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

I regret not buying somewhere in 1999 or 2000. At that point the UK property market was at or just below its long term trend, but unfortunately I couldn't afford a small place in a decent location near where I was working.

I planned on leaving my job in the autumn of 2000 to find something with a higher salary. At the time I had a couple of years experience, but was still on an entry level wage because my then employer didn't believe in raises, preferring for staff to leave.

I got asked to stay on for a couple of weeks, which turned into a couple of months, and then ran into the whole Dot.com downturn, which wiped out the IT industry for a couple of years. I ended up in a lower paying role during 2001 and 2002, spent 2003 trying to unsuccessfully start something up, and by the time I was back in work and had built up savings (2006), it was cheaper to rent than pay the interest on a mortgage.

Had I bought in 2000, I'd have probably spent around £80,000, and would now have a property worth £200,000. I'd have almost certainly cleared the mortgage by now too.
 
Buying my 1st IP was the best thing I ever did as far as my investment journey is concerned as quite simply it got the ball rolling. I do however agree that having a decent buffer is an imperative as without one I don't think the journey would have been anything like as comfortable.
 
my first IP was a place in the country that cost $91k given i had sold my prev PPOR from another relationship for 550k i almost laughed at some of the numbers. Things like 2.5k LMI and $9k deposit on the day.

We have just purchased our first two developement places in melbourne and i am feeling a little under pressure.
 
I'm going to tough it out in my PPOR !

I have changed my mind so many times about moving in with my parents.

I think its in my best interests to stay put. I just feel like I'll be too co-dependent on my parents and I cant stand that feeling! So the next 2 - 3 years will be hard but it will be a good learning curve for me. Its important to take responsability for this and to be brave. I'm an adult and thats what adults do. It could be worse. I've got $7 K in the bank so I'm not entirely broke. It will just take time to rebuild it up again.

I'm thinking of other options. Selling an ip is not an option. I would only do that if I was going under. Perhaps I could try to get a line of credit of around $10 or 20 K and use that as a buffer?! I'm waiting though to see how low the fixed rates will go. I might uncross my anz xcol loans.
 
I think its in my best interests to stay put. I just feel like I'll be too co-dependent on my parents and I cant stand that feeling!

Alex
If you were my daughter and you needed to borrow a thousand or two to pay a bill (eg house or IP council rates or insurance) it would not worry me in the slightest to give the money.

You are building your wealth not squandering money.

In regard to health you are working (and thinking) through all possible strategies to improve and personally I would want my daughter to stay in her own unit if possible as IMHO you grow more as a person by having to face and make more decisions = personal development.

If she needed to come home as not coping financially (behind in bills and unable to earn sufficent money to live independtly) or mentally & physically fragile (depressed, unable to cook, clean and look after own hygiene) then I would want her home.

Stretching yourself is growing, snapping yourself is harmful.


Kind Regards
Sheryn
 
The most important thing for me I've realised is my SANF. Next time I'll take things slower and make sure my golden rules are in place. ie plenty of buffer (at least $30 K before I buy the next one), not too high an LVR (in case I need to draw on a line of credit) and not too NG. I think these rules are so important for someone on my kind of income!

What's suitable for one isn't necessarily suitable for all. Realistically, many successful property investors starting on low-incomes would never have been successful if they had saved a 30k buffer for each purchase on top of deposit and stamp duty. Everyone has a different comfort zone. Timing is entirely crucial. Even on a low-income, just before a boom, negatively gearing to your eyeballs and buying like a mofo can pay off. Not so much in times of stagnation or drops. Speculation is a gamble. A slow and steady positively geared approach is much safer and, clearly, more conducive to your SANF.

I have changed my mind so many times about moving in with my parents.

I think its in my best interests to stay put. I just feel like I'll be too co-dependent on my parents and I cant stand that feeling! So the next 2 - 3 years will be hard but it will be a good learning curve for me. Its important to take responsability for this and to be brave. I'm an adult and thats what adults do. It could be worse. I've got $7 K in the bank so I'm not entirely broke. It will just take time to rebuild it up again.

