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  • Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    Hi there,

    Not sure if its been done, but we have just built a new house in outer western Melbourne and are paying $1000 a week off our mortgage of $320k. If we keep that up (which there is no reason we wont), the house will be payed off in 7 years and we will both be 34 years old. The base payments are $485 per week.

    We are debating whether to continue paying the house off as quick as possible, or buying an investment property and paying $800 a week off the mortgage and using the other $200 a week to "top up" the leftover required from the renter. Or something along those lines.

    We would be looking at buying inner city somwhere like Footscray, Yarraville, Seddon etc… Looking at spending around $350-400k for a small, 2 bedroom house. Or maybe outer suburbs like Melton and buy a Brand new 4 bedroom house for $350k or so.

    What would you guys recommend doing? Paying off the mortgage asap or buy an invest property and still pay the mortgage off within 13-15 years instead of 7 years? Pay off the house first then buy an investment property? What are the good investment property areas? Are houses (even small ones) better than apartments/units? What is better long term?

    Lots of questions I know, but hopefully someone can help! Thanks!

    Avatar of Jamie MooreJamie Moore
    Participant
    @Jamie-M
    Post count: 4,473

    Hi brmiau

    Welcome to the forum.

    No one can really answer this question for you. You really need to work out what you want to achieve over the next 15 to 20 years and devise a strategy to meet those goals.

    Some people take comfort from paying down their PPOR and enjoy the additional disposable income once the mortgage is paid off whilst others aim to achieve wealth via property investing and leave the 9 to 5 grind earlier than anticipated.

    Being a property investing forum – I'm sure most people will tell you to grab your first investment property.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: info@passgo.com.au

    Avatar of masky005masky005
    Member
    @masky005
    Post count: 13

    As Jamie M said its up to you

    We currently have our mortgage set up (PPOR) with a 100% offset interest only set up. We put all our funds into the offset and then build it up so we can avoid Mortgage insurance eg 20% deposit plus funds to cover purchasing/renovation costs. Then we take it out- usually just write a cheque and then purchase an investment property. We pick cash neutral properties (usually ones we renovate and then rent out at a better price) so we don't reduce our ability to add extra payments/ and do it all again. We are currently on the look out for our next purchase in early 2012. We also will use our PPOR as an investment property in the future, and that is also why we pay interest only.

    You need to work out what you are comfortable with. Also do your research you may want to invest in your state first- in areas you know well.

    Avatar of N@thanN@than
    Participant
    @N@than
    Post count: 236

    If you buy or create a CF+ house then you could pay your loan off in less then 7 years AND have an investment property!

    Avatar of Jamie MooreJamie Moore
    Participant
    @Jamie-M
    Post count: 4,473
    nguli wrote:

    If you buy or create a CF+ house then you could pay your loan off in less then 7 years AND have an investment property!

    There you go – that's one way to have your cake and eat it too! CF+ will be a little easier to achieve these days as well with falling rates  – particularly the low fixed rates currently on offer.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: info@passgo.com.au

    Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    Thanks for all the responses peeps.

    I dont know what a CF+ house is but I think we'll prob just concentrate on paying of the mortgage quickly, then keep paying $1000 a week into the bank and retire at 55 with $1,200,000 in the bank and earning around $80k a year interest off that.

    Hopefully.

    Avatar of Jamie MooreJamie Moore
    Participant
    @Jamie-M
    Post count: 4,473
    brmiau wrote:
    Thanks for all the responses peeps.

    I dont know what a CF+ house is but I think we'll prob just concentrate on paying of the mortgage quickly, then keep paying $1000 a week into the bank and retire at 55 with $1,200,000 in the bank and earning around $80k a year interest off that.

    Hopefully.

    CF+ means cashflow positive – basically a property that leaves you with cash in your pocket after ALL expenses are paid.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: info@passgo.com.au

    Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    Thanks again for all the info.

    Have done some calculations with a compounding interest calculator online and it seems thats the way where going to go.

