Did you overextend yourself buying 1st IP - Importance of Buffer

Anyone regret buying their 1st IP or would want to do things differently?

I'm glad I bought my 1st IP back in 2009 but if I had my time over again I would do things differently. I realise now how important savings are and having a buffer is!! I wouldn't have taken $10 K of my own cash to fund the deposit. For me on my salary to be able to save an amount of $10 K takes quite a long time if living on my own!

It has been a bit of a struggle the past couple of years. I have had to be very careful with my money and at one point I was spending too much on fruit and food as a reward for my weight loss achievements. I should have been keeping a more vigilant eye on my bank statements. The rest of my pay was going towards the NG and IP expenses and other general living expenses and PPOR expenses oh and recently health expenses I have hardly bought any material items in this time because I just dont know whats around the corner with unexpected expenses.

In June of 2011 I ended up getting a loan from mum and dad for $1000 just to give me a little SANF until my tax return in September. I have done well to have kept my savings in tact since June which was my goal. I now have $7 K in savings. I have had unexpected regular health bills that I've been paying as well so havent been able to save anything.

Anyway I decided to make a move, and board with my parents for a year. I will pay $200 a week board and realistically hope to be able to save at least $15 K in 12 months maybe even $20 K. I will be doing some umpiring that wont be taxed and hoping to do some other casual work so thats another $5 K savings there. Ok so goal is at least $20 K savings this year.

I'm glad I have the opportunity to live with my parents to save again. It was either that or find a share house. I guess sometimes you have to learn the hard way, through mistakes. I thought I had learnt enough by reading these forums for a couple of years before buying my 2 properties. But I guess you dont really learn until you put it into practice hey! I didn't think I would be that NG. I'm NG to the amount of $3,500 pa. I also didn't take into account so many expenses and other property fees. Also health fees that I didn't factor in.

I realise that some people wont reply here. Some may be too embarrassed and some may not be an active member anymore. But I do know there are a few people on SS who did life tough when they first started out investing on lower than average incomes.


If I had to give just one piece of advice to a newbie it would be:

#1
Make sure you start out with a decent savings buffer! This is so important especially if your on an average or lower income.



So... Would anyone like to share there story. Any advice you would like to give to newbies.
 
Thanks for sharing Alex. In the process of purchasing my first IP.

I live with my siblings and share the living expenses with my sister. She is also looking to buy her second property.

Its good goals you got there to save up. I think I need a proper plan in place - I used to shop too much a few years ago (it has gotten better now that I question whether something is a need or a want); and having been introduced to property and the concept of financial freedom in the not so distant future, I have managed to change this addiction.

My sister and I purchased our PPORs in December 2009 and July 2010, and spent time fixing up (minor renovations) - hers is now rented.

I still need to work out how I can save better - it has been challenging (even at 180K combined - but I have been telling myself 2011 was a big year as we spent $ renovating my place where we reside now.

It was quiet challenging initially to manage as we moved out of home.

I am so glad for the choices made though :) a few sacrifices along the way - but I am banking on the future :)

I seriously need a plan, and a buffer you mention.
 
I will be doing some umpiring that wont be taxed and hoping to do some other casual work so thats another $5 K savings there. Ok so goal is at least $20 K savings this year.

Why won't you be getting taxed for the umpiring work? Is there a special exemption in place?
 
For a start, all income is taxable including umpiring even though you may get cash in the hand. No, you probably won't be found out if you don't, but you are taking a chance of a random audit.

Regarding property, don't be too hard on yourself.

You have invested through some turbulent financial years, and you have an "escape hatch" by being able to move back in with your parents. One tip (from a parent of adult kids) - even though you are paying board, an occasional treat for your parents like flowers, movie tickets etc goes a long way towards family harmony and shows your appreciation.

Our first IP was back in the 1980s when you could only borrow 80% of the value from a bank - (and investment interest rates were higher than owner-occupiers). If you wanted more the interest rate was much higher again.

It took longer to get a first home because of the savings requirements, but once you had your savings bank loan you were over the worst. For our first home, to qualify for a savings bank loan at the lower interest rate (still over 8%) we needed a one third deposit. Yes, we could only borrow 66% of the value.

To buy two IPs in the last two years is good going, so now it is time to take a breather and build up your savings. And remember, everyone is an expert in hindsight.
Marg
 
We were sort of the opposite - scared pitless that we wouldn't get a decent sized loan so we worked our collective butts off to build a sizeable "just in case" buffer - about 30% ~ 40% of the value of our first property. In the end, I think we got near a 90% loan, so had lots of cash left for a few more purchases :)

The Y-man
 
For a start, all income is taxable including umpiring even though you may get cash in the hand. No, you probably won't be found out if you don't, but you are taking a chance of a random audit.

