A story about a newbie...please help me with where to go from here!

Hi. I have been reading, reading, reading so much about property investing, and getting so muddled. I thought I might post my thoughts here in the hope that I can get some direction.

So, this will probably be a little rambling because i don't know what information you need to give me a gentle shove in the right direction :)

Typical start to the story: worked hard, saved hard. In 2005 bought $350k property (small acreage, good land old house), again worked like a dog to put just that little bit extra in it each week and so current mortgage is just under $300k. Haven't had it revalued as property has been flat as a tack around here so don't expect it to have moved much.

The conventional advice I read says sell, buy smaller, build up etc. This is not the path I want to take. I could go into reasons etc but there's not really much point because such things are different for everyone. I'm firm on this.

I work in a nearby country town. The second piece of advice I read a lot of is 'get a better job'. Mmmm. Ok. Doesn't work like that in a country town. Because I got myself an education I do already have one of the top paying jobs in town ($50k pa before tax).

Now at the moment I can pay all my bills and put food on the table. There are no luxuries. I started below the poverty line, so I know what 'no luxuries' means.

Just this last year since my performance review at work I've been managing to start saving again. It's not much and it's tight, but it's been 10% of my gross wage for 12 months now. I direct debit it, and despite all the quips I DO miss it lol. But I still don't touch it.

My goal is to buy a second, larger farm which would cost significantly more and wouldn't necessarily pay for the mortgage repayments in entirety (but hopeful would to a certain percentage).

How should I prioritise my goals to get there? To get my ppor I just scrimped and saved, but to do that again will take me a lifetime to get where I want to be.

I feel strongly my first goal should be a cash/highly liquid emergency fund. Have read recommendations of minimum 3 months wages for this.

Ok, what next? I prefer to grow what money I have than get into (more) significant debt. But then, I don't have enough money to grow, do I? Then again, surely if I'm that uncomfortable with a strategy involving high debt I'll not manage it as well as some other strategy I'm more enthusiastic about...??? Do you see how I run myself in circles on this with all the 'advice' that's out there?

Where do I start? How do I get from A to B?
 
Welcome to SS Candy. Good on you for getting your story out there, I'm sure you'll get plenty of good advice here.

Quick question for you. Is there a reason you want to buy another farm as your next purchase? Is it because you're looking to buy the property you want to live in one day? Or is it because you believe the land will be rezoned in the future? Because you only want to buy in the area you currently reside near? Or....?

I ask, as if you're planning to buy another farm just as your next property investment without any of the reasons above, perhaps you could look for a more suitable property elsewhere for your next purchase?

If the next farm mortgage is going to be a cashflow drain on you, could you perhaps instead buy a smaller property eg. a house or unit in a regional centre or even capital city that is cashflow positive and will cost you very little/nothing to hold? Perhaps even buying two of these types of property?

This could then improve your financial situation in the years ahead and allow you financial freedom sooner. Or perhaps if it's your own big farm to live on yourself, perhaps investing in smaller CF+ properties elsewhere will help you achieve this goal in a better way? eg. they cost you little/nothing to hold now, and could be sold or equity accessed say 5yrs down the track to get you a really big farm etc.

Just a thought....
 
Hi Candy,

Welcome to SS>

As Steve mentions: What isyour plan for your current property. IP?

Without thinking about all of the things that you have read: What is your strategy? Buy and Hold? Renovate and refinance? Buy/Renovate and Sell?

From a Lenders point of view you will become severely restricted if you continue to buy rural/and/or acreage and then cannot increase your income due to where you live.

The hardest concept for you will be this:

You need to buy in Metropolitan areas and diversify your properties in order to:

1. Allow more flexibility with choice of lenders.
2. Allow for a higher borrowing capability with lenders.
3. Gain better Capital growth to grow your portfolio.
4. Allow for a higher Loan to Value ratio. (Again, the amount you can borrow.)

Yes, your debt will be good and work well for you, if you buy the right kind of property. It is the property that will grow the money for you.

Regards JO
 
Hey Steveadl thanks for the reply :)
Sorry for the confusion, farm doesn't have to be the *next* purchase, just sometime before I'm too old to work it and enjoy it :D And yep, to live on not subdivide (wash your mouth out! :p)

That's what I'm confused about I guess, I know there must be steps in between but I don't know what they are.

