$10,000 and $800/month to invest

[oh_noes]

Firstly, a big thanks to everyone at Somersoft. I've learnt a tonne of invaluable advice in the past 3 years. I joined here way back when I first got my first "100%" loan (100% LVR!) back in 2007 and been reading/learning ever since. Essentially I took on the risk (well, the bank did) to get into the market and earn some equity before housing gets to expensive for a single person to buy into.

Anyways, lots of additional repayments (I set my minimum repayment to +=30%) and a couple years later it's a solid IP. I'm still paying off Principal+Internet and making additional payments to bring down the LVR as quickly as possible.

Right now, almost 3 years on, I'm sitting on 80% LVR.

My next 24 month plan is to switch IP1 to internet-only and get IP2 later this year. Finally in mid-to-late next year purchase and buy and move into a PPOR.

My question is:

What should I do with the money I have now? I know it's not a lot. I'm thinking I should just dump the $10,000 into my offset and put the $800/month into the offset as well?

What will the bank (NAB) be looking at to determine if I can afford IP2?

If I wanted a $300k IP2 - what would be the minimum financial position I would want to be in (equity/savings)?

Thanks!

 

[Propertunity]

oh_noes congratulations on what you've done so far.

Personally, I'd be inclined to use your $10K and $800pm to buy some shares (as it is not enough to buy another property right now).

You should get some CG and you can use dollar-cost-averaging to add to your portfolio each month. When it has enough there you could cash in and use as a deposit for another IP or whatever you choose.

If you have 1,000 'optionable' shares at some point, I'd be inclined to write some covered calls against them for extra income.

All of this of course depends on your skill level and is not specific advice

 

[bene313]

Shares if you reckon you can get a return better than your loan interest rate. You should be able to get that rate through dividends in a number of blue chip companies. Holding blue chips should preserve your capital unless we see a second GFC.

Holding shares is more entertaining/educational that holding cash (offset). Obviously the option with the least risk is to put the cash in the offset.

 

[Aaron Sice]

Shares if you reckon you can get a return better than your loan interest rate. You should be able to get that rate through dividends in a number of blue chip companies. Holding blue chips should preserve your capital unless we see a second GFC.

Holding shares is more entertaining/educational that holding cash (offset). Obviously the option with the least risk is to put the cash in the offset.

i've found a simple "buy, hold and write", compounded every month with a buy-in and re-write, seems to be the best wealth builder at present.

premiums are pretty good comparitively because the VIX is all over the shop.

 

[oh_noes]

oh_noes congratulations on what you've done so far.

Personally, I'd be inclined to use your $10K and $800pm to buy some shares (as it is not enough to buy another property right now).

You should get some CG and you can use dollar-cost-averaging to add to your portfolio each month. When it has enough there you could cash in and use as a deposit for another IP or whatever you choose.

If you have 1,000 'optionable' shares at some point, I'd be inclined to write some covered calls against them for extra income.

All of this of course depends on your skill level and is not specific advice

Thanks mate. Only half of what you said makes sense

I'm keen to hire the share market but it's a big scary place without having much experience. I also though of a Managed Fund for the next 12 months putting +=$800pm into it, but there isn't many out there that take an initial investment of $10k.

Blue Chip stocks do sound like a solid bet though.

(Standard disclaimer: I appreciate any advice in thread isn't real for my own situation)

i've found a simple "buy, hold and write", compounded every month with a buy-in and re-write, seems to be the best wealth builder at present.

Hi Aaron,

What does this mean?

 

[Propertunity]

Hi Aaron,

What does this mean?

It means pretty much the same thing as what I said: If you have 1,000 'optionable' shares at some point, I'd be inclined to write some covered calls against them for extra income.

 

[Bigtone]

Firstly, a big thanks to everyone at Somersoft. I've learnt a tonne of invaluable advice in the past 3 years. I joined here way back when I first got my first "100%" loan (100% LVR!) back in 2007 and been reading/learning ever since. Essentially I took on the risk (well, the bank did) to get into the market and earn some equity before housing gets to expensive for a single person to buy into.

Anyways, lots of additional repayments (I set my minimum repayment to +=30%) and a couple years later it's a solid IP. I'm still paying off Principal+Internet and making additional payments to bring down the LVR as quickly as possible.

Right now, almost 3 years on, I'm sitting on 80% LVR.

My next 24 month plan is to switch IP1 to internet-only and get IP2 later this year. Finally in mid-to-late next year purchase and buy and move into a PPOR.

My question is:

What should I do with the money I have now? I know it's not a lot. I'm thinking I should just dump the $10,000 into my offset and put the $800/month into the offset as well?

What will the bank (NAB) be looking at to determine if I can afford IP2?

If I wanted a $300k IP2 - what would be the minimum financial position I would want to be in (equity/savings)?

Thanks!

in your situation i would

1, switch loan one to interest only

2, get a side loan against current property taking LVR back up to 90% should only pay LMI on new money as already paid on initial $$

3, use that side loan as deposit to buy IP number 2 at 95% (bankwest)

4, Keep $10k in offset as buffer

5, the $800pm should easily cover shortfall in IP 2

6, in 12 months repeat

Whatever u do don't put that $10k into a deposit on IP, keep that for PPOR and change that loan over to interest only, stop paying extra off, crazy when u are buying a PPOR soon.

