Questions on the Basics and more.

[Cong]

Hi Somersoft,
Please excuse if Ive posted in the wrong section, i couldn't quite work out which section this post falls under as it may touch on several subjects. I just wanted to put myself out there to gather opinions/suggestions/comments in regards to my situation.

Im currently in a steady long term relationship and together we have over $100k for a deposit. We both work full time and earn around average salary/wage incomes of $70k .pa, although my partner does earn abit more than me, how would name titles or tax benefits be utilised for the higher income earner? What is a trust and can they be utilised for us in these circumstances?

I feel as though she is not as motivated in property as I am, because she does like to have nice shiny or branded things. She is very supportive and is solely dependant and has almost puts it all entirely in my hands to steer us both towards wealth. Should we proceed with a joint venture or am I better off going it alone? How would we structure things?

The mortgage broker we have gone with is my partners work colleague as she works in finance. I am unsure if she has our specific goals in mind, or just paranoid about the fact that there is some bias due to them being work colleagues. Although the broker is fairly successful and has a reasonable portfolio, I feel as though her plan is totally different to ours, due to our circumstances. Should I just go with her or shop around?

I do not have much financial education, besides the fact that I am able to live frugally to save. I am not surrounded by any successful property investors, and do not have any networks that reach within the property industry. Can you give any referrals or recommendations for a good mortgage broker/tax accountant/solicitor or conveyancer?

Also being money weary, is it costly to shop around for these professionals? I am hesitant to pay for their time if im still in the stages of deciding on who to hire. How do you decide they?re the one?

Due to circumstances, we are looking at moving out together in the near future, is it recommended that we buy an investment that we can move into? What are the possible benefits or disadvantages of this? Can we just pay the interests only on a PPOR or do we have to pay principle aswell?

What sort of structures is recommended for us in order to achieve our goals of early semi retirement, comfortably with say $70k passive income?
How important is it to start organising the order of lenders in which we get our loans off, if we plan to achieve of a portfolio of more than 10 properties?

I like to believe we are fairly comfortable with risk due to our young age, what are some aggressive strategies we can utilise in order to achieve our goals earlier? Should we take risky chances?

I have only started to begin researching and reading books/magazines, are there any highly recommended resources or book titles? How do you keep motivated or continue over roadblocks? and discouragement?

Also as a first investor ideally we?d love to invest in Sydney, but I find it difficult in seeing it working out for us, where else can we invest? Aswell what is the general opinion on land and/or packages.

We would like to use the buy and hold strategy, and in doing research what do people use and look for specifically? Which resources do people use to obtain data and how?

Thanks for getting this far in my wall of texts and questions, if you could reply or feel free to PM me opinions/suggestions/comments, id greatly appreciate all input.
Cong.

 

[The Y-man]

I have only started to begin researching and reading books/magazines, are there any highly recommended resources or book titles? How do you keep motivated or continue over roadblocks? and discouragement?

Books by the owners of this forum!

http://www.somersoft.com.au/books.htm

The Y-man

 

[The Y-man]

Im currently in a steady long term relationship and together we have over $100k for a deposit. We both work full time and earn around average salary/wage incomes of $70k .pa, although my partner does earn abit more than me, how would name titles or tax benefits be utilised for the higher income earner?

Talk to an accountant - BEFORE you sign for property. Can do tenants in common instead of a 50/50 joint ownership.

What is a trust and can they be utilised for us in these circumstances?

Maybe not worry about it for now - but they are means of asset protection and easier to pass property on if you die.

More important to set up finances properly (so find out about IO, Offsets etc)

The Y-man

 

[The Y-man]

I feel as though she is not as motivated in property as I am, because she does like to have nice shiny or branded things. She is very supportive and is solely dependant and has almost puts it all entirely in my hands to steer us both towards wealth. Should we proceed with a joint venture or am I better off going it alone? How would we structure things?

Maybe, maybe not - hard to say.

Did she contribute to saving for the deposit?

The Y-man

 

[The Y-man]

I do not have much financial education, besides the fact that I am able to live frugally to save.
.

That's about 80% of it.

I am not surrounded by any successful property investors, and do not have any networks that reach within the property industry. Can you give any referrals or recommendations for a good mortgage broker/tax accountant/solicitor or conveyancer?

Also being money weary, is it costly to shop around for these professionals? I am hesitant to pay for their time if im still in the stages of deciding on who to hire. How do you decide they?re the one?

.

