My wife wants to slow down and I want to invest More and more

[Dan_p]

I want to be a million dollars in front in ten years or less through purchasing decent residential IP's.

My goal is to travel to different countries every year and live comfortably.

This is my first post, I have read heaps of these forums and really love it.

I am attracted to property near good schools, shops, transport all of that sort of thing.

I am a bit of a late starter for a couple of reasons, missed opportunities and circumstances; it feels like I am making up for lost time as I have such a desire to accumulate properties. However I have started now and property is something I really love.

We purchased a 3 bedroom unit in Chipping Norton in 2007 and the following year we bought a 2 bedroom unit in the same street. (both of these units performed well in the short time we have owned them so I am not expecting too much in the way of growth for a little while). The next year we bought a block of land at Springfarm and the next year we built on this land and made it our PPOR. Currently we are mortgaged fairly highly as we have been using equity and savings to make these purchases. We are sitting at about 92% at the moment our debt is almost $1 million (bear in mind it is all good debt except for credit cards)

I am keen to get to about 80% leverage and purchase again. However if I can purchase a property beforehand I would do it. I would prefer to take out LMI and claim a property (so long as I can afford the loan repayments after receiving the rent)

My wife is not that keen, she wants to relax a bit with the buying of property and save money in the bank. Where I am totally driven to obtaining more and more IP’s. Is it good that she is putting the brakes on? I have told her we could always withdraw from the loan if we are in front for emergencies.

Does anyone have some strategies that could convince her to invest more, or maybe I need to calm down a notch? Bear in mind the woman is the boss at my household.

We still live relatively comfortable because my salary is quite high and we run a small internet business as a sideline which is great for cashflow.

I have made up a spreadsheet for each of my properties with expenses, income etc and projections of capital growth and cash flow at moderate yearly rates of 5%. I have made pretty graphs showing our fortune in the future waiting for us with these properties and how this would compound with more properties but she is not convinced of my handiwork. Maybe she thinks I am biased or have made errors in this spreadsheet. (Would somebody like to check my spreadsheet, or does someone have a good system they use to see when they can invest in their next property safely?)

Sorry for this being a bit long winded, I guess I am asking a number of questions in this one.

 

[Rolf Latham]

Hi

Welcome

Need some more data.

Age and what you do for a living will have a BIG bearing on what your advice may be.



ta
rolf

 

[Dan_p]

Hi

Welcome

Need some more data.

Age and what you do for a living will have a BIG bearing on what your advice may be.



Im 36, wife and 5 year old boy. Work as an offshore surveyor, 130k pa.

Our loans are crossed at the moment, so might need to wait until at 80% to get another property and break the cross loans.

Presently we receive $350 and $320 respectively for our two ip's.

Property values total about 1.1mil, debt total about 970,000 (when I stated we are about 92% that is with bank valuations)

 

[pennyk]

I would hold off buying and discuss again in 12 months.
Give her some time to catch up and feel more relaxed about the process. Alot of people on the forum talk about the "sleep at night factor" (SANF). If you wife is being pushed beyond her SANF, then I'd hold off. I'm a firm believer in "gut feel", and as a couple, both of you need to feel comfortable to move ahead.
Does your wife want more kids? That could also be a reason for some anxiety not to invest again.
Take some time to listen to her concerns...... it sounds to me like you might be so enthusiastic she feels abit railroaded into a path she doesnt want to go down. If you slow things down a bit, she might feel more confident to move head.
I would also look at your insurance situation, particularly since you seem to be largely dependent upon your income to fund your mortgage. Make sure you have Income protection insurance etc.

 

[Deltaberry]

I'd probably hold off... that level of gearing (as a percentage) + debt (as an absolutely amount) are fairly aggressive for your income, especially if your wife is not working. Have you considered:

a) What happens if you loes your job (we saw mining services tank in 2008) so don't think stronger for longer?

b) You might have personal circumstances that stop you from working (eg illness, death of a relative etc)

c) You give yourself less options (ie you can't quit if at any stage you decide you've 'had enough' since you probably won't be able to service the debt)

In short, more debt may be good depending on different circumstances. Eg if you borrow at 7% and make 25% return, why not? But if you're borrowing at 7% and say you make 4% return, then you're banking on a lot of other things working in your favour, so it depends on how risk-taking you're feeling.

 

[The Y-man]

Bear in mind the woman is the boss at my household.

Listen to the boss or you might get fired....