Have thought about looking into buying a rental investment first, but then wouldn't I be spending forever paying that off when I could be paying off the property I want? (if you consider both rent and a farm business as potential income)But then once paid off the rent money as supplemental income would be nice....But still doesn't get me 'my' place unless I sell it, in which case I'm right back to mortgage repayments, working like a dog etc.

The strategy I see out there (on the net) a lot is all about these huge property portfolios where it's all about drawing on equity and kind of like a race of who can get the most properties soonest. I'm sure it works out for the people who want to do it like that, but that's not where I want to head, you know? $2m debt but it's ok because I made 10% equity this year....I dunno maybe I'm just too simple but all I want is a patch of land to potter around on and make a little income off and not be worried where the next repayment is coming from.
 
What those guys said. It's very difficult to comment with these details but one suggestion is to consider which goal you want the most - financial independence / freedom or rural lifestyle?

If you are "very firm" in living the rural lifestyle / acquiring farms at the expense of your financial future then it may be best to just acknowledge that and move on.

However, if you wish to prioritise your financial future you may wish to consider:
- Renting out your PPOR, thereby turning your current debt into tax deductible debt.
- Or selling it if this isn't feasible and you could realise a good profit free of capital gains tax.
- Renting a modest premises yourself to better assist your cashflow, presumably in a location that allows your to be employed in a better paid job.
- Scanning the country for properties with the best cashflow, combined with prospects for growth. Compare the yields and likely performance in many places - not just your own backyard.
- Wait for growth then repeat.

It all depends on your priorities really. If you want real financial results then you have to focus all your endeavours on that goal and stack all your numbers in your favour. If you want to live in and own a nice property in the countryside while being employed in a relatively poorly paid job then go for it.

It seems likely to me at least that trying to do both will give you relatively poor results but your priorities are up to you...
 
I dunno maybe I'm just too simple but all I want is a patch of land to potter around on and make a little income off and not be worried where the next repayment is coming from.

Didn't see this before I posted before. Sounds like you want a farm for free! It doesn't work like that - to acquire an asset of this nature for essentially personal use you must first prioritise your financial performance and make that your goal.

Then you can go and acquire your desired lifestyle asset/s with the free cash your investments give you. It all depends how much you want that farm - what are you prepared to do in the meantime to get it?

By the way, having $2m debt feels very comfortable when you have $5m in assets! :)
 
I refuse to believe it's all or nothing. There has to be ways of being smart with money without sacrificing what's important to you.

I realise it reads like that HiEquity, but it is a long term goal. I am willing to work for it between now and *then*.

So nobody can offer me any strategies other than 'pack up and move to the city'?
 
OK so you want to eventually live and work on your own farm. That's a great goal.

What sort of time frame are you looking at? ie. when do you want to be on the farm of your dreams, 5yrs, 10yrs?

The strategy above of buying smaller properties in other regional/capital areas wouldn't necessitate you to change your current lifestyle in any way (you don't need to pack up and head to the city). But owning 1 or 3 properties in the cities may move you towards financial freedom much quicker and therefore the farm you want. eg. if you want to be on the farm in 10yrs, instead of trying to buy a smaller farm now that's not your end goal (is this correct, or are you able to buy your dream farm with your next purchase?) you buy a property in the cities and this may speed up your whole cycle and you may be on the farm in 5-6yrs instead.

For example, I'm assuming the farm you already own isn't the dream one you want to live in and retire on etc? So then ask yourself, has buying this farm helped bring your goal of owning the bigger better farm closer or further away? eg. what if you bought a house in a capital city that was CF neutral, rents are continuing to increase and you now have enough equity for another CF neutral house? (above you mentioned you don't think your existing property has had much cap growth).

This is the same scenario you're now facing when thinking about buying a second farm as opposed to a property elsewhere. I'll wait for your response to my time frame question to perhaps try to illustrate it better, but the key you have to remember is if you have a goal in mind, what will get you there quicker.

To try and further illustrate my point - I still haven't got my dream house, but if I chose to I could have it next week by selling my investments (& I'm also getting closer to it without having to sell). If I had bought the wrong property or was just saving my cash all these years, I'd still be a loooong way from that dream house. :)
 
Rofl! I don't even like candy...it's one of my horse's names!

