If you knew then what you know now...

[maadha]

I am in the situation of trying to decide whether to go the PPOR first and IP later or the opposite of IP's now and then PPOR when able to afford the one we want.

This is to all those forumites who have been at the IP game for a while. If you knew then, back when you were starting out, what you know now what would your route be???

A few determining factors are that we are from Sydney so our PPOR would be around 500k mark, I only have a deposit of 40k, I am self employed.

 

[The Y-man]

I'd probably do the same if I did over again.... rent the cheapest, most convenient (for work) place possible and get an IP.

Cheers,

The Y-man

 

[happy]

Can you tell us why, Y-Man?

Thanks, happy

 

[jingo]

Hi,

We wouldn't have paid off our PPOR before we started investing. Wasted too much time. Not only that, we didn't leap into IP's for a whole year after we had paid off the PPOR!!! (Back in 1999 when the boom was just starting to take off in Melbourne too - no knowledge back then!)

 

[BV]

Actually, I would do things different this time around.
When you start from scratch you need to work hard to get ahead.
Forget the PPOR. I would buy an IP first as that would give me tax deductibility.

I would rent for a while as rents are still very affortable.
as the equity increases I would use it to buy my next IP and so on.

People are tricked into buying a PPOR with the first home owner's grant.
It's only a small benefit but if I still wanted to get FHOG and the stamp duty exemption
I could live in the property for the first 6 months and then move out and rent for a few years.

 

[The Y-man]

Can you tell us why, Y-Man?

Thanks, happy

It was specific to our situation, but basically came down to being DINKs:

1. Both on above average salaries - meant we were paying a lot of tax.
2. No kids - no need for a big place
3. Where we wanted to live had poor rental yield, combined with higher rental yield where we bought our IP (i.e. our IP received $210pw rent, we paid $190pw for ours)

Cheers,

The Y-man

 

[lizzie]

we went against that flow and bought our ppor first - a run down (but solid) old joint in the inner ring. reno'd, sold 12 months later, took the extra equity and bought our next ppor - another run down but solid old joint on a double block with another house in the backyard. reno'd, subdivided, sold, took the extra equity, repeat and we were away ....

 

[duckster]

I passed up a water front piece of land in early 1990's

When I was in NOOSA in early 90's I passed over the chance to buy a man made water channel land frontage for about $14,000 that today would be worth 1 million dollars.
If I knew what I know now I would think long term rather than short term

 

[wish-ga]

I should have pushed and got an IP in the mid 90s. I was still living at home. Not pursuing that is the sting that motivates me to stay focussed and zone out nay sayers.

 

[alexlee]

Can you tell us why, Y-Man?

Thanks, happy

With an IP you get rent and everything is deductible. With a PPOR nothing is deductible so in effect you pay higher interest. Financially, the best way is to rent as cheaply as you can and buy as many IPs as you can (high yielding v low yielding IPs are a different issue).

The more property you have (value of, not number of) the greater your future capital gains. The longer you hold it for, the more your gains. Since with rent and deductions you can probably own more IPs than you can PPOR, it's better to go IPs only for as long as you can. Obviously human nature being what it is eventually you will want a place of your own.

I've only ever owned IPs so far (at first because I was living as home and then because I moved overseas) and financially I believe it is much better than if I'd bought a PPOR first. Many people start investing in IPs after they pay off their PPORs, but in general I think they will agree that they should have bought more IPs even if it meant not paying off the PPOR as fast.
Alex

 

[JIT]

I'm also for IP's first while renting cheaply, and PPOR later down the track. Still don't have a PPOR.

GSJ

 

[grossreal]

hi maadha
this will probably not answer your question but will answer the name of the post.
if I knew then what I know know what would I do.
well thats simple
I would leverage off other people equity or banks money and use as little of mine as possible.
why
simple if you have no money out and all the profit or gain in
thats pure profit.
this sounds simple and in reality it is
the only trouble is that it has taken a long time to learn.
I agree with alex that ppor money is dead but its is also good to secure the ppor and leverage off it and leverage from there.
If I had my time again I would jv with property owners using there properties as security and reno if you like that or develop and use as little of your cash as possible and then once complete secure it and leverage again.
pure profit and leverage gain for me are money for as they say old rope but they are the best form of asset growth.
there are lots of land owners that want to make money you need to structure the deal that you also make money while using there cash or the property while they own it.
vendor finance back etc.
the reno kings do this very well.
if you can use other people money/assett and delay paying for it and leverage off that to a position that it pays for itself(no money down)then the rest is pure profit and thats the equilibrium I like.
I hope you well

 

[maadha]

Thanks for the advice...Now for the hard part!

Just want to thank everyone for their "2 cents worth".

