What would you do if you were in this situation ?

[WillG]

What would you do if you were in this situation ?

Current Situation:
* Current portfolio (2 * IP's) slightly positive geared
* PPOR debt free
* enough equity in IP's to purchase another $1.3mil ($2.8mil if using PPOR equity) IP's at 80% LVR

Goals:
* $40 - $50k passive income in 10 to 15 years (either through IP's or a combination of IP's and shares)
* To gradually increase passive income over the next 10 years so part time work is possible and time is freed up to spend with the family

Strategies:
* Save enough money (in 100% offset account) in the next 5 years to make current IP's debt free and receive passive cashflow of $20k/year. Hopefully the market will have more to offer at this time
* Purchase 2 - 3 more IP's in the next couple of years and have a negatively geared portfolio
* Small scale property development to increase wealth

Concerns:
* 50% of forumites voted 'now is the time to buy properties'. I don't see good yields or good capital growth over the couple of years. Somebody convince me otherwise please.
* Don't want to be holding onto negative geared IP's that aren't appreciating in value for extended periods of time

Cheers

 

[MarkB]

Concerns:
* 50% of forumites voted 'now is the time to buy properties'. I don't see good yields or good capital growth over the couple of years. Somebody convince me otherwise please.
* Don't want to be holding onto negative geared IP's that aren't appreciating in value for extended periods of time

Will

Remember that poll - if you mean this poll - was originally posted on 10 November 2003. The 50% who said "now was the time to buy" said that a year ago.

The poll (and the thread) have only recently re-emerged.

My point being that if the same poll was conducted now, that the results would likely be different.

MB

 

[toony]

Similar Position

I am in a similar position to you.

My ppor is debt free. My rental properties are neutral and I dont want to be paying too much in the way of negative gearing as I have two young children.

I am just going to wait a year or two and see what happens when rates rise agian next year.

 

[likewow]

Its not the time to be negative gearing property with likely interest rate rises around the corner, crap yields and the prospect of cap. growth pretty ordinary at best. Not a good recipe in my book unless you earn a very large income and looking for tax relief and thinking looong term.

You also have the option to do nothing for a few years and wait to see how the markets looking then. In the meantime research and education are paramount.

Also, IMHO, the 50% of respondents of the poll one year ago got it wrong because now is a better time to buy then one year ago because prices have mostly fallen but still not an ideal property investing environment.

 

[Aceyducey]

Remember that poll - if you mean this poll - was originally posted on 10 November 2003. The 50% who said "now was the time to buy" said that a year ago.

My point being that if the same poll was conducted now, that the results would likely be different.

We shall see....

Here: http://www.somersoft.com/forums/showthread.php?t=18194

Cheers,

Aceyducey

 

[D.T.]

Hi Likewow,

with likely interest rate rises around the corner, crap yields and the prospect of cap. growth pretty ordinary at best.

1) Re rate rises: Fix your interest rates
2) Re crap yields: Use other things for income aka Navra, Spann, et al
3) Re ordinary growth: Look at different suburbs.

Above all else, think long term.

Just my 2.2 cents inc gst

 

[WillG]

Hi Likewow,



1) Re rate rises: Fix your interest rates
2) Re crap yields: Use other things for income aka Navra, Spann, et al
3) Re ordinary growth: Look at different suburbs.

Above all else, think long term.

Just my 2.2 cents inc gst

Hi dtraeger2k,

Are you buying IP's at the moment or in the next year or so ?

 

[likewow]

Hi Likewow,



1) Re rate rises: Fix your interest rates
2) Re crap yields: Use other things for income aka Navra, Spann, et al
3) Re ordinary growth: Look at different suburbs.

Above all else, think long term.

Just my 2.2 cents inc gst

Hi

Fix rates: still not the answer to negative income and no growth.

Crap yields: yields to service loan, not to provide income. Need heaps of equity for Navra strategy and heaps of equity/cash for CPTs. Suitable for minimal percentage of investors.

Growth: In this market its very unlikely that one suburb will have growth and another hasnt. Looking at the big picture, the market has peaked and is going through its normal cycle just about everywhere. And that means flat.

I agree to think long term, but to me that still doesnt mean negative gearing property with prospect of no growth, low yields and looming rises in rates.

Even long term investors know good and not so good times to buy, or they should.

 

[D.T.]

Hi,

WillG, I'm shopping so to speak, will hopefully find the next one soon. Yourself?

Likewow, dont get me wrong, i completely agree that negative gearing for a long time without the prospect of growth isn't terribly smart unless you have a big buffer of funds in place to see you thru.

 

[quiggles]

I guess everyone knows what I'd do. I'd be grabbing that $0.5 m equity and flying over to the US! I pretty much guarantee I could get you $40 to $50k p.a. in about a month. . Or a lot less than 10 years, anyway.