True, Rockstar. I have read a bit about it (not that exact book though) but I think my nervousness stems more from not knowing anyone personally/in real life who has done it. I know more people who have gone broke trying too hard in property than have done well. So yep, nervous :). Might be time to borrow from the library though and refresh my memory, maybe it won't seem so daunting now.

Steveadl your post is very helpful, thankyou. I'll try and answer the questions.

Time frame: Now now now! lol. So maybe not realistic. As I am adverse to high risk I think timeframe will depend on how much risk is involved to reach it. (I'm assuming shorter timeframe = higher risk) So I'm flexible there, I just want to know I'm proactively working towards it, iykwim.

Ok so how do I use smaller properties to reach my goal? I'm very interested in hearing more about this. Given my figures in the first post:
* when can I look into it (is there a rule of thumb as to how much equity I need in ppor? Cash deposit?)
* how do I do it? (loan structures, debt, risk? how much extra debt is realistic, and how do you service that when the current budget is so tight?)
* who do I speak to? (bank, mortgage broker, finance advisor, accountant?)
* buy and hold or turning them over...?
* etc etc


"Has buying this farm helped bring your goal of owning the bigger better farm closer or further away?"

In my mind, closer. Have already started stock (sheep) breeding programs so the genetics will be more profitable once they can be upscaled, aquiring equipment and skills (like working in an industry before trying to start a business), have planted long term 'crops' (trees) that take time to mature and can't just be bunged in as a quick investment if you don't have the land till later. The small farm size keeps all of this relative to my budget, too. Also expenses are hugely reduced as we grow our own meat, vege, fruit, no water costs, etc. Oh, and sanity. Can't put a price on that :D

Edit: Oh, and yes would be great to retire to current home as it is closer to town. The bigger farm would have to be much further out to get the land size and value/ha required to run it efficiently.

On that, quick question: Properties are selling around here for the same prices, that is what I'm basing my 'no growth' statement on. But the valuer-general assessments have more than doubled, does that count for anything, or will it in the future?

btw, while rural property around here hasn't lifted, it also hasn't dropped like residentials in town. Not metropolition, but still wanted to mention that. (cheeky aren't I ;) )
 
Rofl! I don't even like candy...it's one of my horse's names!
My fiancée's horses name is Smash - short for Smashing Sampras in his former life as a race horse.

True, Rockstar. I have read a bit about it (not that exact book though) but I think my nervousness stems more from not knowing anyone personally/in real life who has done it. I know more people who have gone broke trying too hard in property than have done well. So yep, nervous :). Might be time to borrow from the library though and refresh my memory, maybe it won't seem so daunting now.

Steveadl your post is very helpful, thankyou. I'll try and answer the questions.

Time frame: Now now now! lol. So maybe not realistic. As I am adverse to high risk I think timeframe will depend on how much risk is involved to reach it. (I'm assuming shorter timeframe = higher risk) So I'm flexible there, I just want to know I'm proactively working towards it, iykwim.
Well property is not an overnight wealth creator, it will take a few years of growth to give you enough equity to buy that big farm. Doesn't necessarily mean high risk though.

Ok so how do I use smaller properties to reach my goal? I'm very interested in hearing more about this. Given my figures in the first post:
* when can I look into it (is there a rule of thumb as to how much equity I need in ppor? Cash deposit?)
A good rule of thumb is if you have an overall LVR of 80% when you look to buy the new property (also allows you to avoid mortgage insurance) as it will be easier to get finance. But you can do it at a higher LVR if you're comfortable with your figures.

* how do I do it? (loan structures, debt, risk? how much extra debt is realistic, and how do you service that when the current budget is so tight?)
You want to make sure you can afford the new property in addition to your existing life expenses and mortgage commitments. So if buying another farm is going to leave you out of pocket say an extra $200pw after rent etc - where as a unit in Sydney will leave you only out of pocket say $40pw (or perhaps even neutral or putting money in your pocket - talk to Nathan here on SS about these properties he specialises in). Make sure any investment properties you buy the loans are Interest Only to help increase your free cashflow - there's nothing wrong with good debt.

* who do I speak to? (bank, mortgage broker, finance advisor, accountant?)
Speak to a good mortgage broker, there's plenty here on SS. Also ask more questions here once you've read a book or two and get some more understanding behind you as once you know more you'll feel much more confident and will also have specific questions you need answered on how to move forward. Financial advisor won't recommend you buy property - no commission in it for them.