Ask for referrals here, attend local somersoft meetups (for free).

The Y-man

 

[The Y-man]

Due to circumstances, we are looking at moving out together in the near future, is it recommended that we buy an investment that we can move into? What are the possible benefits or disadvantages of this? Can we just pay the interests only on a PPOR or do we have to pay principle aswell?

Yes, your broker can set up IO with offset (so it acts like a P&I but won't stuff up your taxes later.

If your broker says "go for principal interest", seek other advice IMMEDIATELY
(there may be good reasons - but it would have to be related to ultra low income or some such)

The Y-man

 

[j_p]

I like to believe we are fairly comfortable with risk due to our young age, what are some aggressive strategies we can utilise in order to achieve our goals earlier?

Been highly geared is an aggressive strategy. Highly leveraged you could control an asset base of ~$1m. If you can pick properties with even modest growth that are cashflow neutral you will have a tidy cash on cash return, grow equity and expand your portfolio rapidly.

Should we take risky chances?

No and never. IMO.

There is a difference between a calculated risk and a "risky chance". If you go about taking "risky chances" you will come unstuck sooner or later.

Maybe you feel you are comfortable with risk because you are young and don't understand risk or fail to think of the consequences? How would you feel if you lost your $100k and had $100k in negative equity?

You are young and you have time. You can be aggressive and take calculated risks, never take an unnecessary risk. I am all for gearing up while you are young, it is what I'm doing, and don't have too many commitments. Just be sure you are taking on calculated risk and not just been stupid.

 

[wombat777]

A few tips from someone also starting out:

- learn as much as you can before you buy anything
- do not be tempted to sign up for anyone's deal or system - arm yourself with knowledge first
- register for newsletters, ebooks, etc ( but don't signup for anything )
- videos on blogs are a good learning system

Make sure you try and attend a somersoft meetup. You will learn a lot.

Once you have armed yourself with knowledge by talking to other investors and by reading, then you will be in a better position.

There are some knowledgeable mortgage brokers on these forums that are Sydney based. Maybe talk to one or two of them.

Make sure you also find yourself an accountant.

 

[Cong]

Thanks for the many responses.

Books by the owners of this forum!

http://www.somersoft.com.au/books.htm

The Y-man

I am midway through Jan Somers Building Wealth, and will progress to others on my list of authors (Jan Somers, Steve Mcknight and Jeff Olsons Slight Edge) as well as a few magazines.

Talk to an accountant - BEFORE you sign for property. Can do tenants in common instead of a 50/50 joint ownership.



Maybe not worry about it for now - but they are means of asset protection and easier to pass property on if you die.

More important to set up finances properly (so find out about IO, Offsets etc)

The Y-man

I am hoping to seek professional help as mentioned, but what is tenants in common?

Maybe, maybe not - hard to say.

Did she contribute to saving for the deposit?

The Y-man

Yes, her portion of the deposit is larger as she earns a bit more, and we live off my credit card - one i got to help build a credit rating.

That's about 80% of it.

Ask for referrals here, attend local somersoft meetups (for free).

The Y-man

Are you able to suggest anybody?
I attended the latest Sydney meet up and look forward to future gatherings,

Yes, your broker can set up IO with offset (so it acts like a P&I but won't stuff up your taxes later.

If your broker says "go for principal interest", seek other advice IMMEDIATELY
(there may be good reasons - but it would have to be related to ultra low income or some such)

The Y-man

Could you elaborate further and as to why?

 

[Cong]

Been highly geared is an aggressive strategy. Highly leveraged you could control an asset base of ~$1m. If you can pick properties with even modest growth that are cashflow neutral you will have a tidy cash on cash return, grow equity and expand your portfolio rapidly.



No and never. IMO.

There is a difference between a calculated risk and a "risky chance". If you go about taking "risky chances" you will come unstuck sooner or later.

Maybe you feel you are comfortable with risk because you are young and don't understand risk or fail to think of the consequences? How would you feel if you lost your $100k and had $100k in negative equity?

You are young and you have time. You can be aggressive and take calculated risks, never take an unnecessary risk. I am all for gearing up while you are young, it is what I'm doing, and don't have too many commitments. Just be sure you are taking on calculated risk and not just been stupid.

As I'm starting to look at properties and their 'numbers', Ive realised I am getting confused analysing the Cashflow and Capital Gains of potential property by simply relying on the inaccurate realestate.com's data.
What methods do you use to research such information to perform due diligence? I think i need the process broken down to me in simpler terms.

