On the grown up table now!

[JBR]

Hi all,

I've been reading this forum on and off for at least 5-6 years now. I love that so many experienced people generously offer and share their thoughts and ideas here.

So in the hope that some of you may offer me some suggestions here is my situation...

My girlfriend and I are in our late 20s (27 & 28) and keen to set ourselves up for the future. I know its time to start taking action because when I sit at my desk at work my gut is starting to hinder my abilty to type. After another 10 years at the desk I may not be able to type at all. Therefore I need to be retired by then. Then again perhaps the keyboard will not be around in 10 years.

In truth I have joined the gym. They are taking my money every month but its not yeilding the desired results. Aparantly you have to turn up to see a change....Who knew!

No, Its time to take action becasue instead of having a big Saturday night and not seeing daylight on Sunday I often find myself walking into a bbq on a Sunday afternoon carrying a bowl of potato salad. I even get to sit at the big persons table now and my lemonade has been upgraded to cab sav. Oh and the mrs has mentioned the C word on numerous occasions..... Commitment. I am committed but she would like a "garauntee". Happy to provide it once I have saved the money for the ring. Do you know what those things cost....Wow... and then theres the wedding. 20K doesn't get you very far. The folks aren't in a position to help much either. We are going to a friends wedding this weekend. No doubt I will get the customary elbow to the gut during the ceremony...a few relatives will no doubt come up and ask us when we are tieing the knot. I love her to bits but I don't want a wedding to set us back 5 years...

I'm rambling..back to the topic at hand...


Theres a common thread here that many investors wished they had started earlier. Time in the market verses timing. On that note its an idea to get another property before the analysis paralysis really sets in. Well,I want to buy another property and my girlfriend is not all that interested in the details but is happy to support the idea.
I have one investment property in Northern suburbs of Melbourne that is a run down brick veneer house built in the 60's. Val of 285K with a big backyard and potential to subdivide. Not much equity in it at the moment. I'm currently in the process of moving the tenants on out as they are a family of 8 damaging the property. Possibly looking at a 15K reno. Bathroom, kitchen, render or pushing for the subdivision. The old man is moving in there for a year which will make access easy.

Our finances look like this:
Income: Me - PAYG -$57,000 pa F/T, Rental income $10140 pa.
Mrs - PAYG $78,000 pa F/T

Liabilities: Me - Mortgage 270K, $2178 p/m - Fixed rate 7.8%, Unsecured LOC 20K with Nil balance. CC 11K limit Nil balance.
Mrs - LOC - $1500, $60 p/m, P/L $5000 - $200 p/m

Expenses: Rent, $1300 p/M + Living expenses of $1500-2000 p/m

After all costs it leaves us with around $1500 - $2000 per month to do something with...

I have convinced mrs that we should continue to rent for a while and buy investment properties (Tax advantages, and the house we live in would cost
twice the rental minimum).


I see several options:

1. Do a reno on existing property using mimimal savings and accessing 10K from my unsecured LOC. This may add on 20K to the value. I would do all the work myself as have plenty of reno experience.

2. Do the above and apply for subdivision. Then apply for 100% construction finance to build a unit on the back. That would probably take a year. But would mean we have 2 units and no acquisition costs.

3. Buy a seperate unit/house now in Melbounre in girlfriends name. As limited in existing property I am looking at 106% LVR with First Permanent investor loan. You can get 9.20% I/O and fixed for 3 years. 250K loan @ 9.2% is $1917 p/m interest, minus rent of say $800 p/m and tax benefits. Out of pocket may be $700 -800 approx p/m.

We are both eligible for FHOG not having owned a PPOR before. The other option is to go with 100% O/O finance with St George,CBA, ING etc. To comply with the SRO for FHOG, you have to live in it for 6 months starting within the first 12 months. We want to remain renting where we are for a while so that becomes an issue. We could look at keeping it vacant for 6months but that outweighs the benefit of the grant.

Apologies for the long post...I go on.

Any thoughts

Thanks in advance.

Cheers
JBR.

