Lower Income investing

[Property Meister]

Since day 1 we have always been below ave wage. The problem isn't just how much you earn but how much your outgoings are and someone on low wage can still have higher serviceability than someone on a high wage.

I think for serious investors, it's quite useful to learn how the banks work so that you can pre-approve yourself and know what sort of situation you need to be in to get a loan. Mortgage brokers are great for getting loans but so many ppl are clueless about how much they can borrow. It takes mins to work out.

I've never had a full time job since 2000, preferring contracts and part time....more money, not tied to the job and more flexibility for time off to travel. This iswhy I develop properties, to supplement my lifestyle and income. Exclude property, I'm on $20 to $40k a yr then inc property and it's up to anywhere between $100 to $200a yr. My husband is on about $50k a yr now, his highest salary yet.

Just built another house cost about $360k bank valuation on completion was a nice surprise @ $450k so market valuation should be between $470 to $500.

That means our total combined income inc property this year is about $170k inc property but based on bank value. We just had some bank valuations done and surprisingly, there has actually been lil CG on our IPs too within last 6 mths.Though we did lose $50k in stock market. Equity is just as good as income.

thats all fair enough.. however, do you think this will continue to work in a flat/falling market???

I have a freind property investor being doing it for something like 15 years, does damn well out of it, he is trying to pull the plug out of everything he is working on..

 

[Alex P Keaton]

Well i'm hoping the Perth market will start to move a little. I hear the lower end is picking up again! I have a loan of $177K on my ppor property valued at approx $250K in Highgate Perth. I'm waiting it out until its worth $300 K. I have $23 K in savings however I dont want to use my buffer as a deposit. I want to use the equity in my ppor to buy my first ip. I may have to wait 2-3 years though for its value to increase to $300 K.

 

[sue78]

It's like a business.....many businesses hopes to break even in the first few years and start making a profit after that. I've had 6 - 7 years of profit already. There's always a risk in any investment. Even if I break even or make a small profit, I'm ok with that.

What I've learnt doing this is that all properties do sell eventually. The IPs I've kept are now I neutrally/positively geared.

The thing is I keep my risk low by doing only one projectat a time. I can see how easy it is to fall doing mutliple projects, especially if you don't have the cash flow, if time blows out or it takes awhile to sell or rent. Lots of factors there.

With my developments, profit is calculated even before I buy the land, based on current market prices. I don't just build a house an dhope for it to go up. It means if prices go up when my house is finished then great, even more money but I've factored in the 15% drop in value too.

This house that I just built is valued by the bank todayat $450k. 12mths ago when I bought the land, I already knew it would be worth $450k but within in that time, it has probably gone up another 10%.

 

[Jebb]

My dad always used to tell me to be careful with how I spend, and as such, havent been a big spender myself. I only buy what I need and never go overboard. Just turned 30 last week and looking at buying my 2nd (and maybe 3rd) IP next year.

After uni, I did a 3 yr stint in Japan, earning between 50k to 60k with the exchange rate. I was in the countryside where everything is dirt cheap and there is nothing really to spend money on. I had a blast, bought a nice car that I brought back to Perth and sold for a nice 7k profit, and saved up more than 25k a year - simply because there was nothing to spend money on except cheap drinks and snowboarding.

After Japan, my brother was upsizing his place so I made the move to buy his 2x1 which is 10mins from Perth. It was 207k in 2005 (we split agency costs because he didn't have to list it). I put in 90k deposit, borrowed 50k from the bank and 70k from my parents. I also started my own translation business, and with the horrible exchange rate at the time, pulling in just under 50k a year. I paid the bank off in just over a year (I was traveling/working on the road too at the time, and rented the place out while I was away), and just finished paying my dad back 2 months ago.

Im still in Japan and renting the place out now, but am looking into another 2x1 or perhaps two when I return home to Perth for a couple of months in February. I think two units will be a better option than one 4x2 for the future. I have also come across some cash so will have a 50k deposit for each of them, plus 100% equity in my own place. The exchange rate means I just received a 40% pay increase over a month (hope it stays that way!), and income from 3 IPs should mean I should be pretty much cash flow neutral *fingers crossed.

Some of my other high school friends went out and bought nice toys, new HSVs, big theatre rooms etc, some will probably never be able to get into property. I hated my dad for forcing me to be so careful with my own cash, but now I realise how important it is.

 

[Alex P Keaton]

bump, every now and then i come back to re-read this thread. Find it motivational.

 

[blaster]

Agree, you can always look for cheaper areas elsewhere.

In this particular case, we got pretty much one of the cheapest houses (not a fan of units atm) possible within the Adelaide boundary that still has enough land for development - so were'nt exactly over spending.

Point I was trying to make was even if you only need $5k to start you ,off - on a low income that can still be over a year of savings and in a moving market may mean you miss out.

Well , for my very first IP , I had no job , no deposit and we'd just spent our last 4 grand moving back down from interstate , my car was out of rego and I had 3 grands worth of fines and - I had to go on the dole , ahh and , we'd just had a baby . Was a good yr no !

But, I found the cheapest house for a 100k radious. 65k , found a wrapper , bought it , did it up and sold it at 70k profit after costs, 13 mths later.

 

[blaster]

Agree, you can always look for cheaper areas elsewhere.

In this particular case, we got pretty much one of the cheapest houses (not a fan of units atm) possible within the Adelaide boundary that still has enough land for development - so were'nt exactly over spending.

Point I was trying to make was even if you only need $5k to start you ,off - on a low income that can still be over a year of savings and in a moving market may mean you miss out.

