What do you think

[dook]

hello everyone,
Now i know this will probally sound familiar to the experienced out their but i was wondering.........

If i bought my first ip , remembering how traumatic it was for you .... you know who you are !
If it was well bought with a yield that after a reasonable deposit bought it to a positively geared property say...... $90 000 house, rent of $140, and a deposit of $20 000
would that be a good way to dip the toe in the water or am i barking up the wrong tree.
I understand that this is primarily a physcological way to get into the pond but am i wasting time and money? and am i right with my sums?
O.K. i know, no more questions for now, did you know i was new here?


Thanks, 'Dook'

 

[Sunstone]

Dear Dook,

First thing. Important thing is to start. Over 70% of people who visit property seminars NEVER start.

A property priced at 90k. Why not. I am certainly an advocate for these types of properties as more experience is gained and less can go wrong. Too many people that do start only have one IP and cannot develop their skills past this.

Yield of 8% could be okay. Depends on the state. But no mortgage insurance based on your borrowings I feel is good (yes Rolf will always disagree with me *laughs* on this one)

Believe you are not barking up the wrong tree.

Couple of questions?

-Is it a house or unit?
-What type of capital growth prospects does the property have?
-Which state it is in?
-What is it like proximity wise to transport, shops and employment for tenants?
-What type of development may take place in the future in the area?
-Brick/timber/fibro etc construction?

Couple of things to think about. But have confidence in yourself Dook. Property is a fun journey and you have come to the right place to learn more.

Cheers,

Sunstone.

 

[dook]

hey Sunstone ,
no particular property (house brick veneer) in southwest W.A. Bunbury.
Close to everything job prospects here over the years have been pretty good ( construction / building ).
These houses arent abundant but they are arround. Was more thinking of the idea of sort of a strong foundation to start off, less chance of things going wrong.
Dont have any figures to go by but if we dont get at least reasonable capital growth in this area i would be supprised.
Yes ive read some of Rolfs posts, as youreself he's
good to have arround! ( dosent mortgage insurance only cover the lender..........maybe thats what you meant).

Thanks for youre reply Sunstone ill be keeping an eye out on this forum.

Cheers 'Dook' ....... arent weekends the best!

 

[Sunstone]

Dear Dook,

No problems mate. Pleased to help and always good to have someone appreciate the input.

Brick veneer houses are always good (my preference too -low maintainence) but in a heated market when everyone is looking for them in a certain area it can artifically drive the prices up for them. Make your decision based on the supply situation. Some suburbs are all brick veneer whereas some only have the occassional brick veneer one.

Rolf and mortgage insurance. Yes mortgage insurance only covers the lender. The two basic lines of thought are:

1) If you take out mortgage insurance then you can have access to a greater % of your equity. 90-95% instead of 80%. Therefore you can invest in potentially more properties. (However importantly is the SANF (Sleep at night factor) which counts me out on this one.) The other part however is that you take out mortgage insurance and only use up to 80%. You have 10% of equity in reserve if something bad happens to you and you suddenly need access to this additional cash. Trying to get mortgage insurance for an unemployed, retrenched, permanently disabled etc etc person is next to impossible and this extra equity may buy time.

2) Myself I believe in avoiding additional unnecessary costs. Is there a chance through paying extra insurance costs that you will increase the chance of encountering financial problems or through having access to this 10% additional equity will you take too many risks?

On the mortage insurance issue there is not a clear cut answer. It all relates to what you feel comfortable with and what your strategy and risk profile is.

Cheers,

Sunstone.

 

[dook]

Sunstone,
It all makes sense to me!
thanks for taking the time .


'Dook'

 

[Ross Sneddon]

Hi Dook and Others

Just an aside on insurance.

Yes Mortgage Insurance looks after the finance vendor and pays them if you default, but remember that the insurance company can and does still come after you for the shortfall.

When I do calculations to determine the soundness or otherwise of an investment, I build in safety factors into the equation. This will be different for each person depending on our perceived "risk aversion factor".

The next thing I do is to work out a "what if" scenario to cover any shortfall if the unexpected happens as perceived by the buyer, and that may be me at times, and add on some extra funds to cover this event.

Sunstone referred to it as the SANF. I calculate how much will be required in funds to be borrowed and add on an additional amount, say $2,000 to the borrowings, and borrow the lot.

It costs nothing extra as the surplus $2,000 at settlement is paid into the separate IP account and sits there, costing nothing, unless the unexpected happens and can then be drawn on to cover the emergency. In effect, the principal is paid down $2,000 from the beginning of the loan and may be redrawn later if required. (Get the right loan.)

With this "sleep money" sitting in the IP account, you can sleep easily at night with the knowledge that there are funds available with no strings attached to draw on, if you need it.

Regards

Ross

 

[dook]

Thanks for youre thoughts Ross.

'Dook'