when to start?

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Anonymous

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From: Anonymous


Can anyone provide an opinion on when is the right time to buy your first IP?

I am currently paying off my first mortgage in a home that I live in. I have about $158K left to pay off, and I earn about $68K per year. My home is currently worth about $320K. I have read "Building Wealth through Investment Property" and was inspired to use the equity in my home to buy an IP.

However, today I saw a financial adviser who told me to basically forget about buying an IP until I have paid off my mortgage to around $50K - $100K. In fact, he said I shouldn't invest in any other assets (like shares or property) but just keep ploughing into my mortgage. TO borrow money to invest, particularly for an IP, would probably be negative gearing which he thinks would weaken my cash flow too much. THen he showed me the door and basically said to come back when I have more money.

Is this wise, or am I missing out on wealth building opportunities by continuing to wait? It will probably take me about 2 years to bring the mortgage down to around $100k.

A
 
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Reply: 1
From: Gail H


Hi

Where the hell did you find that financial adviser? That's just about the crappiest advice I've ever heard. Well, actually I hear crappier advice than that every day, but the advice given to you would certainly rate an honourable mention in my view.

Of course you are in a position to invest. The equity in your house is lazy equity.You should do something with it.

The property you purchase does not have to be negatively geared (if you are really worried about cashflow). Find a property that is neutrally/positively geared.

My position is not all that different to yours. Income is a bit higher, but also owe $145,000 on house worth about $340,000. I have 2 investment properties and will be aiming for second one next year. One of my biggest regrets is that I didn't start earlier.

Get a new financial adviser pronto.

Gail
 
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Reply: 2
From: Nigel W


If a GP told you you had some terrible illness and prescribed no treatment, wouldn't you ask for a second opinion?! go see a specialist or 5? Of COURSE!!!

You're on the right path - you just need some more diverse opinions so you can weigh up the advice and make your own decision.

I'd try to tee up a chat with a broker (one of the best is our resident broker legend Rolf) to ask specific "how much can I borrow?" type questions. Check the posts for his contact details.

I'd also get a second opinion from another financial adviser.

But remember - if you ask a real estate agent what to invest in they'll say property - that's what they get paid to sell (most of us happen to think they're right - maybe not about WHICH property and WHAT price but we agree on the general concept)

Conversely if you ask a financial adviser/planner/whatever they USUALLY get paid commissions for flogging managed funds of various types (some funds are good, some are bad some are average - but you must decide about that too) they have a vested interest in you deciding to invest in their asset class.

If you ask the barber whether you need a haircut, the answer is invariably YES. Always remember that people often have financial reasons to support recommendations (although those recommendations may be quite sound on other grounds anyway).

You appear to have a lot of equity to use. That is an entirely separate issue from whether any property you use to buy it with is positive, neutral or negatively geared...

With respect I think your adviser is confusing the investing decision with the financing decision. They are two distinct (but related) issues. Any property would be CF positive if you used lots of your own cash to buy it and didn't borrow much or at all. (that is, however, a fairly inefficient strategy as it would take most people too long (perhaps a lifetime) to save the full price for one property - but using borrowings (gearing or leverage as it's called) you can use a little bit of your own money and most of someone else's (which you rent from the bank - the price being the interest you have to pay) to buy lots and lots of properties, all of which can be earning and growing in value to make you wealthy.

hope this helps.
N.
 
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Reply: 3
From: Geoff Whitfield


I'm very careful now about financial advisors.

My advisor took me into "tax effective" investments. I ended up losing $60,000 when the schemes went bad. That's not to mention other investments they promoted which also went bad.

Early last year, I had a chance at a block of apartments (ACT area). It was decrepit, but structurally sound, and with exciting financials. I could not do it by myself, so I looked for a partner.

#1 was already overcommitted- fair enough. #2 was excited- he went to his advisor who gave him the nod. We prepared to go in for it. But, just as we were ready to go in, his advisor advised him to go in for managed funds instead (with him receiving commission). Partner #3 was excited and ready- but it was too late.

The block cost $500K (returning 12% as an unrenovated mess and half empty)- it would have cost $250K for reno. The block was renovated by the new owner and sold within 6 months (strata titled) for $1.3M total. They're worth a lot more again 6 months later.

Sorry, I'm not answering your question. Just saying that your advisor may well be holding you back, as he did my intended business partner, and therefore myself.
Just the fact that you've posted the question here seems to indicate that you want to grow beyond his advice.

The indication from your post is that he is not going to profit from his advice to you. But listen to him (taking any advice which gives him a commission with a huge grain of salt), read what's on the forum, and form your own conclusion based on your comfort level.
 
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Reply: 3.1
From: W W


Gee Financial planners give me the sh*ts. Don't trust them. 90% of them just recommend managed funds and they won't make you rich, but will make the fps rich.

Start investing in property asap!

PI
 
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Reply: 3.1.1
From: Mark Laszczuk


My advice to you anonymous would be to hold back a little. Now, let me explain. I reckon the first thing you need to get your head 'round is your strategy. Which one do you want to use? Cashflow (in which case, go for positve geared) or growth (in which case, go for negative geared, yes I know you can find growth properties that have positive cashflow, but they are hard to find if you don't know what you are looking for). It's a good idea for you to decide which way you want to head, and form a plan before jumping in and buying. This is exactly what my partner and I have been doing for over a year now. With a little patience, we finally found a plan that works for us and we're going with that (thanks Steve). Just something to think about.

