Making our money work for us?

[Jayzel]

Background: My partner and I built a house and moved in May 2010. Total cost of house and land was about $370k. We had approx $30k deposit (savings), plus FHOG of $26k, and got a loan for about $315k. We were both on pretty good pay, and managed to save another $18k to buy a car with cash while the house was being built.

When we moved in, we had also saved more money, to put into the re-draw.

Fast forward to today. We have been in just over 12 months, have increased our minimum repayments to pay off the house quicker, and have nearly $40k in the redraw. This has reduced our loan from 29 years remaining, to just under 17. I know we aren't on the best rate (7.31%) but I left my job last week, so can't look at refinancing just yet.

We also have approx $7000 in shares.

We are only young (22 and 26) and would like to think about starting a family in the next few years, but want to be financially ready. Obviously I will be getting a job soon, and as long as I get one with salary of approx $38k we should be able to continue with our extra repayments.

My question is: Is there someway we can make our money situation better? I would like to one day have an IP but don't want to be paying off mortgages for the rest of my life. I was bought up by my mum, who owned her house outright for 25 years, and never even thought of investing or getting a second property so I have no idea.

Any advice appreciated

EDIT: Forgot to add, houses around us are now on the market for approx $420k for a similar sized home/land, so would be safe to assume ours would be worth about the same.

 

[BayView]

My question is: Is there someway we can make our money situation better? I would like to one day have an IP but don't want to be paying off mortgages for the rest of my life. I was bought up by my mum, who owned her house outright for 25 years, and never even thought of investing or getting a second property so I have no idea.

I don't know any details about your Mum, so I'll assume something; If your mother owned her own house for that long, and did no other investing, how does she/did she live after retiring?, or is she still working?

The mentality of having a mortgage for the rest of your life is the common one of the wage earner who will only ever buy a PPoR and nothing else.

But, what if you were to adopt the mindset that if you were able to borrow $10mill, you would have an income of $1mill (or probably more) per year pretty much for life?

There is a vast difference between mortgages (for a PPoR) and investment debt.

Given your already sound financial habits and knowledge, and your young age; I'd be continuing on as you are for as long as you can before the first ankle-biter comes along.

By that time, you will have smashed your mortgage (keep putting funds into the redraw), and the property will have gone up some more. You will have a pretty good equity position in your PPoR by then.

After the kids have been sorted, you can assess your position and look at different investment vehicles to put some of your equity into - investment debt that will return an income and some tax benefits.

It may not be more property; it could be shares, or a business, or all three.

 

[Jayzel]

My mum is now on a pension. My stepdad is a veteran and mum is considered his carer. They did take out a mortgage approx 10 years ago ($40k) and they are still paying that off. She has had the house since the early 70's and that (40k) was the first debt she has had.

 

[Rolf Latham]

Hi

Well done !

If possible, convert the remaining loan to interest only with an attached 100 % offset account.

Place all spare cash into the pffset account

When your work situation allows an equity draw, use the SAME lender and get a SEPARATE new loan to 85 % of the new val ( 420 x .85 = 357 total) reduce the limit on the exisitng home loan from 31x to 275. The new separate split would be 82 000.

That 82 k can then be used for investment purposes as deposit and costs for a new place, with the new property grab a loan of 80 to 90 % depending on your risk tolerance.

These are obviously justsome general ideas, and I would suggest you get some specific advice that doesnt just look at your borrowing caps etc, but also addresses your goals needs and risk profile.

ta
rolf

 

[Aaron Sice]

In my personal opinion, having three houses fully paid off, is better than having 10x fully encumbered.

You sound like you're already on a winning streak. Top stuff.

 

[VYBerlinaV8]

You're young, and seem to have good savings habits. If I were in your position right now I would be focussing on saving hard and paying down your PPOR loan for a few years. Given that your PPOR loan costs you 7.31%pa, every extra dollar you pay off that loan is returning you 7.31%pa AFTER TAX, RISK FREE, equivalent to a ~10% pre-tax return with zero risk. For a young couple starting out, this is nothing to be sneezed at.

In a few years, once you've had kids and settled into family life, you can have a clear think about how to invest given your new situation. Having plenty of equity (from both savings and potential growth) as well as the ability to consistently live within your means puts you in the box seat for getting into some good assets.

There's no desperate rush as far as property goes, buy some more shares if it makes you feel better, but I would focus on paying down that PPOR loan in the short to medium term. Even if you never invest you could potentially own your own home outright before your mid thirties, which puts you ahead of most financially.

 

[Ridin-High]

My question is: Is there someway we can make our money situation better? I would like to one day have an IP but don't want to be paying off mortgages for the rest of my life. I was bought up by my mum, who owned her house outright for 25 years, and never even thought of investing or getting a second property so I have no idea.

Some sound advice provided by VyBerlinaV8 as usual.

Nothing really more to add to that.

 

[Belbo]

Hi Jayzel,

You have achieved a great deal already for such a young couple - really good work! - but you also ask how you can improve your money situation from here.

Some helpful advice on investing strategy has already been offered (and much more could be added, of course) so I'd just add, look also to increase your earning power as you go along.

You don't mention your field of work or qualifications, but whatever they are, upgrading or broadening your qualifications with part-time study while you work can be very helpful indeed. It's not a hard and fast rule, but the more qualifications you each have the higher your income-earning prospects generally are. (Particularly so if they're in business-related fields like accounting, marketing or management.)

