young property investors

[888Katone]

Hi young guns !

I am very impressed with your attitude to investment and all I can say is keep it up - because by the time you have kids you will be able to afford great schooling, holidays for yourselves etc...! Enjoy your investing - it certainly is rewarding when you look at your friends and their depreciating toys - yet you worked hard at saving and you have ASSETS galore !

My husband and I came to property investing a bit later in life (in our 30's - mainly because of our family backgrounds and their lack of knowledge about property and their fear of debt). Basically we both grew up with absolutely NO advice given to us on property and we had to learn everything from ground up.

However it has certainly paid off for us as we began learning things for ourselves.

In less than 3 years our PPOR has risen in value by $200K, and our PI being a two bed unit has risen by $155K over 7 years.

What I am interested in knowing is what you would do in our situation. If you had $470K in your PPOR with $180K remaining (very strong suburb)- and the investment unit worth $320 with 90% owing (steady gaining suburb).

What would YOU do with that equity to get best gains ? Our cashflow is tight until I work again part time due to very young kids - I may earn up to $50K once I return (reduced hours).

I have a background in property mgmt and I/we are desperate to own more properties or do a development ! What do you think ?

Congratulations to all of you once again - and continue not to be swayed by your friends and their depreciating cars, and new clothes !

 

[alexlee]

What I am interested in knowing is what you would do in our situation. If you had $470K in your PPOR with $180K remaining (very strong suburb)- and the investment unit worth $320 with 90% owing (steady gaining suburb).

What would YOU do with that equity to get best gains ? Our cashflow is tight until I work again part time due to very young kids - I may earn up to $50K once I return (reduced hours).

I have a background in property mgmt and I/we are desperate to own more properties or do a development ! What do you think ?

I'm surprised you went for 90% LVR on the IP, when you have that much equity in the PPOR. Why pay LMI when you don't have to? Why not just refinance the PPOR and go 80% LVR on the IP?

What's your long term plan? A very standard step would be refinance the PPOR, take out the available equity of maybe $180k and buy more property with it, and maybe shares as well?
Alex

 

[888Katone]

HI Alexlee - thanks for your answer.

We actually have the IP at somewhere between 80-90% so we do not actually pay the Insurance.

I am wary of shares and would only be looking to buy more property with the $180K. Very long term plan is to own as much property as possible - and for us to even go as far as to create a business/career for ourselves working from home on subdividing property.

How much of that $180K that you suggested would you use on how many properties if it were you?

 

[alexlee]

We actually have the IP at somewhere between 80-90% so we do not actually pay the Insurance.

I'm not following. Do you mean when you bought the property the LVR was below 80%? Or you used a product that didn't charge LMI even though you went above 80% LVR?

I am wary of shares and would only be looking to buy more property with the $180K. Very long term plan is to own as much property as possible - and for us to even go as far as to create a business/career for ourselves working from home on subdividing property.

Sounds like what I want to do, though I also invest in shares. It's a good complement to residential property, since they (supposedly) move in different directions.

How much of that $180K that you suggested would you use on how many properties if it were you?

Very hard to comment without knowing all your details. Borrowing 105% effective LVR on new property, assuming a 5% rental yield, means at least a 3% after tax cashflow loss on the new property. So if you buy a $250,000 property, that would mean maybe $8k a year negative cashflow. If your cashflow is already tight, that may be a problem.

I am currently looking at buying cheaper properties (as I usually do). Looking around the $250k mark. I'm a bit nervous about the economy at the moment, so I'm only looking to buy bite-sized properties. A $250k property, for example, would use up approx 62k of the PPOR equity if you take out a 80% LVR loan against the new IP. However, even assuming you can rent it out at 5% yield, that's at least an 8k hit to cashflow per year. Really depends on your budget.
Alex

 

[888Katone]

Thanks Alexlee

Yes although our IP loan is at around 80-90% (husband knows exact) we definitely do not get charged the insurance.

On another topic - I have a friend who does not have a PPOR but rents and puts all of their money into around 10 IP's. They have two kids and are happy to continue renting and doing this and they are in their mid 30's.

What does yourself, or anyone else think of that scenario ?

Is it scary not to have a PPOR in your mid 30's. I would suggest all properties they own are mortgaged at around 50-60% perhaps.

