New Investor - Be warned, long post

Hi all,

My name is James, I’m 24 years old and after almost a year of full time employment it has dawned on me that I will never make it to where I want to be by working for the man. In the last 3 or so months I've lurked here on Somersoft, PropertyInvesting.com.au and AussieStockForums.com.au, just to name the main ones. I've purchased Kiyosaki Rich Dad Poor Dad, McKnight 0 to 130 Properties in 3.5 Years, Tharp Trading Your Way to Financial Freedom, among others.

A little about me: I finished high school in 2002, went on to do a double degree in International Relations (My passion at the time) and Law (My 'career' degree), going on to do postgrad to be admitted to practice. For all the posturing and apparent 'success' that comes along with being a part of such a 'respected' field of endeavour - I sure don't feel it. Am currently earning just shy of $55k, to be increased to $64k in Feb 2010. Yet I owe the Government close to $40k in HECS debt, not to mention the lost opportunity of spending those 6(!!!!) years of study working and investing.

An example: Whilst I hated studying law, I became good mates with another bloke who didn't quite fit the 'lawyer' mould. Andrew was from a northern suburbs high school (Melbourne), most of his mates dropped out in year 10 to become tradies, yet he was able to succeed academically and got into Law at my uni. My background was quite different - Prestigeous private school, all the trappings of making 'successful' people, etc etc.

We would often lament the work that we did, the lack of motivation to do what we were doing, and the fact that a lot of his mates had opportunities right in front of them. One particular mate of his was on the ball. Leaving School in year 10, he became a carpenter at the ripe old age of 19. Yes, good money, and a lot of them sprayed that money around. However, he understood money management and the value of investing. His first task was to build a bungalow out the back of his parents place - somewhere he could live and be 'out of home' without quite being out of home. In the time it took Andrew and I to finish our degree, he was on to IP 3 with a new PPOR. We worked out that, given compounding $$$ and the head start he has had, it would take years and years of a salary over $150k to even come close to what he could achieve.

Society seems to look highly on those with a 'good education', to go on to a 'good career' and earn 'good money'. It's a lie. I'm not telling any regulars here anything they don't already know, but it's worth reinforcing that such beliefs are held due to fear - the fear of risk and failure and the fear of what others might think.

After that long winded 'introduction', I seek some advice as to whether I'm heading down the right path. When I was young my ultimate aim was to pursue a career in my own business, putting back into the community through creating a socially responsible corporation. I saw that business is the key to capital and wealth creation in modern economies, and that they, not governments, have the power to change the world. It is business that employs people, and it is business that provides economic security.

Financial facts about me: I've saved just on $25k, My after tax salary is approx. $45k. I have no debts and I live out of home - renting.

I want to build a portfolio that will support some of my business ideas - though these aren't particularly well formed (at all). I know that I seek out of working in this job and I do not want to seek a career as a solicitor. I'm wary that I'm so eager to get out that I could make some fundamental mistakes - but equally aware that time waits for no man (or woman) - I've already wasted so much time at university. So here are a few ideas I currently have:

+CF Property - an obvious one, difficult to do in Australia with my current capital base. Much like McKnight saw opportunity in NZ, I have found it in the U.S. Not without it's risk, but the return seems like a great way to pursue an aggressive portfolio accumulation strategy

Shares - More of a CG investment. I have read much on technical trading, different techniques and money management / capital preservation. It's not so much that I couldn't pursue this strategy - I could. I feel again to be financially constrained.

Other options to improve my capital base include teaming up with mates to invest together. Unfortunately a lot of my mates aren't in an investing mind-frame, or those that are still at uni and working merely to live off the savings / are in debt.

I'm cognisant of the fact that now is an unprecedented time of opportunity in the global economy and those that are willing to do well will do so. I sometimes wish I'd done a more business / finance degree, though my law books on property / trusts / corps and Intellectual Property have come in handy the last few months. I suppose I write all this for 2 reasons. 1) is to dump it all on a page to realise where I've been and where I want to go. 2) is to provoke any of you exceptionally intelligent and experienced people into responding to this question:

If you were me, in my financial situation, what would you do?

