Well I am glad to say we've taken the first steps on the road towards acquiring an IP, that is starting to arrange equity finance against our existing PPOR (just to tell the full story, we also needed to do this anyway for some minor renovations).
So, last night, my wife and I were having a somewhat length discussion about property investment. She is *ultra* conservative. I don't intend doing anything (rightly so) until both of us feel comfortable with most of its aspects.
I explained to her what I believed to be the fundamentals of property investing, both negatively and positively geared, ignoring the "innovative techniques" like wraps etc. I suggested to her that our first property would likely be slightly negative. I explained how the taxman helps offset losses in the first few years, and how, with a tenant, the holding cost is relatively small (I said a couple of hundred per month).
I used our own home as a practical example of capital growth, having constructed it new 7 years ago and it now having appreciated in value by $110-$160K.
Some of her objections include:
1. What's the point of scrimping and saving so when we're 70 we have some money, when we're too old to enjoy it? I pointed out to here that even if you *sold* a $300K property after 7-8 years you might make $100-200K capital gain. I think her biggest objection is not having access to the capital growth - she calls this a paper profit from which have derived no benefit until we sell. I guess this raises an interesting question. Investing *is* a means to an end, how do you make use of this money?
2. What happens if you don't get a tenant in for a year? How do we pay all the expenses? I explained to her that if the rent is priced reasonably the likelihood of going without a tenant for such a long time is extremely small. I explained that Melb's vacancy rate is around 5%, and a wise-investor told me that 5% includes all the "substandard" housing and all the "too-expensive" housing etc, so you might say the "practical" vacancy rate is lower?. I also pointed out that even if you don't have a tenant you can still claim the interest as a tax deduction, because the property is nonetheless available for rent (someone please correct me if I'm wrong?)
3. Why not just pay our home off quickly and start putting money into a managed fund? I explained the concept of leverage and the argument that $10K cash can buy a $100-200K property (with appropriate mortgage insurance) whereas you'd be lucky to get $40K of shares (at 75% LVR). I also explained how getting 5% capital growth on a $200K property is a lot better than 12% on $40K of shares.
4. Shouldn't we pay off our car and credit card before we start? Probably good advice, it may even happen before we find "the right property".
All in all I feel like there is a critical piece of information I have failed to tell her about in order for "the penny to drop".
Did anyone have trouble educating their partners of the value of property investing? I don't want to feel like I am coercing her into it. It has to be a mutal decision for mutual benefit. Any suggestions?
Thanks
Kevin.
So, last night, my wife and I were having a somewhat length discussion about property investment. She is *ultra* conservative. I don't intend doing anything (rightly so) until both of us feel comfortable with most of its aspects.
I explained to her what I believed to be the fundamentals of property investing, both negatively and positively geared, ignoring the "innovative techniques" like wraps etc. I suggested to her that our first property would likely be slightly negative. I explained how the taxman helps offset losses in the first few years, and how, with a tenant, the holding cost is relatively small (I said a couple of hundred per month).
I used our own home as a practical example of capital growth, having constructed it new 7 years ago and it now having appreciated in value by $110-$160K.
Some of her objections include:
1. What's the point of scrimping and saving so when we're 70 we have some money, when we're too old to enjoy it? I pointed out to here that even if you *sold* a $300K property after 7-8 years you might make $100-200K capital gain. I think her biggest objection is not having access to the capital growth - she calls this a paper profit from which have derived no benefit until we sell. I guess this raises an interesting question. Investing *is* a means to an end, how do you make use of this money?
2. What happens if you don't get a tenant in for a year? How do we pay all the expenses? I explained to her that if the rent is priced reasonably the likelihood of going without a tenant for such a long time is extremely small. I explained that Melb's vacancy rate is around 5%, and a wise-investor told me that 5% includes all the "substandard" housing and all the "too-expensive" housing etc, so you might say the "practical" vacancy rate is lower?. I also pointed out that even if you don't have a tenant you can still claim the interest as a tax deduction, because the property is nonetheless available for rent (someone please correct me if I'm wrong?)
3. Why not just pay our home off quickly and start putting money into a managed fund? I explained the concept of leverage and the argument that $10K cash can buy a $100-200K property (with appropriate mortgage insurance) whereas you'd be lucky to get $40K of shares (at 75% LVR). I also explained how getting 5% capital growth on a $200K property is a lot better than 12% on $40K of shares.
4. Shouldn't we pay off our car and credit card before we start? Probably good advice, it may even happen before we find "the right property".
All in all I feel like there is a critical piece of information I have failed to tell her about in order for "the penny to drop".
Did anyone have trouble educating their partners of the value of property investing? I don't want to feel like I am coercing her into it. It has to be a mutal decision for mutual benefit. Any suggestions?
Thanks
Kevin.
