newbie after some guidance

I am very very new to the idea of investing in property and very confused. I am finding these forums very helpful but starting to get a little overwhelmed and confused. Please bear with me as I am as newbie to this as newbie can get

I may as well just put my story out there in hope that someone may be able to guide me in the right direction.

My current situation as follows. . .

I earn approx $6000 (gross) a year as I am essentially a stay at home mum, I have no debt. My partner earns approx $64 000 (gross) per year he has a car loan. I have $ 25 000 invested in various shares and things which is not earning a great deal but pretty much there because I am not sure what else to do with it. (Not sure if any of this matters)

I own my own home in my name only. Worth 250k.

Own a second home with my partner, bought in 2004 for 210 000 started renting it out DEC 08 for 250pw. Owe $197 000 on mortgage. Prior to renting it out we renovated the kitchen, recarpeted and painted throughout.

Currently have a lump sum sitting in the bank which is my problem. - What to do!

From speaking to several people that are currently property investors have all said I need to be looking into negative gearing. I am finding lots of advice on getting loans and things for more properties but not if you have a lump sum ready to go.

From my very little research (reading a few books and this website) I can't see how negative gearing would work for me. We are flat out being able to make the extra payments already. Plus we really don’t earn that much to need to try and lessen our tax bill?

I have got this crazy idea in my head that it would be possible to pay off my mortgage, buy another property use the rental income to then somehow buy another house for us to move into (possibly a few years away) and then rent out the one we are currently living in. using the rental income to pay of our mortgage and or use our working income to fund another investment property or vice versa. And so on.

I am also interested in capital gains if I were to sell one of the properties later on down the track. Surely I couldn’t get the best of both worlds. Maybe I am just doomed to work for the tax man?

I realise that this could be quite a slow process due to the tax I would have to pay wouldn’t leave me much at the end of the day. I am in my mid twenties so time is not too much of a problem yet.

My main question is who or what type of person do I need to see to get advice from. I want someone that will guide me through and basically work out the numbers for me. I want to be able to go in and say hey this is my crazy idea, do you think this will work? And then go on to guide me on how to go about it(or slap some sense into me). An accountant? Financial Advisor? both?




I just don’t want to go on as we are because we are living in a box because we have no idea where to start.
Any experiences or suggestions are most welcome and would be greatly appreciated

Is the car loan packaged in any way (eg a novated lease etc)?
What is the annual % rate of the car loan?

Cheers,

The Y-man

Cath said:

I have got this crazy idea in my head that it would be possible to pay off my mortgage, buy another property use the rental income to then somehow buy another house for us to move into (possibly a few years away) and then rent out the one we are currently living in. using the rental income to pay of our mortgage and or use our working income to fund another investment property or vice versa. And so on.

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Hi Cath,

An amazing first post!! Welcome to SS.

You have significant assets and cash. Accordingly you have many possibilities. You could use your cash as deposits to fund more rental properties. Or you could utilize your plan above. Some people invest by paying off a property at a time. The advantage with the plan is that it is less risky than taking a geared investment approach.

Have you read Jan's books?? They illustrate how to accumulate investment properties over time. Jan started in a similar way to you by paying off 5 or so properties. Then she discovered gearing and invested accordingly.

Regards Jason.

Thank you both for taking the time to reply.
I should also add that i a little vague on some of the details as we are currently trying to dig our heads of the sand and trying to work out some kind of budget or at least find out what our money is doing, or should I say what its not doing.

Is the car loan packaged in any way (eg a novated lease etc)?
What is the annual % rate of the car loan?

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I may be wrong in saying loan.. finance may be more appropriate?

I believe it is 12%. It is not packaged in anyway. Just writing that down makes me realise i should really be eliminating that debt. Thats a ridiculous amount of money over 5 years.

Have you read Jan's books?? They illustrate how to accumulate investment properties over time. Jan started in a similar way to you by paying off 5 or so properties. Then she discovered gearing and invested accordingly.