In regards to risk, I will try and analyse situations thoroughly before making important decisions. Thanks for the reminder of the differences of calculated and unnecessary risks.

 

[Cong]

A few tips from someone also starting out:

- learn as much as you can before you buy anything
- do not be tempted to sign up for anyone's deal or system - arm yourself with knowledge first
- register for newsletters, ebooks, etc ( but don't signup for anything )
- videos on blogs are a good learning system

Make sure you try and attend a somersoft meetup. You will learn a lot.

Once you have armed yourself with knowledge by talking to other investors and by reading, then you will be in a better position.

There are some knowledgeable mortgage brokers on these forums that are Sydney based. Maybe talk to one or two of them.

Make sure you also find yourself an accountant.

I am constantly learning, but aren't sure how much of the basics do I need to know before I start to jump into things and use it in practice. I guess the answer to that is the confidence of making that decision lies within when the 'time' is right.

I think i am easily convinced so i tend to limit the number of 'influences' that I come into contact simply so I don't have to think for myself, but i know that it is far more important to acknowledge all the different views, opinions and perspectives to come up with my own understanding and thoughts.

I am almost sitting here hoping they find me, but i will reach out to find them.

 

[Jess Peletier]

The mortgage broker we have gone with is my partners work colleague as she works in finance. I am unsure if she has our specific goals in mind, or just paranoid about the fact that there is some bias due to them being work colleagues. Although the broker is fairly successful and has a reasonable portfolio, I feel as though her plan is totally different to ours, due to our circumstances. Should I just go with her or shop around?

Shop around. Already you're not confident in her, and what you do now can have a large impact on what you can achieve in the future.

There are loads of Sydney based brokers on here who understand investment lending, so do a search and have a chat with a few. See who you click with best.

 

[j_p]

As I'm starting to look at properties and their 'numbers', Ive realised I am getting confused analysing the Cashflow and Capital Gains of potential property by simply relying on the inaccurate realestate.com's data.
What methods do you use to research such information to perform due diligence? I think i need the process broken down to me in simpler terms.

In regards to risk, I will try and analyse situations thoroughly before making important decisions. Thanks for the reminder of the differences of calculated and unnecessary risks.

To be honest, I believe I do less DD that many of the people around here, so I'm not the best person to ask. What I do believe is;

Boxes that must be ticked

- Look for areas that are growing. Increasing population, infrastructure = increased demand leading to increased prices at some point, hopefully sooner than later.

- Yield, I look for 6%+. Anything less is too much of a cash flow drain IMO. A few years of rent increases should increase this further. Hopefully I get better at this and can set the bar higher as I go forward.

Red flags - Move forward, avoiding backwards steps and losses is a key, this hopefully will minimise the risk

- I don't even look in regional locations or one industry towns. People have made money doing so but I've seen a greater number of people loose money too as a % of investors.

- Buying on major busy roads, rail lines, elevators, pools, big complexes

- Off the Plan purchases

I'm sure I'm forgetting some of my main points. But if those criteria are met I will look at an area/prop closer. Things I like (but not deal breakers) are areas near a suburb that has just seen growth and is likely to see a ripple effect, land locked suburbs where a new estate can't just be opened to absorb local demand. Properties which can have a simple value add.

SS provides great feedback on areas, so TBH that's where I start. I look at what others here that I respect are doing or have done I then do some of my own DD on those areas.

Your plan and goals will define what your DD is. I am hoping that by acquiring a suitably large asset base, which I can comfortably hold, using the banks money I can take advantage of compounding returns and use the equity to develop cashflow to fund my lifestyle. How will I get this cashflow? I don't believe I can see that far ahead with the knowledge and experience I have. I might live off rent, buy a commercial prop, invest in high yielding shares, buy into a managed fund or something I don't even know about. Whatever I decide to do I need equity to fund it, so that is what I'm trying to achieve first. Hopefully in 10 years I will be in a position to make those other decisions.

Well that's more about my ideas than I've ever posted on SS.

Maybe (hopefully) someone with more experience will be along to add something. I am off to do some shopping as the two props I was just looking at went under contract.

 

[The Y-man]

I am hoping to seek professional help as mentioned, but what is tenants in common?

Just lets you split ownership and income in different proportions other than 50/50

Yes, her portion of the deposit is larger as she earns a bit more, and we live off my credit card - one i got to help build a credit rating.