 

[alexlee]

Yes although our IP loan is at around 80-90% (husband knows exact) we definitely do not get charged the insurance.

You're aware that LMI is not a yearly thing, but something you would have paid when you took out the loan?

On another topic - I have a friend who does not have a PPOR but rents and puts all of their money into around 10 IP's. They have two kids and are happy to continue renting and doing this and they are in their mid 30's.

What does yourself, or anyone else think of that scenario ?

Is it scary not to have a PPOR in your mid 30's. I would suggest all properties they own are mortgaged at around 50-60% perhaps.

I'm 30. I bought my first IP 8 years ago, and I only bought my PPOR a few months ago because I'm settling down. Even now, the gross and net values of my PPOR are only a small part of my portfolio. I think buying IPs first is a much smarter way. Buying the PPOR first makes you more emotionally attached to it, which may stop you from making financially intelligent (but emotionally scary) decisions, such as remortgaging. Financially, buying the PPOR is a step back (nothing is deductible, etc) but the nesting instinct got to me too, it seems.

If you look at the numbers, renting and buying IPs makes much more sense (because of deductions, depreciation, etc). Psychologically it's a different issue. My question would be: WHY is it scary not to have a PPOR? Isn't having the money and assets to buy the PPOR just as 'safe' as actually owning the PPOR? To put the question another way, do people who have money worry about not having a place to live?

One common fear is that 'because we might never be able to afford one'. But that doesn't make sense. Say you want a PPOR worth $500k. You have $1m in investment property. The PPOR actually gets relatively 'cheaper' every year because your IPs are appreciating faster than the PPOR.
Alex

 

[THEHEATH]

hey if your asking for the only way to guarantee your partner is not entitled to half your assetts then the only way IS with a prenup / contract. Whether you like this or not

I thought nasty ex-girlfriends was the reason god invented trusts?

 

[alexlee]

I thought nasty ex-girlfriends was the reason god invented trusts?

Family courts aren't always on your side.
Alex

 

[THEHEATH]

^Ahh dammit. So how common is it for courts to "pierce the veil" of a trust in those types of cases and what type of argument/reasoning do they use in doing so? I have to say, one of my "fears" is of doing the hard yards now only to have someone come along down the track and take what I worked for now

 

[alexlee]

^Ahh dammit. So how common is it for courts to "pierce the veil" of a trust in those types of cases and what type of argument/reasoning do they use in doing so? I have to say, one of my "fears" is of doing the hard yards now only to have someone come along down the track and take what I worked for now

If you have money but are too afraid to have a relationship, what's the point of having money?

In any case, the knowledge to make the money remains in your head.
Alex

 

[LouiseHui]

"On another topic - I have a friend who does not have a PPOR but rents and puts all of their money into around 10 IP's. They have two kids and are happy to continue renting and doing this and they are in their mid 30's.

What does yourself, or anyone else think of that scenario ? "


We've been doing this for the last 12 years. Admittedly work moves us around, but we're happy with this arrangement. When we were last living in Sydney family pressure was on us to buy a PPOR, however at the time, the difference between repayments on a mortgage and the cost of a cheap rental in Sydney was too large to ignore. So we save as much as possible and buy IP's. It has worked well for us and we'll continue to do this when we move back to OZ next year. In a way I'm glad that we rent because I'd be really tempted to renovate any PPOR I owned, the $$ is better put towards another IP.

Yes, pressure from family and friends to 'settle' and buy a PPOR is still there, and we are made to feel that we are going against the norm, even though had we bought a house we would have only lived in it for 3 out of the last 12 years. So I guess our PPOR would've become an IP anyway.

 

[THEHEATH]

If you have money but are too afraid to have a relationship, what's the point of having money?

In any case, the knowledge to make the money remains in your head.
Alex

Well I've been (relatively) happy single for the past few years (this doesn't have anything to do with what I was saying before though). I'd still rather be a rich single than a poorer one, so I guess that's the point of having money!

Just don't believe that if you make sacrifices in your life to get ahead, somebody should be able to come along later and take away what you worked/sacrificed for earlier on. Would be quite happy to split anything that came along after the relationship started though. Bit bloody sad all this though, feels like I'm planning for a divorce before the bloody marriage

 

[ianvestor]

What I am interested in knowing is what you would do in our situation. If you had $470K in your PPOR with $180K remaining (very strong suburb)- and the investment unit worth $320 with 90% owing (steady gaining suburb).