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I haven't read her books, I have only just discovered this website today and was just looking into buying them after I started this thread. I don't think i can not not buy them after seeing how many people are using this forum.

I like the idea of being a less risky to start off with until i get my head around it all a bit better. I will be very interested in reading those books. I have read a few other books but finding it hard to get it all to sink in an piece together.

My concern with using the cash as deposits to fund more investment properties would be that of if I could afford to pay them. Is it possible to have them set up to pretty much pay themselves off and cover rates/taxes and all the fun stuff? Is that what is called neutral gearing? Does that mean I only make money on capital gains?

Cath said:

I haven't read her books, I have only just discovered this website today and was just looking into buying them after I started this thread. I don't think i can not not buy them after seeing how many people are using this forum.

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Hi Cath,

Jan's investment philosophy that she describes in her books is basically to buy well located property and hold it over time. Then sell off a couple to pay off the debt. She explains the buy and hold strategy systematically and a lot more eloquently and logically than I can! Would recommend buying her books.

Cath said:

I like the idea of being a less risky to start off with until i get my head around it all a bit better. I will be very interested in reading those books. I have read a few other books but finding it hard to get it all to sink in an piece together.

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Yep, takes a while to work out a strategy/plan.

Cath said:

My concern with using the cash as deposits to fund more investment properties would be that of if I could afford to pay them.

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Yes, overcommitting is not a good idea. But you could work out how much you could afford to cover. You may choose to only borrow a small amount so that the property you buy is positively geared.

Cath said:

Is it possible to have them set up to pretty much pay themselves off and cover rates/taxes and all the fun stuff?

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Yes it is. With your cash you have in the bank, you could currently set up an offset account against your loan of $197,000 and put cash of this amount into the account. That would mean that you would not pay interest on the loan and the cashflow from the rent would cover the holding costs (rates etc).

You could then use the excess rent to service another mortgage on another investment property. You could establish a second offset account and put your remaining cash into it. Depending on the purchase price of the property, it should make it positively or at worst neutrally geared. Then you could pay down the debt and buy again when you are comfortable.

Cath said:

Is that what is called neutral gearing? Does that mean I only make money on capital gains?

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Neutral gearing means that the rental covers all costs associated with holding the property. Including loan interest, and property outgoings.

If you are neutrally geared, then technically, you make money on the capital gain the property may produce. If you are positively geared then you make money from the rent (Yield) and the capital growth that the property produces.

Hope this helps a little. No doubt others will have some great ideas to add.

Regards Jason.

Would recommend buying her books.

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Have just done so - Thank you Jason

Yes it is. With your cash you have in the bank, you could currently set up an offset account against your loan of $197,000 and put cash of this amount into the account. That would mean that you would not pay interest on the loan and the cashflow from the rent would cover the holding costs (rates etc).

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What would be the benefit of this over completley paying off the house and having no loan, then using the rent (less holding costs) to service another loan. Your starting to make me think its possible to purchase several properties, and at least make them neutrally geared and still be playing it relatively safe?

Hope this helps a little.

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It has helped immensely! You have given me some great insight and information into things i have no idea about. You have also validated that the little that i have pieced together seems to be on the right track. Thank you.

I look forward to any other feedback that anyone may have.

I would suggest to read the book and spend a week just reading through this forum and asking more questions as there is a lot of experienced and helpful people here. With your assets and cash you have a lot of options and could fast track your way to wealth.

Thank you Monsoon I have been reading through these forums for most of the day and finding it such a wealth of information.

Just wondering if it would be beneficial to seek out a financial advisor at this stage or try and learn as much as i can for a while?

Is there any other resources that would be helpfull?

Cath said:

Thank you Monsoon I have been reading through these forums for most of the day and finding it such a wealth of information.

Just wondering if it would be beneficial to seek out a financial advisor at this stage or try and learn as much as i can for a while?

Is there any other resources that would be helpfull?