Perhaps there are options I've not considered. But mostly I'm looking for people who might now see opportunity where others less experienced (me) might not. I caveat all this by saying I know that advice in general in nature and may not suit my needs, and I know there are rules on what type of advice you can give etc etc.

There is a third reason I wrote this: When reading Rich Dad and other such books, what often hit home for me is the stories of other people, what they've done and how they did it. The good, the bad and the downright ugly. Assuming I go on to do well (or not well, but that I go on anyway) at this caper, I want to be able to tell this story. I want to share with others what I've learnt along the way. There is no greater gift than that of knowledge, as knowledge is the most powerful thing you can own.

Thanks for anyone who made it this far – over to you!
 
Hi James and welcome to SS.

You've learnt the hard way that education isn't always the key. Good start by getting into the books and getting on here, i've been here since i was 14 and it's been great.

So lets fast forward to Feb $64k, so just shy of $50k after tax?

Firstly i'd be organising your finances, so take out rent, car loan (?), travel etc. Then see what you've got left, you NEED to pay off HECS as soon as you can, it will affect your servicibility to borrow from the banks.

You've got $25k saved..? Great! Organise yourself some finance and get your PPOR to take advantage of the FHOG, assuming you haven't bought anything yet..?

Even better if you don't use the entire $25K as deposit if combined with FHOG, so then you've got extra cash to put towards your HECS debt or an IP to get rental income in hopefully it will be CF +ve.

Also do research on prices of properties, see what areas have had good CG, or areas in demand. Personally starting off i would be sticking to places near city, that way they will not lose demand and vacancy rates should be zero to none etc.

Get to know the market value of the places you're interested in, go to OFI, mortgagee auctions, auctions, anything you can to get an idea.

As for shares would not have a clue, but i'm sure there will be plenty on here that have shares too.

Hope this helps a bit..?
Sam
 
Hi Sam,

Thanks for the reply, I appreciate it.

Interesting point about HECS - my way of seeing it was that it's an interest free loan that only affects my cash flow from my employment. I will talk with an accountant / broker regarding the impact of HECS on servicability - though I suspect I will not be paying it off anytime soon.

Re: PPOR, I'm not so sure (though open to other opinions!). Whilst it is true that I rent, I also have no debt. Wouldn't the purchase of a PPOR be counter-intuative as it increases my level of debt without increasing cash flow? One of the other reasons I haven't bought and doubt that I will is that im transient - 6 months ago i lived in Melbourne, I'm living in Perth now, and soon I will be in Canberra.

But getting out there and seeing it all happen, that's probably the best advice yet.

Thank you for your contribution!
 
Re: PPOR, I'm not so sure (though open to other opinions!). Whilst it is true that I rent, I also have no debt. Wouldn't the purchase of a PPOR be counter-intuative as it increases my level of debt without increasing cash flow? One of the other reasons I haven't bought and doubt that I will is that im transient - 6 months ago i lived in Melbourne, I'm living in Perth now, and soon I will be in Canberra.

Just on the PPOR idea. If you bought something in Perth as a PPOR before moving away again;

- You'd get the FHOG (free money, it all helps),
- You could get a mate in as a boarder for tax-free income to help pay for food and bills,
- You could then keep it as an IP when you move to Canberra, and,
- You'd have potential to use the six-year CGT exemption rule if you were to sell the property for any reason within six months of moving out.

Not necessarily *the* best path, but with those points in mind... it may be worth exploring along with everything else?
 
A little about me: I finished high school in 2002, went on to do a double degree in International Relations (My passion at the time) and Law (My 'career' degree), going on to do postgrad to be admitted to practice.

Well hey, we always need some good conveyancing people :)


+CF Property - an obvious one, difficult to do in Australia with my current capital base. Much like McKnight saw opportunity in NZ, I have found it in the U.S. Not without it's risk, but the return seems like a great way to pursue an aggressive portfolio accumulation strategy

The other possibility is a listed (or unlisted) property trust - can give you cashlfow


Shares - More of a CG investment. I have read much on technical trading, different techniques and money management / capital preservation. It's not so much that I couldn't pursue this strategy - I could. I feel again to be financially constrained.

