Chicken before the Egg

[dhodgson]

Hi,

I've been passionate about property investment since I can remember, I've always had the goal of working harder to earn more to gain bigger/more property. I lived in the UK for most of my life and 2.5 years ago moved to WA at the end of the boom and now find myself with a mortgage of $440K in a house worth about $510K based on a recent bank evaluation. We built and so it has no flooring except wet areas, and no curtains and the back yard isn't finished, I earn around 80K + super as an IT engineer.

I've recently read Steve McKnight's 0 to 130 (Revised) and 0 to 270 books and feel there must still be hope for me. However I'm being told left right and centre by work colleagus and other friends that I should give up looking at PI as income for a number of reasons (use it as a tax benefit, use my equity and buy 1 property, buy mutual funds etc), but like Steve has suggested I'm trying to follow my dream no matter what others are telling me.

I'll tell you why I'm on this forum. I'm at a crossing point.....the dream of getting into PI I feel is slipping away unless I do something asap. Yet with my minor amount of equity (which I can't get anyway as I'm already about 86% LVR) I feel like I can't afford to do anything. In Steve's books 95% of investors use large amounts of saved cash to start their PI, I don't have that. In his recently revised book 0 to 130 Dean and Elise's deal was funded by "Private Financiers" + Loan. Is this a way forward for me? I'm not sure, I don't know where to start even looking for this.

The subject line states "chicken before the egg", like I feel I need money to start in PI yet to get money I need to be in PI. Is anyone else in the same boat? Am I the only one?

Can anyone advise a place to start? I have thought about selling our house but know I won't get maximum price for it as it isn't finished so I'm very hesitant. Again maybe Private Finance is the way to go.

I suppose after all this ranting and raving and complaining I'm looking for valuable resources in order to start my IP dream and am not looking for quick get rich schemes but am willing to put in time and effort and hard work to allow my dreams to come true.

Dave

 

[Player]

No rush....there will always be properties

Hi ya Dave,

welcome to the forum mate

I think you need to chill a bit and venting your obvious frustration (and I'm sure you are not alone in your situation) may help get this out of your system a bit.

Using your chicken and egg metaphor, rather than worry about rushing to enter the property market for IP's, how about you preserve the chicken (or golden goose) that lays the eggs. That is, don't stress out too much about missing the boat and make yourself sick. You are the golden goose that lays the income eggs for now. Don't sacrifice the goose

In this environment I wouldn't push your LVR too high. Also I am unfamiliar with your familial responsibilities wrt children and other dependents and how old you are.

Why not wait until you get a little more growth in your home equity. By what I understand, Perth is slowly winding up its spring to let loose as the massive infrastructure and energy projects there unfold further. Once that occurs and you can suck out some equity for a deposit, use that to catapult you forward.

Again, not knowing your personal outgoings, can you pay yourself first by saving 10 % of what you earn? You are not an instant gratifier of must have it all now with your home as you are putting up with some inconvenience as things will fall slowly into place.

Be patient. The property market will continue to be there.

Read widely and scour this forum using the search function. There is a wealth of information and inspiration here.

 

[Aaron Sice]

same boat here buddy - the first is always the hardest. it's a compound effect - 1 becomes 2, 2 becomes 4, 4 becomes 8 etc.

i'm finding it so hard to get back into PI that i'm looking for CF+ investments to bump up my serviceability and give the bank no option but to approve me.

just got to keep looking.

 

[PI141]

I feel your pain - our income does not really have enough give to -ve gear a property and a netural CF property close to me ( and yes I want my babies close so I can look after them ) is next to impossible. So I have just invested in a splitter block - it has the house from hell on it and we are going to rent it out asap for 6 months - think a little bit about it but most of all put in a DA to split the block - then move the house over and sell the land = pay down loan with the money and I have a house on land for about $80 less that market value - then I will spend a little money on it and flog it off - for about $110 - $130 profit in 16 months.

Now I really dont want to sell either of them but I have to because we cant affort a 10 000 loss a year and my income is not that great to wear a CF loss on tax to make it worth my while. If I can keep the house and rent it I will, but I plan to sell it and use the money to make my next project CF netural - start again ...................

