Any advice?

[newbie1]

Hi everyone!

Hope i'm posting in the right section?

As the name suggestions, i'm very new to this. I brought my first house (which i currently live in) 4 yrs ago in WA. My motivation when i first brought my house was to just use it as my stepping stone to start buying more investment properties. Four yrs on & after reading many, many books i figure it's about time. Especially as prices have dropped i want to get in NOW. Better late then never (but better never late!)

I could really do with a mentor, someone to guide me a little and give me some suggestions, advice and inspiration.

A little about my current situation: Due to unforseen circumstance, i work PT from home and apart from my mortgage (200k) i have no other expences (apart from the usual living costs) which leaves me with not a huge amount of disposable cash and what i do have left goes in to savings. I know it's too risky for me to currently buy another property on my own in my current situation without tweeking a few things.

I've found someone who will buy with me and i've been looking at interest only loans. My plan is to make my current loan interest only as my mortgage is already pretty low and i'm not planning to stay here forever - maybe another 5 yrs before i rent it out so i'm not too concerned about paying the principle at this point in time. Then, when i buy the investment property and rent it out, i'm not paying out much more than i already currently am.... Will this work? Any other options out there?

Then, the question about where? The other party wants to buy an apartment in the city. For far too many reasons i'm cautious about this and would prefer something in the suburbs within reasonable distance to the city. Any ideas about this?

I really look forward to hearing about some of your experiences and learning from this as much as i possibly can. I want to give this a go and there's no better time than now. ...

 

[Perp]

I would think investing with somebody else is pretty risky. It only takes one of you to decide you're getting married or going travelling or something, and one will want to liquidate and the other won't, and it'll be ugly. I'd recommend you find something that you can afford on your own. Fortunately, with interest rates low and rents on the increase, you should be able to find something neutral to positive if you do the legwork.

I think interest-only is a good idea.

I would also prefer a property on its own title (ie house and land) rather than a strata title, as it provides you with more potential for adding value to the land in the future. Also, body corporate expenses can substantially impact on yields and make units less attractive than houses.

There's a heap more we could all tell you; the forum is a wealth of information. I know it can be hard to know where to start, so think of your questions and try and address them one-by-one. eg I/O vs P&I, unit vs house, partnered venture vs invest alone - all these have been addressed before.

 

[BV]

Newbie

I agree with Ozperp.
IF you have to buy something, go on your own.
Although in your situation it seems to me that it would be better not to buy anything.

There is a lot of uncertainty in our economy and unemployment is rising so this is not the time to take risks. Be careful, Convert your existing loan to an IO loan with an offset and keep on saving.

IMHO

 

[sash]

Newbie,

First of congratulations in having a crack.

My personal feeling is that now is not the time to load up with debt if you have difficulties servicing. My suggestion is as follows:

1. As BV...if it is possible convert your loan to interest only. This will help you cash-flow.

2. Try to get a full time job if possible. Banks have become more conservative in their lending practices.

3. Scutinise your expenses and review things which will not affect you like cost of insurances, phones, etc. and shop around. I know I did and I have saved about $2 per year by changing providers.

4. The WA market in my opinion is over priced at the moment. There are much better buys in Sydney and Melbourne. Some of these are cash flow positive.

A little about my current situation: Due to unforseen circumstance, i work PT from home and apart from my mortgage (200k) i have no other expences (apart from the usual living costs) which leaves me with not a huge amount of disposable cash and what i do have left goes in to savings. I know it's too risky for me to currently buy another property on my own in my current situation without tweeking a few things.

I've found someone who will buy with me and i've been looking at interest only loans. My plan is to make my current loan interest only as my mortgage is already pretty low and i'm not planning to stay here forever - maybe another 5 yrs before i rent it out so i'm not too concerned about paying the principle at this point in time. Then, when i buy the investment property and rent it out, i'm not paying out much more than i already currently am.... Will this work? Any other options out there?

Then, the question about where? The other party wants to buy an apartment in the city. For far too many reasons i'm cautious about this and would prefer something in the suburbs within reasonable distance to the city. Any ideas about this?

 

[Jamie_D]

Hey Newbie

What's your PPOR worth and which bank is your loan currently with?

You've probably experienced significant growth in Perth over last 4 years and it would be wise to utilise any equity

the banks will also ask for a statement of assets and liabilities including credit cards etc to work out servicability

you should expect to receive 5 - 6% as a rental return on investments depending on loaction etc even higher in some cases
best interest rates at present are around the mid 4% mark so could be a case of positive gearing

good luck

 

[newbie1]

Hi again everyone

Thank you all so much for you time to reply. There's definately so much knowledge, information and advice going around and i'm finding it so helpful.

