Does this sound like an IP plan with 1 hiccup

P

photo guy

I would like to get some feedback as to the viabillity of my plan to build IPs.

I am 31 earn $70,000 per year have no wife kids dependents etc have a $18,000 debt for a $30,000 car which I pay $125 per week and am 18 months in front on repayments. I have been with my employer for 6 months having spent the last 5 years surfing all day after dropping out of mainstream society on the Gold Coast.

I am looking at purchasing an IP in the very near future for around $220,000

I am interested in a interest only loan with 100% offset facillity, put all my living expenses on C/Card and pay off on due date to pay 0 interest on C/Card have my salary paid direct to the offset account to reduce interest. Build up the offset account to $20,000 and buy a second IP asap

On my uneducated calculations I beleive I will have the following income etc

Salary $930 per week

Expenses car repay $125
Rent $125
Living expenses $250


Savings per week $430 per week.

rent from property will be $160 per week as I will be renting to my dad slightly under market value but circumstances prevent higher rent.

Negative gear the property which means I should get about $100 per week tax reduction. Rent $8000 int+exp $22000 loss $14000

So my repayment abillity would be Savings $430
Rent $160
tax deduct $100

Total $690 per week

Do these figures sound right. If I've screwed up let me know I am new at this like 1 week.


The big hiccup is I have NO deposit is there anyone out there that will take a rental contract and tax deduction into consideration when assesing an investment loan and if so will they lend 100% being my first venture into propery and having no deposit.

I would like to try and buy 2 properties in the next 12 to 18 months if I have to save the $20,000 or so for deposit in the 12 months it will take to do it my property will be $240,000


Will my plan work from the experiences from members on the forum?


Do you have any recomendations to lenders etc, I will be contacting Rolf in the next 3-4 weeks as he seems to be the man with all the answers.
 
Cynically speaking you are 31 years old, basically 13 years since becoming an adult, over those 13 years you total financial achievement is limited to being 18 months ahead on you car payments? I dont want to depress you but a little bit of "tough love" is called for; from a financial perspective you have f..kup the last 13 years and you really need a new plan totally different to the last 13 years.

The good news is of course that you are here on this forum and with other people who have also f..kup up (like me) and made a change for the better. Anyway you are here and considering your options. For some more good news, just imagine that in 5 years you could be just like this guy.. Go-ahead read it I think it is just one of the best how-to/why-to posts ever on this forum. Take a read, then decide that this could be you in a few years if you take action. The first step is to believe it is possible, the second is to believe it is possible for you, then of course the hard work begins and you have to actually do it. Motiviational books always sound like you just need some motivation and a goal and the then the plan execution is the easy, but it really is tough to take consistent action when it appears that all the world is trying to stop you.

Banks for example spend millions on advertising trying to get you to choose a loan product with them, but when you talk with a live bank person getting a loan is as enjoyable as a night or two in one of Sadam's detention torture and execution centers. Hello this is WeSuck, if you would like a loan please remove your clothes, pick up a free pair of genital electrodes and take the escalator down to the floor B2 and go thru the door with the sign labeled "Finance Applications and Mutilation Center". As you know we live in strange world, there are professionals who actually put up with this every day, if we can consider this an case of S&M, where the bank is the party liking "S" then you can hire a professional "M" (a Mortgage Broker). Even better news is that the "M" is paid by the "S" because the "S" needs the "M"'s to bringin fresh meat as much as the "M"'s need the "S"'s to provide them with food and shelter. In a good and fair world Mortage brokers wouldnt be needed as banks would supply fair and honest information and employee staff actually interested in helping the customers...but alass the world is not fair. But I diverge.

Until you own a house, until you have separated yourself from the life of a hand-to-mouth consumer you dont need a 30K car.

So here is the always_learning plan: Sell the car, pay out the loan, the money left over we can call it "capital". Then with your hard earned capital buy a crappy house at as close to land value as you can find, but as a primary place of residence, use the 7K first home buyers grant to fix it up, you have lots of time you are not married and dont have kids...at night do something usefull with your hands...like sanding down and painting then move out and rent it! If you have done a good job, then you can refinance the house...it would have gone up in value right! Use the refiance to purchase another IP again with some kind of way to add value! You are on your way, Magic!

