Friend Aged 47 Wants 1 house paid off Before Retirement - IP or PPOR ?

My friend and co-worker in her late 40's and who plans to retire at the age of 67 has decided to buy a house.

She is wandering what the best way to go about this would be and we have talked about possible options. She is also going to see an accountant.

A little background about her!

She rents

She spends and doesnt save

She earns $60 K pa

Her goal is to ensure she has her ppor paid off by the time she retires so she wont have to worry about rent payments.

She wants a mortgage no more than $250 K

She doesnt care or trust super

I'm thinking she has 2 possible options


Option 1
Buy a PPOR. Do not have an offset account and instead of offset account she can make extra repayments on her mortgage to try to pay it off as soon as she can. This means it is a way of enforced savings/repayments kinda thing.

Otherwise if she continues to rent and not buy she spends her money rather than saving it because she lacks the discipline. But if she has this goal of paying off her mortgage she might be able to achieve this. I know she is very determined to have her PPOR paid off by retirement.


Option 2
Buy an IP. Again do not have an offset account (for the same reason as above) But pay P & I and with the help of the tenant she will be able to pay it off quickly.

This option means she will be able to stay living (renting) 3 kms to the cbd. In a location that she loves. She could either buy an inner city unit 3 - 7 kms from Perth for her IP or a house further out perhaps in the middle ring.

She could stay living close to cbd renting for the next 20 years (she is 47) and then when she retires at age 67 she move into her IP or sell it and buy a PPOR where she wants to live ie inner city. If there is extra cash left over from the sale she can have that in her savings account as her nest egg during retirement.

If she goes for option 2 a few years down the track when the ip becomes positive cashflow she could use the extra cash to pay down her ppor debt.

The thing is though. What does she do once this ip is paid off. I dont know if she has to discipline to save and invest. But in 10 years time when her first ip has doubled perhaps it would be a good thing for her to repeat what she did. This way she is again paying off the ip2 quickly with her payg salary and excess rental income, rather than frittering it away because i think that is what she might do if she didnt buy ip # 2.


Oh yes i forgot

She will need to save some money for a deposit.

I think she will have to concentrate very hard to save at least $20 K in the next 2 years to have any chance. For this I would suggest that she open up an online savings account and automatically put aside some money and not touch it. Again if she is determined to have a paid off ppor in 20 years time she will have to be strict on herself and make some changes.

She totally has a negative mindset towards money. I hope she can start to feel a bit more positve. She will have to be if this is going to work for her. I am there for her if she wants to come to talk to me. :) She has started opening up to me. I hope she will be ok and things can turn around for her. I am supporting her and giving her encouragement :)


edited to say: I think option 2 is the way to go!!


Sorry this is so long. I would like to hear which option you would choose for her and why?

thanks :)
 
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She totally has a negative mindset towards money.

Her first option will be to change this mindset completely around before she shifts into the best investment strategy for her to implement.

If she does not change her mindset first what ever strategy she chooses to use will be a complete waste of time.

Its her past/current mindset that has her in the position she finds herself in today.

Thoughts-->Emotions-->Actions-->Led her to now.
 
Agree with Rixter!

Step 1 - She needs to Buy & Read some financial 'motivational' books. (you know the ones....)

Step 2 - Will only happen if commitment is made to finish Step 1......

You can't force a horse to drink water, neither can you force a person to invest. Good Luck!!!
 
Hiya Kim

I know its an indadverntant typo................but wandering may be right description.

I know that only too well.

The number on thing before making decisions on what to do is to look at putting some money aside fro a deposit

At that time, it may be appropriate as to what the strategy, until then she mey be no more than a wanderer.

ta
rolf
 
My friend and co-worker in her late 40's and who plans to retire at the age of 67 has decided to buy a house.

She is wandering what the best way to go about this would be and we have talked about possible options. She is also going to see an accountant.

A little background about her!

She rents

She spends and doesnt save

She earns $60 K pa

Her goal is to ensure she has her ppor paid off by the time she retires so she wont have to worry about rent payments.

