Where can I go from here??

[dan_zs]

Howdy all ….

I’m a little stuck in deciding my next move … Any ideas or situations to consider would be very welcome.

My name is Daniel, I’m 24 years old and have purchased my first property in Brisbane 12 months ago – One bedroom unit for $190.000 in Stones Corner. I have recently had it valued by ANZ at $250,000 which gives me a little equity to play with, about $35,000 (loaning 95%). My rental income for my current property per week would be $225 - $245 (income calculated 3 – 4 months ago) with my current mortgage repayments being $310.00 per week. I also have about $10,000 cash to put toward my next purchase.

My initial thoughts were to use the equity to buy another one bedroom in the area but after crunching the numbers I can only afford a property at a maximum price of $215,000 (advised by my current mortgage broker working on the above figures) but this would completely tie up my income (actual loan amount $250.000 - $35,000).

This would be fine if I didn’t need to use equity (mortgage top-up) which would increase my weekly mortgage repayments to roughly $400.00 which would break the budget.

There are two ways I can think of to move forward;

1) Sell and put the equity into a two bedroom apartment (renting a room out)
2) Buy the cheapest one bedroom I can – maybe in S.A ($160,000 max – renting at $160.00 PW)

If anyone could shed some light on the direction I should consider it would be greatly appreciated


Cheers
Daniel

 

[taz_1891]

Good on you for taking the first step !!

My humble opinion is to never sell. They are ab apreciating asset with the advantage of usable equity when the time comes. If your going to be up to your neck with repayments, why not wait....save some more money and stick to your investment plan that you started with. If that was to mainly concentrate on 1 bedroom apartments etc etc then do that. Property is long term (in my eyes), just start slow and build up. Once you have a few under your belt (might take a while) and some good equity, then expand.

 

[Bandita]

Hi Daniel,

Are you loans Interest Only or P&I? Changing loans to IO can help decrease repayments.

Cheers,
Jen

 

[softmonkey]

boost income

you are already well advanced on you investment path. give yourself a 6 month target to aggressively improve your income, ask for a promotion, go to training courses etc this will solve the budget crisis and boost your serviceability and atthe same time you will keep growing equity, revisit the question then

 

[dan_zs]

Thanks

Thanks for the advice … I agree with you Taz, property should never be sold as it can always generate returns as capital growth for further equity. I’m finding it hard to sit back and save while the market, especially in Brisbane continues increasing at an extraordinary rate; I guess I’m just really inpatient.

Hi Jen, can I change my current loan to an interest only loan even if I’m currently living in the property?? I guess I could always flick it to an IO loan if I decide to rent it out … I wonder if I could find another cheep property to buy, could I save on stamp duty by moving into it and renting my current one ??

 

[TheCamel]

Daniel, I'm gonna ask what some basic questions...


What are your aims ?
Why do you want to invest?
What sort of time frame are you looking at ?

beyond that, a few things to consider.

You may buy, say a 2x1 unit for 160K, with a 10% deposit.
that gives you 145K, at 8.5% (should probably add more considering the current rates movements..)
for an io loan, that's about 1030 a month in repayments.
assume your unit rents for 160 a week, less 7% for management, thats 149pw.
which gives you 645 pm to spend on outgoings, and therefore, 385 you need to make up from your own pocket.
thats before you take into consideration insurance, land rates, land tax, water rates, maintenance, and, if it's a strata, strata levies.

please note, i'm not trying to discourage you in any way, merely trying to throw a bit more into the mix for consideration.

Look at a few things:
- increasing your cash flow
how can you do this ?
Get a second job, get a raise, get a new job?
Cut down on living expenses. is it cheaper to catch publi transport than to drive?

- cut down consumer debt.
do you have credit cards, or finance for anything thats not earning you money ? Get rid of all of this first.

- offset accounts
get an offset account linked to your home. put allllll your money in there, and live off the credit card. end of the month, pay the credit card off from the offset account.
the bonus of this is all your money is working, all the time, for your mortgage.
THere are quite a few threads on offset accounts, have a look around.

- build equity in your present home.
Probably uses a combination of the above... live more frugally (There's threads on that too!)
put as much money onto your non-deductible debt as you can to get it paid down as much as possible.


most importantly, keep reading and learning.
Define your aims, work out how to get there.

