Young investors - tell all

[Dimmy]

Thanks for the welcomes

Yeh, unfortunately the property is in both names. The break up was amicable, and because I put in the deposit (she had no savings), we agreed the property remains my responsibility only. She is not making any payments since the break up.

I'm currently costing up the transfer of title but in the mean time we have both signed a letter stating when the relationship ended and that any capital gains/losses, defaults, payments etc etc are my responsibility only. I'll probably wait until the 6months (june) is up and switch it over to avoid any stamp duty/tax issues. Looking at about $1500 which includes re-issuing the loan ($900) within 4years.

Does anyone have any advice on how to make this as cost effective as possible? It's a lesson learnt for me!

 

[d.one]

Some great stories on here, thought we may as well add our own fun journey!

Laura and I met in early 2005 after both finishing school in 2004, both 18 yo. Over the next 6 months we both managed to start university, drop out in first semester and move out of home! We both worked basic jobs around $30-35k and by using garage sale furniture and home brand everything actually saved quite alot.

This led us to very different paths to our friends who are all still at home, most still at Uni after changing courses. We saw that the standard 'career' was not what we wanted and through a brief stint with a direct marketing company were introduced to books such as 'Rich Dad' and our lives were changed forever!

from the start property was something we could grasp and find interest in so in 2007 (Ages 20&19 at the time), we were able to buy a 2br unit in small group Oaklands Park, SA. This purchase was made possible with the first home owners grant as well as the mortgage being backed with one of Laura's parents IP's as security. Obviously we are forever indebted to them for this as it showed alot of faith in us in allowed us into the game probably a couple of years earlier than otherwise possible.

We bought for $202,500 and lived in the unit for the next 13 months. During this time we had some interesting times with a break-up and the reduction in my working hours as I completed both a PM certificate and started a degree in Property & Business externally (30 hrs job & Full 4 subjects a semester externally).

A big change came in November 2008 as we became engaged and decided to renovate the unit. This was a huge learning curve as we lived in the unit whilst ripping out the kitchen, part of the bathroom and repainted everywhere mostly at night! We tried to do most ourselves and definitely found our passion. We finished in early 2009 at a cost of around 12k with most of the cost, around 6k, going to plumbing and electricity. Ikea provided the kitchen and as we installed and tiled the splashback ourselves only cost around 2.5k.

In the end it ate our savings and made a start on my credit card so was slightly stressful time when went to sell March 09. Of course everyone at the time was shouting D&G and telling us worst possible time to sell but due to our research, much on Somersoft, we saw that units were still in huge demand with their affordability in good areas. The first open saw 80 seperate groups of people and a day later we accepted an offer of 258,500 (New high price for the block) and we were an extremely happy 22yo couple!

Pictures of the reno and result here - http://www.flickr.com/photos/49375248@N06/sets/72157623747417635/

Even though mortgage costs etc realistically need to be factored in there is no other way we can think of that would have given us, after selling costs, tax etc, almost 40k cash in hand! The path was now clear and after paying off my credit card and Laura banning me from ownership of another one we started looking for the next IP.

After almost purchasing a PPOR which would have seen us stuck for a very long time we settled on a 3br trust home on a large 800sqm corner block in Smithfield Plains, SA. Again all family told us we were silly buying up there but you dont have to look far to see how much growth is happening in Northern SA both in infrastructure and population and we are very happy with the purchase. Purchase price was $186,250 and we were able to rent out straight away after spending 3k on cosmetic reno for $195 p/week. This is slightly under market but got a great tenant and have had no issues to date and as loan is variable it is currently around $50 negative p/week with property value around the 200-205k mark after almost 12 months.

The rest of our 'winnings' went inevitably to our wedding in Dec 09 and the subsequent 5 month honeymoon that is about to end iwith a flight from LA home in about 3 days!

This choice was made after being heavily influenced by the '4-hour work week' by Timothy Ferriss which has shifted some of our mindset and helped us make the choice to quit our jobs before the wedding and take this 'mini-retirement' to Latin America for our 5 month honeymoon.

Now coming back to Aus with VERY little in cash and no job we are still very excited for the future still holding our IP and recently a small share portfolio to diversify our investment learning. We have also started experimenting with online income and we have already learnt alot through our experiment with our property blog below. This is an exciting project it is allowing us to spend more time researching and being involved in everything property as well as the online community so would love any feedback

I am currently 1 year into my degree at 23 and start my second year, still externally, in second half of this year so will look for only part-time work upon returning home with Laura full time. At this stage we are looking at property under $150k in regional NSW, VIC, SA and TAS and hope to make a purchase before the end of the year which would most likely be neutral cashflow.

Sorry for the long post but hopefully gives people more background and insight into our posts on here. Im sure many things haven't been covered well enough so please ask us anything, we are very open and check Somersoft daily so will happily respond!