You can go into shares with a smaller base capital than for property. This is one of its advantages.

Also consider managed investments (as much as people like Kiyosaki bags them)

Other options to improve my capital base include teaming up with mates to invest together. Unfortunately a lot of my mates aren't in an investing mind-frame, or those that are still at uni and working merely to live off the savings / are in debt.

This one I have alsways found challenging - but seeing that you're a budding lawyer, you might be fine :D

I'm cognisant of the fact that now is an unprecedented time of opportunity in the global economy

I believe that ANY TIME is an unprecendented time of opportunity.

Cheers,

The Y-man
 
Yeah not too sure about HECS, i'd just presume it would. But best to get a professional opinion.

Moving around doesn't help much, causing debt will be expected through investing, especially borrowing large sums of money. And taking into account whether you buy an IP or PPOR you will be in "debt" with a mortgage until it is paid off.

My own plan is to buy PPOR live in it for 6 months for FHOG, after 6 months it will become IP1 and in this span of 6 months, to save for IP2. Once i have moved out of the PPOR (IP1) i will be renting again, perhaps a strategy that may work for you if you move a lot for work, that way you have a 6 month commitment for FHOG but after that you can move and rent.

Just a suggestion.
 
If you were me, in my financial situation, what would you do?

Keep saving.

$25k is a great start, but in my opinion not large enough to consider investing in property on a single income without it being a particularly risky venture. What % of your income does the HECS work out to, this would potentially increase as your income does?

If you do go down the property path make sure you take the proper precautions given your scenario:

- Income protection
- Fixed rates
- Cash buffer

By the way if you like Kiyosaki, have a look at what he has been pushing the last couple of years (p.s. it's not property).
 
Interesting point about HECS - my way of seeing it was that it's an interest free loan that only affects my cash flow from my employment. I will talk with an accountant / broker regarding the impact of HECS on servicability - though I suspect I will not be paying it off anytime soon.

I have a $7 K HECS debt and haven't bothered to pay it off in full either. I just pay the minimum each fortnight. There is a very low IR attached to it.
 
I don't think it's a good idea to pay off HECS, as I see it as an interest free loan too.. I had $18k of HECS or so on ~$65k/year and the banks were willing to lend me $450k or so for an investment property, so you should be able to get something similar since this was when interest rates were at their peak.
 
I would start by stop being down on yourself.

You are 24, have a good degree behind you and your first full time job pays $55K. Bugger mine was $16K.

That's certainly some good achievements in my book.

Not only that, you have now realised you need to something more so you're not Joe Average.

Some people take decades to come to this realisation, and some never at all.
 
I'd agree with Twobobsworth that you've got a decent salary, and I'm guessing that it'll rise pretty quickly as you become qualified. Given your interests, it might be worth looking at getting into the commercial side, possibly even finance.

I'd be interested in the assumptions behind you figuring that it'll take years to catch up with your carpenter friend.

As for suggestions:
  • Structure your HEC repayments so that you're making a minimum of $500 each time. (Can you pay monthly, rather than weekly?) This gives the 10% repayment boost, and if you're having to contribute then you may as well make it as cost effective as possible.
  • One of the best ways to invest in the stock market is through a tracker fund. Their fees are cheap, and most fund managers can't match or beat the stock market especially over the long term. That's probably why Kiyobashi dislikes them.
  • Setting up a business is a big risk. Something like 90% fail in the first three years. But if it pays off then it can pay off big.
If you want to start something up then I'd suggest building up a decent cash buffer first, and possibly try to run it in parallel with a paying job too.

Good luck!
 
after almost a year of full time employment it has dawned on me that I will never make it to where I want to be by working for the man.

WOW!! That was quick. Some people go their whole working life without realising that.


