starting out



From: Mark Ryan

hello to everyone!
i posted this question last night but in the wrong place (meeting point) so i'll try it here as well.
right heres the thing its just myself with a $31k income (without any equity in any property) and $20k to invest, id like it to be in IPs. if i use this money as deposit for a $220k-$250k IP. the LVR as you can see isnt that flash 95%.
now the twist my parents also have $20k they like to use wisely. their thinking is to combine the two in a IP under my name and have them as tenants, which would bring down the LVR to around 88%, still not to flash.
option 1: use my money only and have a LVR well over 80% (95%). i would then have to take out mortgage insurance and the prospect of using the equity in that IP to continue building some sort of IP portfolio gets bog down, by how many years i dont know, because of my inability to service the loan.
option 2: to use both sets of moneyies and enter into some sort of 'tenant in common' agreement. this complicate things later when trying to invest further as both parties would have to be in agreeance to the proposal.
in the end i dont wish to enter into a investment thats going to max me out with no room to move, i wish to get this money moving as hard and fast as i can with a 10-15 year plan. the finical advisers ive seen this week have as you would expect tried to steer me towards managed funds, shares saying that they are more flexible and can earn you just as much as IPs with less hassle. but apart from their advise, Jan Somers books and other information gathered IPs are still my favoured idea for investing money. or because of my circumstances (salary) should i take these advisers advice and invest in shares.
so if anyone can offer any advice what so ever please do so, it will be much appreicatated. thanks for taking the time to read this far RYANO!
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Reply: 1
From: Kippy :)

Hi Mark,

Welcome to the forum.

A few ideas to consider:

1)You might like to consider buying a cheaper IP as this gets away from having the high LVR. Who says that you have to buy at 200k and above?

2) If you intend to use your parents equity you might want to set it up so that it is a private loan between you and your folks. If both parties are involved in the mortgage then things can get messy when you personally want to borrow against the equity in the prop. Of course you folks would have to be happy with the return on their $ for this 2 work.

3)Maybe you could consider buying in a large rural area..cheaper properties....more likely to be positively geared and therefore actually put money in your pocket each week. If you can find an IP that needs some renovating you can add instant equity and then borrow against that as needed.

This would be my approach in your IP sub 100k (can use your own $ and avoid LMI)..renovate to add equity...IP is +ve from day 1...borrow against increased equity to buy next IP.

Hope this helps.
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Reply: 1.1
From: Les .

G'day Mark,

As I mentioned in "Meeting Point", DSR (Debt Service Ratio - or, your ability to repay) is likely to be your sticking point. In fact, you said it yourself:-

"by how many years i dont know, because of my inability to service the loan."

As an idea, find out HOW MUCH you can borrow on your wage. Wage is $31k - banks will lend around 30% usually, so let's say $10k of your wage can support a mortgage (about 32%). Now, what is the mortgage rate the banks are using? If (say) 6.5%, then they will likely use a "Qualifying Rate" up to 2% higher (to be sure you can repay if/when Interest Rates go up).

So, divide $10,000 by 8.5% and we have approx. $117,000 - THIS is the amount the banks will likely lend you. As you can see, this limits your choices somewhat.

BUT, there may be other ways .......

As Kippy said, why not buy in a Regional area (larger country town/city) where property may be $60k - $100k, and often have very good rental returns? Or look at a unit rather than a house in your area (where are you from?)

And do check out "" - Steve has some great ideas that can assist DSR somewhat (but it needs a cash or equity injection, so it might be a bit early for you just yet...) - but the parents' extra $20k might help here ....

It sounds like you are a fairly young bloke - you may need to start with a single step, gain experience (and Capital Growth), and allow time to work its magic....

Come back with more questions as you need to,



- "Eschew Obfuscation" - ;^)
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Reply: 1.1.1
From: Projects .

When doing your ballpark figures for servicibility, don't forget that your income also includes rental income. Each lender will assess this differently but for rough figures add 75% of rental income to the 30% of your normal income.Then you need to deduct any loan commitments from this including 5% of your credit card limits per month. The balance will be what you could put to cover the loan.

Better yet, go and talk to a good Mortgage Broker as they can assess your situation more accurately and find the best solution for you.


There is more than one way to climb a mountain.
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From: Les .

G'day Projects,

Thanks for adding that very important piece. I had to laugh about this as I had omitted that bit (about including the rental income) when I replied to Mark, but only an hour ago pointed out this very thing in a reply to another post ....

Funny how it goes ....

So, Mark to complete the picture then let's take an example. Forget what I said about $117k being all the banks will lend, as (Projects pointed it out), I was forgetting the fact that any IP you buy will have an income too, and the banks will allow 75% of that figure. Here we go (plucking figures out of the air) .....

Purchase price $250k - expected rental income $250 per week (typical for Sydney/Melbourne areas). YOU can input up to $10k per annum, and 75% of rents on your IP will produce another $9375 (50 weeks allowing for vacancies). So the bank would lend on $10,000 plus $9375 = $19375 divided by 8.5% or $228,000. You put in 10% ($22,800) and that covers the cost of a $250k property (but there are still costs of course). So, contrary to my earlier post, a $250k IP is possible for you.

It sounds pretty horrendous that you will be putting in $10k per year, doesn't it? That's around $200 per week of your own money!!!

But, of course, that is according to what the Bank expects you COULD contribute if you needed to. In actual fact, you will receive 100% of the rent (not 75%) but you'll also be paying rates, insurance, etc. As you can see, it is not all "cut and dried" - many variations exist depending on just WHAT you buy, and its returns and expenses. And the taxman will assist you somewhat, too.

Using the above, let's put some ACTUAL figures into it and see what you will start with:-

Price of IP $250k
Deposit $ 22k
Mortgage $228k (at - say 6.5%)
repayments / yr $14820
repayments / week $285 per week
minus rent $250 per week
shortfall $35 per week - out of your pocket. That sounds a LOT better, doesn't it?

But there are still Council rates ($40 per week? Insurance $10 / week Maintenance $10 / week RE fees $20 / week) so you could be up for $115 per week.

Some Tax deductions will help here, plus the fact that the IP's value will probably be averaging 7% growth per year ($17,500 in first year, or over $330 per week!!!!)

Mark, you can see from the guideline figures above that there are MANY variables - and buying WELL is the keystone. Anyway, my apologies for misrepresenting the figures first time around. I hope these later ones help you to understand the situation better.

Good luck - and come back again for some more confusion if you wish ;^) But then, someone else might answer, then there will be none....




- "Eschew Obfuscation" - ;^)
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