I have a lot of equity in my home and i've been planning to do this for a long time now so i'm not hesitating in buying now - that's a given, i will buy this yr. I know i'd really regret it if i didnt given that prices and interest rates are down so i'm willing to take that risk. I'd like to think that i'm in a pretty good position given that i dont have any other debts to service and do earn a good wage even if it is part time. I actually work in an industry where i assist the unemployed so my job security is pretty good in this environment

So with those points out of the way you've all given me plenty of great things to think about... Certainly the doing it on my own part so i've arranged an appt w/ my broker for next week to discuss this. Also, i'm really interested in the comments about house V unit due to all the fees associated with a unit? Someone pointed out (in another post) that with a unit etc you pay all the fees up front w/ includes things like servicing where as in a home you're responsible for all these out of pocket expenses as they happen?

And i think an IO loan is a good idea too... so why are so many ppl warning me against it?

 

[kum yin lau]

Hi, who are the 'people' warning you against IO loan? How many IPs do they own? How much loan have they taken out?

They might be people who do not on principle owe any money to anyone. I know a few people like that. They're in my immediate family and ALWAYS give me dire warnings about my loans.

Sash has given a very insightful analysis of the real estate situation [I say that cos it happens to coincide with what I think!]

Good luck in your quest to buy IP this year.
KY

 

[Dazz]

I would think investing with somebody else is pretty risky.

Absolutely.....

 

[aaarghhh]

i Would Think Investing With Somebody Else Is Pretty Risky.

absolutely.....

Rotflmao..

 

[newbie1]

LOL - Thanks KY, my thoughts also.

Why is that funny? Is it really such a bad idea??

 

[Perp]

Why is that funny? Is it really such a bad idea??

They're teasing me as I was recently seeking a JV partner.

A JV between seasoned investors for a commercial deal is somewhat different to two inexperienced people investing in one residential property, however, as I know they appreciate. (They just couldn't resist the irony.)

When you're inexperienced, in particular, it's far more likely that somebody will get jittery and want to withdraw quickly, which is the main risk that I perceive.

If you're sure that both of you are happy to take a long-term view and stick with it, then it can work.

One of the other reasons it's a bad idea is for your servicability going forward. If you take out, say, a $400K loan, $200K each, you'll probably find that you're each liable for the other person's half of the loan - the lender will ensure you're "jointly and severally liable". Therefore even though you might think that you only have a $200K loan, for servicability purposes, you're potentially liable for the whole $400K, and the whole $400K debt will be counted against you when you apply for future loans.

Obviously when you're using Trusts and companies within JV structures you can contain the effect of this within the entities.

 

[newbie1]

I can see a lot of good points and although it's not ideal, i'm sure there's a way (like there always is). We'll definately have something in writing legally binding stating that neither of us can use the property as an asset etc. Wouldn't that be horrific to have someone drag you into a heap?

I have an appt next week so i'll dig right into everything as i alway do. Who knows, maybe i'll have the capacity to do both (partnered and one on my own)? Nothing's impossible

I also found the FAQ on the home page very useful, answered most of the questions i posted here and made things pretty clear.

I'm getting hooked on this site lol - so many interesting reads and strories and more interactive than a book. i'll keep you posted how things are going and i'm sure more question will pop up...

 

[willair]

Aon my own in my current situation without tweeking a few things.

I've found someone who will buy with me and i've been looking at interest only loans.
Then, the question about where? The other party wants to buy an apartment in the city. For far too many reasons i'm cautious about this and would prefer something in the suburbs within reasonable distance to the city. Any ideas about this?

Interesting the way you answered that question, you want it one way your future partner has other idea's on what is a investment and you have not even started investing as one stand-alone setup, from all the partnership I have seen the only ones that work are married people that sleep in the same bed ,and smart gay men, I would never go into partnership with anyone outside the inner circle of my small family, too many "IF’S”, and it's very hard to split a asset if the other side wants out in a hurry, unless you both have a sharp exit clause in place from the very start even then I would not put one cent on the table'
I just have to ask why bring someone else in, you have done well so far
You own or control property just keep doing the same unless you want to speed up the system, but why drive a school bus blindfolded..
..BTW welcome to the forum..
imho ..willair..