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I would try to learn as much as you can on your own for awhile first. I once went to see a financial adviser and they never mentioned anything about property but they wanted to take several hundred dollars off me and they said they had plenty of ideas for my money. I'm sure there are good ones but if you learn a lot yourself first then at least you know a bit more about what your money can do for you. Once you completely understand how property investing works then when you do speak to an adviser or a broker you can work together on a plan as opposed to leaving all your savings in their hands. If your going to go with property then you could get a broker to help you and they don't cost anything as the banks pay them a commission. Do some research and keep reading these forums and your find the whole property investing thing will all start to come together and your realise how it all works. You need to learn and understand about loan types, IO & PI & IO, Equity, Capital gains etc. I'm sure you know a lot about all that already but once you see how it all works to build wealth then you will be able to work out a plan with your broker or adviser and go for it!

Thank you again monsoon you have provided some very helpfull advice. I know very little about all those things you mentioned i will be promptly looking all these up. I will work on educating myself for a while and try and not get to caught up in the hype and excitement these forums creates in my mind (think its a bit of the Gen y coming out in me.. want it now lol!) I am finding it hard to tear myself away from these forums and feel that even in 50 years I will still not have learnt everything there is to know.

Is it really as easy as it seems, I just can't help but think if it were this easy everyone would do it. I realise that there are many risks and the potential to loose a lot of money but if your in it for the long haul surley it would pay off eventually regardless of how many downfalls there were along the way.

I have another question if thats ok (feel a bit greedy asking all this advice)
Seeing as I already have an ip do you think it would be beneficial to get a broker now to just sort this one out so I am getting the most out of it while i am learning about what the next steps will be. (as mentioned above about an offset account). At the moment it just exists, we have no idea on what impact it has on our tax or what benefit it is to us, or even what we need to do come tax time. we didnt sell when we moved as I have heard many times not to sell anything you buy, and with the idea in the back of my mind that I wanted to invest in property. Does a broker even deal with this or should i be looking for an accountant first.

Thanks again I really appreciate that someone would take the time to share advice.

Cath - I second the idea of taking time to educate yourself about your possibilities and strategies available for you to employ (in your situation they are numerous). Read as many books as you can get your hands on (your local library should be able to help with that) and get a good understanding of everything. THEN go and see a financial advisor who specialises in property investment.

The reason for this is professionals all need to be taken with a grain of salt. They may have invaluable advise, but they may not know what they are talking about either, you need to at least have a vague idea about things so that you know the type of 'professional' you are dealing with, and wether or not you want to follow their advice. That way you can make an informed decision.

Definitely look at getting rid of your personal/non tax deductable debt. Even when you don't pay much tax (I am a SAHM too) it is worth structuring your loans properly. A financial advisor will be able to tell you if it makes sense to invest your money in certain ways, a good broker is also an asset as they can help you structure any loans you do take out (if you coose to).


Now personally, If I were you I would pay off the car loan, purchase a new PPOR with the cash (leaving the mortgage on the old PPOR as is) and rent out your old PPOR.

I must admit to being a tad surprised at someone who has a cash base larger then their debt base, having any debt at all. But then I am a pay it down kind of girl.

Cath said:

Currently have $430 000 sitting in the bank which is my problem. - What to do!

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My question is how..?

And i have an easy solution, share some around

Welcome to SS haha..

With that much money I'd have a paid off PPoR and two paid off IPs and retire tomorrow with more than enough to live on *sigh*.

Hello Cath,

I thought I would join this forum to try lending you a hand!!

I have multiple properties, been working in the property investment industry for about 5 years and i am only 25 years old!!

The first and probably the biggest piece of advice is to be very careful with the advice that other people give you! Take everything with a pinch of salt and use it to work with your situation. Family and Friends are generally the worst with this, sometimes the less they know about you the better! Especially the generation who don’t like debt! And be very careful with the so called experts who don’t own an IP but tell you all about how they know it all.

In saying that I have lots of experience but by no means an expert...