Society seems to look highly on those with a 'good education', to go on to a 'good career' and earn 'good money'. It's a lie.

Well others may disagree. You CAN earn good money but it's not always smart money. A lawyer friend of mine is on REALLY good money but he works LOTS of hours. What most investors want is passive income, not an income that is based on how many hours you work. I think you are on the right track.


I've already wasted so much time at university.

I want to share with others what I've learnt along the way. There is no greater gift than that of knowledge, as knowledge is the most powerful thing you can own.

Well, you're contradicting yourself there! I would not look upon your education as a waste. Even if it doesn't end up being your career choice, it has led you to where you are now, which is here looking to your future. If you hadn't gone to UNI you may have drifted along for many more years without that depth of knowledge and perception.

It can be frustrating looking at what others have achieved and thinking I could have done that 6 years ago. I was in that position. But have stopped comparing my journey to others and am moving forward from where I am now.

You have a great attitude and are well on the way to success. Keep reading, studying and you will know when it's right to move.

"Attitude is more important than the past, than education, than money, than circumstances, than what people do or say. It is more important than appearance, giftedness, or skill. " Charles Swindoll


I'll leave the financial advice etc to others more experienced.
 
I have one word for you and thats....leverage! (OPT & OPM)

I'd be looking for a JV partner, someone you can invest with and even go into business with. You must have made some connections in your current employment. When you can leverage your time and skills with others then leverage all your money.

Time in the game is key. The sooner you start, the sooner the magic of compounding starts.

Wish you well.

Matt
 
Again, thank you all for your contributions.

Re: JamesGG, interesting points. I will consider this more thoroughly.

Y-Man: Hah! Well who knows, maybe conveyencing is in my future - though not quite yet! Thanks for the tips

Sam: Thanks again, I don't mind moving around myself, keeps things fresh. Though obviously there are financial burdens associated! I've taken that advice on board, all suggestions are always welcome.

hobo-jo: As my income increases, only very slightly will HECS increase as a % up to a maximum, which I'm close to reaching. As others have pointed out, it being a loan indexed at inflation means I might as well not worry about it.

Advice noted: re fixed rates / income protection etc.

Kim and Bon - exactly.

Ridin-High: I'll PM you later.

Twobobs: Indeed. Having now read half of 'Think and Grow Rich' I've already put my mind in a new place. Re: being good achievements - my family would agree with you. I know I haven't done poorly, it's merely that I want more. Thank you for your kind words.

Graemsay: To be honest, I don't remember the calculations we used - I merely remember the figure. I don't necessarily believe that now, as I see so many more options opening up even today.

With my business ideas - agreed, and that is the ultimate aim. First I need to do some hard yards where I am. Also, investing :)

With the repayments of HECS, for various reasons I think I'll let it sit and let the taxman figure that one out. For the mean time, anyway.

Travelbug: Heaps of great points! My language was perhaps unfortunate. You're right, the money is there for those who seek to work for it, but you WORK. I don't mind hard work, I'd just prefer to do it for myself.

As for my education - perhaps, perhaps not. The information I learnt wasn't always applicable, or often, on the face of it, useful. I agree it's not a waste, though having said that I know now what I could have achieved. It's that energy I intend to use to spur me on. In fact, that might be the key lesson I learnt.

Thanks all - my post was a bit of a rant: I feel it all coming together a bit better.

Regards,

James
 
I have one word for you and thats....leverage! (OPT & OPM)

I'd be looking for a JV partner, someone you can invest with and even go into business with. You must have made some connections in your current employment. When you can leverage your time and skills with others then leverage all your money.

Time in the game is key. The sooner you start, the sooner the magic of compounding starts.

Wish you well.

Matt

Cheers Matt - Time in the game seems to be the crux. Thanks for the advice and the well wishes - right back at you!

Regards,

James
 
Hi James

You have a good start and a good income. If wanting to invest in the USA, then make sure you do a lot of research. It is nowhere as simple as in Aussie. For instance, they do not have PM's in the same way we do, making this one very large hurdle.