 

[skater]

In regards to the costs of weddings, do a search as there was a recent poll on the costs. You can do a reasonable wedding for little $$, but you do have to plan.

For the FHOG, if you are living together as a couple, you will only be entitled to one, not two of them. You could always purchase a property, move in for 6mths, then rent it out. You will get the CGT exemption too, as it will be you PPOR even after you move out. Note you can only have one PPOR at a time, but you don't have to live there. You can have up to 6 yrs away from the place to qualify.

 

[dingo pro]

Hi JBR,

There are so many options available to you. In my mind I the best thing you can do is get into the market as soon as possible no matter whether it is another property or subdivsion of your existing one..

With all of the experts predicting between 10 and 15% growth for Melbourne over the next year yet i am sure that many will do alot better than this, even if you get the average growth on a $250 000 property that will be a minium capital gain of $25k.

I dont know the cost of building in your area but if you subdivide and build you will not only make the 10 to 15% growth but hopefully also profit from the building process. Just be careful to build something that is in keeping in your area and in the final price range that you hope to sell them at. If the figures dont stack up on current prices then DONT fudge the figures to fit what the outcome is that you are hoping for. Also consider that the market may slow down or die off at the time that you want to sell which may incure longer holding costs that what would be experienced if you were selling them in your current market.

I know that Werribee and surrounding areas are predicted to do well over the next 12 months and would be in your price range if you were looking for another stand alone house.

Take a look at www.homepriceguide.com.au . When on the home page you will notice a tab at the top called "suburb snapshot" This is a free report, well actualy two free reports showing demographics for suburbs that you input as well as growth for the last 6 months as well as long term for units and houses. It is not always a certain predictor but in my calculations if I am looking for quick equity I consider the ripple effect. eg if Werribee has done far better than the Melbourne average then it is worth looking at the growth of similar surrounding suburbs to find one that hasn't done nearly as well. If this is the case the old ripple effect may gain you some growth over and above normal growth for the area.

If there is anything specific that you want to ask feel free to ask and if I can help I will.

 

[steveadl]

Having a glance at your situation, I'd be more inclined to buy another IP first before developing your existing one (although do hunt for a better rate than 9.2% if possible).

Your existing IP with the excess land will still be waiting for you a few years from now to build on - there's no hurry. The longer you wait, the higher the value of the unit you build will be.

Get another IP now as you outlined, especially if you feel you can buy something with good growth potential over the coming years. Then when you feel growth will level out for a bit, you can build on the 1st block to manufacture your own growth.

 

[wylie]

I am with steveadl on this one, especially if the market is moving ahead in Melbourne.

Only other thing I would ad is to elope (or at least have a small, inexpensive wedding), but buy a nice ring (because, like a hairdo, it is something she will wear every day and will want to be proud of). My parents paid for most of our wedding, but if it was left to us, we would have eloped. The wedding really was for our mothers to show off and fluff about. We just wanted to get it over with.

I realise I may not be a "normal" woman in this regard.

I am hoping that my sons meet nice girls and not "bridezillas" and I would love to offer them, say, $20K towards a deposit instead of a big wedding (unless they want to pay for it, of course, which many do these days - probably so then can have the wedding they want and not the wedding that MOTHER wants).

I know which we would have preferred

 

[JBR]

Thankyou Wylie Steve, Skater and Dingo for your replies...

I'm leaning toward the thinking of getting into the market again whilst it is still moving and creating growth via subdivision later. I can even get the approvals process underway now and sit on it... good idea...

I need to do more research but I've started looking at units in the inner north of Melbourne up to 250K. They have to be greater than 40 sqm preferably 50sqm and something with some quick reno potential. I want to keep the payments down so I can manage through the reno and then rent it out.

A broker I know suggested my girlfiend buy it independantly, claim the FHOG, put the utility bills in her name and rent it out to a relative for six monthes to comply with the SRO FHOG laws. Then after that claim tax benefits. I'm not entirely comfortable with that path...

Off to look for property...

Thanks again.

 

[Perp]

Good on you, JBR, I think you're making the right decision to buy another IP now and get the subdivision permission and "sit on it". You can manufacture growth by subdividing in any market conditions, but the opportunity to benefit from strong growth is here right now.

