Analysis Paralysis

[Firefrog]

Goals - Update

Earlier in this thread I was encourged to set goals......

• I have re-structured my banking to make better use of my offset on PPOR.
• I have applied for a LOC equity loan on PPOR. Valuation pending.
• Saving is improving after expensive Christmas.
• Have begun discussions with a broker for IP1 lending.

If the val comes back ok will have some cash to get going......Hoping to buy March April..........

 

[garygoodbloke]

HandyAndy888, Virgo and Sheryn all have great advice.

Think of it like this, if the first deal all goes pair-shaped, then you won't have lost money, you'll have invested heavily in your education and lessons are priceless. If you resolve to not stop until you achieve your goals, then all setbacks are only temporary and educating.

I think the deeper issues you have are related to deserving and permission. You may deep down feel that you don't have permission to be successful and that you don't deserve to be successful. For some reason you believe that this may all work for others, but it won't work for you (which is what 'not trusting the numbers' is all about).

It also seems as though you're seeking external approval before you act. You need us (the forum), your family, your peer group and society as a whole to tell you it's ok (give you permission) before you act. That's why reading more hasn't resolved your paralysis as there's massive disagreement on every issue out there.

So, instead of just talking about these issues, I'll also let you know what action steps you have on offer.

Great suggestion above was to join a peer group that regularly invests in property. I'd say that of all the things you can do, doing this one thing will yield greater results than any other thing I could imagine. Once you meet someone who is shorter, uglier, dumber, worse with people and possessing considerably more flaws than yourself and who happens to be succeeding with property, your brain will click over, you'll have an "aha!" moment and think: "Why can't I do this?".

Perhaps you've unconsciously ascribed posters on here with mythic qualities including amazing insight, intellect and experience. Truth is, actions always speak louder than words.

Adopting this peer group will also start acting heavily on your subconscious and you'll think "this is normal". You'll know it's working when you find it hard to understand people who AREN'T investing in property.

Second thing you can do is to write out exactly, word-for-word what you're afraid of. When you objectively analyse your personal demons, you strip them of their ability to run your life. Develop a sense of curiousity about these demons and objectify them. I'll repeat: when you objectify your personal demons, you strip them of their ability to run your life.

When you've written out the worse case scenario, write down all the things you can do to counter each obstacle. Also realise that the worst outcome is almost always temporary and you'll gain so many positive lessons that it'll make it worthwhile. If you can't eat, the worst comes to the worst and you can live with your relatives for a while. It would be an ego hit, but would it be the end of the world? Really, would it? It would only be temporary. It's quite a liberating thought I would suggest.

Also write down all the positive things that could happen. What you'll discover is that out of ten, the worst possible scenario is a temporary -3/-10 and the most likely positive scenario is a PERMANENT +7/10.

Then, to balance it all out, look at the scenario where you CHOOSE to do nothing. I emphasize 'choose' here because doing nothing may be a passive choice, but you should begin to look at it as an active choice. As such, you are choosing between doing something and doing nothing, NOT choosing between doing something or continuing as you are.

So analyse what will happen if you choose to do nothing. Weigh it all up. Can you tell me what postives will arise out of it? You will continue to have an environment you know and feel comfortable with, but it'll cost you, it'll cost you when you're old, living on baked beans and worrying about your retirement and that may be temporary but at an advanced age, it's hard to know if temporary is actually permanent as death feels closer at hand.

Scared of choosing to do nothing? You should be, because you'll miss out on so much richness and fulfillment if you do. You'll live in a state of sadness and regret and you'll approach death with sadness, fear, grief, and with extraordinary reluctance. If you give it you all and leave nothing 'on the court' as they say in basketball, then at the very least, you'll be at peace within yourself because you'll know you took your best shot.

This may all sound pretty deep. But I believe that if you live your life with a total awareness of you imminent death and act accordingly, then you'll find yourself to be more fulfilled and you'll act with more authenticity and following your deeper desires.

Be willing to accept that some people may disapprove of you investing in real estate and realise that it's not really about you, but it's about them projecting their deserving and permission issues onto you. This could come from people close to you and who you really love. It's hard and it's sad in some ways but you have to decide INTERNALLY if you approve of what you're doing, and forget about external validation. The greatest acts in history prove this, like Lincoln freeing the slaves (very few around him approved), Mandela fighting apartheid (certainly not many people in the world he lived in approved), etc... but all these people surrounded themselves with like minded individuals who lifted them higher.