* buy and hold or turning them over...?
Both could work, but that's something you'll decide for yourself once you have a greater understanding of property. Personally I don't turn over property often, in fact I avoid it - I like to keep them all!

* etc etc


"Has buying this farm helped bring your goal of owning the bigger better farm closer or further away?"

In my mind, closer. Have already started stock (sheep) breeding programs so the genetics will be more profitable once they can be upscaled, aquiring equipment and skills (like working in an industry before trying to start a business), have planted long term 'crops' (trees) that take time to mature and can't just be bunged in as a quick investment if you don't have the land till later. The small farm size keeps all of this relative to my budget, too. Also expenses are hugely reduced as we grow our own meat, vege, fruit, no water costs, etc. Oh, and sanity. Can't put a price on that
OK you obviously know what you're doing here so I won't pretend to have an idea! :p I would just mention that you may want to be careful how much cash you want to sink into this particular property if it's not the one you plan to stay on. ie. sheep genetics is all good as they move with you, but no point in installing 100,000L water tanks if you're thinking about moving in 2yrs - save the cash for the big farm.

Edit: Oh, and yes would be great to retire to current home as it is closer to town. The bigger farm would have to be much further out to get the land size and value/ha required to run it efficiently.
Then ignore above comment. :D If you are happy to retire on this farm, then you've already made your life a LOT easier. You already have the property you want, now all you need to do is start creating a passive income/future for yourself. In this case I would definitely suggest buying good potential properties, and that may not be another farm but the city houses/units. Get a few of these under your belt and in 10-15yrs they could see you having a couple $M in equity and with increasing rents - no holding costs and giving you some extra income.

On that, quick question: Properties are selling around here for the same prices, that is what I'm basing my 'no growth' statement on. But the valuer-general assessments have more than doubled, does that count for anything, or will it in the future?
Meh, I pretty much ignore valuer general figures - I'd stick to what's selling in the market. Could just be the valuer generals figure has gone from drastically undervalued to little bit undervalued.


btw, while rural property around here hasn't lifted, it also hasn't dropped like residentials in town. Not metropolition, but still wanted to mention that. (cheeky aren't I ;) )
Yes, terribly! :p

Hope these ideas are helping. Keep the questions coming, that's what SS is for.
 
Candy

My story would read. Owned a house in town. Save deposit for 1st farm. 2nd farm, used equity in house and original farm. Although for this purchase, as far as the bank was concerned we were investing in shares. Otherwise this loan would have been at commercial rates.

In the last few years, sold 1st farm and purchased 3 IPs so far. Still looking for 1 more.

In a couple of years time we will sell the 2nd farm and invest in further IPS.

Looking back now, we would have skipped the farm part and gone straight for the IPs.

Forgot to mention, both of us work full time. So are only weekend farmers. Could not have afforded them otherwise. We are weekend cattle producers. Not cropping.

Hope this is of some help.

Kinga
 
HI candy and through these responses there will be an answer for you it might not be one post but a few , my take on it is the land holding might be such a large % compared to the house, so the home might be 50k and the rent/mortgage just enough for you to cover, ie tight times,
There may be another 200 acres not being rented at the moment , and so nothing is producing income on that part of the debt,???

could you lease some or all of the land less the house to another agri or local farmer that would breed more animals, sheep/cattle , then it would be like renting the other half out, the income might be small but it should add up over time,
welcome though, :)
 
Welcome Candy.

I think my nervousness stems more from not knowing anyone personally/in real life who has done it. I know more people who have gone broke trying too hard in property than have done well. So yep, nervous . Might be time to borrow from the library though and refresh my memory, maybe it won't seem so daunting now.

Being a girl from the land, lived and been around farms, farmers, country towns, (not to say I have not travelled and experienced city life).....I have seen more farmers go broke and walk off farms or sell up and go into other fields to try and make a living-than property investors.

The property investors I see, keep meeting, have a fair bit to do with, have all done their diligence well, bought well, invested differently, some in metro, some in regional cities, mix of builds and buys/renovates/not, etc...but have done very, very well.

It's important to remember that life (and investing) is more than about "one story" or "single stories".

