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From: Mike .


How long do you wait before buying again?
From: Maryanne
Date: 1/29/00
Time: 6:18:48 PM

What a great opportunity to have this forum to discuss some stuff- it feels a bit weird spilling out your financial situation!! if you have any thoughts we would be grateful to hear what you have to say.

Recently we just purchased our first property - and wonder when do we purchase the next one??? Currently we have equity of fifty thousand on - our home, which is worth 340 and the investment which we just bought is one hundred thousand (we have the deeds to it) currently renting $145pw- we are wondering should we wait to get the debt of two hundred thousand down to nil (which is for investment property and our home) before we buy again???

My husband and I don't have children and between us earn sixty thousand per year.I have 25 years to go before retiring and hubby has 10. What do you think??...
 
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Les

Reply: 1
From: Mike .


Clarification, please
From: Les
Date: 1/29/00
Time: 7:09:58 PM

G'day Maryanne,

Reading between the lines, I think you might have confused the term "Equity" which means the amount you DON'T owe the bank. In your case, it sounds like you OWE $50k on your own home, thus your equity is $290k - which is VERY healthy.

There is no need to pay down the total mortgage before buying #2 investment. In fact, you could possibly be ready for number 2 NOW.

What I think I'm seeing is that you owe $150k on #1 investment, and $50k on your own home. I suspect the #1 property may have very little equity in it, but I think you have HEAPS in your home. So the only other thing is the DSR (Debt Servicing Ratio) that lenders consider before saying "Yes".

A quick look at a computer program tells me you can easily buy #2 NOW (assuming I guessed correctly above re "equity"). If not, then we would need you to clarify the situation for us.

Regards, Les
 
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Maryanne

Reply: 1.1
From: Mike .


Re: Clarification-a little more info-
From: Maryanne
Date: 1/30/00
Time: 9:17:16 AM

Thanks, Les. To clarify the situation we owe $100,000 on our home and same on our investment.

Just some more info- we live in Samford -over looking the valley in-Qld on 5.5 acres (banks only give you 75% equity on your home..once your over 5 acres you start talking rural-according to a recent chat with a bank manager and valuer) we earn gross 68,000.00 per year between us hubby on 30 and I'm on 38-
 
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Les

Reply: 1.1.1
From: Mike .


Re: Clarification-a little more info-
From: Les
Date: 1/30/00
Time: 11:21:18 AM

Maryanne,

Thanks for the feedback. If you haven't already, buy (and devour) Jan's first book "Building Wealth". In it, there's a section that actually TELLS you when you can afford your next. This allows you to fit your parameters to that age-old question, and monitor your progress as you go.

Your current situation:-

You have loan of 100k against home valued at $340k, and a second loan of $100k on #1 Investment. You are able to borrow up to 75% against your home, so a further $155k can be available to you as deposit/costs for more rental investment properties. So nothing to stop you from going for another one there.

Next, your DSR is calculated based on your cashflow situation. I am familiar with Qld (I'm from Brissie) so I can guess that the $145 rent is likely from a house/unit worth $100k - 120k. Depending on just WHAT you buy next will dictate your cashflow, but it seems to me you could conceivably buy another 2 at this time. There are a number of variables (likely Capital growth, vacancy rates, type of rental accom., area, seller's motivation, condition of property, etc.) ALL of which could change the outcome for you.

With GST just around the corner, both you and hubby will be on a similar Marginal Tax rate (31.5%) so property in joint names would work well for you. You can borrow up to 90% for Investment property (if you're comfortable with that) or stay under 80% to save Mortgage Insurance and give you a larger choice of lenders. Either way, #2 is eminently possible for you (and possibly #3 - do your numbers after #2 is "rocking and rolling" and see how you go).

Check out some other forum entries that sound like they might apply to you - it has been a great form of learning for me, and I'm sure you can also gather some useful info that way. And good luck - let us know what you decide, and/or come back with more questions if you wish.

Regards, Les
 
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