As part of your due diligence - make sure you have a plan B and C for when things turn bad, AND be able to explain to the boss.....

The Y-man

 

[Rolf Latham]

Hi Dan

Id look at taking stock for a little while.

If you were over 50 id suggest you down tools for a long while.

As it stands, id look at restructuring if YOU THINK, its an issue, and pull any equity you have as a buffer.

The risk mitigation side needs to be well covered, and unless you have string income protection AND a 30 k buffer, I can understand why wifey would be concerned.

Be aware that you and your wife assess things in different ways, and no spreadsheet using financial modelling will get around her risk management issues...........and nor should it.

there is a reason why couples "work" togteher like this, its called Balance

ta
rolf

PS, I think most lenders would share your Mrs view, too much too fast and too early
ta
rolf

 

[bene313]

Might be a good time to focus on paying off the PPOR.

 

[Wunderbar]

yeah 92% is super high. Focus on pay-down first

 

[devank]

Hi Dan,
I'm in somehow similar stage as you.

I'm also 36, have two IPs (2006 & 2008), built a home to live (2009), have about 1 mil loan and have young kids.

I created a detailed cashflow/expense/budget spread sheet. Even though my rental income is slightly higher and have decent double income, now only I can comfortably go for the third one. I did include expenses such as 12K for a holiday.

In my case, I wanted to make sure that we can at least just get by on one income. I also put away six month worth of pay in shares as income protection insurance.

I suggest you create a detailed monthly budget to see if your cash flow is okay. Make sure you can handle the situation if you loose your job.

- devank

 

[Melbournian]

Hi

Welcome

Need some more data.

Age and what you do for a living will have a BIG bearing on what your advice may be.



Im 36, wife and 5 year old boy. Work as an offshore surveyor, 130k pa.

Our loans are crossed at the moment, so might need to wait until at 80% to get another property and break the cross loans.

Presently we receive $350 and $320 respectively for our two ip's.

Property values total about 1.1mil, debt total about 970,000 (when I stated we are about 92% that is with bank valuations)

I see some risk in that 970K debt - that is a danger limit with the value of property at 1.1mil
I would look to paydown as much as i can. No overseas holidays or fancy food. In a ideal world of investing - it's great to draw equity out to finance another IP but you still pay interest on your equity. Changes in circumstances or lifestyle can put you in a position where you might need the cash urgently.

 

[Melbournian]

Hi Dan,
I'm in somehow similar stage as you.

I'm also 36, have two IPs (2006 & 2008), built a home to live (2009), have about 1 mil loan and have young kids.

I created a detailed cashflow/expense/budget spread sheet. Even though my rental income is slightly higher and have decent double income, now only I can comfortably go for the third one. I did include expenses such as 12K for a holiday.

In my case, I wanted to make sure that we can at least just get by on one income. I also put away six month worth of pay in shares as income protection insurance.

I suggest you create a detailed monthly budget to see if your cash flow is okay. Make sure you can handle the situation if you loose your job.

- devank

That is thinking 1 step ahead - like playing chess - to put money away for a rainy day. It's good to think of all possible scenarios.

 

[alexlee]

I have made up a spreadsheet for each of my properties with expenses, income etc and projections of capital growth and cash flow at moderate yearly rates of 5%. I have made pretty graphs showing our fortune in the future waiting for us with these properties and how this would compound with more properties but she is not convinced of my handiwork. Maybe she thinks I am biased or have made errors in this spreadsheet. (Would somebody like to check my spreadsheet, or does someone have a good system they use to see when they can invest in their next property safely?)

Well, you ARE biased, and even if you don't have errors in your spreadsheet, it's about the assumptions you make: interest rates, rent increases, and of course price increases. 92% is a very high LVR. This of course depends on how much debt you have, and 7-8 times your income is getting risky. If rates went up 2%, what happens? If you have a vacancy, what happens? You don't have an equity buffer. Not to mention you presumably used the IP equity to buy the PPOR, making that part of the loan nondeductible.

With basically no equity anything you buy would have to be at 100% or more LVR. Assuming net rent of maybe 3%, you're going to be down 4% after tax on another property. Can you afford that and still be comfortable with potential rate increases?

 

[Dan_p]

thanks very much to all of the responses, you guys are terrific. I think the consensus is to slow down a bit and pay off as much ppor as possible. Wife will be happy with this.

