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

[jingo]

Hi Dan,

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

Not sure what you mean by this? Do you already have 1Million and want a million more?

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

Sounds good. Will you work along the way, or are you planning to be self funded by then? Could you travel to different countries during the ten year period while you are building your portfolio?

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.

Yes, this is good for residential property. Regarding the threads you have read and enjoyed - keep in mind that many of the investors bought before and during huge booms (myself included). The question I'd be asking now is residential property going to keep going up in the short term? If not, how will I make money out of it by investing in it now? (ie add a twist - development, renovation, etc, etc)

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.

You have bought a lot in a relatively short space of time.

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)

LVR sounds high - but it depends on the strength of your servicability and the type of income you are earning. You may earn $200,000 p/a or perhaps more. So 1M debt wouldn't be so difficult to service.

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)

Bringing down your LVR via paying down your loans (or putting money into offsets) could be a good strategy. The answers about whether to use LMI really involve your reason for wanting to buy again so quickly. Perhaps you are on a high wage for only a short amount of time and want to take advantage of your servicability while you can?

My wife is not that keen, she wants to relax a bit with the buying of property and save money in the bank.

Putting money into offset accounts could be a good strategy. I would probably recommend this as opposed to putting money in savings accounts.

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.

Without knowing your full circumstances, this is difficult to answer. You both need to be comfortable with your investment decisions though - sounds as though your wife isn't and there may be good reasons for this. (eg you want to start a family, work is unstable, income may be cut, ill health, wanting to travel etc etc)

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.

In theory I have a lot of strategies. Whether I'd actually put them into practice or not is another thing!! I read an article recently which explained that women make better investors than men because they are not so gung ho and are more in tune with the risks involved in certain strategies. Buying endless amounts of residential IP's is not without risks. It is great in a rising market but you must have buffers in place to cope with vacancies, repairs etc etc. A 92% LVR would make me feel very uncomfortable....

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.

Sounds good. Is your salary and business stable? Perhaps your wife is preparing for difficult times - or just being sensible and realistic in case your circumstances changed.

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.

With all due respect, your spreadsheets are just that - projections. I can understand your wife being concerned.

Does someone have a good system they use to see when they can invest in their next property safely?)

For myself, I look at my existing cashflow, the cashflow of the proposed investment whilst keeping my short term goals in mind. (Eg wanting to take leave and travel, family circumstances etc). If the purchase of a new asset will be detrimental to my short term goals (travel etc) then I will not purchase it.

Other things I look at is the strength of my buffer and where this asset will sit alongside existing assets.

Regards Jason.

 

[Dan_p]

Hi Dan,



Not sure what you mean by this? Do you already have 1Million and want a million more?

thanks Jason for your response. I do not have a million now. I have about 100k equity with 970k debt.

Sounds good. Will you work along the way, or are you planning to be self funded by then? Could you travel to different countries during the ten year period while you are building your portfolio?

I still travel now but not as much as I would like. Work about half of the year at the moment.



Yes, this is good for residential property. Regarding the threads you have read and enjoyed - keep in mind that many of the investors bought before and during huge booms (myself included). The question I'd be asking now is residential property going to keep going up in the short term? If not, how will I make money out of it by investing in it now? (ie add a twist - development, renovation, etc, etc)

Im not so interested in short term. I want to buy and hold. If they perform well over the short term then that is a good stepping stone to get another IP.



You have bought a lot in a relatively short space of time.

Yes I have, good time for a rest and pay as much onto ppor

LVR sounds high - but it depends on the strength of your servicability and the type of income you are earning. You may earn $200,000 p/a or perhaps more. So 1M debt wouldn't be so difficult to service.

I earn $140pa, plus rental around $35pa so it is not too bad

Bringing down your LVR via paying down your loans (or putting money into offsets) could be a good strategy. The answers about whether to use LMI really involve your reason for wanting to buy again so quickly. Perhaps you are on a high wage for only a short amount of time and want to take advantage of your servicability while you can?

exactly. Well not really for a short amount of time, this is my job and unless the greens get in and stop the production of oil and gas then I will be doing this for another 10 years at least. The point is I want to have something to show for it. I dont believe in putting money in the bank to save, how many people save 500k or more. I know I dont have that sort of will power to not use it. The tax advantages are too good with ip, why not take advantage of this. And further more if rents are say $350 now for a property, what will it be in 10 years - 20 years. So you get the benefit of capital growth - where I will make my million and cashflow which would increase each year. Can you get that from savings in a bank?