So this may sound unnecessarily dramatic, but I think solving those core issues will take care of the sypmtoms. After all, you know on paper what to do, you probably know a lot more than people out there with 10 IPs or more, but the problem isn't on paper, it's in your head.

So start small, build your peer group and give yourself permission and decide that you deserve to be successful. Oh, and please keep us all in the loop so that we can share and enjoy your successes and help you through any of the hardships that could arise.

 

[WinstonWolfe]

I think I am concerned about cash flow in the first year or so, as it stands now we have the odd tight time where bills etc. make me feel a bit lean on cash.

And cash flow should be your first and last concern FF.
It is fine for others to spray you with messages of positive thinking, but at the end of the day, you will be dictated to by the numbers and your willingness to adapt if things demand it.

I've messed with your scenario and question your ability to service a negatively geared property.

Correct me where I am wrong below:

Cost of Living:
Expenses:
Housing
- Mortgage 237k P&I @ 9% (let's allow for rates to move up hey?) = 1790pm
- rates $1500pa
- power/gas $20pw
- insurance $500pa
- maintenance contigency $1000pa

Groceries including eat at home food
$350pw

Health
Insurance $1500
gaps and pharmacy $1000

Transport
- run 2 cars $16000pa (includes sinking fund to replace cars as required, petrol $100pw, insurance, maintenance)

Telephone
1 landlline and 2 mobiles $230pm

Essential Living Expenses $2000pa
Clothing
Appliances and furniture sinking fund
Home Office and Computers

Education- say 22,000pa for two concurrent private school fees and associated costs.

Non Essentials

Cafe, takeaway, restaurants, alcohol, hairdresser, cosmetics, drycleaning, newspapers, magazines, gifts $3000pa

Hobbies and Sport $2000pa

Pets????????????



The above requires around $90,000pa of after tax dollars.

If your wife chooses not to work, and there's no way to increase your income via your job, then I think you are right to be concerned about your cash flow.

 

[Tuppence]

So start small, build your peer group and give yourself permission and decide that you deserve to be successful. Oh, and please keep us all in the loop so that we can share and enjoy your successes and help you through any of the hardships that could arise.

Wow Wasn't going to quote that whole post again as it seemed long and a bit repetitive to do so. However, as another new investor, that was a powerful read - inspiring stuff. Thanks (and kudos to you).

 

[forumite]

I've messed with your scenario and question your ability to service a negatively geared property.

Correct me where I am wrong below:

Cost of Living:
Expenses:
Housing
-
The above requires around $90,000pa of after tax dollars.

You are frightening him. Confidence is what Firefrog needs.

I have a lower salary than him and had just bought my first !P. So if he keeps tab on expenses and is prepared to make adjustments when necessary, I am sure he will have no problem servicing an IP.

 

[bojangles]

Good start

Earlier in this thread I was encourged to set goals......

• I have re-structured my banking to make better use of my offset on PPOR.
• I have applied for a LOC equity loan on PPOR. Valuation pending.
• Saving is improving after expensive Christmas.
• Have begun discussions with a broker for IP1 lending.

If the val comes back ok will have some cash to get going......Hoping to buy March April..........

FF, its all good that youre doing all that, but are you using the services of an experienced, investment savvy broker to structure your finances? Something to think about..

 

[WinstonWolfe]

You are frightening him. Confidence is what Firefrog needs.

Yes forumite, and what FF needs confidence in most is his ability to avoid cash flow shortfalls that lead to an acute need to liquidate his asset. That confidence comes from analysing one's cash flow with a microscope, then adjusting one's perspective to cover potential cash flow crises, via partner working part time, or bred winner getting second job, or moving out of PPR and renting elsewhere at lower price.

I have a lower salary than him and had just bought my first !P. So if he keeps tab on expenses

as long as keeping tabs isn't frightening I presume you mean?

and is prepared to make adjustments when necessary, I am sure he will have no problem servicing an IP.

forumite, it would be exponentially more helpful to volunteer your cash flows so ff can compare his situation more objectively with yours otherwise it's oranges and apples.

