Secured Debt at young age!

[mflying]

To expierneced investors on forum,

What;s your thought on young people (let's say 20-35years) taking on maximum debt to secure properties or good investment?

Let's assume: A guy, Age 27, earning $55K
A girl, Age, 25, earning, 55K
Total household income: $110K pre-tax
No dependent
No PPoR


Property means: more or less paying it self or slightly negative geared
Investment means: 6% Yeild on investment (i,e shares, etc)

is it a good idea to borrow maximum you can,at early stage of life??

 

[Aaron_C]

Short answer, yes...but you have to think about changing circumstances.

 

[pinkboy]

I think your age bracket for 'young' is a little too broad for starters.

Depends on many factors:

Are the incomes in safe careers, like teaching or nursing etc?
Are there any other lifestyle debts?
Are they budgeting and have savings plan, insurance etc?

The fact that returns are compounding....going harder earlier reaps more reward. That said, SANF, self control on lifestyle and general living habits have to be geared towards delayed gratification to achieve what they want to achieve in the end.


pinkboy

 

[mflying]

I agree that age range is broad.

to best of my knowledge, that is the age most people choose direction of their financial life/goal (Sensible ones).... i know some of our friends, saved up money to buy expensive sports car.. we know were they heading... if they make next move buying expensive jewellery or on go on expensive holidays on borrowed money


I am thinking along the lines, if above mentioned couple is living an average lifestyle (living within their means), saving hard to acquire investments and have sort of secured job (No jobs are secure in current market).

 

[Ace in the Hole]

I think it depends a lot on your risk profile.

When we were 25 we borrowed the maximum of about 280k for our first property.
18 months later, sold that property and bought another raising to 380k debt, even needed to empty all bank accounts completely and use credit card to cover closing costs, it was really tight.

Still pushing the limits today and just over 10 years later we are in over 5 mil in debt, raising to 7 mil by end of year.

Some people like risk, some are conservative.
You need to play the risk vs reward games based on how comfortable you want to feel.

 

[mflying]

I think it depends a lot on your risk profile.

When we were 25 we borrowed the maximum of about 280k for our first property.
18 months later, sold that property and bought another raising to 380k debt, even needed to empty all bank accounts completely and use credit card to cover closing costs, it was really tight.

That is the exact answer i was looking for.

Is it worthwhile going to that length, given above mentioned couple has done their research and buying a right sort of property/investment??

I know few ppl and based on a reading some post on forum, ppl are extending their borrowing to level of 95%+ LMI+ 20K cc... is that worth taking a risk to such level for right property/invstment.

BTW, i am just asking questions to understand types of strategies, ppl use or used

 

[Terry_w]

As long as it is good debt it should be ok and would generaly be a good strategy. Just be aware of the potential risks.

 

[mflying]

As long as it is good debt it should be ok and would generaly be a good strategy. Just be aware of the potential risks.

Terry, can you elaborate on some of potential risks??

 

[eeho]

The same boat

Hi mflying,

First of all, thank you for starting this thread, i've been meaning to start one like it for a while now.

I'm in a similar boat; 27 (but on a single income of about $80k), and my total portfolio is leveraged to about 94%. That includes 2 IPs that are negatively geared (but have really good depreciation) and 2 that are slightly positive (and have minimal depreciation); total debt pushing 900k, but pretty much neutral overall.

For the most recent 2 I've not put in much of my own money (save the $1000 deposits on each), they have been leveraged from the equity in the first two.

I'm hoping to push it a bit further with #5 early next year.

I like to think that I've chosen the right properties (well one of them not so much, but we live and learn and I still have hope that it will improve soon) and that the capital growth will slowly bring the leverage down. I'm also lucky (?) to be in a pretty secure job and industry (although I agree no job is absolutely secure).

I'm really interested in hearing other stories of young investors in similar situations. Hopefully we can also revive this thread in 3 or 5 years time and see how it all panned out for everyone!

 

[mflying]

Hi mflying,

First of all, thank you for starting this thread, i've been meaning to start one like it for a while now.

I'm in a similar boat; 27 (but on a single income of about $80k), and my total portfolio is leveraged to about 94%. That includes 2 IPs that are negatively geared (but have really good depreciation) and 2 that are slightly positive (and have minimal depreciation); total debt pushing 900k, but pretty much neutral overall.

For the most recent 2 I've not put in much of my own money (save the $1000 deposits on each), they have been leveraged from the equity in the first two.

I'm hoping to push it a bit further with #5 early next year.

I like to think that I've chosen the right properties (well one of them not so much, but we live and learn and I still have hope that it will improve soon) and that the capital growth will slowly bring the leverage down. I'm also lucky (?) to be in a pretty secure job and industry (although I agree no job is absolutely secure).

I'm really interested in hearing other stories of young investors in similar situations. Hopefully we can also revive this thread in 3 or 5 years time and see how it all panned out for everyone!