She wants a mortgage no more than $250 K

She doesnt care or trust super

I'm thinking she has 2 possible options


Option 1
Buy a PPOR. Do not have an offset account and instead of offset account she can make extra repayments on her mortgage to try to pay it off as soon as she can. This means it is a way of enforced savings/repayments kinda thing.

Otherwise if she continues to rent and not buy she spends her money rather than saving it because she lacks the discipline. But if she has this goal of paying off her mortgage she might be able to achieve this. I know she is very determined to have her PPOR paid off by retirement.


Option 2
Buy an IP. Again do not have an offset account (for the same reason as above) But pay P & I and with the help of the tenant she will be able to pay it off quickly.

This option means she will be able to stay living (renting) 3 kms to the cbd. In a location that she loves. She could either buy an inner city unit 3 - 7 kms from Perth for her IP or a house further out perhaps in the middle ring.

She could stay living close to cbd renting for the next 20 years (she is 47) and then when she retires at age 67 she move into her IP or sell it and buy a PPOR where she wants to live ie inner city. If there is extra cash left over from the sale she can have that in her savings account as her nest egg during retirement.

If she goes for option 2 a few years down the track when the ip becomes positive cashflow she could use the extra cash to pay down her ppor debt.

The thing is though. What does she do once this ip is paid off. I dont know if she has to discipline to save and invest. But in 10 years time when her first ip has doubled perhaps it would be a good thing for her to repeat what she did. This way she is again paying off the ip2 quickly with her payg salary and excess rental income, rather than frittering it away because i think that is what she might do if she didnt buy ip # 2.


Oh yes i forgot

She will need to save some money for a deposit.

I think she will have to concentrate very hard to save at least $20 K in the next 2 years to have any chance. For this I would suggest that she open up an online savings account and automatically put aside some money and not touch it. Again if she is determined to have a paid off ppor in 20 years time she will have to be strict on herself and make some changes.

She totally has a negative mindset towards money. I hope she can start to feel a bit more positve. She will have to be if this is going to work for her. I am there for her if she wants to come to talk to me. :) She has started opening up to me. I hope she will be ok and things can turn around for her. I am supporting her and giving her encouragement :)


edited to say: I think option 2 is the way to go!!


Sorry this is so long. I would like to hear which option you would choose for her and why?

thanks :)
Option 3....

YOU not waste your time trying to convince her to buy either (IP or PPOR) because she has ABSOLUTELY no intention of buying anything!!

Sorry but I've witnessed this mindset too many times to care...over it!
 
Option 3....

YOU not waste your time trying to convince her to buy either (IP or PPOR) because she has ABSOLUTELY no intention buying anything!!

Agree. Buying a PPOR is not rocket science. If she was genuinely interested she would have had some sort of idea of how to go about it by age 47.

I think you may be wasting your time and energy. Kim, you need to accept that your priorities are not necessarily anothers, and that's OK.

If you want really want to help, help those that demonstrate they want to act on your advice.
 
If she was genuinely interested she would have had some sort of idea of how to go about it by age 47.
EXACTLY!!

Look at the facts:

1. She's spends and doesn't save (obviously living beyond her means??)
2. She doesn't care about super (although can't say I blame her for not trusting super, with changing govts who knows what it'll be worth come time to cash in??!!)
3. She's hoping to borrow 250k at what 100% with 0% deposit??

She needs to change her mindset (for starters) otherwise SHE will be left with only 2 options, Buckleys being one of them!! :eek:
 
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The default would be to buy a ppor and just pay it off asap. If she talks about 'but how about an investement property', give her the names of a few investment books and see if she reads them. If she can't be bothered reading them and just wants to ask questions, she'll only waste your time.
 
Option 3....

YOU not waste your time trying to convince her to buy either (IP or PPOR) because she has ABSOLUTELY no intention of buying anything!!

Sorry but I've witnessed this mindset too many times to care...over it!

Ditto, ..... they talk the talk but aren't prepared to walk the walk.

Alexee said:
give her the names of a few investment books and see if she reads them. If she can't be bothered reading them and just wants to ask questions, she'll only waste your time.

