Are we ready?

N

narocroc

Hiya!

I have so many questions!!

...we are paying off our own home in Melbourne. It was valued by the bank at $470k and we still owe $320k on the loan. I'm really keen to start investing. I was going to look in Adelaide for a house around $150k as a start and see how the cash flow goes. Am I jumping the gun a bit or should I be building more equity in our home first? I imagine this depends entirely on available weekly cash flow (we could probably find $100 a week on top of the mortgage) but I wasn't sure if there is a formula for starting when you are already paying off your own house.

Thanks in advance!

Dan
 
Hi Dan, my opinion only, but the sooner you start the better. You could either use your money to pay off your mortgage and create equity in one house or you could use it to create equity in multiple houses.

You can find properties around the $150,000 in the northern suburbs of Adelaide with a return of around 5%. I think it's better odds than the Melbourne markets.

My next newsletter may be of interest to you, it's about the up and coming boom suburbs in Adelaide. You can subscribe through our website (free). I usually get experts in different areas to contribute to the writing.

Also, please feel free to email me any time if you are looking at any specific properties, happy to give you a rent appraisal of the property so that you know up front what you can expect. :D
 
Tough Question

Are you ready? Tough question.

I suppose it depends on how comfortable you are with more debt? Can you afford interest rate rises? Do you really think property prices are going to move much over the next 3-5 yrs? Are you getting married or having kids? Can your incomes support both properties and lifestyle?

I still reckon the best way to pay off your PPOR mortgage is to buy an investment property on interest only loans fixed for 5 yrs for certainty against rate rises. Pay every extra cent into the PPOR mortgage.

Good luck with it.
 
narocroc said:
Hiya!

I have so many questions!!

...we are paying off our own home in Melbourne. It was valued by the bank at $470k and we still owe $320k on the loan. I'm really keen to start investing. I was going to look in Adelaide for a house around $150k as a start and see how the cash flow goes. Am I jumping the gun a bit or should I be building more equity in our home first? I imagine this depends entirely on available weekly cash flow (we could probably find $100 a week on top of the mortgage) but I wasn't sure if there is a formula for starting when you are already paying off your own house.

Thanks in advance!

Dan
Click to expand...


The first step I think should be to contact a Mortgage Broker that is both well versed and property investing and you are comfortable with (there are several great ones here) and look at how much you can comfortably loan at this stage.
 
IMO you have sufficient equity in your PPOR to purchase an IP of the price your considering. You currently have about 32% equity in your PPOR. (ie.150k/470K). If you purchase an IP for 150k (plus approx. $7000 for costs of Stamp duty, Conveyancing etc) you will effectievly have 143 k equity from a portfolio valued at 620 k 143k/620k = 23.06% equity. This will mean you avoid paying Mortgage Insurance and you will still be left with a comfortable margin of saftety in regards to equity.

I agree with what redwing says about getting yourself a good MB who is also a property investor. Our MB is an investor and understands our mindset and he has been invalable. Also, his service is effectively free as the lender pay his comission out of their margin as opposed to an extra real cost to you.

Also, for your information my wife and I own a 3br bv house set on a small villa sized block in the Northern Suburbs of Adelaide (Smithfield). We payed 185k due to it being alomst new etc and it rents for $200 per week being a 5.6% yield.

Jase H
 
toony said:
I still reckon the best way to pay off your PPOR mortgage is to buy an investment property on interest only loans fixed for 5 yrs for certainty against rate rises. Pay every extra cent into the PPOR mortgage.
Click to expand...
If the investment property is negatively geared (ie costing you money), where does the extra money come from to pay off the PPOR?

Now youre paying off non-deductible debt on a PPOR, as well as funding the weekly shortfall out of your pocket on an investment property. Where does the extra money you mentioned come from?

Jamie.
 
Last edited:
Pay every extra cent into the PPOR mortgage

What I was suggesting is that every extra cent goes towards the PPOR. I was thinking more along the lines of a bonus, gifts extra receipts etc that you may receive over time.

I did not suggest you would get extra cash by buying a property now.

However, in my opinion, if you buy an investment property and with capital growth, you can pay off your PPOR property quicker than trying to save and pay the mortgage payments.

Sure there may be some issues at the start with negative cash flow etc.
 
You should buy an investment property when you are ready.

Not when people on an internet forum ,
who you've never met before
about whose expertise / and motivations you know nothing ....
who know nothing about you personal circumstances
tell you to

If you need to ask people on a forum whether you are ready to buy , you're not.....

See Change
 
Dan

Attached is a spreadsheet that I have posted numerous times before.