It is great to get this advice from people who have been there before now the biggest challenge is making the leap.

My strategy will prob be IP first and I will indeed be looking long term and for capital growth rather than income. For now anyway.

First step...Make the jump and go for it, then...Look for finance. (or is that not the best place to start?)

Thanks again everyone.

 

[BV]

Just want to thank everyone for their "2 cents worth".

It is great to get this advice from people who have been there before now the biggest challenge is making the leap.

My strategy will prob be IP first and I will indeed be looking long term and for capital growth rather than income. For now anyway.

First step...Make the jump and go for it, then...Look for finance. (or is that not the best place to start?)

Thanks again everyone.

Actually, I would look into the finance side of things first.
Find out if the banks will give you a loan and what your maximum borrowing amount is.
Then I would go through a mortgage broker as he would have more loans for you to choose from
and he will also help you get the correct structure of the loan.
If you are not sure on something you can always ask the forum.
cheers

 

[BenG]

We have just bought our first property and it is an IP. We will live in it for 6 months to get all the concessions but then move out again and rent somewhere. Ideally we will rent for as long as possible for the financial benefits but I agree with AlexLee that human nature means that one day we will have a PPOR. Until that day comes I want to get as many IP's as we can afford to hold.

In terms of finance I would definitely recommend speaking to a mortgage broker as soon as possible as a good mortgage broker will also be able to help with the education process. It is important to know how much you can borrow and how much you feel comfortable borrowing. I have dealt with Rolf who also posts on this forum and I have found him very helpful.

 

[Rickardo]

Hi maadha,

This is a tough decision to make, but looking at it from a purely financial aspect it is better to buy IP's first.

Some people may not be comfortable with this as there is a security factor in owning your own PPOR. For the record, after weighing up my options i decided to buy an IP first.

I am in the situation of trying to decide whether to go the PPOR first and IP later or the opposite of IP's now and then PPOR when able to afford the one we want.

This is to all those forumites who have been at the IP game for a while. If you knew then, back when you were starting out, what you know now what would your route be???

A few determining factors are that we are from Sydney so our PPOR would be around 500k mark, I only have a deposit of 40k, I am self employed.

 

[The Y-man]

as there is a security factor in owning your own PPOR.

I also wonder if you get into a "nomad" mode when you rent for a long time.... We moved into our PPOR 2.5 years ago, after almost a decade of renting, and I am already looking for the "next house"!! (to the horror of my wife)

Cheers,

The Y-man

 

[alexlee]

First step...Make the jump and go for it, then...Look for finance. (or is that not the best place to start?)

Thanks again everyone.

Finance first. Don't even think about signing a contract until you at least have a conditional approval from a bank via a mortgage broker. Also have a list read when you sign: quantity surveyor, building and pest inspector, managing agent, conveyencer.
Alex

 

[Ahmad Azimi]

A very simple answer. You are going to get yourself in debt anyways regardless of IP or PPOR so how about we look at some of the debt types.

There are 2 types of debt:

GOOD DEBT & Bad debt

Good debt MAKES you money.
Bad debt COSTS you money.

What I mean by that is if you borrow money to buy your own house to live in then that's a bad debt. Some people won't agree with me on this one but look at it this way. Does your own home produce you any income? Most likely NO! So all the repayments is coming from your own pocket.

Since it doesnt produce any income then it becomes a liability. Like Rich Dad says: "When banks tell you your house is an asset, they are not lying to you. They just won't tell you who's asset it is. Just stop paying your mortgage and you will get the answer to your question".

It is very important to know the difference between ASSET & LIABILITY and GOOD DEBT & BAD DEBT.

Asset is what puts money in your pocket like your investment property.
Liability is what takes money out of your pocket like your home.

Good debt is when you borrow money for income producing assets like Investment Properties, Businesses, Shares etc.
Bad Debt is when you borrow money to buy your own home, car or spend it on holidays or your credit card.

After taking all these factors in ask yourself what do you want to achieve in life? The AVERAGE Austrlian way of life by buying your own home and paying it off for the rest of your life or being ABOVE AVERAGE (Top 5% of population) and doing something creative with your life to achieve more than just the average life. That is by investing!

 

[jingo]

What I mean by that is if you borrow money to buy your own house to live in then that's a bad debt. Some people won't agree with me on this one but look at it this way. Does your own home produce you any income? Most likely NO! So all the repayments is coming from your own pocket.!

Don't forget, you can also draw up the equity in your PPOR to use for investment purposes. So your comments above must be taken with this in mind. After you pay your PPOR off, or even while you are paying it off you can draw on the equity to invest in more property or other asset classes. So to state that PPOR debt is bad debt is going a little too far in my view.