    Pay off the mortgage by 34, continue to pay $1000 a week into a compounding interest account. By the time we’re 55 we’ll have $2,200,000 in the bank earning approx $110,000 a year off that. Or I could work another 5 years, retire at 60 with $3,000,000 in the bank earning $150,000 off that. Or retire at 50 with $1,100,000 in the bank earning $50,000 a year off that.

    Retiring at 50 sounds best, but probably 55 is more likely.

    Any one have any thoughts on that?

    Avatar of N@thanN@than
    Participant
    @N@than
    Post count: 236
    brmiau wrote:
    Thanks again for all the info. Have done some calculations with a compounding interest calculator online and it seems thats the way where going to go. Pay off the mortgage by 34, continue to pay $1000 a week into a compounding interest account. By the time we're 55 we'll have $2,200,000 in the bank earning approx $110,000 a year off that. Or I could work another 5 years, retire at 60 with $3,000,000 in the bank earning $150,000 off that. Or retire at 50 with $1,100,000 in the bank earning $50,000 a year off that. Retiring at 50 sounds best, but probably 55 is more likely. Any one have any thoughts on that?

    Hi Brmiau

    Have you taken into account the tax you will have to pay on your interest? Also $100 000 wont really be alot of money in 20+ years time after inflation. If you look at what things were worth 20 years ago it all looks cheap as chips but it would've been alot of money to them back then.

    Cheers,
    Nathan

    Avatar of CatalystCatalyst
    Participant
    @Catalyst
    Post count: 1,250
    brmiau wrote:
    Thanks again for all the info. Have done some calculations with a compounding interest calculator online and it seems thats the way where going to go. Pay off the mortgage by 34, continue to pay $1000 a week into a compounding interest account. By the time we're 55 we'll have $2,200,000 in the bank earning approx $110,000 a year off that. Or I could work another 5 years, retire at 60 with $3,000,000 in the bank earning $150,000 off that. Or retire at 50 with $1,100,000 in the bank earning $50,000 a year off that. Retiring at 50 sounds best, but probably 55 is more likely. Any one have any thoughts on that?

    Yeah I have LOTS of thoughts on that. In 20 years time you'd be battling to live on $50,000. And don't forget you need to pay tax on that. Not my idea of a fun retirement.

    That is NOT a good strategy. As time wears on your money becomes worth less due to inflation.
     You need investments that GROW as time goes on like  mmm let me think, what's something that is worth more over time? I know Property.

    I'll write more when I get home from work.

    Avatar of CatalystCatalyst
    Participant
    @Catalyst
    Post count: 1,250

    OK so assuming an average of 2% inflation per year (which is low) your $110,000 (assuming retirement at 55) is worth $73,000 in todays money. As mentioned, this is taxed at the normal rate. Also the cost of living will be a lot higher. 20 years ago I could live on $25,000 a year. Ok so you retire at 55. What about the next 30 years? Remember your money is worth less each year.

    Your figures also assume an interest rate of 5%. This is a high average. Some years it would be a lot less. Also the world hates a vacuum. If there's a hole it will be filled. What I mean by this is, if you have extra money you usually find a way to spend it. When I was at UNI I lived on next to nothing. I'm not a spender but I like holidays etc and have them. I have no (personal) mortgage and like to live my life which is why I buy properties that put money in my pocket, not take it out. The proplem is most people equate owniong property with a reduction in lifestlye. You just need to do it correctly. .

    So remember economics 101. Savings erode over time (ie it's worth less each year)
                                                Debt erodes over time (ie the debt is smaller comparitavely speaking each year).

    Say you buy an investment property and never pay it off. If you pay (for example) $300,000 and borrow $240K. In 20 years time the property is worth $700,000 and your debt is still $240K. Now in 20 years time $240,000 is not a lot of money.

    If you buy a good property (even if it's slightly negatively geared) in a few years you can still follow your plan (albeit misguided) but you'll also have a property going up in value.

