Is this a good way to go about it?

Do you think this is a good way to do it?

  • Yes

    Votes: 2 8.3%

  • No

    Votes: 5 20.8%

  • I think there are better ways

    Votes: 17 70.8%
  • Total voters
    24
  • Poll closed .
fokas

fokas

In your opinion of course...

Scenario is:

Buy a $200K (investment) property using a $50K deposit and borrowing the rest from the bank...then focusing on paying that off as much as you can (say $4500/month minimun) in the first year or 2 years before you consider gearing (and all that jazz I am yet to get my head around) to get your 2nd IP.

From what I've read (and I feel like I have read A LOT) not many people (including Brenda) concentrate on paying off a property as much as they can before they purchase another/more IP. If you can pretty much pay off a property in 3 years why do people choose not to?
 
Hi fokas,

It depends on your goals, your risk tolerance, your timeframe, and a great deal of other factors which are dependent on your situation. Everyone's strategies are different. For me, I think there's a better way - have a read of this thread if you want to understand a bit more about why some of us DON'T pay off our mortgages (there's lots more threads out there too, this is just a relatively new one)

http://www.somersoft.com/forums/showthread.php?p=463913#post463913


Cheers,
Jen
 
There is nothing wrong with paying off property. Its just a matter of is something else better.
For:-SANF
Gives equity in you property

Against:- The interest is tax deductable
Money may be able to be better used
 
Yeah, i would be more inclined to do robert williams style and leverage hard. Min deposit 5% + cap LMI, it sounds like you are on a high wage (correct me if im wrong) so the benefits of neg gearing are great and you would be able to hold a much larger portfolio quicker rather then focus on paying down one house, so you have more exposure to growth.

Definatly alot of different ways of doing things
 
Rob Williams said:
One word: LEVERAGE
Click to expand...

What Rob said + open an offset a/c and squirrel away as many $ as you can manage (assuming you have no non-deductible debt).

At some future time, the money in the offset a/c can then be used for (1) deposit on another IP, (2) deposit on a PPOR, or (3) some other 'worthwhile purpose'. This way you save interest on the IP loan (if this is your goal) but the full amount of the IP loan remains uncontanimated when you withdraw the funds in the offset a/c.

Cheers
LynnH
 
LynnH said:
What Rob said + open an offset a/c and squirrel away as many $ as you can manage (assuming you have no non-deductible debt).

At some future time, the money in the offset a/c can then be used for (1) deposit on another IP, (2) deposit on a PPOR, or (3) some other 'worthwhile purpose'. This way you save interest on the IP loan (if this is your goal) but the full amount of the IP loan remains uncontanimated when you withdraw the funds in the offset a/c.

Cheers
LynnH
Click to expand...

Well said - that's exactly what we do, works very well for us.

Cheers,
Jen
 
I'd rather renovate than pay the house off ... so I have a mortgage that is pretty much exactly where it was 5 years ago, but a much nicer house. But then the Grand Plan involves selling this house in 4 years anyway, not much point trying to pay it off soon.

Still debating what to do with the other house.
 
fokas said:
In your opinion of course...

Scenario is:

Buy a $200K (investment) property using a $50K deposit and borrowing the rest from the bank...then focusing on paying that off as much as you can (say $4500/month minimun) in the first year or 2 years before you consider gearing (and all that jazz I am yet to get my head around) to get your 2nd IP.

From what I've read (and I feel like I have read A LOT) not many people (including Brenda) concentrate on paying off a property as much as they can before they purchase another/more IP. If you can pretty much pay off a property in 3 years why do people choose not to?
Click to expand...

Hi fokas,

I have read many books on property investing. A couple of the books I have read advocate using the technique you describe above. (Anita Bell for instance, amongst others).

I think it is a very risk adverse strategy. However the greatest advantage of property over other asset classes is the ability to use leverage relatively safely. As compared with shares, it is possible to receive a margin call if you leverage up to 80% - not so with property.

In my books though no harm in having some equity in your property. Especially as there isn't expected to be any growth for a while. Using offset accounts as described by Lynn is probably the best way to achieve the same effect and still gain access to your $ if you want them for further investing or other purposes.

Regards Jason.
 
As others have mentioned, I'd be much more inclined to go bigger sooner. $4,500 spare cash per month can get you into IP number 2 and 3 a lot quicker both by saving deposits quickly and also being able to afford holding costs of negatively geared properties.

I'd much rather have 5 properties @ 80% LVR than 1 at 10% LVR. Your exposure to the cap growth is amplified 5 times when you're starting out and that's what you want.
 
steveadl said:
I'd much rather have 5 properties @ 80% LVR than 1 at 10% LVR. Your exposure to the cap growth is amplified 5 times when you're starting out and that's what you want.
Click to expand...

Exactly! Couldn't have said it better myself.
I think it was Jan Somers who said, in one of her books - buy as many as you can as quickly as you can.
Then, you just let time and compounding do it's thing, unless you're like Steve and just keep buying more. Be careful, it can be addictive :)
 
Hi Fokas,

You know, in the current economic environment, and for a newbie, I think your stratagy is a good way - to start. If you can pay off a $200k house in three years, and spend that time learning, learning, learning, you can then use the equity in this house ($200k) to springboard yourself into new investments. And by that time, the whole investing climate might be a lot clearer.

But definately, as LynnH suggested, put your repayments into an offset account. That way, if you feel confident enough to accelerate your investments after a year (rather than 3) then the option is there to use the equity/funds you have built up in the meantime.

Great that you have such a high income to get yourself started - you have a terrific opportunity to build wealth for yourself. Good luck.

:)
Lily
 
Thankyou so much everyone for your replies.

It is actually a theoretical calculation... I'm still on $40K so I have plenty of time to learn about leverage/gearing/accounts whilst I focus on increasing my skills within my job and therefore increasing my wage. :)
 
fokas said:
Thankyou so much everyone for your replies.

It is actually a theoretical calculation... I'm still on $40K so I have plenty of time to learn about leverage/gearing/accounts whilst I focus on increasing my skills within my job and therefore increasing my wage. :)
Click to expand...

As well as focusing on increasing your wage, also fokas on :)D I had to) spening less than you earn and saving the balance. Pay yourself first and don't touch this money under any circumstances. Get to your first deposit with haste, buy, wait for some growth and away you go again.

It is never a matter of how much one earns. it is what one does with what's left over.

You've found a good community here........read plenty and ask away. There's always people here to help.
 
Player said:
As well as focusing on increasing your wage, also fokas on :)D I had to) spening less than you earn and saving the balance. Pay yourself first and don't touch this money under any circumstances.
Click to expand...
;)

Thanks. I have read Richest Man in Babylon as well (well actually I've read it twice...first time 2 years ago when it just didn't sink in and again a year ago) and certainly plan on doing just that.

My mindset is not 'I can't afford it'........ but how can I afford it?
 
fokas said:
;)........
.......My mindset is not 'I can't afford it'........ but how can I afford it?
Click to expand...

Excellent. Good perspective to have. Always ask valuable questions of yourself.....usually makes you stretch.

Also have a read of:

Secrets of Property Millionaires Exposed - Dale Beaumont

Think and Grow Rich - Napoleon Hills (a little heavy, but worth reading once a year)

The Millionaire Next Door - Stanley and Danko

You Were Born Rich - Bob Proctor

Also anything by Jan Somers, Noel Whittaker, Michael Yardney, Steve Mcknight, Margaret Lomas, John Fitzgerald, Peter Spann, Craig Turnbull, Jim Rohn............that'll keep you busy.

Onward and upward on your journey leventi :)
 
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