What I would look at doing first is buy a PPOR to take advantage of the FHOG. I know, you move around a lot, however purchasing a PPOR would still be beneficial. It does not have to be a lavish home either. It could just be a i bedroom unit, if that suits. Remember, a rising tide raises all boats, and if you are not in the market, you will not benefit from CG.

If you purchase a PPOR, you only have to live in it for 6 months. Then if you move out you can have up to 6 years where you will pay no CGT if you sell. Get an IO loan with an offset and put all savings into the offset. This will have the net effect of paying it down, while keeping the integrity of the loan.

Once this is established then I would look elsewhere, if this is your focus.
 
Welcome Arbinter,

Society seems to look highly on those with a 'good education', to go on to a 'good career' and earn 'good money'. It's a lie. I'm not telling any regulars here anything they don't already know, but it's worth reinforcing that such beliefs are held due to fear - the fear of risk and failure and the fear of what others might think.

What an observant statement, generally speaking.

Congratulations on achieving your degree and it's wonderful that you have such insight and direction.

I also agree with JamesGG and skater and would look at a PPOR. If you are able to stay put for 6 months somewhere, you can do it.:)

Consider it not as your ideal home and a place that you would like to live in, but rather an investment. A home that someone else would like to live in and rent from you.

You also need to ask yourself why you would like to invest in property.

You made the comment about debt and negative cashflow. If you have read Kiyosaki's books you will know there is good debt and bad debt. Should you purchase a PPOR, it will eventually give you income once you rent it out. I don't think you have quite understood the psychology behind investing in property if you are still considering that a PPOR is bad debt.

The answer to this is: Capital Gain.

I bought a house 1hr 20min North from where I lived as my first property. Eventually it became my PPOR. It almost quadrupled in price in less than ten years.:)


Lil Skater made a very valid point. While your HECS may be a "free" no interest loan, it is a requirement that all debts are declared when applying to a bank and yes it will affect your serviceability.

While it may not hinder your borrowing needs now, it certainly may later. Always keep that in mind. ANY debt is a liability.

Keep saving your deposit.

I would not go into a JV so early in your investing career UNLESS it was with a family member that had experience investing.

Keep researching and learning. Ozperp on this forum, has done alot of research in the USA should you like to make some enquires to someone that has "been there."

I have also invested in NZ and I would recommend buying closer to home as your first property. WHile there are some attractive returns in NZ, there are also similar returns in AUS.

Merely my opinions,

Regards JO
 
If you are dissatisfied with your income, then look around in your areas of interest within your profession and see if you can find a niche market where you can become an expert. Probably post-grad study will be necessary.

Your income will be in direct proportion to the value you bring whether to an employer or in your own business. Lawyers may be a dime-a-dozen, but specialists will be more in demand. Find an area in which you can stand out from the crowd.

At your age and stage of life investing in yourself may be a very wise move.

To earn the big money you must be VERY good at what you do. Professional resumes and coaching in interview techniques can also help.

Not every tradie makes a fortune. Some go on to build empires employing dozens of contractors, others work for wages their entire lives. Your mate the carpenter may be a spectacular success, but I would imagine that he has the personality, drive and foresight to make a success of just about any career.
Marg
 
I don't think it's a good idea to pay off HECS, as I see it as an interest free loan too.. I had $18k of HECS or so on ~$65k/year and the banks were willing to lend me $450k or so for an investment property, so you should be able to get something similar since this was when interest rates were at their peak.

I totally agree with this.
From memory HECS is indexed to inflation which means you need to achieve after tax returns above the inflation rate to 'beat the return'.
In the future you can also obtain a discount if you pay off your HECS in advance (i think its around 10-15%), so you can wait until a big cash flow event occurs (such as disposing of a property in the future or disposing of a share portfolio).

I went to Uni back in the early 1990's and i had a HECS debt for most of my working life. The reason being i controlled businesses and thus the 'wages' to myself.
This enabled me to build a reasonable investment portfolio but still be a low income earner for personal tax purposes.
 
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