Investing journey
- Thread starter tarah
- Start date
Thanks Blacky for sharing.
What did you mean by the following quote ?
Cheers
Warrioress
What did you mean by the following quote ?
Cheers
Warrioress
Hey Warrioress
Many people will argue for Interest only loans for investments, as the interest is a tax deduction. So you can effectlively have lower monthly repayments enabling you to put the difference "to better use". Ie invest the money in other areas (more IP's).
Personally I am against this argument, becuase very few people actually use the additional funds for investments.
On an average(ish) loan (say $500k), in 5 years you pay an additional ~$20,000 in interest if you are on IO rather than amortising. In addition at the end of 5 years you have actually paid off about $20k of the debt if you are amortising.
My argument is that you are $40k better off in 5 years by moving to amortising.
Unfortunatly I didnt learn this until late, so my debt levels havent decreased much in 7 years of investing - whereas I could have significantly less debt now if I had been amortising the whole time.
Personally I think that IO loans are a short term option (max 12 months). Beyond that it is much better to be amortising debt.
Hope this helps to explain my possition. Others will disagree, Im sure.
Cheers
Many people will argue for Interest only loans for investments, as the interest is a tax deduction. So you can effectlively have lower monthly repayments enabling you to put the difference "to better use". Ie invest the money in other areas (more IP's).
Personally I am against this argument, becuase very few people actually use the additional funds for investments.
On an average(ish) loan (say $500k), in 5 years you pay an additional ~$20,000 in interest if you are on IO rather than amortising. In addition at the end of 5 years you have actually paid off about $20k of the debt if you are amortising.
My argument is that you are $40k better off in 5 years by moving to amortising.
Unfortunatly I didnt learn this until late, so my debt levels havent decreased much in 7 years of investing - whereas I could have significantly less debt now if I had been amortising the whole time.
Personally I think that IO loans are a short term option (max 12 months). Beyond that it is much better to be amortising debt.
Hope this helps to explain my possition. Others will disagree, Im sure.
Cheers
What if the IO payments allowed you to hold another $500k IP...what would that IP have grown in value to over those 5 years compared to your $40k ? A lot more I'd say.
My sentiments exactly
I don't know that I would have done anything differently, under the circumstances.
Bought first PPOR in 2002, for 300k. With 70k deposit.
Bought first IP in 2003 for 205k, IO 105% finance
Bought 2nd IP in 2005 for 360k IO 105% finance
All x-colled
Setup offset and LOC to capitalise interest to pay loan on PPOR down to ~50k
After relationship ordeal, sold PPOR for 670k and netted ~300k cash. Took IP 2 in settlement.
Bought new PPOR in 2009 with new partner for 440k
Bought 3rd IP in 2009 for 525k.
Currently sitting on about 2.2M of property at about 70% LVR. IPs 1 and 2 are close to neutral, IP3 heavily negative and planning to shave off the back block to reduce exposure and increase cashflow. If this strategy is successful we might try it again.
I don't know what I would or could have done differently really... while maintaining desired lifestyle anyway
Bought first PPOR in 2002, for 300k. With 70k deposit.
Bought first IP in 2003 for 205k, IO 105% finance
Bought 2nd IP in 2005 for 360k IO 105% finance
All x-colled
Setup offset and LOC to capitalise interest to pay loan on PPOR down to ~50k
After relationship ordeal, sold PPOR for 670k and netted ~300k cash. Took IP 2 in settlement.
Bought new PPOR in 2009 with new partner for 440k
Bought 3rd IP in 2009 for 525k.
Currently sitting on about 2.2M of property at about 70% LVR. IPs 1 and 2 are close to neutral, IP3 heavily negative and planning to shave off the back block to reduce exposure and increase cashflow. If this strategy is successful we might try it again.
I don't know what I would or could have done differently really... while maintaining desired lifestyle anyway
Would have liked to have been more aggressive with investing in the past 7 years.
We started with our first PPOR/IP (switched between both) 8 1/2 years ago when I was 26 years old, end of 2002.
We were on lowish combined income of about 70k.
Sold this and bought old rundown PPOR to renovate ourselves to create some value as we were cash poor.
House this time, first one was an apartment.
This was 7 years ago and is still our PPOR.
Since then, only bought one IP in all that time, just under 3 years ago.
No real research done, just a local purchase because it was only up the road and I knew we should be buying something eventually.
In the meantime, started a business 5 years ago from scratch, and sort of distracted me from investing.
Must have missed alot of investing opportunities in that time, however, now earning 10 times the amount we were when we started (salaries+net profits).
I suppose the business we started, planning to make a couple hundred extra dollars a week to help us invest has done it's job in creating cashflow.
We have plenty of cash now, just been too busy working to get around to investing it !!!
Property investment has always been my number one priority since I learned of it and found this site about 9 years ago.
But I realised we had to set some solid foundations and increase cashflow for serviceability because of our low wages and PPOR mortgage, otherwise property investing would have been a long and slow road for us.
Just got a little sidetracked on the creating cashflow part.
Will definately be making multiple purchases this year.
We started with our first PPOR/IP (switched between both) 8 1/2 years ago when I was 26 years old, end of 2002.
We were on lowish combined income of about 70k.
Sold this and bought old rundown PPOR to renovate ourselves to create some value as we were cash poor.
House this time, first one was an apartment.
This was 7 years ago and is still our PPOR.
Since then, only bought one IP in all that time, just under 3 years ago.
No real research done, just a local purchase because it was only up the road and I knew we should be buying something eventually.
In the meantime, started a business 5 years ago from scratch, and sort of distracted me from investing.