That is the reason why i started this thread, i know few forum members are on a same boat.

i hope your properties aren't crossed! (you can look up on other thread for more info)

I wish that more members share their experience. especially, members have been there, done there and came out with targeted wealth or on track for it!

 

[pinkboy]

That is the reason why i started this thread, i know few forum members are on a same boat.

i hope your properties aren't crossed! (you can look up on other thread for more info)

I wish that more members share their experience. especially, members have been there, done there and came out with targeted wealth or on track for it!

Check out the Interviews, they are a good place to start.

pinkboy

 

[eeho]

i hope your properties aren't crossed! (you can look up on other thread for more info)

Nope, they definitely are not! Luckily I have a fantastic broker to keep me on track - thanks PT_bear

 

[Brady]

Hi mflying,

First of all, thank you for starting this thread, i've been meaning to start one like it for a while now.

I'm in a similar boat; 27 (but on a single income of about $80k), and my total portfolio is leveraged to about 94%. That includes 2 IPs that are negatively geared (but have really good depreciation) and 2 that are slightly positive (and have minimal depreciation); total debt pushing 900k, but pretty much neutral overall.

For the most recent 2 I've not put in much of my own money (save the $1000 deposits on each), they have been leveraged from the equity in the first two.

I'm hoping to push it a bit further with #5 early next year.

I like to think that I've chosen the right properties (well one of them not so much, but we live and learn and I still have hope that it will improve soon) and that the capital growth will slowly bring the leverage down. I'm also lucky (?) to be in a pretty secure job and industry (although I agree no job is absolutely secure).

I'm really interested in hearing other stories of young investors in similar situations. Hopefully we can also revive this thread in 3 or 5 years time and see how it all panned out for everyone!

I'm sort of similar.

25 years old ~$70k income last year which will likely be >~$80-90k this year

Parents assisted going guarantors on first two purchases, both are +ve geared

#3 used ~$35k of own funds to purchase purchase @ 90%

Would of purchased #4 except have an expensive car to rebuild and a o/seas holiday

#4 should come start of next year which will be a development which will will also create IP #5.

1st property purchased March 2012

Total portfolio ~$670k which is all CF+

 

[tobe]

I was similar, if a little older, 29 at first purchase, 40ky, single. refi and purchased again, and again 5 more times. Now 40, married with 3 kids, havent added to the portfolio for about 3 years.

I was so obsessed with the idea of retirement through property I read all the books, and ended up changing careers at 30 to be come a mortgage broker.

the last time I refinanced, I took each property to 95%, so I guess Im at one end of the risk scale.

 

[HiEquity]

With a decent salary behind you a high level of leverage to quality IPs (emphasis on quality!) isn't so risky on a circa $500k IP portfolio IMO because your salary gives you good insurance. If you stuff it up you just spend the next x years paying the debt down and come out of it with a priceless learning experience for next time. If it does well, then you're off to an excellent start. It's all about choosing the right properties and taking action.

But when you get to a $10m portfolio, your only insurances are your cashflow, tenant quality and leverage. One little salary is no help whatsoever to you at that level. Leverage has to be kept more conservative or the risk of losing it all increases significantly.

Horses for courses. What I will say though is that the first fundamental skill to learn is how to save money - lots of it. If you don't have a good deposit / cash buffer at that age then you have to be really honest with yourself about why not. Without excellent and proven saving habits the task of being a successful investor gets very hard indeed. Not impossible to live it up while investing of course - just very difficult and it's those early years that make all the difference.

 

[monalisa]

I think if numbers add up, and properties are neutral to positive (105% finance), as long as you continue to build buffers it is fine to acquire more.

Need to keep in mind salary levels, and how comfortable you feel with taking on some additional risk earlier on.

 

[Aaron_C]

With a decent salary behind you a high level of leverage to quality IPs (emphasis on quality!) isn't so risky on a circa $500k IP portfolio IMO because your salary gives you good insurance.

Oh yes, I can't emphasise this. Quality of asset always trumps price of said asset.

 

[Aaron_C]

My philosophy is always to go hard and quick when you are young and able. If you make a mistake you always have time on your side. Going for the 95% lends early on is fine even on those incomes you mentioned - over time as wages go up and debts come down this becomes much more manageable. I've had plenty of clients on those type of 50-70k incomes who are doing this and are doing very well out of it.

 

[mflying]

Good to hear story of some young investor!

mind you i am 29 and wife and i both earn decent income.

We have 4 IPs and they all pay themselves more or less.

They all are development properties, so one day those 4 will turn in to 11 one day, once development is competed.

we started investing in late 2011. So it is long way to go!!

 

[Brady]

Good to hear story of some young investor!

mind you i am 29 and wife and i both earn decent income.

We have 4 IPs and they all pay themselves more or less.

They all are development properties, so one day those 4 will turn in to 11 one day, once development is competed.

we started investing in late 2011. So it is long way to go!!

Long way to go but by the sounds of things you have done well.

Paying for themselves and development potential = great result