BTW I think a 220K house plus 15K buying expenses would cost about 6% interest and 2% holding/taxes/repairs = 8% of total or 19~20K/year, subtract your dads rental of $8K, leaving about an 11~12K hole which after depreciation expenses will give you a tax refund of ~8K at maximum tax rate...you pay $4K/year so I think you can afford it, the question is, "is it right for me?"

The numbers are not the point the point is to start with a good plan and the right mind set and decide in advance to pay the price and deal with of all the crap that will come your way when you start working the plan. The numbers are used then just to verify the deal make sense for you in regard to your plan.
 
Last edited:
The reason I am here doing something about it is to erase the screw up. I have spent about 40 grand on camera gear which I will only sell if I get a decent price for the stuff.

The last 5 years were spent surfing and relaxing kind of early retirement at 25 but the money was running out and I had had enough of doing nothing so back to Sydney I came. So here I am starting from scratch again.

And I am going to make up for lost time real quick nothing like earning $900 aweek after tax with no expenses to get a kick along. Just have to find some good property in the right location as I have a 100% rental occupancy on the first place. When that is up and running i'll get a second and so on.

Though I don't understand how people can have 10 or 12 properties and can service them all without 3 or 4 of them being completely paid for.

That I still have to get my head around.
 
Photo Guy:

AL's obviously the "caring, sharing" member of the group with his/her "tough love" comments so I don't think that needs any further comment.

I think DaleGG mentioned somewhere about being careful with rental transactions which are not "arms length" or market-value, because you may find the ATO disallowing a portion of your deductions because the rental income was not negotiated at arm's length.

In other words, if you have a $500K house and rent it to your friend for $120 per week, or $6240 per annum income, but still claim a $30K tax deduction for interest payed they might say "what the ...".

However, $160 per week on a $220K property might not be so far out-of-kilter than it registers any interest by the ATO.
 
Originally posted by photo guy

.......Though I don't understand how people can have 10 or 12 properties and can service them all without 3 or 4 of them being completely paid for.

That I still have to get my head around.
Click to expand...

That my friend, is called positive cashflow.

How do we ahieve this?

Buy Well
Value Add
Time
Borrow Less
Raise Rents

......but then again others will have a different view........

regards
 
Though I don't understand how people can have 10 or 12 properties and can service them all without 3 or 4 of them being completely paid for.
Click to expand...

Certain properties can generate more income than their expenses. These are cashflow-positive properties. Each cashflow-positive property you hold adds money to your pocket each week (except if it isn't tenanted).

What you are contemplating purchasing will not be cashflow positive because the loan interest will far exceed the proposed $160/week rental income. The Tax Office will help out a bit by allowing you to claim a deduction on the "losses" you incur on the property. These are negatively geared properties. The assumption [made by investors] is that the losses being incurred now will be made up by price growth in the value of the property itself.

You will need a very very substantial salary to be able to service 10 or 12 negatively geared properties simultaneously, however.

Most people (who prefer negative gearing) will start by buying one or two negatively geared properties and, as the properties increase in value, so rents will subsequently increase, and in time these properties will in fact become cashflow positive. With that payment burden eliminated, they can use the increased value of that property to purchase the next one, and so on.
 
While i congratulate RPI for his excellent achievement, we all have to remember he did it in a steeply rising property market which helps the cause a bit. The next 5 years will sort the wheat from the chaff.

And Photoguy, you are on the right track by coming to the forum.
Keep researching and learning and you will learn how to do what you want in a way that suits your life. Tho A_L's is a great strategy if that suits you.

I did somthing similar to yourself, years ago i made a lazy $35k with a small business venture. Did i look to my future? NO WAY!,
I went and bought a backpack and disapeared to Europe and the US for months & months on end until i blew all the money.

I sort of regretted it, but had a great time :D It was only when i met my now wife that i thought about my financial future, started a business, bought property ...yada...yada....

So, make this your lifestyle not just a passing interest and research, study, learn and you will succeed.


Good Luck
 
Lean livin'

Hi photo guy,

Seems you have some good feedback...my $2 worth.

Would say your budget could be dodgy. What if dream car breaks down ? Do you buy Christmas gifts for anyone ? Do you have insurances : income, health, life (if you have family who will need to dig you a hole 'and' pay for it) and also the general living expenses of Sydney.

Being a Surfie bum for a while may have you still into Gourmet Pal, but you can blow $250 in a Sydney restaurant before your date quaffs her Tiramisu !! (I indulge here a little but you get the picture..OH. OH .no pun intdd ;o}

Bottom line is your fuigures look too thin and could lead you to a very finely tweeked budget. Not good if interest rates jump, tenants bail, you get sick or hurt or you ding up up your flash set of wheels.