What would YOU do with that equity to get best gains ? Our cashflow is tight until I work again part time due to very young kids - I may earn up to $50K once I return (reduced hours).

I would try to find a property with development potential for around $1m.

These are all very rough figures:

$200,000 - Deposit
$50,000 - Stamp duty
$220,000 - Buffer: Even at 10% interest, this would buy you 143 weeks (almost 3 years) of holding costs on the loan for $800,000

I would certainly be comfortable with 3 years of buffer if I got to secure a good site at today's prices.

This doesn't take into account the rent you could receive if you got a site with a livable house, nor does it take into account the interest you'll pay when you get the $470,000 line of credit.

I'll leave that as an exercise for someone else

 

[luce.rocks]

I would try to find a property with development potential for around $1m.

These are all very rough figures:

$200,000 - Deposit
$50,000 - Stamp duty
$220,000 - Buffer: Even at 10% interest, this would buy you 143 weeks (almost 3 years) of holding costs on the loan for $800,000

I would certainly be comfortable with 3 years of buffer if I got to secure a good site at today's prices.

This doesn't take into account the rent you could receive if you got a site with a livable house, nor does it take into account the interest you'll pay when you get the $470,000 line of credit.

I'll leave that as an exercise for someone else

What can you build for $530,000? E.g. one really nice house, two OK houses, 3 ok townhouses? Including architect fees, council fees, building costs, etc, what can you reasonably expect to build for that? Assuming your site is as big/flat as you need it. Anyone?

 

[ianvestor]

What can you build for $530,000? E.g. one really nice house, two OK houses, 3 ok townhouses? Including architect fees, council fees, building costs, etc, what can you reasonably expect to build for that? Assuming your site is as big/flat as you need it. Anyone?

That $1m budget is just to aquire the site.

After gaining development approval, you could refinance to gain at least some of the money required for the construction phase.

I'm not sure why you came to $530,000 for construction cost. I mean, I see that $1m - $470k = $530k, but can't see why you did that subtraction.

 

[luce.rocks]

That $1m budget is just to aquire the site.

After gaining development approval, you could refinance to gain at least some of the money required for the construction phase.

I'm not sure why you came to $530,000 for construction cost. I mean, I see that $1m - $470k = $530k, but can't see why you did that subtraction.

I thought what you meant by a '1 million development site' was a site where 1 mil worth of development was going to happen. Then I took off your buffer, stamp duty, and, stupidly, your land price, which wasn't land price at all, it was a deposit. I don't know. Things get fuzzy on a Sunday afternoon.

 

[DavidMc]

In 1999, the law has changed its view on de facto relationships. There is no set length of time with de facto being defined here as all (including same sex) relationships between two adults (18+) who:

• live together as a couple; and
• are not married; and
• are not siblings or a parent or child of each other.

Each state has its own law but there is a considerable degree of uniformity in them. When dealing with property division in a break up, the law has to decide if your relationship is de facto. Some of the circumstances the law will consider include:

• how long the relationship has lasted;
• whether you both live in the same house;
• how far your finances are intertwined;
• whether you own assets together;
• the financial and non-financial contributions made by each person;
• the care and control of any children of the relationship;
• whether outsiders see you as "de facto";
• whether you intend the relationship to be permanent; and
• whether you have a sexual relationship.

Lots of things to consider before the pre-nup stage!
Steve

Hmm... I've been thinking about this stuff recently and have a question.

In the same way a defacto can make a claim on half ones assets, would they also be forced to pay back half ones debts if one ended up in $50k negative equity through a failed development, repossession or something?

Seems only fair, right?

If this was the case I would be thinking this is the best 'reason for' I'd have for a pre-nup.

 

[stumunro]

Hmm... I've been thinking about this stuff recently and have a question.

In the same way a defacto can make a claim on half ones assets, would they also be forced to pay back half ones debts if one ended up in $50k negative equity through a failed development, repossession or something?

Seems only fair, right?

If this was the case I would be thinking this is the best 'reason for' I'd have for a pre-nup.

This isn't a bad idea David.

I was thinking about it recently too, and I figured, if I found myself in the position that i was breaking up with a defacto, i could gear to the hilt (say 100%LVR) which on paper wouldn't leave much to take half of. .

I wander whether this would work?