 

[bene313]

Tone has a good point. If you are buying a PPOR soon you should avoid paying any more off the IP loan.

 

[oh_noes]

in your situation i would

1, switch loan one to interest only

2, get a side loan against current property taking LVR back up to 90% should only pay LMI on new money as already paid on initial $$

3, use that side loan as deposit to buy IP number 2 at 95% (bankwest)

4, Keep $10k in offset as buffer

5, the $800pm should easily cover shortfall in IP 2

6, in 12 months repeat

Whatever u do don't put that $10k into a deposit on IP, keep that for PPOR and change that loan over to interest only, stop paying extra off, crazy when u are buying a PPOR soon.

That's for the info -- that's actually what I was thinking and hence why I started this thread. I had an assumption that $800pm is enough for an IP but I wasn't sure the best way to play with it (fyi, I have more than $800 free per month, that $800 is just purely investment money).

But one thing I'm not sure about is is being soo highly (well, LVR) geared.

If I wanted to stick to a Big 4, and stay on the 'safer' side of IP's - what numbers could I aim for? Wait for 75% LVR (say 10 months), borrow side loan to 85% then use that as a deposit on a new place?

Is it correct assuming I want to aim for 30% deposit on IP2 from LVR borrowings on IP1? IP1 is worth around $360k, and I think IP2 will be in the range is $260k.

Tone has a good point. If you are buying a PPOR soon you should avoid paying any more off the IP loan.

Don't I want to pay extra off to bring the LVR down as much as possible?

The more I read on somersoft the more I read that a lot of folks try to stay around the 70% LVR margin. When it drops below that, borrow back up to 70%.

I prefer to stay away from 95%+ LVR at the moment, even if just for the "sleep at night factor". In other words, I'm happy to play it aggressive around 75% portfolio LVR - or is this a mistake?.


Thanks again for the advice gents.

 

[Bigtone]

That's for the info -- that's actually what I was thinking and hence why I started this thread. I had an assumption that $800pm is enough for an IP but I wasn't sure the best way to play with it (fyi, I have more than $800 free per month, that $800 is just purely investment money).

But one thing I'm not sure about is is being soo highly (well, LVR) geared.

If I wanted to stick to a Big 4, and stay on the 'safer' side of IP's - what numbers could I aim for? Wait for 75% LVR (say 10 months), borrow side loan to 85% then use that as a deposit on a new place?

Is it correct assuming I want to aim for 30% deposit on IP2 from LVR borrowings on IP1? IP1 is worth around $360k, and I think IP2 will be in the range is $260k.



Don't I want to pay extra off to bring the LVR down as much as possible?

The more I read on somersoft the more I read that a lot of folks try to stay around the 70% LVR margin. When it drops below that, borrow back up to 70%.

I prefer to stay away from 95%+ LVR at the moment, even if just for the "sleep at night factor". In other words, I'm happy to play it aggressive around 75% portfolio LVR - or is this a mistake?.


Thanks again for the advice gents.

i will respond to other points later but i would much rather a higher LVR with a bigger cashflow buffer than a lower LVR with limited cashflow and buffer.

if you have a big buffer and good cashflow what would stop u sleeping at night with a LVR of 95+ plus on investment 2 and 90% on investment 1? You managed to sleep i take it when u had 100% lvr o IP1 didn't u?

personally i think high Lvr's r not a real danger if u have a big buffer and strong cashflow

in the accumulation stage of investing the lower the LVr the slower the process will be, personally i like high LVR at the start, 100% LVR perfect and then slowly as portfolio builds reduce the LVR as u then have substantial assets to protect.

every1 has there own methods, that is mine

 

[jaycee]

Don't I want to pay extra off to bring the LVR down as much as possible?

The more I read on somersoft the more I read that a lot of folks try to stay around the 70% LVR margin. When it drops below that, borrow back up to 70%.

I prefer to stay away from 95%+ LVR at the moment, even if just for the "sleep at night factor". In other words, I'm happy to play it aggressive around 75% portfolio LVR - or is this a mistake?.


Thanks again for the advice gents.

Your investment loan is currently tax deductable

You will soon want to buy a PPOR, the loan on this will not be tax deductable

Say you pay down $10k on the IP loan now, you will need to borrow $10k more for your PPOR, meaning $10k more non deductable debt than say, instead of paying $10k on the IP loan, you put $10k into offset against the IP loan , then when you go to buy your PPOR, you take out the $10k from the offest and borrow $10k less for your PPOR....

 

[bene313]

The more I read on somersoft the more I read that a lot of folks try to stay around the 70% LVR margin. When it drops below that, borrow back up to 70%.

Sure a low LVR is good. But you wouldn't want 70% on the IPs and 70% on the PPOR. Preferable alternative is say 90% on the IPs and 40% on the PPOR.

This is why most here will use IO loans with a 100% offset account for their IPs. You may have 50% cash in offset, but the loan is never paid off, and that 50% may be used for the deposit on the PPOR without affecting the IP loan.