It was that or buy a house below market val do it up and sell it for 30 profit - do it again and again till I have enough to pay for a property and not -ve gear it.

 

[Perth Investor]

And carefully improving your home will add value as well, increasing your equity. Maybe spend a couple of grand on grass etc and doing the gardens yourself might add $5-$10K to the value enhancing your equity.

Course I'm no expert at this sort of thing, and you don't want to overcapitalise, but careful spending and hard work can help.

 

[joanmc]

Hang in there! I agree with the others. i know it can be frustrating but there are things you can be doing that increase your net worth while you bide your time to invest. Finish your house, maybe learn to tile so you can do the floors yourself (if I can do it 8 months pregnant anyone can!!). use grass seed and small $1 plants to start off your back garden.

I know it feels like you are going nowhere but all those tiny steps while hammering away at the loan will have a big payoff if another boom hits WA.

We were in our first home slowly doing it up when the 80s boom hit and it doubled nearly overnight. Then we upgraded to a bigger house and block and did all the painting, tiling etc ourselves (had babies 2 and 3 ). All these things got us to where we are now. No matter how small if it is getting you closer - it counts.

A jouney of a thousand miles starts with a single step.

have fun and keep us posted.

 

[RumpledElf]

I feel your pain - our income does not really have enough give to -ve gear a property and a netural CF property close to me ( and yes I want my babies close so I can look after them ) is next to impossible. So I have just invested in a splitter block - it has the house from hell on it and we are going to rent it out asap for 6 months - think a little bit about it but most of all put in a DA to split the block - then move the house over and sell the land = pay down loan with the money and I have a house on land for about $80 less that market value - then I will spend a little money on it and flog it off - for about $110 - $130 profit in 16 months.

Now I really dont want to sell either of them but I have to because we cant affort a 10 000 loss a year and my income is not that great to wear a CF loss on tax to make it worth my while. If I can keep the house and rent it I will, but I plan to sell it and use the money to make my next project CF netural - start again ...................

It was that or buy a house below market val do it up and sell it for 30 profit - do it again and again till I have enough to pay for a property and not -ve gear it.

This is us - bought that below market value nightmare, did it up, selling it because there's lots of money in it after we fixed it. The money from selling this one house will be good to get two new ones in a few months when we buy a cheapie that will make a good rental longterm, and then build a new house on the split off part. We did think about selling the land to offset the house but didn't want to hold an 'older' house longterm, mainly for maintainance reasons.

The money to do this came from a house I bought 7 years ago for $25k - not worth much more now but enough to get a foothold into a better market. It is now rented out and I *finally* have my Centerpay forms so I don't have to chase the tenants for cash every fortnight.

Wasn't planning to get into property investment but it just seems to be working out that way and there's a disturbing amount of money in it. We're actually seriously thinking of building a new house every year or two - preferably on splitter style blocks - as the other half really doesn't like major renovations, and building is much more hands-off. We start our first build in March.

 

[RightValue]

Hi,

and now find myself with a mortgage of $440K in a house worth about $510K based on a recent bank evaluation. We built and so it has no flooring except wet areas, and no curtains and the back yard isn't finished, I earn around 80K + super as an IT engineer.

Firstly .. finish your place before you try to buy another plave.

Put in carpets or tiles or whatever .. I reccommend cheapish carpets and vertical blinds .. make the front yard look nice cheaply with some easy care plants, pebbles and bark .. possibly do it in the back yard as well , but don't spend too much money on the rear yard it doesn't add too much in value.

Do this and you may be surprised at the level of increased equity.

The valuer will have deducted far more than the cost of doing these items from the valuation figure. .. this is the saleability factor.

Then start saving like mad for your deposit for your first IP like most of us did!

cheers

RightValue

PS: If you have a wife/partner send her out to work .. but if you don't have one, then don't get one just to send her out to work as I find they generally cost more than they bring in.

 

[attrill]

Quote

"However I'm being told left right and centre by work colleagus and other friends that I should give up looking at PI as income for a number of reasons (use it as a tax benefit, use my equity and buy 1 property, buy mutual funds etc), but like Steve has suggested I'm trying to follow my dream no matter what others are telling me. "

Unquote

Just ask your work collegues how many investment properties they have. If the answer is none then ignore them, if the answer is lots then take them out to lunch and find the reasons behind their opinions.