Good point Alexee, ...... I've done this a few times when people have got all excited about property investing and ARE going to do it. I give them a couple of old copies of API mag, ..... I would say that so far 100% have not bothered to read them, .... the usual excuse is "I haven't had time yet". I don't worry about it, I just wish them well and move on.

Martin ... :)
 
The thing about timewasters is that while they're asking about property investing, etc. they actually have one or more irrational reasons stopping them from ever doing anything about it. You could explain everything about insurance and cashflow and historical growth or whatever, and in the end they won't do anything, because they don't like debt, they don't like having a mortgage, they are concerned about what their friends or spouse or family might think, they can't sleep at night because they think the tenant will trash the place, they think being a landlord is 'bad', etc.

e.g. I read Dazz's recent post about his commercial buy. Sounds great, and I want to do something like that. I have a million questions about it, but even if Dazz explained it all to me, I probably still wouldn't buy. Why? Because I still have the irrational fear of 'what happens if it becomes empty and I can't re-let it?' Clearly there are ways of mitigating this, but I don't have that knowledge. So I would be a timewaster. I recognise this, so I know I have to actually experience the basics myself first before asking the questions.

Unfortunately, most people don't realise they're timewasters. They genuinely ask all the questions, thinking they're actually considering investment, but don't realise that the answers won't address their real issues. They need to work on their thinking before going into the practicalities. While a lot of detailed discussions around that might reveal those fears, I'm not a psychologist, and there are too many disappointments.

Help those who actually want help, and will actually use your knowledge.
Alex
 
I have to agree with the rest.
She may want to buy a PPOR or an IP. but she will always find an excuse/reason not to.
It will frustrate you to no end, because you know how much it can change her life for the better.

You could buy a place and have her rent it from you....might as well have her pay off your IP :)
 
True Alex, there are many reasons that stop people purchasing property.

I helped someone about 8 years ago that went on to by a PPOR and then an IP 3 or 4 years after that.

She was a single middle aged woman, with a decent income and good savings record, that somehow felt buying on one income at here age was risky. She felt she'd missed the boat.

I showed her figures that demonstrated that the risks were minimal. Not hard as she already had a larger than required deposit, and the ability to rent the place if the need arose.

There are others though with a poor history of being able to save, use credit to buy things they can't afford, and generally have the inability to exercise financial control to get them through the pay week, who regardless of their reasons, have a money management problem, that they need to deal with first.

In Kims case, she needs to recognise whether she is able to help someone or if she's likely to be wasting her time. Not everyone is prepared to or cares to make what sacrifices are needed to buy, especially if it's not a high enough priority.
 
T
In Kims case, she needs to recognise whether she is able to help someone or if she's likely to be wasting her time. Not everyone is prepared to or cares to make what sacrifices are needed to buy, especially if it's not a high enough priority.

It's not about Kim's, or anyone else's ability to help. It's about the recipient's ability to learn and get past their issues. This is largely emotional. Hence why intelligence, working ability, education, etc do not have a direct relationshp to investing. Buying a house is relatively easy. Getting past your issues and actually signing on the paper is the hard part.

Obviously, there are many examples of people who start relatively late and really 'switch on' to investing, but they're in the minority. To avoid disappointments, I'm more discreet about talking about investing.
 
It's not about Kim's, or anyone else's ability to help. It's about the recipient's ability to learn and get past their issues. This is largely emotional. Hence why intelligence, working ability, education, etc do not have a direct relationshp to investing. Buying a house is relatively easy. Getting past your issues and actually signing on the paper is the hard part.

I don't disagree with you. I believe a person does need to help themselves with getting past their issues, and needs to have some of these 'credentials'.

My example, and the only one experience I have where I bothered to 'help' (a 20 min conversation in this case) was a person with all the credentials you mention, and who I thought was aware of her mental block and keen to accept some help in moving past it.

This is rare however which is why I generally don't bother trying to help.

Btw I had no input on her IP purchase. She managed that on her own :cool:.
 
Yes this topic below that I created was about my friend :(

Living from Pay Cheque to Pay Cheque

Yes I think she has some cc debt. Not sure how much though! Her boyfriend works now.