Sorry guys , for personal reasons I decided to chop this one . But I will say you either need the income , or the time , either one will do the trick . Admittedly you do have a bit harder time getting in the door on the first one if it's the time but it is doable.

Cheers

 

[Alex P Keaton]

bump

.........

 

[Reality Cheque]

Interesting topic.

I don't fit the criteria but I did start out on a very low wage. When I started out I was earning $27000pa and my partner was earning $60,000. Funnily enough, I was cashed up and ready to start investing but my partner couldn't match my savings and was holding up the progress. I've seen first hand that it's not about how much you earn but how you manage your money.

Rc

 

[our obsession]

...and just completing another build, and acquired another 11ish (give or take a couple) blocks of land at, (what I consider) good buying to play with.

The Obsession Empire roles onwards.....---->

 

[RumpledElf]

We've been weighing up our options for some time. Our ideal situation is to build on our vacant block and move directly there and then sell our current house but that would require a very brief bridging loan for 3 months or so, which from the feedback I've got here sounds like absolute hell to get and it would be cheaper and less painful to stay in the caravan park or something for 3 months if we can't time a settlement and build handover for the same day (a monumental ask in itself).

We're ticking towards having saved the $8k or so we need to subdivide, and also well on the way to having the original house up to a saleable standard, although we won't be doing any paving outside for months and the garden won't be fully established until next spring, the plants are still quite small now. For what some people would do over 3 months, we're looking at spending close to 2 years doing while living there so it is no quick flip.

When that one is sold we'll have the money to build a new house CASH so we won't need to butt our heads up against the banks trying to get a loan on a low income. When that one is sold we should be able to build or buy two cash, providing my old house actually sells sometime in between.

The cash path seems to be the best option for us at the moment, getting loans is a pain unless they bring back short term nodocs.

 

[Alex P Keaton]

I'm on $50 K pa and I have $31 K in my offset. i save $1000 a month.

I have a $177 K ppor mortgage and making tiny repayments of $650 a month.

Was pre-approved for just $220 K for my first ip. The bank doesnt think I can service anything higher. Why cant they look at my bank statements. Cant they see I how much I have been savings/and how much im capable of saving. I wanted to get a loan for $280 K. At this point I'd be happy for just $250 K!

I'm thinking I'll wait another 12 months and then see if the banks are lending more freely then. If not I should have about $45 K saved by then and may have to use some of my own cash so that I can buy.

Wish I knew what was going to happen in Perth over the next year. I hope the values dont go up too much!


Anyone else in the same boat??

 

[Rob Williams]

Anyone else in the same boat??

Different boat, but feeling the pain of the tightening credit.
It's not personal, Kim. Even if they did look at your bank statements, the system doesn't allow them to make a judgement call.
Each bank has a service model into which they plug in your details and an assessement rate.
ING are running an assessment rate of around 8.5% at the moment. CBA are using a model which assesses your ability to repay based on a 25 year P&I loan at around 6.5%, even though you're applying for an IO loan.
So, it's very difficult at the moment to get a loan that fits with your perception of your ability to service it.
Have you tried a good, IP savvy, broker or dealing directly with the bank? They know the service models and that saves you a lot of time and pain going from bank to bank.
There may well be a bank who has a service model that is more geared toward your circumstances.

 

[Alex P Keaton]

Have you tried a good, IP savvy, broker or dealing directly with the bank? They know the service models and that saves you a lot of time and pain going from bank to bank.
There may well be a bank who has a service model that is more geared toward your circumstances.

I just assumed that cos ANZ would only lend $220 that the others would lend a similar amount. Maybe I have given up too soon. It couldn't hurt to find out what all the other banks are willing to lend could it. Then I could make a decision

 

[Rob Williams]

I just assumed that cos ANZ would only lend $220 that the others would lend a similar amount. Maybe I have given up too soon. It couldn't hurt to find out what all the other banks are willing to lend could it. Then I could make a decision

My understanding is that the ANZ service model isn't too good. I've been knocked back by them. CBA didn't fly, either.
Got an initial approval from Homeside (NAB) for one re-fi and RAMS (WBC) for the other re-fi within 2 days of lodging the app. Valuations were ordered a day or two after that.
From a strategic point of view, you don't want to go with the bank with the best service model for you. Save that one for your next IP. Go with one where you just get it over the line. It leaves you somewhere to go next time around.

 

[Alex P Keaton]

thanks for the tip

 

[our obsession]

Kim, just wanted to say a sort of what Rob said.

What I thought I knew about loans/servicibility/structuring was nothing compared to sitting down with our mortgage broker and having an experienced, investor ear to chat, run things by, and vice versa..The result was a plethora of stuff (to choose from) structure and invest the best way that suited us, and keep us in the game...

One of the best moves was us choosing to get into investing, the very next best, smart decision was meeting our mortgage broker.

But that is applicable to us, but still wanted to let u know just in case u think u have your back up against some imaginary wall. It's not always what u think it is. (From my experiences in this game).

What I have found is mortgages, structuring, all the stuff involved in financing can be shifting sands.

 

[Alex P Keaton]

bump, found this old thread from 2008.

Thanks Bayview!

 

[Singo]

Interesting thread. But don't think many earn less than 50k these days. Time to start another thread? But "combined net wages" figure would make it a useful thread.

 

[Alex P Keaton]

Interesting thread. But don't think many earn less than 50k these days. Time to start another thread? But "combined net wages" figure would make it a useful thread.

Yeah good idea, Do you want to organise it ? (with a poll attached)

Yeah i agree below $60 K I think would be better. Why not gross? ... as in gross payg salary. Wouldn't that be easier ?