Putting money into offset accounts could be a good strategy. I would probably recommend this as opposed to putting money in savings accounts.

agreed

Without knowing your full circumstances, this is difficult to answer. You both need to be comfortable with your investment decisions though - sounds as though your wife isn't and there may be good reasons for this. (eg you want to start a family, work is unstable, income may be cut, ill health, wanting to travel etc etc)

women think differently to men. Fortune favours the brave I say

In theory I have a lot of strategies. Whether I'd actually put them into practice or not is another thing!! I read an article recently which explained that women make better investors than men because they are not so gung ho and are more in tune with the risks involved in certain strategies. Buying endless amounts of residential IP's is not without risks. It is great in a rising market but you must have buffers in place to cope with vacancies, repairs etc etc. A 92% LVR would make me feel very uncomfortable....

It wouldnt take too long for the LVR to change. Remembering thoe values are straight from the bank. Prices go up $30,000 in 2 years per property along with paying off ppor, it would be at 80% - not that scary then is it.

Sounds good. Is your salary and business stable? Perhaps your wife is preparing for difficult times - or just being sensible and realistic in case your circumstances changed.

salary is stable, wife likes to live comfortable now. She is very realistic, I am the dreamer.

With all due respect, your spreadsheets are just that - projections. I can understand your wife being concerned.

The predictions are at only 5% per annum, that is pretty conservative for half decent properties I would think

For myself, I look at my existing cashflow, the cashflow of the proposed investment whilst keeping my short term goals in mind. (Eg wanting to take leave and travel, family circumstances etc). If the purchase of a new asset will be detrimental to my short term goals (travel etc) then I will not purchase it.

This is exactly right too and what my wife believes, and me too. You want to live as well.

Other things I look at is the strength of my buffer and where this asset will sit alongside existing assets.

Regards Jason.

thanks, that was a really good response. There is a lot of good advice and Im just starting out.

 

[Dan_p]

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.

Hi,

I dont believe in putting money in the bank to save, how many people save 500k or more. I know I dont have that sort of will power to not use it. The tax advantages are too good with ip, why not take advantage of this. And further more if rents are say $350 now for a property, what will it be in 10 years - 20 years. So you get the benefit of capital growth - where I will make my million and cashflow which would increase each year. Can you get that from savings in a bank?

I wont be living overseas, I want to travel each year to a different destination.

If I use your example of saving 500k in 10 years, those saving would be going up in a similar fashion to property right? Are those savings also going to give me a rental income as well. Property = capital growth plus cashflow. Money in the bank only growth.

Investing in property I get the growth in all that I have leveraged rather than just growth for what is savings in the bank.

Can I ask why do you invest in property, I am making a bold assumption that you do invest in property being part of this forum?

If I was to travel each year on 500k in the bank, I would be drawing down on the interest (ie growth) I could travel from the growth and rent combined through property.

 

[Dan_p]

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.

Im covered for 1mil life insurance. which would be two rentals and ppor all paid off. Rent at 34k per year. That wouldnt be too bad would it?

 

[Dan_p]

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.

I agree totally with this. Will wait for 2 years and let the dust settle.

 

[Dan_p]

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.

little one just started school. We wanted him to grow up with mum rather than in child care, which is something we are lucky enough to be able to do. Some parents both had to work and pick their 3 year olds up at 5pm.

We run a small business from home as well which generates a bit of money as well.

Hopefully my wife reads your post and gets a job... just kidding boss

 

[Dan_p]

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.

you make me nervous

 

[Dan_p]

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.

Anyway, I want to invest in property for the same reason as Daz said in another thread.

"It's not about the money for me.

I simply very much enjoy making my Tenants feel miserable every time their oppressive slumLord knocks on the door demanding the food off their table.