Bob

 

[D.T.]

Hi,

guarantee I could get you $40 to $50k p.a. in about a month.

Quig, after debt servicing, taxes and normal property expenses?

 

[WillG]

I guess everyone knows what I'd do. I'd be grabbing that $0.5 m equity and flying over to the US! I pretty much guarantee I could get you $40 to $50k p.a. in about a month. . Or a lot less than 10 years, anyway.

Bob

Hi Bob,

Have you considered being a buyers agent in the US for Aussies ?.

I enjoyed reading your posts but aren't comfortable buying outside Aus at the moment. I am still learning about investing in Aus

dtraeger2k,

I am always looking for deals but haven't found quality properties that fit my criteria yet. I did find some a year or 2 ago but didn't have enough knowledge at the time to go ahead with them.

Cheers

 

[quiggles]

I wouldn't guarantee it including the effect of income taxes, but certainly after debt servicing and normal expenses (including property taxes). That's also before depreciation reduces the tax as well. but as you could income split, assuming no other sources of income, then at $20-25,000 for each partner, tax would be negligible.

I stress that this is what I would do.

Cheers

 

[quiggles]

WillG

I hadn't considered being a buyer's agent, but the idea has a certain attraction. I could package the entire investment, LLC, management team and all.

If you see my name pop up in caveat emptor, you'll know I've thought about it more deeply. There were some properties that I didn't buy, not because I didn't want them, I just wanted others more. And then I ran out of cash.

Oh, and if you don't have a use for the equity ATM, I could probably find a safe haven for it.

 

[Jerry Maguire]

Hi WillG,

You have got enough equity for 1.3mil
start looking around right now
either properties or blocks of units
or even commercial property

Now is the best time to buy if you want 40K to 50K per month

Regards
Jerry

 

[WillG]

Hi WillG,

You have got enough equity for 1.3mil
start looking around right now
either properties or blocks of units
or even commercial property

Now is the best time to buy if you want 40K to 50K per month

Regards
Jerry

Hi Jerry,

I am currently looking around at predominantly 3 bed houses in good suburbs (in the ACT). Typical prices are 300 to 350k and yields ranging from 3.5 to 4.5%. I am hesitant to over commit (and stress servicability) in the current market and miss good opportunities in the next couple of years.

I want 40 to 50k 'per year' not 'per month'

Cheers

 

[Glebe]

Hi WillG,

Now is the best time to buy if you want 40K to 50K per month

Regards
Jerry

Did someone say per month?

 

[Robyne]

Have you considered diversifying into other assets?

Mind you, if I were in your situation with PPOR paid off and 2 cash flow neutral properties I would probably dance around, open the champaign etc

 

[toony]

Similar Position

As mentioned I am in a similar position.

There are two things that I got out of Jans Books.

1. Its all about time in the market. (Over the long term prices rise)
2. Buy when you can afford it. (Dont worry about timing the market)

Buy when you can afford it - What does that mean. Well to me it means being able to service the debt if interest rates rise and being able to sleep at night.

The issue we share is;
1. We have the equity to invest.
2. Servicibility is an issue - in my case I have a good income and enjoy my job but am on the one income with my wife looking after our two young kids.

My properties have doubled in the last 5 yrs and the rental income is pretty much neutral.

I had a property I sold about 5 months ago. It went up by $50k but I was stressing when rates rose by 0.5%. It was negative geared and supported by my income. I decided I did not need the stress. I really broke the rule - buy when you can afford it.

I took the gain. Now I am sitting comfortably looking forward to the next interest rate rise. I know there will be further opportunities in the next 3-5 years. I am a long term investor. Over the next 3-5 years my rents will increase and my loans will be a little lower. Then I will be able to service the next property.

Having the equity but lacking the servicibility is my current issue. But we just need to be patient. Buying now my limit our opportunities in the future.

Maybe we need to reassure ourselves from time to time.

 

[WillG]

Have you considered diversifying into other assets?

Mind you, if I were in your situation with PPOR paid off and 2 cash flow neutral properties I would probably dance around, open the champaign etc

Hi Robyne,

I am happy with my current (and did pop the Champagne when the PPOR was paid off) situation but I am not financially independant. That is my ultimate goal.

Diversification:
I have a bunch of shares (both blue chip and speculative) and have has some wins and losses. I am still learning more about shares.
I am gaining knowledge about commercial property as well

Toony,

I understand your situation. I am a new father and may have a second child in 2 to 3 years (if we are lucky enough). I am expecting serviceability to become more of an issue then

Question:
Would it be wise to get another IP under the belt while I can afford it (equity and servicability) ?

cheers