    Avatar of TerrywTerryw
    Participant
    @Terryw
    Post count: 14,485

    Why not pay off the home loan sooner and buy an investment property? Not mutually exclusive.

    Terryw | The Loan Experts Pty Ltd | FinLaw Pty Ltd
    http://www.terryw.com.au
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    Law, Loans and Tax

    Avatar of luke86luke86
    Member
    @luke86
    Post count: 470
    masky005 wrote:
    As Jamie M said its up to you

    We currently have our mortgage set up (PPOR) with a 100% offset interest only set up. We put all our funds into the offset and then build it up so we can avoid Mortgage insurance eg 20% deposit plus funds to cover purchasing/renovation costs. Then we take it out- usually just write a cheque and then purchase an investment property. We pick cash neutral properties (usually ones we renovate and then rent out at a better price) so we don't reduce our ability to add extra payments/ and do it all again. We are currently on the look out for our next purchase in early 2012. We also will use our PPOR as an investment property in the future, and that is also why we pay interest only.

    You need to work out what you are comfortable with. Also do your research you may want to invest in your state first- in areas you know well.

    Hi Masky- I think you need to talk to a good mortgage broker like JamieM or Richard Taylor (qld007). There is a much better way of doing what you are doing- instead of redrawing the money from your offset account you can pay it into your PPOR loan, create a split loan and then redraw the money to use as a deposit. The debt will then be tax deductible as it is used for investment purposes. If you do this a few times, you can recycle your PPOR debt and it will all become tax deductible which will save you a bomb.

    Cheers,
    Luke

    Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    Hrmmm…. it may be a floored plan then i spose.

    We are going to try to pay $1400 (hopefully) a week off our loan as of march. Lots of stuff inbetween like our wedding and honeymoon. The US for 4 weeks, cant wait!! Anyway, that means the house will be payed off in just under 5 years. Meaning we'll be 31.

    We could wait until its paid off, or only a little bit left on it, then buy one or two investment properties and hopefully rent them out and only pay around $500 a week to make up the difference. Is it wise to buy more than one at a time? Also, I asked earlier but didn't really make heads or tails of the answers. Are apartments/unit or houses a better investment? What about buying a bigger block of land and doing a demo and building multiple units?

    Again lots of questions but you guys are helping a lot!!

    Avatar of CatalystCatalyst
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    @Catalyst
    Post count: 1,250
    brmiau wrote:
    Hrmmm…. it may be a floored plan then i spose.

    We are going to try to pay $1400 (hopefully) a week off our loan as of march. Lots of stuff inbetween like our wedding and honeymoon. The US for 4 weeks, cant wait!! Anyway, that means the house will be payed off in just under 5 years. Meaning we'll be 31.

    Congrats on the wedding!!
    Unless you are planning on having no children I seriously doubt you'll be able to continue saving that type of money.

    brmiau wrote:
    We could wait until its paid off, or only a little bit left on it, then buy one or two investment properties and hopefully rent them out and only pay around $500 a week to make up the difference. Is it wise to buy more than one at a time? Also, I asked earlier but didn't really make heads or tails of the answers. Are apartments/unit or houses a better investment? What about buying a bigger block of land and doing a demo and building multiple units?

    Again lots of questions but you guys are helping a lot!!

    OK you need to do a LOT of research.  You state you will "hopefully" rent it out and "only" pay around $500 a week. NO! NO! NO!

    This is the mistake most people make. By buying property like this you will hit a wall after buying 2 and your lifestyle is out the door.  My properties cost me NOTHING to hold (as of the November interest rate drop).

    The answer is not units VS houses. It's all in the numbers. If the numbers work, you buy it. My purchases have to be under market value (I won't buy anything I couldn't sell within a year and make a profit) and it has to be close to cash flow neutral or better (unless it had development potential).  

    It's good that you are starting to think about this now, while you are young.
    Get some investment books and start reading and set some goals.