 

[jaimeandrenee]

I can so relate too your frustration as i was amped up to buy a place ip in three years but a bub came along so she has stalled our wealth creation progress.

 

[BV]

Dave

I feel that like many other young people you wanted the good lifestyle, new house, plasma etc and you wanted it now.

No problem with that, but it will slow you down a bit.

I wouldn't lose much sleep over it, your situation will improve over time
and the WA property market isn't about to take off so you have time to get things straight

 

[fokas]

Hang in there!
It can be very draining to have doubters constantly telling you what you're doing isn't on the right track. But as another poster said as long as you're talking small steps (ok tiny ones) to your goal....you'll get there eventually.

 

[josko]

Quote

"However I'm being told left right and centre by work colleagus and other friends that I should give up looking at PI as income for a number of reasons (use it as a tax benefit, use my equity and buy 1 property, buy mutual funds etc), but like Steve has suggested I'm trying to follow my dream no matter what others are telling me. "

Unquote

Just ask your work collegues how many investment properties they have. If the answer is none then ignore them, if the answer is lots then take them out to lunch and find the reasons behind their opinions.

Now that is great advice attrill.

Welcome Dave,

Hang in there and make a plan. Set your plan up, keep saving and work out.

Do not listen to negatives about what you are doing unless taken from people with EXPERIENCE.

Steve McKnight's book is very out of date and unrealistic in todays' credit environment. Use it for ideas on how to be creative and as I recall- some of his tactics and insights were educational.

Can you take on night work? Can you work from home and set up your own business?

Regards JO

 

[rachels]

and now find myself with a mortgage of $440K in a house worth about $510K based on a recent bank evaluation.

What Am I missing here, I thought that would mean you have around 70k equity?

 

[rugrat]

What Am I missing here, I thought that would mean you have around 70k equity?

Most lenders will only allow you to draw equity out til the 80% LVR mark, or if you are lucky maybe to 90% LVR.

 

[josko]

You are correct Rugrat and some lenders will even go to 97%LVR.

It all depends on Dave's risk profile and how bad he wants to buy an IP.

A 97% lend would leave 54,700 less LMI, less Stamp Duty, less Solicitor and costs on new property.

I would certainly recommend working out whether you could comfortably afford the payments on an IP if you were to go down that path.

You also have the option of finding a positively geared property to help you service a new loan.

Again- it depends on your risk profile and what you are comfortable with.

Regards JO

 

[dhodgson]

WOW!! Thanks for all your encouring comments, I really do appreciette them. I never expected so many to reply.

When still living in the UK and telling people that I was moving to OZ friends and family would say that was wonderfull and what an amazing opertunity and why it was such a great idea, but we were crazy as we had no house or jobs setup before we got there. When I asked why they weren't doing it they came up with many reasons, none that I deamed to stop anyone from moving to OZ, grew up in small town and don't want to leave, I have good friends, I'm too old (this was from someone who is 36). Since then I have realised if you want to do something you do it, no matter what others are saying or regretting, I didn't want to be 40 and say I had a chance but never took it. Now I'm (32) living in OZ with my wife (30) and son (who's 2 on the 21st of December) and love every day of being here, the people the life it's just everything I would say life is meant to be.

2 guys at work actually have between them 5 properties, however all are negativly geared and they're in it for the long term (Pension funds etc), and that's fine if that's their goal but they don't need to talk down or convince others for doing things differently and what I feel is right for me.

So how do I move on from here, how do I start in investing? Do I look at private finance? Do I line up a deal first then private finance? Or as Steve would suggest do we setup a trust first and structure with a decent accountant? Once all the pieces are into place then make a move? Or do we hang on, save as much as we can, possibly take out second jobs (I'm a network engineer in IT, I'm unsure if I can do this at the weekend or evening) although my wifes heard from a friend who cleans houses for $25 per hour, maybe we'll do that at night, but hten I have nmo family here to look after the little fella. Dilemas!

Rightvalue I laughed when I read your comment about the wife

many thanks
Dave