 

[forumite]

Interesting that the expenses of 90K p.a. you projected are higher than his annual before-tax salary.

I think Firefrog will be the best person to answer whether he agrees with your projected expenses.

 

[WinstonWolfe]

Interesting that the expenses of 90K p.a. you projected are higher than his annual before-tax salary.

tick the one which you think doesn't apply
- sinking fund to replace cars
- safety margin to accommodate higher interest rates
- paying private school fees

 

[forumite]

Firefrog, what I did is that I used internet banking to export bank account transactions over a period of time, say 1-2 year, to a spreadsheet with debit/credit columns and then calculated my average monthly expenses. I find this more accurate than an itemized list as you are bound to miss out on some expenditures with a list.

Together with the projected expenses (e.g. children's private school fees) and the net income generated from rent, that will give you an estimate of your ability to service an IP.

 

[jingo]

And cash flow should be your first and last concern FF.
It is fine for others to spray you with messages of positive thinking, but at the end of the day, you will be dictated to by the numbers and your willingness to adapt if things demand it.

.

Very wise words WW.

I think FireFly has been very wise to assess his situation carefully before proceeding.

Firefly, will you be aiming to buy an IP that is neutrally geared, or is it possible for you to manufacture this by contributing a large deposit? I would think that would certainly help things on the cashflow front.

Regards Jason.

 

[Firefrog]

Thanks all

Winstonwolfe - Thankfully Adelaide would appear to be less costly to live in than perhaps where the projections above where estimated from. We have a good budget and the numbers do allow for saving. For example our food bill is about $100 a week less than you project and school fees thankfully are much less as well.

All great advice though and a good reminder to crunch those numbers. Thanks

Bojangles - Yes we are talking to a broker who is a regular on here.


Garygoodbloke - Thanks for that post a lots can be taken from that! I will need to sit down and digest it all.....Thanks..

And finally

We don't currently have a large deposit to throw at this, but could have in a years time. Problem is I would prefer a year of cap growth rather than just a year of savings come March 2011. I know we will be borrowing 100% using the LOC as the deposit. Just think it's time I stop talking and start acting. I'm probably the type of person who needs to just do it and work it out as we go. Providing the budget fundementals stack up.

I don't mean throw caution to the wind but I remember looking at a possible IP 10 years ago for 80K rented for $160 a week and I did nothing. I don't want to see that scenario play out again.

 

[WinstonWolfe]

Winstonwolfe - Thankfully Adelaide would appear to be less costly to live in than perhaps where the projections above where estimated from. We have a good budget and the numbers do allow for saving. For example our food bill is about $100 a week less than you project

If your kids aren't teenagers yet FF, it's wise to factor in a larger 'grocery' bill.

and school fees thankfully are much less as well.

From the little I've seen FF, it appears Adelaide school fees are similar to Brisbane, and some even higher. i.e. Walford Anglican School for Girls has a tuition fee of $15k pa. Brisbane non Catholic schools are ~10k, Catholics ~$7-10k.

I used 22k to cover two children's fees and the accessory costs of education- sports, sport gear, private tutors, extracurricular activities, trips, uniforms, formals, transport etc.

If you are confident of your budget and saving ability FF, then your analysis paralysis is unfounded.

 

[voodoo]

Hi Firefrog,

You sound like your in very similar situation to myself.

I have 2 girls in primary school, I am on a single income 60K pa with some overtime. My wife has not worked for 10 yrs and i prefer it that way for the girls. I purchased the IP software, read all the books and i do a lot of research.

Now here is the difference...I took the plunge in 2002, something was telling me if I dont buy this place i will regret it, i knew it was a good buy and Yes I was scared for my future finances. I payed $166k for a 3 bedroom home with lock up garage on a 760m2 block within 1km from the town centre. That place has now doubled in price. And yes the stove died in the first week but i stayed calm and went with the flow.

I have just had an offer accepted on another IP for 290k, 3 bedroom home with double lock up garage on a 764m2 corner block and renting for $320P/W.

I do have very limited cash flow but I do get by with my LOC. I owe 128k on my PPOR and the two IP's are interest only loans.

go for it...what's to lose? you can always sell if it does not work..

good luck

ps. I would always recommend using a property manager and just sit back rlax and watch it grow..