Not insurmountable, but be a little more cautioun with your budget may be good advice.

SW
 
Actually Splinter,

Just b4 I read your post I was thinking that PG's $250 a week for living expenses was WAY excessive for a single guy! I live in Sydney on $50 a week living expenses, and have lived on less in the past (but then I am a bit of a freak!)

PG, if you want some tips on being a tightwad, that sure is my area!

Hobbo
 
Re: Lean livin'

Originally posted by Splinter Wood
Hi photo guy,

Being a Surfie bum for a while may have you still into Gourmet Pal,
SW
Click to expand...

Hey, Don't knock it.......Top Breeders recommend it!

regards
 
Hi All,

always_learning, being a bit of a "hard-ass" I loved this reply and think that every kid should read this as soon as they can read...there's no use wasting all that cash from part time jobs while at school when it could be put to use starting a small business or buying shares/props.

photo guy, welcome to our forum and "good on you" for having the balls to lay your life out for all to see. It still is hard to give really directed advice without knowing some more details such as, how many hours per week it takes you to make you 900 bucks, your willingness to take on home handyman jobs, your willingness to get in and "make it happen" when things get tough. One thing you may want to think about is reading some books as there is HEAPS of information out there for you to feed the fire that is just starting to burn. Jan and Ian Somers, the hosts of this web forum have been investing in property successfully for a number of years now and have written a few books on the subject.

Good luck

Glenn
 
The main problems I see is a little bit of info is dangerous too much is confusing.

I work 5 12 hour days 11am to 11pm with more overtime on Saturdays if I want it, work is never going to run out I work for a company that supplies Australia/New zealand with the ceremic tile adhesives. Smallish company huge demand.

I have done some figures and it would be more beneficial to buy first unit as PPOR claim $7000 home buyers grant then after the "reasonable" time of occupancy has run out set it as a Neg geared property till the tax benefits runout then make it into a positive geared prop though by that time I'd have a second so the deductions and income combined may mean it is still N/G but the goal would be to get it positive asap. Which means income growth equity monies in an offset account so I can take them out without affectiong the amount that the tax office says I owe.

My car touch wood will stay in 1 peice for many years. It is a 2000 model VT SS commodore, I don't have a girlfriend as they cost too much to keep happy and maintain and nothing keeps them happy anyway and they are only after your money anyway. Am I a tight ass you bet.

With my projected savings for end of this Financial Year + the bank says it will give me back 12 months of my advance payments which is $6000. So $7000 FHBG, $6000 P/Loan, savings $4000+ what I got already comes to about $20000. So things are looking good now. Yesterday things were bleak.

My $250 expenses includes food petrol and insurances abit of spending cash for the weekend etc.

As to the arms length situation I've sussed the rents for what I am looking at and the going rate is $180 aweek so $160 I think is reasonably ball parkish.

Well thats about it for now, I'll be back but.
 
Originally posted by hobgoblin
Actually Splinter,

Just b4 I read your post I was thinking that PG's $250 a week for living expenses was WAY excessive for a single guy! I live in Sydney on $50 a week living expenses, and have lived on less in the past (but then I am a bit of a freak!)

PG, if you want some tips on being a tightwad, that sure is my area!

Hobbo
Click to expand...

Ok Ok......I know that this is off topic........BUT can I _PLEASE_ see a budget for this. I used to live in Sydney......and $50 bucks isn't going to give you much room to move...or do anything.......espec for a single guy that goes out and drinks beer......5 beers = $25 bucks........so theres half your budget gone.....Although if you were drinking Guinness this would definately be better value for money :D. Weekly train tickets cost around $30. Were you growing your own vegies.........or eating at the Hari Chrishna temple for free??????
 
Hobs,

How can anyone possibly live on $50/week? Thats average of $7 a day. Unless you live at home with parents and never leave your bedroom.

I dont think its cool to boast about being a "tightwad" and offering to help others do it, who would publicly take you up on that offer. Some people go too far with this kind of thing.

Its ok to make some sacrifices to invest in property but you need some sort of life as well or whats the use of it all.

But i suppose some people are tight regardless of what they are doing, and the irony is that i have found the tightest people are the ones with less of everything in their lives.