What it says is this - if you're someone who earns between $25k and $75k pa (taxable income) and you have a PPOR mortgage (non tax-deductible), then every extra dollar you can sink into that loan earns you about 10% pre-tax equivalent.

Now, far from me to say that it isn't possible to achieve 10% pre-tax on an investment property - it most certainly is, but (no offence) you're new to this and long gone are the days when any property investment seemed a guaranteed gold mine.

10% return on your dollar with almost zero risk?

That's a pretty good place to park that dollar while your doing your research.

M
 

Attachments

  • Value of a Dollar.xls
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Pitt St said:
It doesnt solve CF problems.
Click to expand...

PS, I respect that's your belief mate but its not necessarily everyones.

I've been using equity as part of other forms of income to service debt for approx the last 8 years mate. Its not everyones idea, comfort or belief system tho...

Ones wealth thermostat needs adjustment to do so. If ones not where one would like to be maybe they aren't thinking big enough.

Some food for thought. :)
 
Last edited:
Rixter said:
PS, I respect that's your belief mate but its not necessarily everyones.

I've been using equity as part of other forms of income to service debt for approx the last 8 years mate. Its not everyones idea, comfort or belief system tho... Your wealth thermostat needs adjustment to do so.

If your not where you would like to be maybe aren't thinking big enough.

Some food for thought. :)
Click to expand...


Yes . Eight years during which we've had sustained capital growth in one long property boom . You've had the benifit of that and have significant capital growth that you can access.

You wouldn't have done that well is you'd started using that plan at the peak of the previous boom around 89.

Considering we've just finishing a sustained boom , and in some places are already experiencing down turns and given that historically , where Sydney leads the rest follow , to glibly suggest that some one who is just starting out should do what you've done over the last eight years. and rely on future growth to pay for with ongoing cash flow needs ....

Narocroc , I'd suggest you spend more time in reading and research before you start Buying. The market aint going any where fast at the moment and a dud buy at this stage is going to impact you ability to buy further down the line.

See Change
 
see_change said:
Considering we've just finishing a sustained boom , and in some places are already experiencing down turns and given that historically , where Sydney leads the rest follow , to glibly suggest that some one who is just starting out should do what you've done over the last eight years.
Click to expand...

Seech, I think you have me wrong. Did you think I was suggesting to narocroc to use his equity when as you have mentioned when starting out a newbie may not have sufficient equity to do so? I was replying to PS statement re Equity does not solve CF problems.

Hope this clarifies it for you.
 
PS,

I wasn't having any sort of dig at you mate.

I was referring to there being more ways to service debt other than cashflow itself.

Btw, after rereading my first post to you, I can see where it may have lead you to thinking about the dig..I've since rephrased it! Thats the problem I suppose with a written format - it can be interpreted more than one way.

No offence intended. :)

Now where's another roll of crepe paper :eek: ;)
 
see_change said:
Yes . Eight years during which we've had sustained capital growth in one long property boom . You've had the benifit of that and have significant capital growth that you can access.

You wouldn't have done that well is you'd started using that plan at the peak of the previous boom around 89.

Considering we've just finishing a sustained boom , and in some places are already experiencing down turns and given that historically , where Sydney leads the rest follow , to glibly suggest that some one who is just starting out should do what you've done over the last eight years. and rely on future growth to pay for with ongoing cash flow needs ....

Narocroc , I'd suggest you spend more time in reading and research before you start Buying. The market aint going any where fast at the moment and a dud buy at this stage is going to impact you ability to buy further down the line.

See Change
Click to expand...
Yep, good advice! I understand that we are probably in for a number of years of minimal capital growth, if not negative growth, so I'm in no hurry!

Dan
 
see_change said:
You should buy an investment property when you are ready.

Not when people on an internet forum ,
who you've never met before
about whose expertise / and motivations you know nothing ....
who know nothing about you personal circumstances
tell you to

If you need to ask people on a forum whether you are ready to buy , you're not.....

See Change
Click to expand...
Hmmm.....I'm a novice and in the early stages of PI i.e. a lot more research and no-how is needed so I thought asking people in-the-know would be a great place to start....I'm trying to determine when I'm ready based on research and some sound advice.

Thanks!

Dan
 
narocroc said:
Hmmm.....I'm a novice and in the early stages of PI i.e. a lot more research and no-how is needed so I thought asking people in-the-know would be a great place to start....I'm trying to determine when I'm ready based on research and some sound advice.

Thanks!

Dan
Click to expand...

It is a good place to start gathering advice and a great place to find out where to go for further information.

It's when you ask the question " Are we ready " ? ... the point I'm trying to make is that only you will know when you are ready. Gather information, read ask questions etc and one day you will know when you are ready :)

See Change
 
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