 

[pgpete]

procrastinators of the world unite!....... tomorrow!

Hi everyone,
my first post here.

I too have read the books, done a WEA course, spent countless hours on the internet reading and analysing and just like the fellow who started this thread havent bought anything.

but hopefully soon things are going to change.

Currently we are living in a very nice house in the outer suburbs of Adelaide. but the 4 sale sign went up today . we are moving for two reasons.

1 - my missus was unhappy with the quality of the local high school, and instead of spending a fortune on private school, we are moving closer to the city so that out daughter can go to one of the best public schools in Adelaide ( save >$7000 pa).

2. we are going to do a live-in reno. buy a cheaper house ( so that we have more equity) and reno it as we go.

We are also looking for a cash-flow positive IP in Adelaide. which I'm finding very difficult to find - I cant seem to find an adelaide property that does better then 5% yield. - without resorting to being a slumlord.

I would prefer to find a IP of OK quality that will attract a reasonable tenant that wont trash the place and pay the rent.

my strategy was to look for a proprty in the beach strip from christies to glenelg or close to the CBD preferably southern half.

I have yet to find a property that does it - or if I do, I ring up and find that its already gone.

I would like to find a mentor to get me through the first purchase, but so far the one mentor that has the website/ podcast/book etc but I just couldnt seem to mesh with their busy timetable.

so, here's my questions : -

how can I find an IP in Adelaide that does better than 5% ?

who is a good mentor or investment club that charges a reasonable price and /or doesnt want to sell you something?

----
I'm going to an auction on saturday, and registering to bid on a reno that holds promise.

I've been to a couple of auctions - one where 3 bidders drove the price at least $50,000 dearer than what they should have paid and another where there was only one bidder. (leaving the auctioneer nothing to work with)

I loathe the auction process - although I've read its an opportunity to buy cheap. I suspect I'l be bidding against people that are willing to pay too much.

cheers

Pete.

 

[Rob Williams]

Pgpete: There are reno opportunities close to the CBD that will give you a 5% plus yield after a reno. I know. I've bought lots of them.
I went to an auction at a gorgeous little cottage in the heart of Burnside just before Christmas. Corner block. Very liveable but with huge reno potential. It was easily worth $500k. I don't think too many people would have argued with that.
The auctioneer pitched it at around $400k in the marketing campaign. The feedback I got from people was that it would go for a huge amount above that, which was above their budget. So they didn't attend the auction and those who did, didn't register.
Anyway, it got passed in. They couldn't even get a $400k bid. The auctioneer made it clear that it had to sell (90+ year old vendor was going into a care facility). Whoever made a bid would have been able to negotiate a great deal post auction.
So, you have to keep attending and have your finance ready AND register so you can bid.
Sounds like you have a good strategy in mind. Good luck with it.
Oh, welcome to the forum, by the way.

 

[willair]

so, here's my questions : -

I loathe the auction process - although I've read its an opportunity to buy cheap. I suspect I'l be bidding against people that are willing to pay too much.

cheers

Pete.

Pete you will also be up against the gum tree,a bird flying in the blue sky,anyone that knows the vendor,and a few other sidekicks that happen to turn up on the day,once you know what to look for at any auction it will make you understand the way the auctions system works..good luck willair..
btw,welcome to the fourm,you never know till you ask the question..

 

[willair]

Done all the reading Rich Dad series, Jan Somers stuff and heaps more. I consider myself fairly well versed in the theory of IP investing.
I understand some of the key topics, equity, cross security, tax and using tax variations for cash flow etc. etc.



Thanks for reading.

Buy a copy of this book,How to start with no savings and get rich,by Sturat
Moore,it's about 19 years now after when i went along to have a listen too this "Man",after my Accountant gave my Wife and me 2 free tickets too his
presentation,he signed the copy for me that night,that book alone changed me overnight,very powerfull book,even after all this time,and after reading so many books on property investing,his system will work in any market
it's up too you,you either sit on the sidelines and watch it happen or make it happen,in investing there are no in betweens,willair..
http://www.entellogroup.com.au/about-us-2/staff-profiles/

 

[forumite]

how can I find an IP in Adelaide that does better than 5% ?