PennyK - no more kids on the way, I think it is just a big juggling act financially with all of the rates,strata etc associated with ip's, this can probably feel like things are out of control if not managed correctly. I do a a large life insurance which would cover most of the mortgages and I have income protection until retirement age at 75% of base salary.

Deltaberry - understood about being too aggressive. You never do know what is coming up in the future.

Yman - I like your style

Rolf - we probably dont have 30k spare now, we are a bit in front with ppor loan, I intend to get right in front with this one and be able to draw back in emergency situations. I think I can live with how the loans are at the moment, break the cross when the time comes to get another ip (2 years away say) and there should be a bit of growth in my three properties which would mean I would be close to 80% - does this sound fair?

Can I still reach my goal of 1 Mil in front within 10 years. If I settle for a couple of years then start to invest again will I still achieve my goal?

bene313 - I think you might be right

Wunderbar - same again

davank - your situation is remarkably like mine. are you going for your third ip now are you? You started investing 1 year before me.

I still want to achieve my goal so my family can be set up and we can travel to exotic places each year and live a comfortable life. Do you think this can be achieved ? 1 mil in 10 years and counting

 

[murph14]

Hi Dan and nan

If you think about it, what's going to fund these trips? What's the ideal and most risk-free way of funding that dream lifestyle? If you simply saved the money you're putting in to the IPs you would have a good $500k+ by 10 years. And while you're living overseas, that money can be earning interest - probably enough to last you another 6 months the following year.

So it begs the question, why property? If you keep buying for CG with equity then at the end of 10 years you have maybe $500k in equity. Then you're funding the trips by drawing down and increasing your debt. That is not sustainable.

It's just something to think about. Maybe a drastic change in strategy and loan structuring will get you to your $1m goal quicker and with far far less risk and burden.

 

[wylie]

I do have a large life insurance which would cover most of the mortgages and I have income protection until retirement age at 75% of base salary.

Just one thing, and this is a very personal matter for each of us, but perhaps increase your life insurance to give your wife enough to pay out the mortgages PLUS a couple of hundred grand to invest so that she isn't forced back into the workforce earlier than she would like to just to put food on the table.

 

[oracle]

Can I still reach my goal of 1 Mil in front within 10 years. If I settle for a couple of years then start to invest again will I still achieve my goal?

Dan, I read in a book (can't remember which) where it said in order to come first in a race you first need to finish the race.

So make sure you finish the race, make sure you don't impact you SANF, make sure while trying to expand your current portfolio aggressively you don't put at risk the current assets you already have.

You might as well reach your end goal 2 years later rather than having to start from scratch.

Hope that makes sense.

Cheers,
Oracle.

 

[weg]

Hi Dan and nan

If you think about it, what's going to fund these trips? What's the ideal and most risk-free way of funding that dream lifestyle? If you simply saved the money you're putting in to the IPs you would have a good $500k+ by 10 years. And while you're living overseas, that money can be earning interest - probably enough to last you another 6 months the following year.

So it begs the question, why property? If you keep buying for CG with equity then at the end of 10 years you have maybe $500k in equity. Then you're funding the trips by drawing down and increasing your debt. That is not sustainable.

It's just something to think about. Maybe a drastic change in strategy and loan structuring will get you to your $1m goal quicker and with far far less risk and burden.

Agree. Why doesn't your wife work a few hours (a couple days a week,school hours)?

This way you can be comfortable NOW and do regular holidays while your child is young, while you continue to invest with your income without feeling pressured to work quickly to attain these things.

This income can provide a bit more security as well, if you do decide to take on a bit more debt, interest rates go up or you have vacancies/non paying tenants.

 

[devank]

That is thinking 1 step ahead - like playing chess - to put money away for a rainy day. It's good to think of all possible scenarios.

I thought everyone would have a Plan B if one thing goes wrong.
By the way I did participated in chess competitions when I was in school and still play once in a blue moon.

davank - your situation is remarkably like mine. are you going for your third ip now are you? You started investing 1 year before me.

Yes I am looking now...BUT please remember my rental incomes are slightly higher ($405 & $450) AND we have decent DOUBLE income AND we have a decent Plan B.

Even though I do all the ground work I still run pass and get the approval of my boss

 

[Dazz]

the woman is the boss at my household.

Absolutely pointless talking to the monkey when discussing the big stuff.

Hand over the keyboard sonny and put the organ grinder on, so we can have a decent chat.

Your wife would probably like a coffee and so would I whilst we chat....white with one for me.