Regards,
Ben & Laura

 

[kissfan]

The rest of our 'winnings' went inevitably to our wedding in Dec 09 and the subsequent 5 month honeymoon


Now coming back to Aus with VERY little in cash and no job

Hi d.one

Congratulations on the marriage and for having the nouse to think about your future with investing.

Now the negative. A 5 MONTH HONEYMOON!!!!! Personally, I think this is overkill in your position. Why couldn't you have had a shorter honeymoon. Shorter by say....4 1/2 months. This would have saved you a bundle and left you with (perhaps) a deposit (or funds towards).

I'm not trying to put a downer on you and what's done is done but just think think that your 'winnings' could have been put to better use, especially when you say you have very little cash. I spent my honeymoon in Port Macquarie for less than a week ( from memory) due to financial reasons. Have travelled a fair bit since, but that was mainly funded from investments.

Anyway, don't mean to sound too harsh or judgemental, it's just that you sound like you want to get ahead and i think the money you spent now may have been able to fast forward you toward your goals.

All the best
Marty

 

[skater]

Now the negative. A 5 MONTH HONEYMOON!!!!! Personally, I think this is overkill in your position. Why couldn't you have had a shorter honeymoon. Shorter by say....4 1/2 months. This would have saved you a bundle and left you with (perhaps) a deposit (or funds towards).

i think the money you spent now may have been able to fast forward you toward your goals.

I was thinking exactly the same. After all the progress you have made, the funds have now been blown.

I am not trying to pull you down, but I feel you could need a change of mindset. The gain you made is not "winnings", it was the direct result of going out and doing something to better your life. This money was "earnings".

Where will you live when you get back home? What will you use for income? Do you both have a job to go back to? Can you afford the shortfall on the existing property?

 

[d.one]

Cheers for the quick replies! Yes obviously 'winnings' was the wrong term and trust me after all the hard work and effort we know the meaning of 'earnings' and did not treat this money lightly or feel as we 'threw' the money away!

I guess it was a big choice to make and at the end of the day the experience we have had during the trip has been worth every cent. We decided to take this time out to look at what we want once outside of the daily rat race, away from friends and family. This has made a huge difference in seeing what we want and need.

There has been times we turn this over and discuss the fact we could easily have purchased our next IP but then we look at the fact we have seen more places and taken an opportunity most of our family and alot of our friends will never get in their lifetime.

As to when we get back we are lucky to have a room whilst we get settled back in at Laura's parents and they are overseas for a month so will look after their house anyway for that time. And our jobs have always been those average 30-40k jobs that we can pick up anytime (admin, retail etc). After searching the last couple of days Laura already has 2 interviews lined up so fingers crossed!

Again it was a hard choice and one of those times we had to weigh up the lifestyle/ investment or delayed gratification cost. The experience has changed alot of our views and wants, as we hoped it would, so hard to put a price on it but I guess only time will tell

Lastly in hindsight we probably could have done 3 months and had similar overall experience admittedly and as to shortfall we still have enough in cash/ shares to cover a few months as it is so small

Regards,
Ben

 

[Brett IP]

Im 27 and bought my first property in 2006 on the Gold Coast for $325k, its now worth around $460k after spending a bit of time and little money on it. Last April 2009 we, now married, bought a house on acreage for $520k, renting for $560/wk self managed. Dead flat, pool, massive shed etc, our dream PPOR. We will be moving into it this Christmas & converting the current PPOR to IP.

It needs probably $50k input but we stole the property basically. I cant wait to get stuck into it. Renovator houses for sale on acreage are now starting at $690k without a shed or pool & all up they are scarce so the value will only go one way....North. Very happy with that purchase & cant believe the change in 1 year. The seller is spewing, he is a local real estate agent and needed to sell due to a divorce.

But im still annoyed (well not completely, nothing you can do, water under the bridge and everyone has what if stories) that I waited till I was 23 to get into the market. Just two years earlier and I would have been paying low to mid $200k for our current PPOR.

Property investing is very addictive, especially when you work out that you have made just as much in capital growth on property as what you have in Nett wages over the same time period.

Question though, how do people buy 1 or 2 IP per year? Dont you need to save up a decent deposit for each? Easy if your on $200k + per year, but im not, hopefully one day

 

[tess85]

Wow, heaps of new posts since I stuck my head in, lots of great reading.

Just quickly replying to the latest question though:

I don't think you need massively high incomes to save up a deposit for an IP! Hubby and I both earned about $60k each last year, and we live quite conservatively (no gadgets, basic car, don't go clubbing etc, as have many other ways to have fun or see friends that don't involve spending too much money) . We save one of our incomes and spend one, so each month we save about $4k. This is after paying out our PPOR mortgage at about $1.6k -$2k per month (I guess you could think of it at rent at $400-$500 per week), bills, food, living expenses, hubby's HECS debt etc. In 1 year we saved about $50k, so we bought 2 IPs with it, total value $500k.