Regarding property, don't be too hard on yourself.

You have invested through some turbulent financial years, and you have an "escape hatch" by being able to move back in with your parents. One tip (from a parent of adult kids) - even though you are paying board, an occasional treat for your parents like flowers, movie tickets etc goes a long way towards family harmony and shows your appreciation.

Our first IP was back in the 1980s when you could only borrow 80% of the value from a bank - (and investment interest rates were higher than owner-occupiers). If you wanted more the interest rate was much higher again.

It took longer to get a first home because of the savings requirements, but once you had your savings bank loan you were over the worst. For our first home, to qualify for a savings bank loan at the lower interest rate (still over 8%) we needed a one third deposit. Yes, we could only borrow 66% of the value.

To buy two IPs in the last two years is good going, so now it is time to take a breather and build up your savings. And remember, everyone is an expert in hindsight.
Marg

Oh I thought I didn't have to pay tax on the umpiring cash. Ok thanks, i'm glad to hear that. I'll declare it when I see my accountant. Last year I helped out a friend and did a few of her games, got paid $40. This was for an amateur low level grade where I ran the boundary and the goal umps were just volunteers. I see the importance now to declare it. For some reason I thought it wasn't important enough to, I thought if I did higher level footy umpiring then yes I should declare, but I have changed my mind now after hearing from you. Ta :)

Yeah thanks. I plan to every now and then shout a take away dinner or other items, food or something else. I will help with cooking, do my own washing etc. Help with cleaning and stuff. I will also help when they need me to run an errand or anything. Yep I'm glad I have an escape hatch. I try not to think of myself as failing as I believe I could keep going and living here in my ppor. It would be a struggling for a couple more years. but I know I will be in a better position if I live with my parents for a little while and rebuild my savings.

And remember, everyone is an expert in hindsight.
I'm in two minds actually about my choice to buy that 1st ip. I regret putting in my $10 k in savings but on the other hand I am kind of happy to have done it because I have learnt so much over the past few years out of this experience. Some things you actually have to live through. I'm just glad that my investing hasn't put me into financial ruins or anything. Some people are far worse off. If I had to I could see this through living in my ppor but i'm holding my ego and doing what i think is best for me. I do feel a bit though that I am weak doing this. It feels kind of like I'm taking the easy way out. But then again I reckon it is no different for me to board with my parents than if it were to board with complete strangers. It would be a way to save money... either strategy. Although I think I would be able to save a little bit more living with parents than in a share house. Good thing is though I wont feel like I'm bludging off them as I'll be paying my way.
 
We were sort of the opposite - scared pitless that we wouldn't get a decent sized loan so we worked our collective butts off to build a sizeable "just in case" buffer - about 30% ~ 40% of the value of our first property. In the end, I think we got near a 90% loan, so had lots of cash left for a few more purchases :)

The Y-man

Smart move! :)
 
Thanks for sharing Alex. In the process of purchasing my first IP.

I live with my siblings and share the living expenses with my sister. She is also looking to buy her second property.

Its good goals you got there to save up. I think I need a proper plan in place - I used to shop too much a few years ago (it has gotten better now that I question whether something is a need or a want); and having been introduced to property and the concept of financial freedom in the not so distant future, I have managed to change this addiction.

My sister and I purchased our PPORs in December 2009 and July 2010, and spent time fixing up (minor renovations) - hers is now rented.

I still need to work out how I can save better - it has been challenging (even at 180K combined - but I have been telling myself 2011 was a big year as we spent $ renovating my place where we reside now.

It was quiet challenging initially to manage as we moved out of home.

I am so glad for the choices made though :) a few sacrifices along the way - but I am banking on the future :)

I seriously need a plan, and a buffer you mention.


Thats ok. :)

Good luck with your savings plan. Yep good to hear.. build up that buffer 1st before buying your 1st ip definately!
 
I think most of us, if we had our time again, would do things quite differently.

My first IP's were cheap reno jobs that I then sold for an okay profit but, in hindsight, if I'd held onto them and rented them out they would've been positive geared from the start and wildly positive by now ... I just didn't know about refinancing to release equity.

Actually - IF I had my time again (I started around 10 years ago) I would've bought what I am buying now - stock standard 1970's brick units with minimal BC in inner ring suburbs - but at 1/3rd of the current price ... again would've been cashflow neutral/positive almost straight away.

An example is two in the block of flats I rented in - but didn't buy in - Merewether - cost $100k each, rent $140/wk each, interest rates hovering around 7%.