This is a useful website:
http://www.investsmart.com.au/property/search.asp?Suburb=&SA=1&Units=1&Houses=1&OrderBy=6

 

[redwing]

I lurk here - I spend some time away.....then get frustrated at my lack of action come back and read my little heart out then repeat.....been doing so for 10 years.
Done all the reading Rich Dad series, Jan Somers stuff and heaps more. I consider myself fairly well versed in the theory of IP investing.
I understand some of the key topics, equity, cross security, tax and using tax variations for cash flow etc. etc.

I have email alerts coming to me daily with regular good deals IMO.....

I have a good stable job about $80 to $90k, a wife and two kids. Wife doesn't work and has no plans to (which is our preference -family choice)

PPOR approx $320k value with $237 owing. Have a few K in the bank. No consumer debt at all. Live and want to invest in the outer north of Adelaide.

I hesitate on affordability, I don't want to put the family into a tight spot with private school fees coming and living expenses climbing.

But I also can't stand the idea that I know all this stuff but can't or won't act. I want the financial security IP can offer and would choose to leave work as soon as I could if the portfolio allowed.

I have the somersoft investing software and various other spreadsheets to show me the numbers. I think deep down I don't trust the numbers and am concerned about over committment.

Thanks for reading.

Hi Firefrog, an earlier post that may assist?


We’ve been there as well

An interesting acronym for FEAR That I’m sure many have come across is False Expectations Appearing Real

We’ve found that building the portfolio has been a massive emotional change as well as financial. Personal development and self study has been a large part of the process over the years. Maybe this is due to the fact that we didn’t receive any edumication about financial intelligence in our schooling years (though I didn’t make it to uni….do things change once there?).

FEAR over the years has been overcome with education and mixing with like minded individuals and is soon replaced with excitement.

I well recall the sleepless nights of investing and still like to think about a big decision overnight in many cases, clarity can sometimes be found in rest (and good wine?).

We’ve found the following....warning long post

Your Property will rent out
-Sometimes you have to adjust your perception of the market
-You may have to drop the rent to meet the market

Interest Rates will go up
-And down (it’s the Circle of Life, Simba)

Everyone has an opinion on the Market
-but no one has a crystal ball
-Remember Economics is the only field in which two people can get a Nobel Prize for saying exactly the opposite thing.

You Must Manage the Property Managers
-A good Property Manager is worth their weight, they are evasive beasties though and best captured on moonlit nights at midnight in the fields behind the dark forest
-As well as being evasive beasties a good Property Managers may spoil you -Keep in regular contact with your Property Managers and monitor your portfolio

Prices will Flatline and can even Head South
-Can you hold until a recovery is underway
-There are Markets within Markets
-And cycles within cycles

You will find better cheaper Property a day/week/month after your purchase
-Just as you buy a Holden Captiva and then they release the Holden 60 year addition with free extras (nope? Just me then)

Take Action
-You need to be “in the market”
-Take time to pause-reflect-readjust

Be a Contrarian
-Like the rest of us ;o)

Everyone is a salesperson
-The developer, the banker, the broker, the property manager, the insurance guy, the lawyer, the cleaners, the gardener, the guy who installed your garage door and the government all love it when you buy
-I love this quote “a good financial planner knows the benefit of a trailing commission”
-Pause-check-readjust, do your due diligence, nobody has a better interest in your money than you
-don’t invest on sales talk alone

The Rich Get Richer
-And the Poor get the picture?
-Life rewards performance and action
-There “is” a secret to wealth (hint…use the search function)-The rich adapt to overcome
KERRY PACKER: Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!

Life and Investing moves in cycles
-Listen to your elders ;o)
-Ten years is a long time
-Last year was a short time

There is no Perfect Deal
-But I’ve read some pretty awesome ones on the forum
-Hindsight is a great thing
-Slight imperfections are a part of life
-Now is the perfect time
-There are many ways to skin a cat
-Procrastination can be a persistent and debilitating disorder

Cashflow is King
-It’s the lifeblood and Capital Growth the muscle
-Have a buffer
-Capital Growth exercised well can leverage heavy objects

What is The Why?
-Why are you building the portfolio?
-For us its Lifestyle choices and Financial Freedom

What is your Strategy?
-We are amazed at Rixters (and others) pre determined and well thought out paths and plans


Lastly

Talk is cheap. Supply exceeds Demand.