Like back in the Victorian era, knowing that you are placed well above your Tenants in society gives one a certain air of superiority that is simply delish.

Righto, can't chat, off to collect the rent from the b@st@rds...."

 

[Melbournian]

with 140K per annum 35K rental and small business income - u're looking not too bad actually - but still should probably pay down the PPOR first.

 

[wylie]

Im covered for 1mil life insurance. which would be two rentals and ppor all paid off. Rent at 34k per year. That wouldnt be too bad would it?

As I said, it is entirely up to you, but if your wife suddenly has lost your $140K income and has to live on the rents of $34K per year less the costs (rates, insurance, repairs on three houses) plus schooling (private OR public = dollars), then I would guess she would be forced back to work.

With a child at school, that might not be so bad, but if it is something she would like not to have to do until she is ready, as opposed to having no choice, then I would say you should increase the insurance to allow some money invested to bring in more income.

This is what we did. The broker at the time said many people just insure to cover the debts without thinking about the fact that the husband's income is no longer coming in.

Not saying you should do this, but it is something worth thinking about. Of course, your wife could sell a house but that means losing a valuable asset.

Do you have insurance over your wife too? How would you cope having to get a small child to school and how would you cope for ten weeks of school holidays each year. You would have to hire a nanny (unless you have a granny around).

Just some things to ponder.

 

[Dan_p]

As I said, it is entirely up to you, but if your wife suddenly has lost your $140K income and has to live on the rents of $34K per year less the costs (rates, insurance, repairs on three houses) plus schooling (private OR public = dollars), then I would guess she would be forced back to work.

With a child at school, that might not be so bad, but if it is something she would like not to have to do until she is ready, as opposed to having no choice, then I would say you should increase the insurance to allow some money invested to bring in more income.

This is what we did. The broker at the time said many people just insure to cover the debts without thinking about the fact that the husband's income is no longer coming in.

Not saying you should do this, but it is something worth thinking about. Of course, your wife could sell a house but that means losing a valuable asset.

Do you have insurance over your wife too? How would you cope having to get a small child to school and how would you cope for ten weeks of school holidays each year. You would have to hire a nanny (unless you have a granny around).

Just some things to ponder.

Your exactly right. It wouldnt cost much more to put the insurance up a bit. We did have her covered as well as I work away and if anything happens to her then I cannot earn this income anymore which is what is financing everything. We decided (reluctantly by me) to stop her one to ease cashflow at the time. At the time we were building our house. We had the land for a year before building so paying two mortgages at once really hurt. Now we are in the home and we are in almost 1 mil, actually things feel rather comfortable. Its funny how these things work. We will probably revisit insuring her soon.

 

[JIT]

Haven't read the full thread yet, but my 2c here Dan is that there is not much equity there after ?3-4 years of property buying...

Are you happy with your property selections?

It's not too hard to accumulate a few properties on a good income, but picking underperforming ones will be a significant growth limiting factor...

And my experience is that the LMI guys won't be that enthralled with giving you 97% LVR loans with what you describe, but could be wrong...

 

[bene313]

Haven't read the full thread yet, but my 2c here Dan is that there is not much equity there after ?3-4 years of property buying...

But Sydney's been flat (generally) over the last 3-4 years...

 

[Dan_p]

Haven't read the full thread yet, but my 2c here Dan is that there is not much equity there after ?3-4 years of property buying...

Are you happy with your property selections?

It's not too hard to accumulate a few properties on a good income, but picking underperforming ones will be a significant growth limiting factor...

And my experience is that the LMI guys won't be that enthralled with giving you 97% LVR loans with what you describe, but could be wrong...

My properties have performed well I think. unit 1 bought 2007 for 259k now valued at 350k. unit 2 bought in 2008 for $225k now valued at $320k, built the house and moved into it dec last year for $450 valued same.

Im happy with them. If we didnt build the house we would be in a position of 484k/670k = 72$ lvi. Got to give the house a bit of time to come good. I think it will be terrific, close to camden in a new estate.

unit 1 has gone up about 38% in 4 years, 9% a year. unit 2 has gone up 42%, 14& per annum. Minus interest rates + add rent returns that is pretty good. Cant get that in a bank that I know of.

