New Investment Techique
- Thread starter young_gun
- Start date
Hi Young_gun,
Have you considered a family pledge loan, rather than getting straight out cash from your father. There are a couple of lenders that offer such products, effectively you father would guarentee whatever the amount required to make up 20% of the loan amount, he is therefore not liable for all of the loan and doesn't have to actually come up with any monry, and you avoid LMI. You can also have his liability removed once you have established 20% equity. These products are a great option for someone like yourself who needs assistance with a deposit.
Regards
Alistair
Have you considered a family pledge loan, rather than getting straight out cash from your father. There are a couple of lenders that offer such products, effectively you father would guarentee whatever the amount required to make up 20% of the loan amount, he is therefore not liable for all of the loan and doesn't have to actually come up with any monry, and you avoid LMI. You can also have his liability removed once you have established 20% equity. These products are a great option for someone like yourself who needs assistance with a deposit.
Regards
Alistair
getting started
consider this.
look in your local paper or any paper. or go to www.rickotton.com.au forum.
in the paper you will find "for sale by owner" adds. or low deposit adds. on the forum you can ask does anyone have such a house to sell you. have a look at the one at wagga wagga on ebay. you can get into your own house as a first home buyer this way. all they want to start is $7k first home buyer grant that you get for free plus about $7k of your own. Just prove you have a good job and they'll try you out .. at least with a lease option but you cant use the first home grant with one of those. buying this way may be a bit more expensive but its a hell of a lot better than saving for a deposit for years and the price is set today. good luck..
young_gun said:
consider this.
look in your local paper or any paper. or go to www.rickotton.com.au forum.
in the paper you will find "for sale by owner" adds. or low deposit adds. on the forum you can ask does anyone have such a house to sell you. have a look at the one at wagga wagga on ebay. you can get into your own house as a first home buyer this way. all they want to start is $7k first home buyer grant that you get for free plus about $7k of your own. Just prove you have a good job and they'll try you out .. at least with a lease option but you cant use the first home grant with one of those. buying this way may be a bit more expensive but its a hell of a lot better than saving for a deposit for years and the price is set today. good luck..
Young Gun, I'd advise against going the lease-option route. Quite frankly, you don't need to. The current market is flat, you're young (I'M considered to be pretty young for an investor and I'm 10 years older than you) and you have a good job, with income that's likely to increase. There's no hurry to buy a place especially when in 3 years, say, the property price will be the same or even lower. Better to give yourself time to learn the market and not be weighed down by large payments on a lease-option.
Investors tend to use interest only loans to minimise cash outlay. Lease options generally result in higher payments by you. Yes, those extra payments represent 'equity' but an extra $10k a year in equity isn't much, while the extra $200 a week changes your serviceability. Since you plan on building a big portfolio you want to do everything to keep your serviceability high.
I think lease options have their place, and my opinion is that it's useful when you want to buy a place as a PPOR, your credit is patchy and you have no deposit. Though if someone came to me saying they want a PPOR with no deposit and their credit is patchy I'd tell them to save some money first.
Alex
Investors tend to use interest only loans to minimise cash outlay. Lease options generally result in higher payments by you. Yes, those extra payments represent 'equity' but an extra $10k a year in equity isn't much, while the extra $200 a week changes your serviceability. Since you plan on building a big portfolio you want to do everything to keep your serviceability high.
I think lease options have their place, and my opinion is that it's useful when you want to buy a place as a PPOR, your credit is patchy and you have no deposit. Though if someone came to me saying they want a PPOR with no deposit and their credit is patchy I'd tell them to save some money first.
Alex
Last edited:
Hey Young_Gun
Just putting it on the table, others can advise against it... when I was a couple of years older than you (about 21) I decided I wanted to get into property and gain financial independence. Actually, I think I decided about the independence thing when I was 12, but anyway.
One day I made the choice, about a week later I had a $30k personal loan for 'a car' and about a month later I used that 30k to buy an apartment in Canberra city. I'll leave it at that, but let me say, the first mortgage is the hardest. It's smooth sailing after that.
Good luck, I'm in awe of your enthusiasm.
Just putting it on the table, others can advise against it... when I was a couple of years older than you (about 21) I decided I wanted to get into property and gain financial independence. Actually, I think I decided about the independence thing when I was 12, but anyway.
