Naive 21 y.o chasing advice

[new]

G'day ladies and gents,

Have been interested in investing for a while now and recently found this forum with tonnes of advice. Current goal is to have a passive income of at least $100,000 after tax by the time I'm 50 (28 years).

Current situation:
-Have just over $12,000 in stocks.

-Have just over $5,000 in the bank earning 3.5%p.a before tax (just under 3% after tax)

-Currently earning $53,000p.a and am able to put away $800/month in to savings with enough left over to have some fun with. Can increase to $1,000 if required for loan purposes.

-Will receive a $20,000 pay rise at the beginning of next year.

-Work will require me to be dedicated to it 100% next year, thus no time for shopping for properties or dealing with stresses outside of work. This will last approximately 3 years. This starts next January.

I will be eligible for the DHOAS and HPAS through Defence which is a lump sum of roughly $11,000 after tax and a little over $200/month to help subsidise mortgage. Though because of the work I'll be doing, will not be able to use these grants until I'm about 25 (3-4 years). I'm also eligible for housing through DHA which means rent is heavily subsidised (roughly $475/fortnight for a 3br).

__________________________________________________________

So, what would you do if you were in the above situation?

Keeping in mind that if I invest in property this year, I won't be able to get involved with it for the next three or so years (is there a PM that can do everything for me?) but might be able to get some CG and get in early before interest rates rise.

If I buy an IP now, I won't be eligible for any of the first home grants (whatever the Government one is and DHOAS - combined is $16,000+ after tax).

My current idea is to save the money I can over the next three years, which will give me enough for a deposit or two (roughly $30,000 at ~$800/month + interest, before tax). After the 3 years, get a PPOR using the grants and some of my deposit, using the rest of the deposit for an IP on an IO loan. When I get posted out of that location, I plan to turn the PPOR in to an IP and just rent through the subsidised system that is available to me.

Would you do the same? What would you do differently? Any advice will be greatly appreciated.

 

[Richard Feynman]

-Have just over $5,000 in the bank earning 3.5%p.a before tax (just under 3% after tax)

Move that to a RAMS high interest saver account now*. If you add $200+ a month and don't withdraw you'll earn 4.51%. At least earn the best rate you can while you work out your moves.

* Happy for someone to suggest elsewhere if there's a higher rate available.

 

[TMNT]

Move that to a RAMS high interest saver account now*. If you add $200+ a month and don't withdraw you'll earn 4.51%. At least earn the best rate you can while you work out your moves.

* Happy for someone to suggest elsewhere if there's a higher rate available.

haha, ill bite!!

UBANK 4.77% if you add $200 per month

 

[Richard Feynman]

haha, ill bite!!

UBANK 4.77% if you add $200 per month

I had a squiz at the UBank rate before posting (figured it'd probably be the only one that might be better). It's 4.41% for the same scenario.

Unless I misunderstood, you need a home loan, or $10k balance and to deposit $2,000+ a month to get the extra 0.36%.

 

[TMNT]

I had a squiz at the UBank rate before posting (figured it'd probably be the only one that might be better). It's 4.41% for the same scenario.

Unless I misunderstood, you need a home loan, or $10k balance and to deposit $2,000+ a month to get the extra 0.36%.

oh yeah, I stand corrected!!!!!!

 

[new]

The money is currently in UBank; the buggers change their interest rates too often for me to keep up!

Would you wait and take advantage of the subsidies and wait a few years or jump in now?

 

[D.T.]

The money is currently in UBank; the buggers change their interest rates too often for me to keep up!

Would you wait and take advantage of the subsidies and wait a few years or jump in now?

If you're eligible for DHOAS / HPAS now, and you can afford to buy now, I'd be buying now. You said yourself soon you'll earn more but won't have time to purchase. Your PPOR will require more time searching because it has to suit you. Later one when yo're earning more (and hence qualify), you'll be able to go buy IPs (which take less time to find since they dont have to suit you personally).