She has a lot of trouble managing her money. It appears as though she just spends on anything she wishes for. She didnt have money to buy a new washing machine and I'm assuming she didnt think it was a high enough priority to get replaced. I guess saving for her next holiday came #1.

She's c.urrently on a weeks holiday in B.a.li. So she was able to save or find some money for that.

Thing is though:

When I was talking about buying my 1st ip and how I managed to save some money for the deposit she replied:

"Oh but I cant save I have bills"

"But I managed to do it"

"But I have lots of bills"

"I have bills too"


She is jealous that I have 2 houses and that she doesnt even have one. She has commented about how in the future she will be the poor bag lady and I will be the property mogul with millions of dollars in property. Her mindset is all f**** up. If this is how she sees her future then this is what she'll get!

We were both getting paid the same amount (in the same job) then she got promoted 8 months ago and has been earning $300 a fortnight more. I made a suggestion that she pretends that she hasnt been promoted and live on what she was earning before and transfer the $300 into a high interest savings account, one that you cant get access to very easily, and make sure not to touch it. She hasnt done it and like many others once you get promoted you live up to your income (spend everything you make)

Yes I agree she really needs to change her thinking. Be re-programmed if she is ever gonna have a chance at a reasonable retirement. Otherwise she will be living off her super and part pension and also might have to continue to work part time after she has retired.

I can be there for her lend her books, help her and be her friend but she needs to take action to change her ways! I realise I cant change her! I can encourage her though if she brings up the topic. She is very set in her ways.

*sigh* i hope she'll be ok
 
Yes this topic below that I created was about my friend :(

Living from Pay Cheque to Pay Cheque

Yes I think she has some cc debt. Not sure how much though! Her boyfriend works now.

She has a lot of trouble managing her money. It appears as though she just spends on anything she wishes for. She didnt have money to buy a new washing machine and I'm assuming she didnt think it was a high enough priority to get replaced. I guess saving for her next holiday came #1.

She's c.urrently on a weeks holiday in B.a.li. So she was able to save or find some money for that.

Thing is though:

When I was talking about buying my 1st ip and how I managed to save some money for the deposit she replied:

"Oh but I cant save I have bills"

"But I managed to do it"

"But I have lots of bills"

"I have bills too"


She is jealous that I have 2 houses and that she doesnt even have one. She has commented about how in the future she will be the poor bag lady and I will be the property mogul with millions of dollars in property. Her mindset is all f**** up. If this is how she sees her future then this is what she'll get!

We were both getting paid the same amount (in the same job) then she got promoted 8 months ago and has been earning $300 a fortnight more. I made a suggestion that she pretends that she hasnt been promoted and live on what she was earning before and transfer the $300 into a high interest savings account, one that you cant get access to very easily, and make sure not to touch it. She hasnt done it and like many others once you get promoted you live up to your income (spend everything you make)

Yes I agree she really needs to change her thinking. Be re-programmed if she is ever gonna have a chance at a reasonable retirement. Otherwise she will be living off her super and part pension and also might have to continue to work part time after she has retired.

I can be there for her lend her books, help her and be her friend but she needs to take action to change her ways! I realise I cant change her! I can encourage her though if she brings up the topic. She is very set in her ways.

*sigh* i hope she'll be ok
Kim5, be her friend, but don't get involved. At 47 (same age is myself) if she's living from pay cheque to pay cheque unable to balance a credit card, she most certainly won't be able to handle a mortgage. :eek:
 
Hey Kim,
Been through a similar issue with a colleague recently (he thinks he wants to invest, his wife is "scared" to.)

What I've learnt is that we cannot project our own goals and priorities onto others. All we can do is share our experiences but only if they are genuinely interested. You mentioned that your friend thinks that "in the future she will be the poor bag lady and I will be the property mogul with millions of dollars in property." This could introduce a negative influence into your relationship.

I've stopped talking investment with my colleague for this very reason.

Good luck with it, but don't try to make your friend like you (investment-wise) - it won't work. By all means, be there to support her if she has questions, or if she's seriously trying to get her finances on track, but don't force the issue.

FWIW...
 
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