One day I made the choice, about a week later I had a $30k personal loan for 'a car' and about a month later I used that 30k to buy an apartment in Canberra city. I'll leave it at that, but let me say, the first mortgage is the hardest. It's smooth sailing after that.
Good luck, I'm in awe of your enthusiasm.
alexlee said:
This is a great little snippet of advice.
JIM
Hi there,
This is a copy/paste of my response to another person on the forum, but I figured that the same applied to you:
Instead of messing around with all that stuff, why not get a 105% loan? (no additional security required). If it's for a first PPOR you'd also qual for the FHOG so you'd need hardly anything, or if it's an investment you'd only have to chip in a couple of grand.
It does have heaps of criteria, but it'd get you into the market right away. So by time your friends have saved up their deposit, or begged their parents into helping them out so that they can get a slightly cheaper interest rate, your house has already increased in value and you've paid chunks of it off and almost ready to buy the 2nd.
Then, what about if you could swap it to a cheaper product once the LVR came down, for free?
Food for thought.
This is a copy/paste of my response to another person on the forum, but I figured that the same applied to you:
Instead of messing around with all that stuff, why not get a 105% loan? (no additional security required). If it's for a first PPOR you'd also qual for the FHOG so you'd need hardly anything, or if it's an investment you'd only have to chip in a couple of grand.
It does have heaps of criteria, but it'd get you into the market right away. So by time your friends have saved up their deposit, or begged their parents into helping them out so that they can get a slightly cheaper interest rate, your house has already increased in value and you've paid chunks of it off and almost ready to buy the 2nd.
Then, what about if you could swap it to a cheaper product once the LVR came down, for free?
Food for thought.
dtraeger2k said:
Two points: gearing magnifies both returns and losses and increases risk. In a flat market like this one, I'd argue that you shouldn't gear to the hilt because the risk that the market will fall is higher than before.
Second, and in my opinion even more important, is that I think an investor should have a savings habit in place BEFORE they start buying property. Easy credit and lack of discipline results in over-leveraging, which isn't apparent until the market turns down. It happens to big companies and it happens to investors. IP investing is supposed to be a conservative, long-term strategy, and you have to prepared for the inevitable downturns. That means keeping LVR low and/or keeping a cash cushion in case interest rates go up, you get vacancies, repairs, etc.
dtraeger2k said:
Current market suggests the house will probably stay flat (not necessarily an issue if you plan to hold long term). Re paying it off, does that mean you would use a P&I loan? At 105% wouldn’t that kill the cashflow even further?
Alex
Just quickly read through this thread and you have interesting ideas Young_Gun but no offence but I do feel you're taking a 'quick' way out by looking at using some of your fathers super. Wouldn't you feel happier in the knowledge you bought your IP on your own without your father having to dip into his super regardless of whether theres no risk to him financially.
I have children and I'm all for parents helping their children out financially and will be helping mine out when it comes time for them to buy their first property but ONLY when I see that they can save x ammount of money over a period of time themselves. You're only 18, 19 soon save $20,000 and then maybe look at the super idea or save another year and have $30,000 and then you'll be able to buy it on your own and what a huge accomplishment you'll feel if you do, you'll be able to sit back and say 'I did it' note the 'I'...
You're more than likely sitting their thinking 'Get lost Maggie' I'm NOT having a go at you at all, you seem like a very bright person and I have no doubt you'll accomplish what you set out to achieve and wish you the best of luck in doing so.
Maggie
I have children and I'm all for parents helping their children out financially and will be helping mine out when it comes time for them to buy their first property but ONLY when I see that they can save x ammount of money over a period of time themselves. You're only 18, 19 soon save $20,000 and then maybe look at the super idea or save another year and have $30,000 and then you'll be able to buy it on your own and what a huge accomplishment you'll feel if you do, you'll be able to sit back and say 'I did it' note the 'I'...
You're more than likely sitting their thinking 'Get lost Maggie'
I'm NOT having a go at you at all, you seem like a very bright person and I have no doubt you'll accomplish what you set out to achieve and wish you the best of luck in doing so.Maggie
Very sound advice Maggie. At 18 you have the world at your feet. Don't rush into things & risk your parents retirement income. Take your time & do it yourself. Save! If you have been working for a while you should have a nice little nest egg by now if you are focused on where you want to go.Maggie said:
My eldest child is 16, has been working part-time for some time & has some considerable savings (for a 16yo). She intends to buy her first home when she is your age. She will do it herself, with her own saving. I will mentor her, help reno if needed, but I won't be providing any cash as I feel it is important for her to do it herself.
