My FIRST IP. YIPEE. Now what?

W

WebBoard

Guest
From: Jim Kouta


Hi there,

Just bought my first IP over the weekend for $241,000. I'm soo excited. I live at home and don't own much else. I have about $70k in the bank but getting married and going overseas next year(35k). How should I finance my loan? -ve or +ve gear? Should I borrow all the money(if I can). I'm on a high salary and pay maximum tax. Is it worth paying mortgage insurance for the sake of -ve gearing? Please advise. Property needs another 10k work and will get me about $270 p/w after that. I need a financial plan quick smart. Thanks.
 
Last edited by a moderator:
Reply: 1
From: Franky Psuedo


Jim,



Where is the property?
 
Last edited by a moderator:
Reply: 2
From: GoAnna !


Congratulations Jim !

Anna cracks open a bottle of champagne and pours Jim a glass.

You have taken the first step towards your dreams. : ) : )

The basic rules are:

1. Use cash to finance personal expenditure such as getting married and going overseas.

2. Use other people's money to invest (they have so much and can't wait to give it to you)

3. Focus on wealth creation not tax avoidance. (the tax breaks are a nice bonus)

4. Operate within your personal comfort zone. (only you know what this is)

Personally (my opinion only and I am not a tax agent or financial advisor) I would pay for the wedding and trip in cash.

Do 10K of improvements and then have ip revalued.

Decide whether you will want to buy another ip or do any other kind of investments in the near future. Or will you be buying your own home? If you do want to buy again soon you will want to hold onto as much of your cash as possible and you may want to look at whether LMI will allow you to keep more cash in hand. Be aware that LMI does come at a cost and you will want to calculate what level of deposit will have the best result. A good mortgage broker will be able to help you here.

Good luck!

GoAnna !

PS If you haven't already you may want to read "Rich Dad Poor Dad" by Robert Kiyosaki just to get the basics of wealth creation in a nutshell.
 
Last edited by a moderator:
Reply: 1.1
From: Jim Kouta


Property is in Melbourne, East Doncaster.
 
Last edited by a moderator:
Reply: 3
From: Rolf Latham


Hi Jim

Great stuff, now comes the easy part, collecting the rent and watching the thing grow in value. Once again GoAnna has it pretty much covered.

On the financial plan bit, I would do lots and lots of work on what you and your partner want to be able to do rather than what you would like to have.

Its not about money, money is only the "negotiable" instrument. It is what the $ can do for you and others that matters.

Regards


Rolf

PS I also suggest you find yourself a good broker - Melbourne is full of them ! If you need help drop me a line.
 
Last edited by a moderator:
Reply: 3.1
From: Franky Psuedo


Hi Jim,

That's great. Friends of mine too bought in Doncaster. Wondering whether it's in the same block of townhouses. Theirs is near the Pine shopping centre. Is yours anywhere near there. Are there any others on the market. Got to admit, I too am looking in that area.
Appreciate any feedback.


Cheers.
 
Last edited by a moderator:
Reply: 3.1.1
From: Marina. L


Hi,

East Doncaster is a great growth area. We bought our second Ip in february 2000 for 185K off the plan and 8 months later we had it revalued at $235K.

The apartment is in a block of 30 and is known as St Claire Apartments.

It is cashflow positive as well and the quick capital growth enabled us to buy another IP with no cash outlay.

What a great Suburb!!!





MARINA
 
Last edited by a moderator:
Reply: 3.1.1.1
From: Frode Egeland


Marina,

You say your IP is +ve cashflow.
I'm just wondering what type of loan you have?
If it's P&I and the property is +ve cashflow, then I'm impressed! :)

Cheers,
Frode
CashflowSydney
 
Last edited by a moderator:
Reply: 3.1.1.1.1
From: Marina. L



Hi Frode,

The rent on our apartment in East Doncaster is $250 per week and the loan is for $188k @ 6.31%, which gives me $1186 P.A. positive cashflow.

We elect to pay INTEREST ONLY on all of our IP loans. As you can very well see that if we were putting in the PRINCIPLE COMPONENT we would definitely be negative. This in turn would put a strain on our cashflow and the purchase of any further IPs would probably be out of the question.

What is important is your equity in the property and how fast it increases over time.
As you can see from my example my loan is $188K (this includes 3K for legals), and the bank has a valuation on the property for $235K.
So the property has grown $47K in just under a year. I will get it revalued again at the end of the year and I can safely say that the property should be worth $245K.

As you can see the debt is insignificant compared to the property value.
Reducing the principle reduces the interest claimable and you will then pay tax on the rent. So if its cashflow positive then why bother to pay it off.

Remember when the property doubles in value to say $376K what you can do is pay off the $188 loan-remember you haven't put in one cent extra and you get to keep the $188K in your pocket.

The only loans you should pay out while you are building your property portfolio are those that are not tax deductible like your car loan or home loan.





MARINA
 
Last edited by a moderator:
Reply: 3.1.1.1.1.1
From: Rasputin .


I wish my parents had advised me to save and buy IP beofe moving out of home instead of wasting money on useless items. My kids will be so far ahead of me simply because they will have the knowledge to do this..

$70000 in bank and an IP prior to marriage, well done !!!!!
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2
From: Duncan M


>The rent on our apartment in
>East Doncaster is $250 per
>week and the loan is for $188k
>@ 6.31%, which gives me $1186
>P.A. positive cashflow.


Interest = $11,862pa
Rates = $1000pa
Building Insurance = $300pa
Landlord Insurance = $140pa
Water/Sewage = $300pa
Maintenance = $700pa
==============================
Total = = $14,302pa

Giving you a loss of at least $1302pa..

Sure, non cash-deductions will get you some cash back at Tax Time..

Duncan.
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.1
From: Marina. L


Duncan,

You have overestimated a lot of my expenses, and as for maintenance it is Nil as it is brand spanking new. So basically owning this property in its first year has not cost me anything out of my own pocket,it has actually been positive.

The agent is increasing the rent in September therefore giving extra cashflow again.

I buy only for capital growth at this stage and if the rent covers the interest and gives me surplus income to cover the majority of my expenses I am happy. The tax refund will cover the rest.








MARINA
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.1.1
From: Gee Cee Cee


Marina;
Well Done

I have a 4brm house I built almost 2 years ago.

The whole project cost $160k.
At the time I thought of it as just a fair investment but in a area I believed had GROWTH & improving infrastructure. Brand new. Never a problem only $110k loan towards.

It would now sell @ around $260 - $290k.

Rented @ $ 260pw & rising. Maintenance NIL.

Depreciation allowances, Capital growth, Rising rents, along with with no maintenance.

The knowledge from this has allowed me to repeat the same scenario again & again.

Why would I want to join the latest fad of Wrapping ?????!!!???

From this there is limited problems. Great Capital gain. No maintenance and should I wish to sell there will always be willing buyers.

OK I will pay tax. But if you set it up right when you make a $$ you pay only what is legally owing.

Just my conservative view.

Gee Cee

The old unemployed BUM

(Yeah I know . I am just a dinasour with pre historic views!!)


Gee Cee
 
Last edited by a moderator:
Back
Top