Ok, good - at least it shows you can both save.

Are you able to suggest anybody?
I attended the latest Sydney meet up and look forward to future gatherings,

Maybe some forumites can PM you with suggestions.

Could you elaborate further and as to why?

P&I - kills your serviceability, locks up capital.
Offset - useful to avoid contaminating your loans for tax etc - search for "offset" for some stories.....

The Y-man

 

[teddy1]

P&I - kills your serviceability, locks up capital.
Offset - useful to avoid contaminating your loans for tax etc - search for "offset" for some stories.....

The Y-man

I believe its to add equity in the IP as extra security and for any unsuspecting expenses and also for cosmetic renos down the track if required.

 

[j_p]

I believe its to add equity in the IP as extra security and for any unsuspecting expenses and also for cosmetic renos down the track if required.

I'm not sure if you are referring to advantages of P&I? There aren't any (generally speaking). Adding equity and security with P&I is an illusion, you can achieve exactly the same thing with an IO loan by placing extra money into your offset account with the following advantages.

- You can choose when you make extra payments or don't
- You can access your money easier
- Best of all you maintain tax deductibility of the loan if you take money from the offset

The only disadvantage of an offset account is that it requires discipline if you are using it for a buffer or similar.
Also a redraw account is not an offset account, some banks/people will try to have you believe it is. It does not have the tax advantages of an offset account and your accountant will probably (want to) slap you if you use it and "contaminate" your loan.

There are 100s of posts on P&I vs IO with offset and 100s more on offset vs redraw. Most are better written than I ever could.

 

[The Y-man]

There are 100s of posts on P&I vs IO with offset and 100s more on offset vs redraw. Most are better written than I ever could.

yep.... and many stories of regret - especially when you live in a property and want to rent it our later.

The Y-man

 

[Cong]

Shop around. Already you're not confident in her, and what you do now can have a large impact on what you can achieve in the future.

There are loads of Sydney based brokers on here who understand investment lending, so do a search and have a chat with a few. See who you click with best.

I guess i dont really want to waste anyones time by shopping around and being a tyre kicker or anything, but i'll try since its for my own benefit.

 

[Cong]

To be honest, I believe I do less DD that many of the people around here, so I'm not the best person to ask. What I do believe is;

Boxes that must be ticked

- Look for areas that are growing. Increasing population, infrastructure = increased demand leading to increased prices at some point, hopefully sooner than later.

- Yield, I look for 6%+. Anything less is too much of a cash flow drain IMO. A few years of rent increases should increase this further. Hopefully I get better at this and can set the bar higher as I go forward.

Red flags - Move forward, avoiding backwards steps and losses is a key, this hopefully will minimise the risk

- I don't even look in regional locations or one industry towns. People have made money doing so but I've seen a greater number of people loose money too as a % of investors.

- Buying on major busy roads, rail lines, elevators, pools, big complexes

- Off the Plan purchases

I'm sure I'm forgetting some of my main points. But if those criteria are met I will look at an area/prop closer. Things I like (but not deal breakers) are areas near a suburb that has just seen growth and is likely to see a ripple effect, land locked suburbs where a new estate can't just be opened to absorb local demand. Properties which can have a simple value add.

SS provides great feedback on areas, so TBH that's where I start. I look at what others here that I respect are doing or have done I then do some of my own DD on those areas.

Your plan and goals will define what your DD is. I am hoping that by acquiring a suitably large asset base, which I can comfortably hold, using the banks money I can take advantage of compounding returns and use the equity to develop cashflow to fund my lifestyle. How will I get this cashflow? I don't believe I can see that far ahead with the knowledge and experience I have. I might live off rent, buy a commercial prop, invest in high yielding shares, buy into a managed fund or something I don't even know about. Whatever I decide to do I need equity to fund it, so that is what I'm trying to achieve first. Hopefully in 10 years I will be in a position to make those other decisions.

Well that's more about my ideas than I've ever posted on SS.

Maybe (hopefully) someone with more experience will be along to add something. I am off to do some shopping as the two props I was just looking at went under contract.

Thanks j_p, ill keep those points in mind.

Just lets you split ownership and income in different proportions other than 50/50




Ok, good - at least it shows you can both save.




Maybe some forumites can PM you with suggestions.





P&I - kills your serviceability, locks up capital.
Offset - useful to avoid contaminating your loans for tax etc - search for "offset" for some stories.....

The Y-man

Thanks The T-man, IO it is then.