings... you just go backwards.
IMHO diversification across classes as a risk mitigation measure is advisable for those worth at least 4 or 5 million.
If I was starting out I'd use all 150 as a deposit on an IP or 2.
Time frame 10 years.
I work away fly in fly out on a mine site my goal is either use money I make to work 8 months a and take rest of the year off or get a job in the city and make up the differences in what I would be getting on a mine site.
On about 85k a year.
50k deposit would be for a 250k property in Adelaide, looking at about 2,000 p/m repayments.
I think I have read to many books, like I will read one and think yeah that’s good then read another one and it will say complete opposite than first one but just as good.
Or could throw 50k in 3 different bank accounts at 7% and take one month off ever 4 months but then after 10 years I would have made no money because would have spent interest I made.
Use 50,000 or 3 properties. Maybe 75,000 or 2 properties the list goes on.
I guess when I aimlessly wrote 50k for shares, deposit, 7% bank. Was not really thinking I thought 25 years to pay off property, 50 7% x 25 years 237,681 interest and what ever the shares do make or brake. Must be a lot better ways to invest.
I work away fly in fly out on a mine site my goal is either use money I make to work 8 months a and take rest of the year off or get a job in the city and make up the differences in what I would be getting on a mine site.
On about 85k a year.
50k deposit would be for a 250k property in Adelaide, looking at about 2,000 p/m repayments.
I think I have read to many books, like I will read one and think yeah that’s good then read another one and it will say complete opposite than first one but just as good.
Or could throw 50k in 3 different bank accounts at 7% and take one month off ever 4 months but then after 10 years I would have made no money because would have spent interest I made.
Use 50,000 or 3 properties. Maybe 75,000 or 2 properties the list goes on.
I guess when I aimlessly wrote 50k for shares, deposit, 7% bank. Was not really thinking I thought 25 years to pay off property, 50 7% x 25 years 237,681 interest and what ever the shares do make or brake. Must be a lot better ways to invest.
Hi JustaDreamer...
Forget about the savings account option. Your 7% interest will be taxed, bringing it down to 4%. Then inflation of 3% will bring it down to 1%. You are not going anywhere with this approach.
That sounds very high. You're talking a mortgage of maybe $210k or so. Interest would only be about $1,300pm max?
One better way would be to NOT aim to pay off the property. Keep leveraging. What you haven't said is what your goal is. What do you expect to have in 10 years based on your plan? And is that what you want?
I think it might be useful to decide on the goal first. Decide that you want $x income and $y net assets in 10 years, and then determine what strategy will get you there. For example, I notice in the above you calculated the amount of interest you would pay, but obviously there are other numbers to consider, ESPECIALLY the appreciation of the property.
Alex
alexless sorry i didn't say i was using 8% repayments as a safety net on 250k loan. 11,000 stamp duty rounded up to 15,000 to cover fees and other hidden costs. Then either throw the rest of the 35k on the 250k loan bring it down to 215 with repayments of 1659 or find property worth 285.
If I could make 85 P/A in 10 years I would be laughing but if 10 years 85k could be like the minimum wage. Realistically I would happy making 40k P/A
If I could make 85 P/A in 10 years I would be laughing but if 10 years 85k could be like the minimum wage. Realistically I would happy making 40k P/A
Hi Alex... wife & I both work in the IT industry, and we have no consumer debt, no 'doodads', and no kids (yet). So, including the negative gearing benefits, and rental income, we can service about $2M... I don't think that is incredibly high, probably higher than average, but there are others on this forum who manage much higher debt (judging by other threads I've read).
No investments yet! Bought PPOR two years ago, and only then started to read about investing. Before that, I thought paying off the PPOR as fast as possible, and then living on income and saving for retirement was the way to go... brought up to believe all debt was bad etc.
Picked up a copy of API magazine by chance a couple of years ago, which got me thinking about investing, then read one of Peter Spann's books, after that I was hooked. Read many investment books for the next year or so, Rich Dad Poor Dad, Richest Man in Babylon, Somers, Yardney etc... and realised there was a better way to get ahead.
So the new plan is to invest in high growth properties, and take on as much debt as possible! Then diversify into shares later (haven't studied that area in enough depth yet).
That's my story so far! Will buy first IP in the next few months, then keep buying as many as possible for the next 5 years...
Cheers,
Shadow.
So is the $2m your own assessment based on 'I have this much extra cashflow from my salary + rent - interest therefore I can service $2m', or one done by a bank or mortgage broker? I ask this because personally, I think I can service a lot more debt than the bank will actually lend me. I keep saying given my savings rate I can obviously service more debt, but unfortunately my bank isn't as confident as I am.
Alex
The 10%+ per annum growth is easy to show over a period of 10 years. All my IP's have done this.
During the last 2 years in Sydney this has been challenging, not impossible, but challenging. Particularly when you ring your bank for a valuation when trying to tap into extra equity. They will be the first to tell you how the market is doing.
So be careful with this figure in the short term.
Goal 85k P/A from property in a 10 year time frame.
150k to start with.
Ok 1 250k property even if it doubles after 10 years is not enough to achieve this.
What about 2x 300k properties with interest only loans using the remaining 50k to pay off the loans.
Then after 5 years buy another 2.
50,000 - 15,000 for stamp duty and fees = 35,000.
300,000 – 35,000 = 265,000.
265 @ 8% IO for 25 years is just under 1,800 P/M repayments
1,800 x 12 = 21,600.
Lets say each property is going up 30k a year that would be 4 x 30 = 120k P/A after 10 years.
So after 10 years I would have a debt of 1.2 Mil, property worth 1.8 Mil and equity of 600k.
150k to start with.
Ok 1 250k property even if it doubles after 10 years is not enough to achieve this.
What about 2x 300k properties with interest only loans using the remaining 50k to pay off the loans.
Then after 5 years buy another 2.
50,000 - 15,000 for stamp duty and fees = 35,000.
300,000 – 35,000 = 265,000.
265 @ 8% IO for 25 years is just under 1,800 P/M repayments
1,800 x 12 = 21,600.
Lets say each property is going up 30k a year that would be 4 x 30 = 120k P/A after 10 years.
So after 10 years I would have a debt of 1.2 Mil, property worth 1.8 Mil and equity of 600k.
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