 

[quoll]

g'day Dan

I've got my PPOR loan as IO, the docs have it as IO for 5 years only but I'll refinance before then and get another 5yr of IO, and do the same again. So my PPOR loan will be IO until I sell a house to pay it off.

cheers
quoll

 

[TheCamel]

Thanks for the advice … I agree with you Taz, property should never be sold as it can always generate returns as capital growth for further equity. I’m finding it hard to sit back and save while the market, especially in Brisbane continues increasing at an extraordinary rate; I guess I’m just really inpatient.

patience isn't a bad thing. this isn't the only time you need to be patient.. yo need to be patient while looking, to make sur you buy the right thing too.
unfortunately, i have this thing called a buying urge, and i just want to buy things, so it's very hard not to.


[/quote]Hi Jen, can I change my current loan to an interest only loan even if I’m currently living in the property?? I guess I could always flick it to an IO loan if I decide to rent it out … I wonder if I could find another cheep property to buy, could I save on stamp duty by moving into it and renting my current one ??[/QUOTE]
there's no reason you shouldn't be able to change it to IO. It depends on your loan conditions though.. speak to the mortgage broker or the lender.

you wouldn't save stamp duty by buying a new place to move into. i'm assuming you've had your FHOG and stamp duty reduction on the present place.

 

[dan_zs]

Thanks guys ...

Thanks for your advice.

My aim is to be financially free as I’m sure most people are. It seems if I’m able to snatch up a few investment properties and educate myself to successfully maintain and manage repayments and outgoing expenses, I can then use capital growth to invest in replacing my income through either share trading (currently educating myself on technical analysis) or other income replacing strategies. I’m always looking for opportunities to manage my money in a way that it could work for me, but it’s sometimes really hard to find the right strategies … I guess that’s were property comes in play.

Why do I want to invest? I couldn’t think of anything better than to wake up every morning and actually doing the things I am passionate about, living each day with a smile and self achievement, knowing that I am capable of helping family or friends financially if one day needed.

In regards to a time frame, I have put in place a time frame of about 10 – 15 years to be as financially free as I can; well that’s the plan anyway.

In regards to cash flow, maybe I need to look at a casual weekend job to stimulate cash flow – my outgoings are already tighten as much as possible to allow myself to continue saving, I don’t use my credit card and have payed everything by cash.

It seems the next steps I need to take is to flick my loan to an IO loan and to look into using my existing offset account more to my advantage. Ha … I’ll organise that tomorrow, patience is my worst attribute. I really need to keep growing and working on the right way to maximise my situations and make them work for me.

 

[quoll]

I found the hardest thing was understanding that everything I was/am trying has been done before by someone else, they will help you if you ask. BUT you need to ask the right questions and most of the time you don't know what the question is or who to ask it of.

This forum and InvestEd are very good resources, if these people can't help then they will point you in the right direction to find the answer.

I think if you look at a mix of shares and property you will go a long way. Lots of different way to work with that mix, you just have to try and find out what they are and which ones fit your personality best.

Read up on Serviceability

Best of luck
quoll

 

[dan_zs]

combinations of strategies

Hi Quoll … Gees thanks, yeah I guess the only way to move forward is to listen and find the right combinations of strategies to manage a profitable portfolio. I think I understand when you say it’s important to choose the right strategy in regards to personality; sometimes just the right direction can open doors to the right solution so I take everything on board and filter what I can use. Thanks for the heads up on serviceability … Cheers, Dan

 

[steveadl]

patience isn't a bad thing. this isn't the only time you need to be patient.. yo need to be patient while looking, to make sur you buy the right thing too.
unfortunately, i have this thing called a buying urge, and i just want to buy things, so it's very hard not to.

A fellow sufferer, I understand!

 

[quoll]

The urges might be there but when you have no cash, no equity and no serviceability left it makes the execution nearly impossible.

Bit like a junkie trying to get a fix.

Time tends to supply a means to fix this.

cheers
quoll

 

[TheCamel]

case in point:

I tried to buy BHP just before open this morning, as i saw a commsec sell offer for 35.00
so i tried to buy a small amount at 35.00
but my order didn't get filled

 

[s_t]

That would have been before open. Trading doesn't start all at once at 10:00. Various stocks are progressively opened, starting at 10:00. Takes about 20 mins for all to open, if my memory is correct. If the offer is lower than the bid, that stock has not opened yet.