first time investors



From: Anonymous

I have spent a lot of time enjoying and learning from this forum.
My husband and i wish to purchase an IP for the long haul towards retirement.
I wonder if we are taking too much risk.
Our situation is that my husband earns $65000.00 and i earn around $20,000.00
We have a mortgage of $200,000.00 on our property that is worth around $300,000.00
We are 40ish and have 2 dependant children.
Are we making the right move by purchasing an IP of about $250,000.00
We have done the sums and our financial institution have given us the ok to go ahead.
anyones thoughts or experiences would be greatly appreciated. Perhaps i will be able to finally make a decision.
Thanks heaps,
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Reply: 1
From: Simon and Julie M

Hi Jo
I believe that investing is a learning curve that must fit into your personal comfort and confidence zones. Your own personal ability to handle risks and demands placed on you by your choices of investment will be easier if you were to take small steps at first, then as your confidence and competence increase you may find the process becomes clearer.
Take time to invest in yourself first, then act with confidence.
Kind regards
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Reply: 1.1
From: James Doherty

I say GO FOR IT! if I was in your position when I first started 3 years ago I would be retired now.
James D
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Reply: 1.1.1
From: Gail H

I am wondering where you see the risk, Jo, so you can work through those fears (hell, I've gone all touchy feely). The risk you are planning to take is extremely moderate from a property investment point of view. See if you can take steps to minimise the risks you're concerned about. Are you worried primarily about interest rate rises (fix them), not finding a tenant (buy in area with low vacancy rates), losing job (get income insurance) etc. If you are risk averse, then step up the risk protection mechanisms.

Why don't you explore the possible areas/purchases which you are contemplating with people here and get more feedback?

But remember, some risk is unavoidable. You can only worry about the forseeable risks in life, or you will paralyse yourself.Once you have taken into account the main risks (and not the outlandish ones), then tell yourself to stop worrying.

I have a friend who owns her $400,000 house outright. I encouraged her to establish a line of credit against her house to raise deposit/s for IPs. You know what? She says it is too risky. She won't put her home at risk. Mind you, she is obsessed about money and thinks she is planning for the future by buying toilet rolls on special (and yep, she had some Myers shares just for the discount card).She can't stop thinking like a poor person. Not that I am encouraging you to take on the mentality of a high roller - just to move outside your comfort zone.

Anyway, good luck and keep posting for support and encouragement.


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From: Jo Sutherland

thanks guys for your input.
I have had a good think about what i fear and it is only what other people (Who incidentally don't have any plans for retirement ) have put in my head.
So i am going to go with my gut feeling and step out of my comfort zone.
I have read a bit about Defense Housing investment and think that even though the price of them is bumped up it maybe a good first step for us.
Thanks to this forum i feel a lot more confident.
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Reply: 2
From: Mike .

Hi Jo,

Based on a loan of 250K your LVR will be 82%. A couple of things to bear in mind when discussing risk is that banks have their own risk assessment criteria and bank finance rates are lower than other forms of finance because residential investment is regarded as safer than commercial or securities. Try borrowing 250K to invest on the stock market - I wish you luck!

My point is if you are not prepared to gear up (take on huge debt) to 80% LVR then it's doubtful that direct property investment is for you. It is also doubtful any alternative will help you reach your financial goals.

Perhaps you are concerned with the fact that you have 2 dependent children to look after and that any negative impact on your budget would compromise their financial needs. If that is the case and you think their financial needs will increase as they get older then I would recommend only buying cashflow positive properties and I don't mean positive with the help of tax deductions. I mean the rent should cover the interest repayments from day 1.

If you are contemplating buying a 250K house then you have only a slim chance of finding one where the rents cover the repayments. Better to buy cheaper properties where the rent to repayment ratio is better. The rule of thumb is that the rental yield should be >2% above the loan interest rate to cover vacancies, property management fees, landlord insurance, council rates, maintenance etc. Anything above 2% should be money in your pocket and will keep your bank manager smiling. Finally, use the bigger yearly tax refund to pay off your home mortgage quicker.

Good luck. Mike
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Reply: 2.1
From: Jeremy Laws

Dont do DHA - silly! If you bought anything else that was 5% overpriced (at least) would you buy it? NO! If you are worried about vacancies - which you shouldn't be - how much vacancy will that $15-20000 overpricing buy you???? My guess about 2 years totally vacant. Bit stupid to do that don't you think?
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Reply: 2.1.1
From: Mike .

Jeremy please don't direct words like silly and stupid to other forum users even by inference. It lowers the tone of the whole forum and based on other forums I've visited the general absence of this language is a reason why this forum has prospered.

However, I do agree with your sentiments that a newbie can do a lot better than a Defence property. I'll recall once again that often used truism that "you make your profit when you buy". The reason for this is based on the effect of compounding.

Please, refer to a Classic Post at,233

If you can save $20,000 on your first purchase, imagine what effect that would have on your profits in twenty years. Do this 4 or 5 times and the difference may be hundreds of thousands.

I can make this saving easily using professional negotiators and buyers like Flippers, Buyers Agents, or Property Buyers Network. Jo why do you feel DHA is better than these other options?

Regards, Mike
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From: Tibor Bode

Hi A,

I agree on the DHA opinion, there are much better deals. Consider this. You buy a property which is cash-flow positive (rent exceeds all expenses) by at least 1%. Don't take into consideration depreciation. You do minor reno. Increase rent and add value. Fix interest rate for 3 or 5 years (maybe it is a bit late not, but it is still a piece of mind. Take out the insurances (Life / Disability / Trauma / Income protection and Landlord (if house then Building as well) and check for Liability on the LLP and house)
Buy under median and set you rent on an improved property at market rate.
Now you have something which is as secure as it could be if you bought at the right place, which varies in each state / city / town so impossible to be advised on apart from local expertise. Considering this WHERE IS THE RISK?
It does not matter what happens
you property will pay for itself and even in a downturn / overbuilding you always have an opportunity to lower your rent (you are cash flow positive so you have something to play with) have a superior or at least competitive product (renovated property not all owners will bother to keep it up to date)
I am doing exactly the same in the fast lane and don't wish to end up in the Bond/Skase grave yard. To me it seems to be working.
Needs lots of research to buy at the RIGHT place and for the RIGHT price. I am sure there are other people on th e forum who can confirm this.
Sorry being a bit long, but DHA does not seems to me as the best option.

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