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From: Mike .


I don't understand which or why
From: Mrs. Curious Onlooker
Date: 14 Feb 2001
Time: 00:15:29

Hello,

'Curious' and I are currently renting.

'Curious' has been reading everything, and now wants to continue renting, while moving into IP's, following the usual (?) formula of buying more against increasing equity.

But,

I don't understand why we aren't better off to buy our own place first, and start with equity this way?

'Curious' sounds right, but I'm not really convinced

Why should we try and buy 1 IP/p.a. versus buying 'home' first?

Can anyone else out there provide some light please?

Thank you, Mrs Curious

PS. 1. We don't qualify for the $7k

 

[WebBoard]

LB

Reply: 1
From: Mike .


Re: I don't understand which or why
From: LB
Date: 14 Feb 2001
Time: 12:26:11

Hi, I believe it all depends if you can handle renting while someone else is renting your property. Myself I would rent as I believe you will be better off.

The other alternative is to kill two birds with one stone and buy a property that requires renovation. Move in renovate it, have it re-valued and you then will have the equity to sell or leverage the equity to purchase another property and do the same again.

If you cannot handle the moving, stay in one of them and rent the others. If you kept doing this you are not only relying on capital growth for your equity but you would also be: (a) buying the property at the right price =(instant equity) and (b) completing the renovations to gain equity.

The only thing that may hinder your progress will be the ability to service the loans in case of vacancies. There is some sort of plan out there that will suit your needs. Keep reading and looking till you find it. LB

 

[WebBoard]

Sim

Reply: 1.1
From: Mike .


Re: I don't understand which or why
From: Sim'
Date: 14 Feb 2001
Time: 07:22:27

Our personal decision was to buy a home to live in first... as we really wanted a place we could call our own and were really sick of renting and dealing with scrooge landlords.

Yes, you can always do the sums and come up with figures that say you will be better off financially with buying IP first. But, you still have to live life! If you are the kind of people who need a 'home' then don't be afraid to buy for yourselves first, or indeed at the same time if you can afford to.

You only live once!

PS. Our decision was to buy a really nice house that had 'potential'. It was already done up quite nicely, and very livable as is, but was too small if we wanted to have more than one child. However, the house had lots of potential for extending, which we intend to do in a couple of years once we have a few IPs under our belts. Because we spent less up front, we have now managed to pay off the house (sans extension) and can concentrate on more IPs for a while.

Sim'

 

[WebBoard]

Jeanette

Reply: 1.1.1
From: Mike .


Re: I don't understand which or why
From: Jeanette
Date: 14 Feb 2001
Time: 06:35:04

I went to a seminar where this line of thinking was expounded. The reasoning behind it is that if you buy a home to live in, you have equity which is just sitting there and not working for you.

I said to the presenter "If I can't bring myself to rent, would the next best thing be to buy my own home and then borrow against the equity to invest?" and he said "yes". That way, you have 80% of your equity working for you, and there is only 20% equity sitting there doing nothing.

 

[WebBoard]

Anna

Reply: 1.1.1.1
From: Mike .


Re: I don't understand which or why
From: Anna
Date: 14 Feb 2001
Time: 08:46:51

Whether to buy your own home is of course an emotional decision and not one you decide on financial decisions alone.

One thing to keep in mind however is that because it your home you will find yourself unable to resist painting the house a different colour (the original colour did not show your lounge up in a good light) which then means a change of carpet, curtains - did I mention that the bathroom and kitchen now looks a little shabby and could do with an update.

And this comes from some-one who has been fighting with these urges for some years and has finally given in under the explanation that the improvements will do wonders for my equity position. Sure, right!

 

[WebBoard]

Alston

Reply: 1.1.1.1.1
From: Mike .


A real example
From: Alston
Date: 14 Feb 2001
Time: 06:02:35

It really depends on your circumstances and your personal situation. However, let me give you an example (in fact this was how I bought my first IP)

My wife and I were renting a 2 bedroom unit in Sydney for 175pw. The unit, location, etc suited our lifestyle at the time. However, we knew we would eventually want a house. We bought a house in the Western Suburbs of Sydney that would rent for $175pw (the same as the rent we were paying). Thus, from a pre-tax cash flow position, it appeared that we were neutral between living in the house and living in the unit. If we lived in the house we would pay the mortgage plus all outgoings. If we live in the unit we would pay the mortgage on the house and rates, water, building insurance, etc and receive $175 pw rent plus pay $175 rent on the unit and pay telephone, electricity, etc. However, the big difference was that the net taxable loss(including depreciation)on the house was tax deductible as long as we stayed in the unit. If we moved into the house then our expense would be the same but none of them would be tax deductible.

In the long run, we never moved into the house, instead it became the stepping stone to other IPs. But we still own that house, and every time we buy another IP, there is more equity in the first IP to borrow against.

I hope this helps, Alston