That includes yours and mine. (Single stories). What one person does/says/perceives is not necessarily what is happening.

Enough of that, Candy so you want to remain on the land, doing your job in nearby town, but building the sheep flock? Enjoying space and rural life.

Is the land adequate for this/these purposes?

I ask that because we are involved in the stock/ farming industry and it can be quite important the number of hectares you have and the quality of that (land) to provide adequately for stock...or whatever it is you choose to do on this farm to try and make it sustainable and bring in an income.

-Just a consideration, if I was living on a farm, (and I am), but wanted to provide for my financial independence, I would learn about investing in property, (which I am).

-I love my rural farm life and wide open spaces, animals...but reality is this will all end one day, and I need to consider my options post- present farm existence, (which is not my farm).

-To facilitate my financial independence and wealth build I got into learning (and doing), investing in property. That is my tool to wealth creation and eventually independence.

I have a plan that in so many years I will be leaving this wonderful place and with the nest egg of properties I have built up will provide me with options and choices about the next step. It might well be buying a few hectares of my own, running my own sheep, it might be options A, B C or not even given thought to yet?

But whatever the next step (s) are/is, we will have some wealth behind us. I'll go to bed tonight and every night for the next 5? 10 years and my IP's can work their butts off.

In the meantime I keep accumulating appreciating assets. I might branch out into a business or 2 of some sorts, I might diversify into commercial property, I can do whatever I please.

So far it has all been done via regional city(s) investing, in places I know very well. Equity, (my buying well), growth, rental returns etc have all been of a level and consistency to keep me ticking over and in the game, looking for next purchase..PLUS I have an excellent team around me.

So, whatever you decide, may the Candy force be with you.
 
Fabulous replies, thankyou!

Firstly to those who asked: current property is nowhere near big enough to farm commercially or lease out, hence I want to know how to get more land. Great ideas though, just can't really apply them to my place.

So help me understand the basic premise here: Say I have 100K equity in a place, I can physically withdraw (refinance, whatever the lingo is) that 100K to use as a deposit on another property. Is that it in simple terms?

Ok so on my current figures I have an LVR of aprox 86% if I worked it out right? Do you want 80% before you start looking at investing, or 80% left after you have drawn on the equity?

And in idiot proof terms, how does interest only work? Given my preference would be to own outright, wouldn't it be more logical to be paying off prinicpal so there's less interest paid in the long run? How does interest only affect repayments - you imply they're lower during the interest only period?

Another question: I'm not afraid to look metro for IPs. But there's a corner of my mind saying 'start local' where you know the tradies, real estate agents, local market, areas of town etc really well and are more likely to make informed decisions on both purchase and management. Get my legs, then branch out. Is there any/much merit in this line of thought?

This is probably more a question for the bank, but maybe people could offer some ball park figures. If I had a property worth $350k with a debt of $280k (so 80% LVR) and an annual income of 50k - what sort of amount would I likely be able to borrow? Just to help me get my head around the sort of IP I could be considering.

And I imagine that sometimes, despite best intentions knowledge and research, it goes pear shaped. What happens when the IP doesn't quite work out as budgeted for: eg tenancy, maintenance. Don't you then risk losing your ppor? How can you protect against this, especially the first IP when you don't yet have any diversification?

Appologies for bringing this all back to basics, gotta start somewhere! I will get some books, but it is great to speak to real people about this to, who can help me apply the principals to my situation! Thanks all :)

btw Steveadl: Candy is also an ex-racehorse :)
 
Hi Candy, just a quick reply here, busy.

I briefly saw your figures there and you asked what you may be able to borrow up to with an annual income of $50k

You won't be able to borrow a million $'s for just one property, but depending on rents you should be able to lend around the $1 mil mark across multiple properties. Thats my experience anyway (a little more but rates were lower) So I say that in todays market conditions.

It is exciting though for people who think its amazing just managing to get one loan. Many just assume they can't be serviced after that and do nothing.
 
So help me understand the basic premise here: Say I have 100K equity in a place, I can physically withdraw (refinance, whatever the lingo is) that 100K to use as a deposit on another property. Is that it in simple terms?

You can physically withdraw about 80% of the equity - i.e. $80k without too much hassle (provided you meet the serviceability - i.e. "do we think you can pay the interest" test).

Cheers,

The Y-man
 
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