Mark
'no hat, some cattle'
 
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Reply: 3.1.1.1
From: Gail H


Hi,

I agree with Mark. I maintain that the advice the financial adviser gave you is no good, but that does not mean you should rush into it before you have thought through your strategy. I did a lot of reading before I bought. Most markets in Australia are slightly overheated anyway. Waiting a little while won't hurt.

Gail
 
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Reply: 3.1.1.1.1
From: H T


If its the Melbourne inner city market your looking at then DONT buy at the moment, its far to expensive, this is the time to sell (if you are in to that sought of thing).....then again i seem to remember posting that about a year ago

oh well shows how much I know

HT
 
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A

Anonymous

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Reply: 3.1.1.1.1.1
From: Anonymous


Thanks for your advice everyone.

I actually have been reading up about gearing (negative, positive and neutral) and other investments such as shares, warrants etc. I just need someone with experience to talk things through with to make sure I'm heading in the right direction before diving in, and that's why I went to the financial adviser in the first place.

So if anyone can recommend a good accountant or financial planner in Sydney, please let me know.

I just can't believe he was so dismissive! I earn a good salary, and my wife (who is currently studying to be a doctor) will earn a good salary in 1 1/2 years. Maybe there's something I'm not seeing.

A
 
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Reply: 3.1.1.1.1.1.1
From: Les .



G'day A,

You mentioned reading "Building Wealth through Investment Property" which is the white book. If that is correct, how did you go from page 100 on? Did you put your own figures in there? How did they look? Are you ready (finance-wise) to buy an Investment property? I suspect you are!!!

Re the financial adviser - they often look at things like "If you are paying 6.5% currently on a mortgage, and you can lower that payment by putting in extra cash, then that is BETTER than getting 10% from shares then paying TAX !!!" Of course, that is right - but you can be doing FAR BETTER!!!

Mainly because this lot (financial advisers) seem to forget about the massive leverage available with IP's, AND the terrific Tax deductions available to you as an investor.

Going back to your own home payments, first you must earn nearly $200, then pay tax to be able to pay off $100 from your mortgage. Correct? Now, if you then took that $100 and put into a Term Deposit instead, you might get 5% return, BUT then you pay MORE TAX on the interest earned. So, to be fair to your FA, he at least recognised that you are better paying it off your home than putting it into a cash investment.

BUT, if you are able to LEVERAGE it (put 20% in and borrow 80% to buy an IP), you can gain

1. A 5 to 1 leveraging of your money
2. Tax deductions on your IP
3. Potential Capital Gains on your IP (as well as your own home)

Yes, I hear it (and I agree somewhat) that Sydney and Melbourne are on the crest of the wave .... So right now may not be the best time to buy in those areas.

But (I think Mark said it) why not use your time to find the optimum way (for you) of preparing to get into IP's. And I think we'd all agree, the MAJOR thing is to determine what will work for you. We all have different risk/return ratios - some sleep well at night no matter what, while others won't sleep well if they are NOT paying down their mortgages.

Continue reading, asking, figuring and determining what is right for YOU, and how you are going to maximise your investments.
e.g. why not utilise an Offset against your Home Loan mortgage so that you can save and pay less interest, BUT can immediately redraw the "savings" at any time to buy that BARGAIN that comes your way - without hassle.

Your own home is THE HARDEST property you will ever buy. By comparison, IP's are a walk in the park....

Plan to meet up with a bunch of like-minded folk (e.g. at the "Big BBQ" in Canberra, Freestyler meetings, this forum, etc.) and feed off the information that flies around at such times. You will quickly see why we are excited about what we do, and how you can get yourself into the same state too.

Welcome aboard, anonymous - but if I were to meet you at a Freestyler meeting, or the big BBQ, you may be one of hundreds of "anonymouses" - so how about choosing a handle you can call your own. And we can distinguish you from "the mob" ;^)

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 3.1.1.1.1.1.1.1
From: Chris Legg


I started when my mortgage was $140k on a $240k home.I effectively converted my home loan to interest only by changing it to a St George Portfolio Loan.This provided more monthly cashflow to give me the confidence to buy the 1st IP.I also obtained a credit card with a $10k limit to cover any contingencies. the first IP was $205k and I borrowed $215k to cover legals etc and yes of course it was negatively geared and it was new to maximise the depreciation and to minimise the maintenance costs.This home is now worth over $300k 3 years later.

Consider, if you are paying less in interest on your home mortgage than you would have to pay rent for the same home then I guess you should be either saving the difference or buying other assets.

If you want to discuss this further with me email me chrislegg25@hotmail.com

Lifes a beach at Caves

Chris
 
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Reply: 3.1.1.1.1.1.1.1.1
From: Mark Laszczuk


Anon,
I would STRONGLY recommend that you speak to Steve Navra. He will be able to give you an investing strategy that will encompass property, shares and cash. He'll also be able to put the equity in your home to good use for you. He can be found at: navrainvest.com.au. Oh, and he's based in Canberra, but goes to Sydney regularly, apparently.

Mark
'no hat, some cattle'
 
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