Must have missed alot of investing opportunities in that time, however, now earning 10 times the amount we were when we started (salaries+net profits).
I suppose the business we started, planning to make a couple hundred extra dollars a week to help us invest has done it's job in creating cashflow.
We have plenty of cash now, just been too busy working to get around to investing it !!!
Property investment has always been my number one priority since I learned of it and found this site about 9 years ago.
But I realised we had to set some solid foundations and increase cashflow for serviceability because of our low wages and PPOR mortgage, otherwise property investing would have been a long and slow road for us.
Just got a little sidetracked on the creating cashflow part.
Will definately be making multiple purchases this year.
I third this one!
whoops forgot to quote the quote. damn these new forum posting skills i need to develop!
I was earning 28k pa at a call centre when I bought my first IP at 197K when I was 21. A few years later I sold it for 370k, but wishing i hadn't. If I could go back in time to adjust my journey I'd be less greedy in chasing extra money from employment, swapping jobs alot has meant I've often been on a probation period (can't get loan) or between jobs (definitely can't get loan). Sure the call centre sucked absolute balls, but if I had stayed there (or even at the next job afterwards, which i actually enjoyed), I'd have a few more IP's to my name no doubt. They'd be earning far more than I could from a salary.
Blacky: You mention cashflow issues and P&I in the same sentence, isn't this counter productive?
Blacky: You mention cashflow issues and P&I in the same sentence, isn't this counter productive?
Perhaps - but this difference in payments between I/O and P&I is only short term anyway. An adjustment in spending will cover the payment pretty quickly.
The interest only argument only comes in "invest the extra money". Some people have already mentioned that the difference might stop you from purchasing additional properties. Personally, I that has never happened to me. Banks will calcualate all loans at P&I regardless of if they are I/O. So to me - I think that is a mute point.
Generally the money I could have used to be paying P&I - I spent ******* up against the wall.
Just my thoughts on the matter, and I am sure that people will disagree.
The interest only argument only comes in "invest the extra money". Some people have already mentioned that the difference might stop you from purchasing additional properties. Personally, I that has never happened to me. Banks will calcualate all loans at P&I regardless of if they are I/O. So to me - I think that is a mute point.
Generally the money I could have used to be paying P&I - I spent ******* up against the wall.
Just my thoughts on the matter, and I am sure that people will disagree.
I gave what you said some additional thought and did some back of envelope calculations. For people like myself with low cash flow (ie low salary) who can only service a couple of loans at a time anyways, almost seems better off going P&I. This would enable me to knock over a loan and in-turn get another loan/house, where banks may have said no otherwise.
Or perhaps this was what you were alluding to from the beginning of the thread
Or perhaps this was what you were alluding to from the beginning of the thread
I think the choice of which is better IO & P&I depends entirely on the individual and their situation. For instance, around 18 months ago we bought a new PPOR, after having no non-deductable debt for sometime. This loan is P&I, while most of the IP's are IO. On this loan I not only pay the P&I, but also a massive amount extra. My aim is to get rid of all non deductable debt as soon as possible.
Previously I would channel additional funds into either an offset or one of the LOC's that I have set up. This keeps the funds at hand, should they be needed. Bearing this in mind, I have always been pretty disiplined with the finances.
Previously I would channel additional funds into either an offset or one of the LOC's that I have set up. This keeps the funds at hand, should they be needed. Bearing this in mind, I have always been pretty disiplined with the finances.
All of IP loans are IO, except one. The one loan that is P&I will be paid down asap, then I'll convert another loan to P&I and repeat the process.
In the meantime, all other loans getting paid, some with extra in offsets/redraws. Also still purchasing when something comes along.
Regards
Marty
In the meantime, all other loans getting paid, some with extra in offsets/redraws. Also still purchasing when something comes along.
Regards
Marty
How long would it take to knock over a loan?
What's stopping you from selling more of your time and/or selling it at a higher price to increase cash flow?
Already selling all of my time.
Selling any of my properties would trigger unfavorable CGT events.
How many hours are you currently selling?
No I mean, why not look at selling your hours (not property) at a higher price? Selling is the last option to ever be considered.
I gave what you said some additional thought and did some back of envelope calculations. For people like myself with low cash flow (ie low salary) who can only service a couple of loans at a time anyways, almost seems better off going P&I. This would enable me to knock over a loan and in-turn get another loan/house, where banks may have said no otherwise.
Or perhaps this was what you were alluding to from the beginning of the thread
Yeah - that was sort of the point I was alluding to.
To me, the additional amount I would have been paying for P&I would not have been enough to enable me to purchase another property. However over time, keeping the loans at IO actually reduced my servicing capacity. If I had moved to P&I from the start, I would have been able to afford more properties sooner, as I would have had lower debt levels, plus the houses would have moved to Neutral/positive CF sooner.
Cheers
Blacky
Looking back over your investing journey, what would you do differently to improve your wealth today?
Mine would have to be to keep buying an IP each year following my first purchase in 2000 and not wait until 2005 for the next one! Definitely learnt from this
Probably replied to this post already, but since it keep popping up,
my answer would be:
100% without a doubt, definately, no questions asked, not just buy a property each year since 2000, just because 'history' has shown that this was the correct TRADE to do.
Given my chance again if i could go back through time what would i do?
get a better understanding of the long term drivers that effect the underlying value of intrinsic value.
Investing is a journey, chances are our ancestors have been there before, but the sad truth is we dont learn from history, only from near term life experiences.
Start earlier. I should have disregarded naysayers and started earlier. Yup. I should have.