You need to surround yourself with people who can help you build wealth most people will only dream about! Your accountant is vital once you have a property! Don’t ask an accountant if you should invest in R/E... if you don’t have an accountant stop reading now and go get one! Before you use your new accountant ask if they have their own IP's (more than one) if not get another accountant!! 50% of accountants don’t deal with IP's all the time therefore don’t know all the tax benefits but if they have their own properties they will make sure they know everything possible. My accountant is so important to me I travel interstate to see her! They are worth every cent...

Finance broker... very important before you look at buying an IP!! Don’t waste ur time looking for a property until ur broker give you the green light on how much you can borrow. You need to structure you financial situation so you can build ur wealth not the banks!! I am not licensed to talk about finance so please get urself a broker!! Again make sure ur broker has IP's but... I will say is that you need to pay off ur bad debt before anything else! Bad debt is ur credit card, car loans and own home loan so any debt that is not making you money or you are not getting a tax benefit from. With all ur cash... it must be really hard have so much lying around!! But you need to make it work for you ( not the bank) Firstly pay off ur car loan, you are wasting money on something that is going down in value every day! By paying that off you will now have spare funds to cover any outgoings of ur IP's. If you have a mortgage on ur home then pay it out, keep the debt on ur investments you have tenants covering that debt.

Education is also very important!! Do you think Lindsay Fox built the biggest trucking company in Australia without knowing how the trucking stuff works? NO!! But he did learn everything he needed to know, it might have taken him 50years to do so but no one knows trucking stuff better!! You need to take the same concept, keep on learning don’t stop learning you will never know everything, the more you learn the easier it will become. In saying that you need to also act on your knowledge! There is no point in knowing how to build ur wealth if you do nothing about it!!

Now the property! You need to have a mixed bag of property, units, townhouses, houses, apartments... and a mixed bag of locations. Not only in NSW.
Everyone is different, everyone has different needs and everyone invests for different reasons. I am a big supporter of property within 5 - 10 kms of any major CBD in Australia. No matter what kind of so called recession we may go through or down turn in real estate, there will always be people in our major cities needing somewhere to live. You need to look at property like a business, not like a home or somewhere you would like to live, look at it like a profit and loss statement. If it is a good property it will be more like a profit statement!! Negative gearing is great, and your partner should do it there is no point in paying tax if you can legally avoid it!! My wife and I haven’t paid tax for the last few years! Once you are at a level where you can no longer reduce ur tax then you look at different types of property, again a mix bag of everything!! Everyone says Location Location Location, just as important to this is research research research!!! If you cant do the research have someone do it for you, there are companies that will recommend a number of properties for you to buy and offer the service to you for free, they will research the area, properties, type of tenants etc etc... just remember action is the key to success!!

Never sell unless you absolutely have to! There is going to be a day where you will want to realise you investment and go spend ur money on whatever you want, just don’t do it unless you have too!!

Hopefully this helps you! And anyone else who reads it... If you need help at anytime please don’t hesitate to ask, I can help you find accountants, finance brokers and property. If you want an opinion on a property or area I am happy to assist! I have made a lot of money out of real estate and I want everyone to experience the same joy!!

Remember:

* You don’t need to be wealthy to invest, but you need to invest to be wealthy *

Good Luck

Brett

Sorry that is a bit long!! Hope it helps...

Lil Skater said:

Welcome to SS haha..

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Thanks From your posts that i have read I think you will end up being the one that should be sharing it around lol.

rugrat said:

Now personally, If I were you I would pay off the car loan, purchase a new PPOR with the cash (leaving the mortgage on the old PPOR as is) and rent out your old PPOR.

I must admit to being a tad surprised at someone who has a cash base larger then their debt base, having any debt at all. But then I am a pay it down kind of girl.

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Thank you for your insight. Brilliant.
Your idea is similar to what i had in mind minus not paying off the current ip. I want to move from current home within the next 5 years but not just yet its very close to both of our workplaces great school zoning and walking distance to the cbd. however i think we will outgrow it quite fast.