 

[new]

If you're eligible for DHOAS / HPAS now, and you can afford to buy now, I'd be buying now. You said yourself soon you'll earn more but won't have time to purchase. Your PPOR will require more time searching because it has to suit you. Later one when yo're earning more (and hence qualify), you'll be able to go buy IPs (which take less time to find since they dont have to suit you personally).

I'm posting out in January so won't be eligible for either grants. I won't be able to access them for another few years due to work requirements (moving around a fair bit - a bit of stability should be achieved in 2015-2016)

 

[ZachAnSel]

The money is currently in UBank; the buggers change their interest rates too often for me to keep up!

Would you wait and take advantage of the subsidies and wait a few years or jump in now?

Equip your self with knowledge, learn how to negotiate, market cycle & macro economy, offset & credit card with discipline will keep your money in ur side longer, depreciation, tax advantage, debt recycle, etc.

Until 50, you will realise money/saving isn't as important as before. Experience will lead you further to achieve higher, re-motivate again and again your self. Find your niche/passion and stick to it.

Best of luck with your adventure..

 

[schweedy]

I'd be setting up a good savings plan for those next 3 years.

You say yourself, your hands are tied for 3 yrs come january, so unless you want to jump in NOW, I'd wait and save.

Buy your PPOR first to take advantage of FHBG's and all your defence benefits. Just make sure before you buy, you do your due dilligence on the area (especially as it will become a rental when your next posted out of the area). Talk to some smart investors about offset accounts (this could allow you to buy another ppor at your next location, as it will be in the offset account, not paid directly off your first ppor mortgage.)

I'd go with the wait and save. If you do get some time, you can always look and keep a bit of an eye on the market.

Not sure if a Buyers Agent may be in option if you choose to buy while your too busy to do it yourself, someone may still come along with more information about it.

 

[Colin Rice]

I plan to turn the PPOR in to an IP and just rent through the subsidised system that is available to me.

Would you do the same? What would you do differently? Any advice will be greatly appreciated.

Set up PPOR loan as interest only with offset. Dont pay down the principal to maximise deductions when converted to IP. Accumulate all funds in the offset.

 

[new]

Set up PPOR loan as interest only with offset. Dont pay down the principal to maximise deductions when converted to IP. Accumulate all funds in the offset.

Looking at a repayment calculator (at http://www.aussie.com.au/repayment-calculator.htm), P&I repayments are only roughly $200/month more than IO repayments. Given that I'll be able to receive a $200/month subsidy for the loan, would that be the wiser choice? I believe I can't make the loan IO only and still receive the subsidy. In essence, there'll be no extra out of my pocket to make it P&I, but would it be worth it given possible tax deductions come time to convert it to an IP?

 

[ZachAnSel]

Looking at a repayment calculator (at http://www.aussie.com.au/repayment-calculator.htm), P&I repayments are only roughly $200/month more than IO repayments. Given that I'll be able to receive a $200/month subsidy for the loan, would that be the wiser choice? I believe I can't make the loan IO only and still receive the subsidy. In essence, there'll be no extra out of my pocket to make it P&I, but would it be worth it given possible tax deductions come time to convert it to an IP?

From tax point of view, i/o will give you full deducatbility when PPOR become IP. This also will help your cashflow to accumulate next property.

I give you real case:
Example in 2013 you buy property $500k with loan $400k. If you choose P&I, after 5 years the loan will reduce to $350k. Means you lose $50k deductability..

But P&I effective if you want to wider the gap between loan and valuation, help discipline people with their money. This effective to enable deduction on the loan by re-invest the equity for income producing money.

Two different strategy that you can choose depends on your circumtances
Hope this help

 

[DavidMc]

If I buy an IP now, I won't be eligible for any of the first home grants (whatever the Government one is and DHOAS - combined is $16,000+ after tax).

Double check this - my understanding is you will still be eligible.

You've done well so far.

My two tips:
1. Invest where you can afford and were makes sense (say cheapy outer burbs).
2. Live where you want (inner burbs).

 

[new]

Thanks for all of the info!

The eligibility of the first home owners grants seems a grey area and depending who you speak to will give you a different answer. Will look in to it though.