I started a SS thread last month wondering if I could keep up the process forever. I assumed that I would keep saving at a conservative $2k per month, and that the equity in the house and IPs would grow by 4% pa. I was pretty surprised at the results, compounding growth is an amazing thing, and basically I concluded that (based on our stats) we were able to buy a $300k IP for the next 4-5 years at least.

Maybe do the sums for your own situation?

 

[AndrewT]

I totally agree with you there tess. You don't need high incomes in order to invest, it just means you have to make sure you buy well and under value!

My partner and I are on combined total of around the 90k mark. No great feat at all, I am still doing my apprenticeship and she is just starting out in Property Management. In due time, our wages will rise. As many books say, don't work for money - make money work for you.

This August we have decided we will be making a sacrifice and renting out our PPOR and moving back in with the missus parents for 1 year. Not looking forward to it but after doing the sums, we are able to pay out a 20k loan, save 20k and increase our overall servicibility! We love having a PPOR but we don't NEED a PPOR and would rather get tax deductions and let tenants pay most of our mortgage - negatively geared by around $50pw.

Hopefully this will lead us into IP 2 & 3! We have the goal of living on acerage out towards bathurst, hopefully we can get that property before we are 30!

I think everyone should do the sums. Helped us figure out where our money is going!

 

[tess85]

+1 to buying well and under value! Our PPOR in Sydney has already increased at least $100k in 18 months....... crazy! Not that we intend to sell it, but because the equity would come in handy for IP deposits.

Brett, just realised, you must be sitting on quite a bit of equity too, you know you could always use that for your next IP deposit? Do the sums of course, because it means extending your PPOR loan..... if you are risk averse and trying to pay down your PPOR for sleep at night factor, then it won't work for you. But if you're young and don't mind making a few sacrifices here and there for long term gain, then check it out.

Speaking of sacrifices here and there, sounds like AndrewT has thought it out. It's great of your partners' parents to help you guys out by letting you live with them. In a way, my parents gave me a leg up too, as I was able to live with them rent-free during uni, and I only started paying rent/board when I was working.

 

[AndrewT]

Your right, it is very handy that they are willing to give us a hand. Thats if things go to plan - which nothing ever does! Nothing is certain, they could change their minds!

We are so motivated at the moment to get into more IPs that it actually really annoying. Mostly because we can't afford it at the moment, hopefully our renovations will build up some equity this year and we might be able to buy a property thats only slightly negatively geared!

I suppose it all comes back to being patient. At least we are on the right track!

!!!
I suppose we spoke to soon actually, partner was talking to her parents and they have decided they would help us if we were struggling but at the moment they just want them two in the house. Bit of a disappointment but whats life without obsticles

 

[Pretzel]

Hi Andrew

Maybe its a good thing that you aren't moving in with the in-laws...it could have been very stressful.

If there's room you could always rent out one of you bedrooms in your PPOR. We did it for two years but our house was perfect for it - two bathrooms and two living areas. The money was great and we saved a lot on bills because they were split.

Towards the end we did get sick of it though and despite my husband asking me about it twice this week, we won't be doing it again!

 

[AndrewT]

We have considered having someone move in here but only one bathroom and kitchen so it would need to be a friend for us to be able to put up with them! Plus it probably would turn into bit of a hassle down the track I would think.

You probably are right, it is probably a good thing it hasn't worked out! Don't need extra stress.

We are looking for rentals now, although it's 3 months away. Thinking of moving into a granny flat if we can find one around the Camden/Narellan area. Hopefully pay around the $250 a week or less! Either way, renting inside of being in our PPOR is going to save us alot of money. Our family still don't understand why we would want to move out to rent!

 

[IFBB]

I purchased my first IP in December 09, and had a goal of purchasing my 2nd before my 23rd birthday which is in a week or so, but have put that on hold for the present moment.

Am doing a lot of reading into how others (and myself) think the market is going to act over the next 24 months or so, and paying a little more attention to recent capital growth of areas, vacancy rates, how long places are up for sale etc.

I would be keen to find a 1 bedroom IP within 10km of the CBD for up to 200K, and a 2 bedder for $240K, which takes a little looking around for, but they are there considering im looking in Adelaide. Im really keen on doing a reno, so if i can find one below market value that needs a quick fix, im keen to give it a go!

For now, just going to keep putting money into my offset until i get a clearer picture on what i believe is going to happen to the property market, but in the meantime continue looking for listed units just in case that bargain does pop up.

Rob Williams has been giving me a few tips, which have really helped along the way, and he lives 4-5 mins from me too which helps as he knows the market im looking into.

Nick

 

[warrioress]

Well done to the new posters for what you've achieved.