 

[rugrat]

We in any relationship it always takes two 'yes's' and one 'no'; on any decision.

My DH and I are at a junction now, like yourself. We could save a little, scrape up enough for a small deposit on our next IP. We can save a bit longer and enjoy some more family orientated / lifestyle things (ie, doing some work on our current PPOR, having a family holiday). We can take even longer to save (say 2+ years) and try to figure out a way to upgrade our PPOR (turning this one into an IP). Truth is though, although we are as yet undecided on our next move, we do know that for all of them, we weill need money, so that is the starting point: saving (by way of extra repayments on our PPOR mortgage)

At the moment money is tighter then usual (almost 20k buffer dissappeared in the space of 3 months with some unexpected and expected expenses); Our buffer is barely there and was non-existant 2 weeks ago. We also have some large expenses looming on the horizon (bub #4 on the way, which means new car and decreased servicability, etc).

My point is that it only takes a little hickup to interfer with that all important SANF. If your wife is uncomfortable, listen to her. Figure out what she needs to feel comfortable with the next step, and then take action towards doing this.

For DH and I that is rebuilding (and increasing) our buffer. Which means PI is going to be taking a backseat for at least the period of time it takes to recover that, PLUS the amount of time it takes to save for the next IP / PPOR. Hopefully our equity and our increasing rental yeild will help towards this goal, but even if it doesn't we are still starting at the same place - needing to stop and save.

I am a big believer that PI has a snowballing effect. IF you chooose the right properties, with good rental yeilds, then despite having to wait for longer between properties when at the begining of the ten years, by the end they should be working towards (if not already) paying their own way and sustaining further growth.

My concerns with your situation would be in regards to your rental yeild. You do not appear to be getting a good return for the property values. Yeild is at least as important (if not more) as increased equity. Because yeild contributes to your ongoing ability to maintain the property whilst the equity builds.

Your wife might be more inclined to invest in another property if you could display to her a property that were positively geared and cashflow positive, so that it could support itself and contribute toward the household income... (that is my next goal, which should satisfy my DH's SANF ).

 

[Y33]

We know your goals but what are your wife's goals? What does she want and how does your investing suit her goals.

How much do you need to travel to a new destination each year and for how long each time? Travelling doesn't need to be expensive if you go off season or look for when airlines etc have 2 for 1 deals etc. Recently bought tickets $200 return including surcharge from Japan to Aus and when in OZ, 70% discount on hotels through some sites in places like Cairns and Sydney.

Like others have said knock your LVR down to around 30% or more.

 

[Jase H]

Happy wife happy life they say, and they're right

It's OK to sit back and take a breather now and then

Good luck whatever you decide

This is my mantra and It has held me in good stead so far. I would never pressure the wife to invest when she was uncomfortable with debt levels or the investment itself.

Consolidation time IMHO.

 

[pennyk]

This is my mantra and It has held me in good stead so far. I would never pressure the wife to invest when she was uncomfortable with debt levels or the investment itself.

Consolidation time IMHO.

Is it OK to pressure a husband?!!

I think its usually called nagging. I try not to, but my hubby is ultraconservative when it comes to debt.

 

[Monopoly]

Is it OK to pressure a husband?!!

I think its usually called nagging. I try not to, but my hubby is ultraconservative when it comes to debt.

Definition of nagging: Something/anything you DON'T want to hear!

(can't remember where I heard that (no pun intended btw) but the tongue-in-cheek definition has amused me ever since)

 

[craigb]

Somthing to think about!
my good old freind and i were discussing such , choices of wealth creationand abilitys to go for broke, and his father said you guys i admire , the gung hoe attitude is very healthy, but remember the bad time as well , we were 30 at the time and as he stated at the wise old age of 60 , "remember i have seen it when the market crashes as young blood you have not , remember it could, should and will one day crash , build your dreams fully but remember all of the possible scanario's when you do it"
he was right we were to young to remember the bad time , no D&G here but the could come , remember this in your life plan , as its a full life time and it might wipe you clean, in a month.
Sincerly yours craigb.