I feel if it is your money that is tied up, you are more likely to stay the distance if times get tough, than if it is money that has come as a gift/loan from your parents. Good luck.
Hi Alex,
Thanks for your comments.
Depends where he buys I guess, not all markets are flat currently...
Definitely agree on investors (anyone infact) adopting a savings habit. It isn't easy credit, has criteria as mentioned. Lack of discipline won't happen when there is a coach on board - something most banks dont offer which is why you have mentioned your well-founded concerns.
Keeping a low LVR isn't the only way to protect yourself - a broker on here recently mentioned "borrow money when you least need it, as when you need it most no one will lend it to you". If a sound structure is utilised the LVR can come down pretty quickly (then converted to a cheaper product at no cost). Also, if the structure allows for funds to come back out at no cost, then that could be the vacancy / hotwater system contingency.
Yes P&I, so admittedly it is better suited for PPOR's but can be used for either. And I think you'd be surprised re effect on cashflow. But please, dont take me the wrong way Alex, this isn't advice, merely presenting one of many solutions. If young-gun wants to get into a property asap then he's much doing something like this than toying with Dad's super or saving himself out of the market as seen time and time again. I assume young-gun's dad (old-gun?) would be interested in much more productive ways of helping his son out.
Cheers,
Dave
Thanks for your comments.
alexlee said:
Depends where he buys I guess, not all markets are flat currently...
alexlee said:
Definitely agree on investors (anyone infact) adopting a savings habit. It isn't easy credit, has criteria as mentioned. Lack of discipline won't happen when there is a coach on board - something most banks dont offer which is why you have mentioned your well-founded concerns.
Keeping a low LVR isn't the only way to protect yourself - a broker on here recently mentioned "borrow money when you least need it, as when you need it most no one will lend it to you". If a sound structure is utilised the LVR can come down pretty quickly (then converted to a cheaper product at no cost). Also, if the structure allows for funds to come back out at no cost, then that could be the vacancy / hotwater system contingency.
alexlee said:
Yes P&I, so admittedly it is better suited for PPOR's but can be used for either. And I think you'd be surprised re effect on cashflow. But please, dont take me the wrong way Alex, this isn't advice, merely presenting one of many solutions. If young-gun wants to get into a property asap then he's much doing something like this than toying with Dad's super or saving himself out of the market as seen time and time again. I assume young-gun's dad (old-gun?
) would be interested in much more productive ways of helping his son out.Cheers,
Dave
If it’s a choice between 105% LVR and using other people’s super, I agree 105% LVR is better. Both are risky, in my opinion, for a first-time investor who has few other assets. What sort of criteria would you have to satisfy to get 105% without extra assets?
The broker (I think it was Rolf) was talking about getting extra LOC limits for future use, though. Which isn’t the same as maxing out your LVR and actually using it to purchase.
My understanding is that the principle component is about 2%. i.e. on a PI loan of $200k, you’d be paying around $13k (6.5%) interest and $4k (2%) principle. Not a big deal, true, but on bigger loan balances…..
Interesting comment about the structure lowering the LVR. How does that work? Numerically, the only way LVR can go down is if you pay off the principle (buying equity $1 for $1, pretty crap returns in my opinion) or the property value goes up. How does the structure affect this?
While markets such as Perth are still going strong, if you’re not limited to a certain state, I don’t think there’s much risk of being priced out of the market. Sydney, Melbourne and Brisbane are all pretty dead right now.
Alex
The broker (I think it was Rolf) was talking about getting extra LOC limits for future use, though. Which isn’t the same as maxing out your LVR and actually using it to purchase.
My understanding is that the principle component is about 2%. i.e. on a PI loan of $200k, you’d be paying around $13k (6.5%) interest and $4k (2%) principle. Not a big deal, true, but on bigger loan balances…..
Interesting comment about the structure lowering the LVR. How does that work? Numerically, the only way LVR can go down is if you pay off the principle (buying equity $1 for $1, pretty crap returns in my opinion) or the property value goes up. How does the structure affect this?
While markets such as Perth are still going strong, if you’re not limited to a certain state, I don’t think there’s much risk of being priced out of the market. Sydney, Melbourne and Brisbane are all pretty dead right now.