    Avatar of Chris VerbeckChris Verbeck
    Participant
    @Chris-Verbeck
    Post count: 6

    Making extra repayments on your mortgage will give you a return equal to your interest rate (rate charged by lender e.g. 7%).

    If you are buying an investment property with the aim of it being cash-flow positive, work out the total purchase costs and ongoing expenses, use these costs along with market rent for that property to work out if your return will be higher than 7%. If so, then buy!

    If you can secure a cash-flow positive property with a return greater than your interest rate then as long as the property doesn’t drop in value (stays flat at least), you will be getting further ahead.

    Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    Thank you! When I typed "hopefully" thats what I was referring to. Having kids soon. But I earn quite a good base plus plenty of overtime, and the wife to be earns a decent wage too.

    I basically wanna set us up so that when we are 50 or so we are on absolute easy street. IE, 3/4/5 investment properties paid off as well as our house.

    Who knows…. maybe I'm thinking to far ahead. Should just concentrate on paying off the mortgage then take it from there. Have an extra $1000-$1400 a week to live it up.

    Avatar of quickchickquickchick
    Member
    @quickchick
    Post count: 168

    It sounds like your plan involves having you and your wife working full time all the time your kids are little, plus working overtime yourself also. Kids are an expensive item, both financially and hopefully you will also want to invest a lot of time in them…

    Time with your family will be the most rewarding investment of your life.

    Unfortunately, your time and your wife's time will be taken up with your jobs as your goals stand now.

    Or, you could invest some time and effort in educating yourself, and achieve some passive income (from carefully planned investments that bring you more income than their mortgage), and give yourself and your wife more time with the family that you don't have to go out to work for.

    eg when my mother was dying, I had enough income from cashflow property (equal to working 2-3 days a week) that I could take 4 months off work to look after her without financial difficult.
    Your life is more than just financial goals.
       
    A different way of looking at life goals.

    Avatar of brmiaubrmiau
    Participant
    @brmiau
    Post count: 22

    You raise some very good points quickchick which we have already considered. And I agree whole heartedly with them.

    One major factor your not aware of is our income. My wife will not need to go back to work for 6 months after giving birth, and once she is at work, it will only be 2 days a week.

    In regards to my work, I leave work at 6.30am and arrive home at 4pm. Some days earlier. Also have every second Monday off. And work some weekends that I choose to work, not forced to work.

    So thankyou for your concern into our family life, but we know the position we are in financially and its not too bad.

    Avatar of CatalystCatalyst
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    @Catalyst
    Post count: 1,250
    brmiau wrote:
    Who knows…. maybe I'm thinking to far ahead. Should just concentrate on paying off the mortgage then take it from there. Have an extra $1000-$1400 a week to live it up.

    I don't think you can ever look to far ahead. Keep looking, reading and you will find something that suits you. I grew up thinking that it's important to own your own home outright (that's what my mum taught me). If I had been given different advice, however I would have retired a long time ago.
    What I wish I was taught was how to leverage my money. I'll give a very simple example, hypothetical. Let's assume property doubles every 10 years.
    Secnario 1-So you have your PPOR worth $500K (you owe $400K) and you happily pay it off for 15 years. So now your home is worth $1,250,000

    Scenario 2- Same PPOR but instead of paying off your PPOR you buy 2 investment properties worth $300K each (loans $240Keach). So 15 years down the track you have 3 houses worth $1,250,000 + $750K + $750K = $2,750K minus the loans ($400 + $240 + $240 = $880. So your net worth is now $$1,870,000

    Now that is a VERY simple example of gearing your money. It is not a particularly good strategy (as the properties are costing you money) but you get the idea. I would want to get properties whereby you can still pay down your home. As time goes on as well the properties cost less to hold (rents rise etc).

    You have time on your side, if you are interested there is a waelth of knowledge out there. You just need to find what fits with your life. You're in a good position to make things work for you. good luck.

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