A couple of years ago I could have added my own post about having 2 IPs under my belt with my husband - both in our early 20s.

But I look back at how much our lives have changed and we've kind of gotten off track. We sold BOTH IPs to fund a new PPOR, wedding, travel to Europe, buy a used (newish) car and finally have a baby. Admittedly we no longer have a mortgage as we own our PPOR free and clear and have no bad debt but I feel like we've gotten way off track.

Anyway, Im sure you all know better than to sell an appreciating asset, but if there's anything you take away from this post - HOLD ON TO YOUR IPs!

We're off to see our mortgage broker this week so hopefully we can get back into the game...

 

[skuzy]

Well done to the new posters for what you've achieved.

A couple of years ago I could have added my own post about having 2 IPs under my belt with my husband - both in our early 20s.

But I look back at how much our lives have changed and we've kind of gotten off track. We sold BOTH IPs to fund a new PPOR, wedding, travel to Europe, buy a used (newish) car and finally have a baby. Admittedly we no longer have a mortgage as we own our PPOR free and clear and have no bad debt but I feel like we've gotten way off track.

Hi
Nothing wrong with this imho...i think its a great achievement..
Currently going through similar situation.. mid twenties with 1IP, bought a PPOR & car last year with fiance, and deposit for Ip #2 saved up. However we are holding off on buying for same reasons.. i.e wedding, honeymoon, etc
Somethings in life are more important than money.
Cheers

 

[Brett IP]

Completely agree with skuzy, if you were in your early 20's a couple of years ago, and therefore are still in yours 20's, then owning your PPOR outright is a fantastic achievement, especially when you can say all the other things you have done as well.

To me, owning your PPOR before 30 years of age is a massive achievement for anyone. Some dont own it by choice purely to invest & not tie the money up, but most simply cant.

So Well done !! Your in a comfortable position to invest into many IP's now

 

[Luv2Travel]

However we are holding off on buying for same reasons.. i.e wedding, honeymoon, etc
Somethings in life are more important than money.

I absolutely agree! Warrioress, there is nothing you have done wrong in my opinion. You own your own home in your 20's and have lived life, I think it's a wonderful accomplishment. Some people on this board will push the delayed gratification and almost make you feel guilty for spending, and if that works for them that's fine. However, I believe you should also live your life, especially while you are young, and achieve a nice balance between investing and living. Money can buy many things, but it can't buy your youth back. You are still in your 20's and have many years to buy IP's, and the fact you own your home outright already already gives you a head start on many people your age. Good luck in your investing, and to all the other young investors (I'm just taking a peek, I'm technically too old now for this thread seeing as I read the cut off is 30 )

 

[warrioress]

Thanks for the encouragement. I just think about the people who have managed to do all the things we did and still manage to hold on to their IPs and even buy more. That's who I strive to be.

 

[tess85]

^^ I think owning your PPOR outright is a wonderful achievement too!! Well done, warrioress

I personally am risk-averse so I also like the idea of owning the PPOR outright (or, preferably, keeping the loan but having money in the offset account).... that's why I'm not going to top up the PPOR loan even though we have plenty of equity in it. I can't decide whether this is a good idea or not..... certainly the snowball effect will be harder to get going if we don't touch the equity in our PPOR or investment properties. However we would be able to sleep at night better without being maxed out on 80% or 90% LVR!!

What do other young investors think about maxing out their LVR? Certainly, it depends on your risk profile. Being young investors, some of us could probably take on the risk of being maxed out on 80% or 90% LVR, but I like to be able to sleep at night......

Currently LVR is about 70% and I'm fine with that, have no desire to pull equity out for the next IP purchase, would rather save up for it (which is what we've done so far for all of our purchases)

Unfortunately this approach does make me feel like we're not going anywhere.

Hubby and I have been on cruise control since the latest IP acquistions earlier this year....... currently saving money half-heartedly to build up our buffer before our 1st baby arrives.

We used to put our heads down and save like crazy as we had goals in mind (eg. buying IPs). Now we won't be able to buy anything for a while as I'll be on maternity leave etc so the banks probably won't look at us. Hence the desire to save has all but dwindled....

Or should I just spend our equity in order to keep accumulating IPs??

 

[Luv2Travel]

Or should I just spend our equity in order to keep accumulating IPs??

I used to think like you Tess, didn't want to touch the PPOR but it's LVR was getting lower and lower as the value went up. I'm on a reasonable single income (not heaps) but even that wouldn't enable me to save as fast as the equity was building in my PPOR. So I used it last year and bought IP 1 and have no regrets. The total LVR went back up to close to 80% but with the growth in Melbourne it's now back to under 70% again. So I'm looking to top up again to 80% for IP2. I think the most important thing is cashflow. If you can afford it and have plenty stacked away for an emergency, then this is probably less of a risk than someone with low LVR on their home but no cash reserves.