I agree with it being more beneficial for you to stay put rather than move in with your parents. Financially, you can survive on your own and it would be an unnecessary crutch to move back home at this point in your life.

I'm thinking of other options. Selling an ip is not an option. I would only do that if I was going under. Perhaps I could try to get a line of credit of around $10 or 20 K and use that as a buffer?! I'm waiting though to see how low the fixed rates will go. I might uncross my anz xcol loans.

With all due respect, I can't fathom why you need credit. Doing the sums, you should be perfectly OK on your income servicing your mortgages with a 7k buffer.

Ultimately, the most important thing should be your health and sanity, don't let the pursuit of wealth compromise that. Good luck with everything and whatever you decide, I'm sure, will be the right decision for you.
 
Alex
If you were my daughter and you needed to borrow a thousand or two to pay a bill (eg house or IP council rates or insurance) it would not worry me in the slightest to give the money.

You are building your wealth not squandering money.

In regard to health you are working (and thinking) through all possible strategies to improve and personally I would want my daughter to stay in her own unit if possible as IMHO you grow more as a person by having to face and make more decisions = personal development.

If she needed to come home as not coping financially (behind in bills and unable to earn sufficent money to live independtly) or mentally & physically fragile (depressed, unable to cook, clean and look after own hygiene) then I would want her home.

Stretching yourself is growing, snapping yourself is harmful.


Kind Regards
Sheryn


Yeah I agree and I am grateful I'm healthy and i'm able to work full time and care for myself. Some people I know with my condition cant work and have huge difficulties in doing daily tasks. :)

Yes, most definately! If I were to go live with my parents... that would be taking the easy way out. I need to stay in my ppor and learn from this experience so as not to repeat next time, and i'll have more skills next time I buy. I see now that I'm going to have to take the slow and steady approach to investing otherwise its too stressful for me (and my health)

thank you for your encouraging and supportive post :)
 
What's suitable for one isn't necessarily suitable for all. Realistically, many successful property investors starting on low-incomes would never have been successful if they had saved a 30k buffer for each purchase on top of deposit and stamp duty. Everyone has a different comfort zone. Timing is entirely crucial. Even on a low-income, just before a boom, negatively gearing to your eyeballs and buying like a mofo can pay off. Not so much in times of stagnation or drops. Speculation is a gamble. A slow and steady positively geared approach is much safer and, clearly, more conducive to your SANF.

With all due respect, I can't fathom why you need credit. Doing the sums, you should be perfectly OK on your income servicing your mortgages with a 7k buffer.

Ultimately, the most important thing should be your health and sanity, don't let the pursuit of wealth compromise that. Good luck with everything and whatever you decide, I'm sure, will be the right decision for you.


Thanks, :) Yep everyone has different tolerance to stress levels. I'll just go at a pace i'm comfy with and have a decent buffer next time so I dont have to go through this again! It'll probably mean at least 3 maybe 5 more years till I invest again but I'm ok with that! I'm 40 now and plan to happily retire at 67. Some want to retire early, I'm happy to retire in my sixty's and I really enjoy my job and working.

So I should be able to build my wealth slowly over a couple of property cycles. Even if I didn't buy my 3rd property till I was 45, I would still have another 22 years to accumulate a few more. I'm planning for an income of about $60 K gross (the same as I am earning now) My goal is to be able to live reasonably comfy. I dont want to have to worry about not being able to afford food, medical costs, the basics, like some poor pensioners are faced with. I would also like to have a bit of cash to splurge occasionally on material items as well. ie I dont want to have to count every penny. So perhaps my aim should be $70 K gross pa. I should really sit down at some stage and draw up a financial plan.