I had enough cash then to buy 3 at 85% lend and, with the deposit, they would have been cashflow positive at day one ... and we could have added another 1-2 every year thereafter.

But - we live and learn. Never to late to start. One I bought 12 months ago was cashflow neutral from day one ... and now has been re-tenanted without any advertising for 14% more.
 
shows the importance of +cashflow for some people.

Good work though Alex!

Credit cards with low intro rates are for buffers - assuming you can recoup money quite quick if you do have to use them.
 
We have never regretted any of our Ips either. There had been plenty of times when we were wondering how we were going to pay some bills.
A few times robbing Peter to pay Paul.

It took time, and eventually we could get some bills paid down.

I doubt we will ever be totally out of debt..unless we stop buying..then in 20 years we will be :)

Good luck with everything.
 
I had enough cash then to buy 3 at 85% lend and, with the deposit, they would have been cashflow positive at day one ... and we could have added another 1-2 every year thereafter.

Just did the calcs on those three units - if I'd done nothing else but buy them, I'd have cashflow pos of around $30,000/yr and capital gain of around $600,000.

To think they wouldn't have cost me anything to own :eek: sigh
 
Buy 3 more now and in a few years you will be in the same position (not Mereweather obviously but plenty of good buys atm)
 
Thanks Alex for your honesty in sharing your situation. I have always read your posts with interest because you are so upfront with what you're going through at the moment. I have recently come to a similar conclusion too re: buffer. (And ages ago, Skater did a really excellent thread on the importance of having a buffer... here - http://www.somersoft.com/forums/showthread.php?t=23497)

I regret having bought all our IPs on 20% deposit. At least the PPOR was bought using 15% deposit with no LMI. Many people on the forum suggested repeatedly that LMI was worth it - cost of doing business, allows you to purchase more IPs, provides more of a buffer etc. From my reasoning, which I realise is now a bit flawed, I stuck to 20% deposits only just to avoid paying the LMI. We now have only $10k as a buffer, but this needs to cover 4 loans (~ $1m... the repayments on this alone are $70 k per year! And rental repayments only cover around $50k) Plus we have a young dependant to look after.

I feel that we may have jumped the gun when we bought the IPs... I'm always a bit over enthusiastic when it comes to property, I spend a lot of time on SS and am inspired by everyone else. 3 years ago I didn't have any debt and now I can't believe how much we have. If I could change anything I would take the "slow and steady approach" rather than jumping in with both feet into the property market. And I think I would have used only 10% deposit so as to have a bigger buffer (we had no idea we would start a family that early, so to have a bigger buffer would be worth it for the sleep at night factor (SANF)!!)

Good luck with everything Alex - physically, mentally and financially!
 
For a start, all income is taxable including umpiring even though you may get cash in the hand. No, you probably won't be found out if you don't, but you are taking a chance of a random audit.

Marg

Bwahahahahahaha! Only if he puts it in the bank.

pinkboy.....put you ca$h in your jock drawer mate, and shout yourself a luxury when you need it! :p
 
My biggest regret was not starting sooner, even though I did try, not hard enough though. I only went to the one bank manager for a loan and I was a couple of k short. This is 10 years ago when we just got married. If I had of bought that cottage in cairns overlooking the pyramid for $135,000 we would be in a much better position now.

When we finally bought our first ppor in sydney we have bought 1 each year and the debt is growing fast. Two ng ip's now and a large ppor mortgage becomes expensive and sometimes there is money juggling to get bills paid on time. I tell myself and partner that we will be better off for doing this now and it will only get easier. (so long as I do not lose my job)

Pay goes up
rents go up
mortgage stays the same

I am hearing you and i reckon you are doing the right thing, your investment and lifestyle choice you are making now will pay off for you. It will all look like a bad dream when you reflect back on this time in a few years time and bring this post back to life.
 
I guess I regret my first IP but atleast it got me started. To this day I don't know what the catalyst was. No friends or family invest in property.

My first property was financed 105%
I thought I was smart buying in 2007 as things had retreated since about 2005. I did save probably $50,000 but in the years after it probably dropped a bit more. Today I am in positive territory but probably on 15% on purchase.
I do have a buffer of 6 months repayments. I have sailed a bit closest at times but never less than 2 months. That helps the SANF.

It costs me about $80 pw to hold after tax so it's not a good performer.although this neg cashflow is easy to hold and subsiquent purchases have reduced that gap to about $30 pw.
I locked in rates at 7.25% on the first purchase which finishes soon so that will help also.
My only get out of jail card is the IPs location means it is always rented and in high demand. Plus it was recently rezoned so another town house to the back is an option.

So while it has not made me much money and cost a bit of cash to run. It got the ball rolling and has helped me plan my next moves.
 
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