Alex
Hi again Alex,
Criteria is a little bit tough, understandbly because of the extra risk taken. Generally 2 years stable employment history, squeaky clean credit history (we often work with people to clean it, at no cost), and appropiate servicable income would do the trick. Can be used for both 1st homebuyers or additional purchases, just cant be used for refi's.
Obviously buying into a strong market is worthwhile regardless of the product used. Also buying a tad below market-value could be helpful too. Both of these are beyond the scope of this thread I believe.
Yes, equity is often a dollar for dollar return, which looks boring to most people. But don't forget that each dollar can often be used to borrow 4 or 5 more toward future IP's.
Our structures are such that most people can pay them off in around 8-12 years. This is through the use of ongoing personal coaching, workshops at each branch, and use of cashflow effectively to use the compounding interest in your favour. Tips that the banks will never tell you about because they are motivated by only one thing - value to shareholders.
Food for thought
Criteria is a little bit tough, understandbly because of the extra risk taken. Generally 2 years stable employment history, squeaky clean credit history (we often work with people to clean it, at no cost), and appropiate servicable income would do the trick. Can be used for both 1st homebuyers or additional purchases, just cant be used for refi's.
Obviously buying into a strong market is worthwhile regardless of the product used. Also buying a tad below market-value could be helpful too. Both of these are beyond the scope of this thread I believe.
Yes, equity is often a dollar for dollar return, which looks boring to most people. But don't forget that each dollar can often be used to borrow 4 or 5 more toward future IP's.
Our structures are such that most people can pay them off in around 8-12 years. This is through the use of ongoing personal coaching, workshops at each branch, and use of cashflow effectively to use the compounding interest in your favour. Tips that the banks will never tell you about because they are motivated by only one thing - value to shareholders.
Food for thought
Interesting. Do you charge any ongoing fees for financial coaching after the loan is drawn down?
Banks are a business. And a business is supposed to be run for its shareholders. That's why I like having bank shares. I don't believe banks have any responsibility to educate people about managing their finances to pay off their home loans faster.
Alex
Banks are a business. And a business is supposed to be run for its shareholders. That's why I like having bank shares. I don't believe banks have any responsibility to educate people about managing their finances to pay off their home loans faster.
Alex
alexlee said:
No ongoing fees for anything!
alexlee said:
I have bank shares for that reason also. Australian banking industry is the only industry of any kind in any country that has continued to register a new record amount of profit every quarter for a consecutive 33 quarters.
However, why should banks' irresponsibility prevent us from reaching our own goals?
Thanks,
dtraeger2k said:
Absolute no reason. That's why I hold bank shares to profit from the financially inept and at the same time learn everything I can about the system to minimise bank fees, credit card fees (I once got charged a annual fee for a credit card, wrote a letter to the bank demanding it be refunded because I'm a mortgage customer, and they agreed), interest rates and so on.
I'm interested in how you clients progress. Are there any who just don't 'take' to the program? i.e. they just slip back to old spending habits and feel that the new payments are a burden?
Alex
Hi Alex,
There are a small minority who don't really want the service at all, just want to sit and pay their homeloan as normal, and that's fine, I guess. In my own opinion (for any type of service) if I could have it with or without at no cost, I'd choose with, every time. I met with one just recently that has had her homeloan with us for a few years with minimal contact, but now has come to us wanting us to finance a development she's been sitting on for a while. I doubt she'd have come back if she wasnt happy.
In any endeavour on earth, there will always be that one client that slips back a little, but with our coachings and them watching their balances fly in the correct direction, it becomes almost addictive for them. They know that with our genuinely-customer-focussed guidance, once their homeloan has a nice dent in it, we'll hold their hand into IP's if that's where their goals are.
Cheers,
There are a small minority who don't really want the service at all, just want to sit and pay their homeloan as normal, and that's fine, I guess. In my own opinion (for any type of service) if I could have it with or without at no cost, I'd choose with, every time. I met with one just recently that has had her homeloan with us for a few years with minimal contact, but now has come to us wanting us to finance a development she's been sitting on for a while. I doubt she'd have come back if she wasnt happy.
In any endeavour on earth, there will always be that one client that slips back a little, but with our coachings and them watching their balances fly in the correct direction, it becomes almost addictive for them. They know that with our genuinely-customer-focussed guidance, once their homeloan has a nice dent in it, we'll hold their hand into IP's if that's where their goals are.
Cheers,
Similar threads