The reason for still having the car debt is due to not having access to the funds just yet. The other reason i wasn't yet talking about paying it off is due to my partner wanting to go out and get yet another loan to buy a much better and more expensive car which is money down the drain when it is not a necessity.

With that much money I'd have a paid off PPoR and two paid off IPs and retire tomorrow with more than enough to live on *sigh*.

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I wouldn't have thought that possible?


Fuller - I am not even going to attempt to try and quote all the bits in your post that are amazing Its all amazing. Thank you so much for sharing and its really an inspiration that someone that is a similar age has achieved so much.

I really like the point you made about taking advice with a grain of salt - have been doing this and you could have been talking about just about every single person i know in saying "the generation that don't like debt" I can't even begin to talk to any family members about my ideas. They think i am crazy. "work hard and put the money in the bank" "just leave the lump sum in the bank for a rainy day". Which is pretty much why i have turned to a forum because I don't have anyone to go to for advice. Promise that i wont run out and do something without seeking real life professional advice first.


It's also interesting that you made the point of finding an accountant/broker/whoever that has ip's. This was a big worry for me I have no idea how to find these people. I was imagining looking through the yellow pages finding someone that looked ok. Set up a meeting with them only to find someone that is only interested on what looks good on paper. I want someone with experience and reputation.

The only bad debt we have is the car loan which I know we will now get rid of (once the other half promises me that he wont go out and get another car in a year or something)

I might just take you up on your offer, I have absolutely no idea how to begin to find the right accountant or broker or even property where would you start looking for an accountant that is the right fit? I am very interested in these company's you talk about that do some of the research for you. I was just starting to stress a little about knowing how to find the right property.(probably getting ahead of myself) Even though I am in no rush I really like to know what my options are/start to get a feel for the market. would you suggest attending open houses over the weekends to get a feel for things?

Ideally I would love some kind of mentor, does anywhere offer this kind of service as well as work out all the dollars and cents and taxes? I feel i need some kind of guidance like this when i start out, maybe I should just spend the next 6-12 months researching, reading (will definately check out the libary) and then decide what to do? My concern with this is thats 6-12 months of not moving forward.

I will probably have a million questions after I go away and reflect on all this information so once again bear with me

Cath said:

Thanks From your posts that i have read I think you will end up being the one that should be sharing it around lol.

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Haha, you really think, awesome!

I have faith, thanks so much

Cath,

Happy to help!! Dont buy another car if you can help it... i guess you have a half decent car already with a loan of 25k?? If you do buy a car wait til after you have got urself an investment property. The bank will like this better!!

My job involves helping people to invest in r/e I generally only do it face to face though! I give that 'mentor' 'hold your hand' through the experience type service, so I am happy to help you move forward and get a property! Just ask!!

Try not to delay getting a property, the longer you wait the more you pay! In the last 3 months here in Melbourne the average property price has gone up about 30k that is an expencive 3 months!! But certainly dont rush!!

There is no point stressing when investing, if ur not sleeping at night because of an investment property, its not worth it... If you take ur time get the right advice and the best possible property; you will forget you even had it!!

Thanks again Fuller. your right its not worth loosing sleep over.

I have some meetings lined up for the next couple of days with people in the know" locally so will hopefully get some more ideas from them.

I am so happy to have stumbled across this forum I have learnt so much in the two days i have been trawling through old posts and from this thread than i have in 2 years.

Welcome Cath,

You have some great advice above.

I will through in my 2c, for what is worth.

There is some great advice for Negative gearing in order to reduce your partner's Taxable Income. This is true and in certain circumstances extremely beneficial.

Can I just add that from a Bank's point of view, especially if your plan is to accumulate more properties, it is better to try and find as close to neutral if not positive - as you can if buying in todays environment and in regards to your present income.

Make your strategy as straight forward as you can to start, start off small and simple and then grow your portfolio as you become more financially educated.

A lot of Property Investing is about learning along the way.

Take small steps so you can prepare for giant leaps.

Regards, JO