I dunno. $7 K is not too bad hey, but i'd have a bit more SANF if it were double that. Anyway I'm looking to refinance soon to a sub 6 fixed rate for 3 years. Atm my ppor and ip is cross-col @ 6.95% SV with anz.
 
Alex, I think you are doing great. In a few years you will forget the pain and be glad you did it.

Like many others, we were totally freaked out and scared as anything with our first IP - it was a totally dump in Rocklea Brisbane, previously used for growing drugs and was trashed by the police whilst being raided, no water, weird wiring (wonder why?!!) and a total rip out and replace job. I was seriously pregnant with child #1 and ended up going into labour whilst plastering, was ordering a kitchen over the phone when my husband finally dragged me into the car to go to hospital. Our parents worried like mad and we ate on a bbq outside/washed with a hose for a year whilst we worked on it. Our poor young daughters first 2 outings was to Bunnings and a timber yard. We made heaps of mistakes, spent too much on some things, saved on others, and learnt a packet along the way.

Luckily, like childbirth, the pain subsides! For the last few years it was rented +ve and now we have finally sold it, at a 30% profit. So glad we went through it all (now) and not sure would change what we did, as it taught us a lot. (Including that parents can be great fallbacks - we are planning to do the same once our kids get old enough to take out loans of their own!:D)
 
ps. we changed to fixed interest only too, which helped stop us freaking out a bit as at least we knew what we would be up for every month.
 
*snip*
I'm thinking of other options. Selling an ip is not an option. I would only do that if I was going under. Perhaps I could try to get a line of credit of around $10 or 20 K and use that as a buffer?! I'm waiting though to see how low the fixed rates will go. I might uncross my anz xcol loans.

If you are confident with your values, and hence LVRs, this might be simpler than you imagine. Apart from the length of time it took, and the heaps of followup (ANZ + paperwork = %*@*$^)@#$!!!) it was just a matter of filling in some forms. My journey with this process is documented here... http://www.somersoft.com/forums/showthread.php?t=70613
 
PM's visit on Monday - Too good to pass up!

Even though I had decided to stay put in my ppor I kept the pm appointments that I had made for Monday just to hear what she had to say. I was going to cancel them but mum said I should keep them. I totally did an about face again and changed my mind! I have changed my mind so many times.

She herself atm is boarding with her parents and has 2 ips. Made a good case for doing this. We had a good chat. She hung around for like an hour or something I think. My ppor will be available for lease mid Feb.
 
We purchased our 1st IP in May 2009 in the midst of the FHB period for $375K, financed via equity from our PPOR that we purchased in Aug 2007 and a fresh 90% loan; effectively borrowed about 106% and throw in our own money to finance the deal.

Even then, being newbies, we could have done a better deal as we paid at least $10K over what, looking back now, we could have paid for. Of course, we had to factor in that during the FHB period back then, similar properties were going for $400-$410K.

After a quick reno, our –ve gear was about $1K a month. 1st IP was valued in Dec 2010 at $480K. The median unit price for the area based on the states from API Mag is $460K, so not too bad there.

Easily handled when we were both working but then Kid 1 came along some months later and then we were on 1.5 person’s income.

In August 2011, we sold our PPOR, went back into renting, bought a 2nd IP. Selling the PPOR paid down some debt, freed up some cash, reduced the loan on the 1st IP back to 90% and reduced the monthly –ve gear to about $600 a month.

As for a buffer, we barely have one as we are focused on getting 2nd IP up and running. Then we will start on rebuilding our buffer as we have no plans to purchase another IP for the next 5 years.

Regards,

Daniel Lee
 
... so you're moving in with your parents? Just trying to keep track :D

yep :D

I have to stop procrastinating now and start packing my stuff up. I have heaps of crap to throw away. What I might do is work for a solid 2 hours and then reward myself with 30 mins on the net lol. Its 11am and I still haven't started yet today. Ok so after I drink this coffee, I'll make a start haha.
 
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