Of course, you and your partner might be more entreprenuerially-inclined, and so may prefer instead to start a home-based business of some sort to earn a bit more this way. It could be as simple as tutoring or trading collectibles on e-bay, or something more detailed like a small web-based business. The old proverb: Don't try to invent a new business, just do something that already works, but better or with a twist, comes to mind here.

One last piece of advice: At least one of you should think about working on Saturdays if you don't already. An old tram driver told this to me many years ago when explaining how he managed to own his house and a pair of IPs, and so I made it a rule to work at least Saturday mornings for the last 15 years (with the wife taking care of the housekeeping while I'm out. ). I reckon that alone has paid for an IP deposit or two in itself.

Anyway, good luck on your journey!

 

[wobbycarly]

*snip*
One last piece of advice: At least one of you should think about working on Saturdays if you don't already. An old tram driver told this to me many years ago when explaining how he managed to own his house and a pair of IPs, and so I made it a rule to work at least Saturday mornings for the last 15 years (with the wife taking care of the housekeeping while I'm out. ). I reckon that alone has paid for an IP deposit or two in itself.
*snip*

This should be qualified with "if you get paid for it", IMO. Personally, I could work Saturday mornings, but with nothing to show for it but a less well-groomed garden.

 

[Jayzel]

Thanks for all the advice. My partner works in a warehouse, and I was doing admin. I have a cert 4 in real estate, but have had trouble finding an entry level role into real estate so have put that career on hold for a while. I have just been offered a job with a $52k salary in a different line of work, so am really excited. That is an extra $10k a year that can go straight into paying off the loan.

I have tried finding Saturday work, but it's been difficult. Even with my RSA and RSG I was having trouble finding evening/weekend work. With my new job I won't really have much time to do extra jobs.

We are thinking about selling the shares as they just keep going down. I kinda feel that we should hold onto them as I feel they will eventually go back up, and at the moment they are less than we paid for.

 

[Belbo]

What shares do you own? There are plenty of clued-up share investors with their fingers on the pulse here too, who I'm sure would comment valuably on your selling thoughts in each instance. Post and ask (Intrinsic Value, where art thou . . . . when you're actually needed?).

That $52K job sounds like a really great boost, both financially and career-wise. Well done there you! Don't be disappointed about not getting into R/E, you're already doing that for yourself anyway.

Old Wobbycarly's leading you astray on working Saturdays : Do it whether you're paid for those extra hours today or not I say, because you'll be at the top of the list for the best pay rise every year (it's kind of like investing in your own career). I know it's a sacrifice, but that's the kind of thing that separates the clock-watchers from the go-getters in employers' minds, and when you're ready to go onwards and upwards into a better job elsewhere, you'll see it if nothing else reflected in the enthusiastic references you'll get from your employers. I got my current job because of an ex-employer's verbal recommendation (bordering on hysterical insistence, from what I heard) alone, and it more than doubled my then salary overnight.

And don't forget the study option. It may be a sad fact of modern life these days, but near-constant permanent professional development (i.e. study) is required in many fields (R/E, teaching, accounting, architecture & design, etc). You're both so young that study will invariably broaden your earning horizons (as long as it's not flakey stuff like aromatherapy or poetic writing), and there's the personal enjoyment to be had in challenging yourself to get higher qualifications. Knowledge, ability and self-confidence all benefit at once, especially when you're young (and damn, are you young!).

Envying your many and varied options to go even further than you have, and with deep appreciation of your never looking like being a dependent on my taxes,

 

[Jayzel]

My partners role is Monday-Friday. There is very rarely Saturday work, but he does work it when it comes up (pay is double time) I doubt my new job will have Saturday's, it is a Monday-Friday job, however there is an 'afternoon' shift (start at noon instead of 9am) and there is extra pay for this that I am going to try and get onto.

I have thought of more training. I have more or less been doing courses since I left high school. I did my real estate while working at my previous role. I would like to do more courses, but nothing has really caught my eye, that isn't expensive. Real estate course was approx $600.

My partner isn't as into money as I am, and doesn't want to work more than he needs to, so a bit difficult to get him to consider studying.

Our shares (partners dad advised him to buy them - this was before we got together) are Telstra. I know they keep going down, but I think that the National Broadband Network (if it goes ahead ) could make them go up a bit? Myself, I wouldn't purchase shares. I just don't know enough about the share market.

 

[Belbo]

My partners role is Monday-Friday. There is very rarely Saturday work, but he does work it when it comes up (pay is double time) I doubt my new job will have Saturday's, it is a Monday-Friday job, however there is an 'afternoon' shift (start at noon instead of 9am) and there is extra pay for this that I am going to try and get onto.

I have thought of more training. I have more or less been doing courses since I left high school. I did my real estate while working at my previous role. I would like to do more courses, but nothing has really caught my eye, that isn't expensive. Real estate course was approx $600.

My partner isn't as into money as I am, and doesn't want to work more than he needs to, so a bit difficult to get him to consider studying.

Our shares (partners dad advised him to buy them - this was before we got together) are Telstra. I know they keep going down, but I think that the National Broadband Network (if it goes ahead ) could make them go up a bit? Myself, I wouldn't purchase shares. I just don't know enough about the share market.

Then you'll just have to lead on the money side by example. You're already well underway here! Get the fella to read this thread and then get him his own log-on to have a chat. Heck, if he only has a chuckle in the Coffee Lounge he'll get infected!

 

[Thesnowyforest]

if you would like to understand shares better, and have a long term outlook please read MOTIVATED MONEY.

www.motivatedmoney.com.au