The millionaire next door?....BAH!!!..load of guff i reckon!! why have money if you cant enjoy it?

I'll get off my soapbox now:)
 
I can understand Hobbo's perspective on living on little.

After spending a year bumming around Asia/Europe on less than AU$25 a day in the mid-90s (msotly beer) I've found that it's actually pretty easy to live on almost nothing, you simply look for the cheaper entertainment alternatives. (My partner's an expert on urban survival as well)

This has proven really useful in investing as it means that rather than putting 10 or 20% aside it's possible to put much more aside without reducing lifestyle.

Some ideas for you skeptics out there:
- Don't smoke (it's not really sophisticated anyway)

- Don't drink alcohol or do so very sparingly and not at expensive bars/clubs, invite a few friends around your home instead (remember that alcohol doesn't actually make you more attractive/smarter/socially acceptable)

- Invest in a cheap eats guide, or better yet, in a cookbook

- Buy cars that don't travel faster than the legal speed limit - remember that the increased maintenance on a well inspected cheap older car is less than the depreciation loss on a new one over 5 years

- Use your local library rather than local bookstore (they have videos & sometimes DVDs too - saves heaps on rentals)

- Go online for coupons & discounts BEFORE rushing to see the latest big movie

- OR wait a few months and look for local 'movies in the park' - free and a great time out (trust me the movie doesn't get worse - or better)

- Buy no frills (see if you can fill a trolley without brand names)...remember, mostly they are made in the same factories as the big names

- Think about whether the brand name actually makes the product better - clothes/electronics/cars are often made in the same factory to the same quality standards & the brand differentiation is pure marketing spin (trust me, I'm a marketer)

- Always ask for a discount, it's a Recommended Retail Price, not cast in stone.

- Check prices across stores & DO YOUR RESEARCH IN YOUR AREA - just as you do for property, find the cheapest suppliers of everything else and build those relationships!

- Do a skills audit of your family friends & barter!

Gee - I should write a book, want to collaborate hobbo? :)

Cheers,

Aceyducey
 
Well Done Acey. (you stingy tight ass) :D
I too did the bumming thing around Europe. It's amazing how little you need to get by

regards

A fellow tight ass
 
Off the perch....

Hi peoples,

Originally posted by brains
Its ok to make some sacrifices to invest in property but you need some sort of life as well or whats the use of it all.

The millionaire next door?....BAH!!!..load of guff i reckon!! why have money if you cant enjoy it?

I'll get off my soapbox now:)
Click to expand...

Brains: stay on the box!!

100% agree with the idea of enjoying the journey to owning $x worth of IP's or Shares or whatever. I'm not saying that everyone should race out and buy a 200k car on credit without considering the future impact BUT sacrificing everything you would like to do to do so you can have $x IP's in 5 year, 10years or even 1 year is CRAZY!!!

Case in point: Possum Bourne, rally driver with Subaru. Spends his life driving cars in "dangerous" situations...doing 200km/h+ through trees etc and then dies from a head on collision in a standard car whilst looking over the course for one of his favourite events and travelling at 60km/h!! What tha???

The point to all this? Don't put off doing something you REALLY want to do just so you can invest in another IP 3mths earlier!!! What happens if you go into tight wad mode and only spend $10/wk by living at home and never going out or doing anything and then The big man upstairs says "sorry!! times up!!? Be a FOOL and spend a whole $200/week if you have things you REALLY want to do!!! It may take you a few more years to build your portfolio but it wont matter 'cause you're enjoying the the trip a little anyway!!!

Joins Brains in the "off the soap box" status

Cheers
Chris
 
Hi All,

Sorry Photo Guy if I have unwittingly turned this post into a "To be, or not to be a tightarse" discussion....but anyway.

Brains,
I agree with Chris G in that one's level of tightarsishness (what a fantastic word!....LOL) is a personal choice.

Whilst I don't think that absolutely everyone should take a leaf out of my book, I am just saying that it is possible to get by in Sydney on less than $50 a week if you need to or want to. I have more fun these days than when I used to spend ALL of my paycheck!

Once I realised just how many people/businesses/ads are out there trying to take my hard earned dosh away from me, I made a game out of it. Now I find it amusing to see just how much of my styudent allowance I can save each week, and how many things I can get for free.

Acey, those are top ideas for saving $$$. I have lots more of my own...another time maybe.

The Hobgobbler
 
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