Just my 2c worth: it is absolutely not worth doing contortions to get the FHOG. When you consider the many other factors that make a big difference between a good and bad investment - eg which property you choose, how you structure - then the FHOG becomes trivial in the big scheme of things. Also, I may be incorrect, but when you say that both of you are eligible for FHOG, I believe you may be mistaken; I think that your ownership of an IP renders you ineligible.

 

[JoannaK]

Hi JBR,

just a quick point on the FHOG, you would not be eligible for it as you own a property already (even though it is an IP).

as for the wedding, i would have eloped if i had it my way...but having said that, I just had a mad cocktail party and the whole shindig cost a grand total of $7k including dress, cars, flowers, suits, venue - and everyone had an absolute blast of a time. that was only 4 years ago. so a cheapy can be done, and it can be fun too!

BTW; i'd start off by buying another IP, and investigating the subdivision route once you've bedded down the new purchase.

 

[Mike F]

Hi JBR,

How much do you have in savings? It seems like you should be able to save at least $2500 (or probably more) per month on your salaries. If you are planning on borrowing 100% for the next IP, and your LVR on IP1 is 95%, to me it sounds like you need to concentrate on saving a deposit.

Where has all of the money gone for that last few years? If you have been spending it, what makes you think that you will be any different when you buy another IP?

Cheers
Mike

 

[steveadl]

Joanna & Tracey - unless the law has changed recently, you are allowed to have owned an IP and still be eligible for the FHOG.

 

[skater]

Joanna & Tracey - unless the law has changed recently, you are allowed to have owned an IP and still be eligible for the FHOG.

This is correct, but I think it depends on the date(s) of the IP purchase(s).

If, as you say, you are both eligible for the FHOG, you could always buy 2 properties, one each & live separately for 6 mths. Not sure how legal it would be, but could be worthwhile investigating.

 

[JBR]

Well we had our first budget on Monday night. Sat down with an excel spreadsheet and went through everything... We are putting aside 2K per month for the new mortgage. I think it is better to finance into a property now rather than wait 6 months until we have the savings to be at 95%. We've got the motivation now and are ready to take the next leap so we will now. Even though I understand the basic strategies I think its hard to actually tak on the additional debt and keep going with it, particulay if you come from a single house, single mortgage family.

The SRO rep advised me I would be eligible for FHOG as I have not owned a "home" prior July 2000.
http://www.sro.vic.gov.au/sro/SROWebSite.nsf/rebates_fhog.htm#4

 

[casper007]

Happy to provide it once I have saved the money for the ring. Do you know what those things cost....Wow... and then theres the wedding. 20K doesn't get you very far. JBR.

MMM ... why not give her the ring (whilst you are both on the tradmill at the gym) no ... not the wedding ring - the key ring to your next IP.

The $20K wedding band although it will have sentiment ... actually drops in value whereas the key ring appreciates... says he who's wife is not around to hear this

 

[wylie]

I don't think he's talking about the wedding ring costing $20K. I think he is talking about the actual wedding itself, one day's fun

I still reckon buy a nice diamond and elope

 

[casper007]

The gold band and a photo album is all you get to keep ... so in a way it does cost $20k

 

[wylie]

Friends with a wedding photography business told me a few years ago that the average spend with their business was something like $12K or $15K for wedding photos

 

[Mooze]

A decent wedding should not be costing you 20k - we're doing a three day shindig for under 10k (and that includes expensive dress etc) in a couple of months time.

We wouldn't be spending so much but for the parents - ahh well gotta keep the old farts happy.

Would much rather be putting the money towards IP2 (and avoiding stress and hassle - believe me its a lot of stress even for a low key thing).

Maybe not the typical female view. If she wants something big offer to do a vows renewal in 10years with the people you're still friends with.

 

[Perp]

The $20K wedding band although it will have sentiment ... actually drops in value whereas the key ring appreciates... says he who's wife is not around to hear this

Yes, but maybe like me, JBR's fiance is a property investor, and a fantastic investment!!!!