[kinkso0o0oMember@kinkso0o0oJoin Date: 2004Post Count: 61]

August 14, 2006 - 6:34 am

Ahhh, the ole glass is half empty eh? [biggrin]

In theory, there is no difference between practice and theory, in practice, there is….

[kinkso0o0oMember@kinkso0o0oJoin Date: 2004Post Count: 61]

August 14, 2006 - 1:14 am

Originally posted by JamesMc:

have always taken out PI variable
Hi, pretty new to this, so appologies for what is probably a simple question.
What is ‘PI variable’ as discussed?
(Mind you, old Chinese proverb goes like “Any question with an answer is worth asking”)
Thanks.
James

PI variable = Principal+Interest Loan with Variable Interest rate.

IO = Interest only

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 13, 2006 - 2:48 am

Originally posted by zerotaxforever:

Firstly thankyou for your advice, I really think in the situation they are in that they need the property to pay for itself as they are both in the position of not having cashflow. My Aunty has equity sitting there doing nothing and in the mean time is frightened she will not have enough to retire one day as she is single and just gets the bills paid.So the answer is zero monthly contrabution I think they will have enough for a morgage of about $270,000. and they need a pretty risk free property cos they cant all of the sudden top money up into it even for maintenance.I was thinking a city flat in Brisbane newish. wether thats enough money to start up.

Based on what you’ve said, im not sure Property is the right way to go based on their risk profile.

Lower risk = lower returns.

But anyhow, we’ll run through it anyways.

So, your aunt and cousin can afford to put $0 in per month.

For the cost of a property worth $250K see below.

Jaffa’s Solution:
Rent = 470
Occupancy rate ‘3 Weeks’ = 94.23%
Solution = $221440.00
Asking price = $250000

Closing costs:
Deposit 0 % = $0.00
Legal fees = $800
Stamp duty = $880
Mortgage app fees = $475
Mortgage insurance = $0
Valuation fees = $0
Other borrowing costs = $400
Clean up costs = $0
Inspection costs = $300
Other costs = $0
Total closing costs = $2855.00

Mortgage details:
Loan P&I = $250000.00
Interest rate = 7.5%
Term = 25 Years
Weekly mortgage repayments = $360.58
Total repayments for life of loan = $468750.00

Annual costs:
Management fees 7 % = $1612.16
Letting & advertising = $0
Body corp fees = $0
Rates = $800
Utility rates & fees = $0
Insurance = $350
Miscalanious costs = $0
Land tax = $300
Maintenance 5 % = $1151.54
Other ownership costs = $0
Total annual costs = $4213.70

Summary:
Total annual rent = $23030.80
Total annual mortgage = $18750.00
Total annual costs = $4213.70
Total annual cashflow = $67.10
Total funded costs = $2855.00
Risk free return = $114.20 bank interest rate of 4%.
Annual Cash On Cash Return = 2.35 %
Cashflow Positive Weekly = $1.29

This is courtesy of http://www.jaffasoft.com property calculator.

So, its a rough guide, but as you can see for a property where you need to put 100% boorwed funds down, you’ll need at least $470/week.

Now, this assumes you only have 3 weeks vacant a year and only 5% maintenance costs.

Hopefully this gives you an idea of what your aunt and and cousin need to do.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 11, 2006 - 7:38 am

Originally posted by zerotaxforever:

My 21 year old cousin has a insurance policy coming due soon to the value of $12,000. He is a uni student and needs to pay for his fees, however my Aunty and I are are suggesting that instead of it getting used up and then thats it, maybe investing it into property or other for the future. My Aunty is willing to invest some equity and take it in her name to save first home owners grant also abilty to gain hex. She has the ability to lend $250,000 to $ 270,000.
This is where we need your help as I am afraid to give advice as it is family and dont want to steer wrong.
What is the best way of going into this with minimal risk?
Suggestions on types of properties ?
Thankyou for your advice in advance.

Cool.

My first step is to work out how much your cousin can afford to put into a loan on a fortnighly/monthly basis.

eg He can afford to pay no more than $500 per fortnight towards a loan.
Is the aunty just leanding the money and your cousin is paying it all off or is she helping in paying it off as well?

From there you can work out the rough loan size and therefore you then have a set amount you can spend on a property.

I wont go onto what i would suggest next cause i need the info for step 1.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 11, 2006 - 2:51 am

Originally posted by simple:

Rich is a specific condition when your profit is higher than your expenses.
In other words you have “unused” funds left after all bills paid.
On the other hand, wealthy is when your profits match your expenses….
This is my understanding of it.

Hmm, you can make a profit and not be rich. Im profitable now, but im not rich. There are plenty of profitable business that are not rich.

Profits match expenses? doesnt make much sense…

Profit = Income – Expenses

Rich/Wealthy are just descritive terms and their meaning lies in the eye of the beholder. check http://www.answers.com/topic/rich for defintion.

eg To myself I am not rich or wealthy, however a homeless person living on the street may consider me rich.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 11, 2006 - 2:01 am

Yes, the journey is part of the dream, the nothaving to work is the icing on the cake for me. Theres no point living like a pauper with no friends/socialising, eating burnt toast and brains for 20 years just to retire early.

Originally posted by Young:

Originally posted by kinkso0o0o:

The dream is what its all about.

Im interperating this as the journey.
I still stand by my statement that most people would class the term ‘rich’ with a numerical figure. But then again, the majority of us on here arnt aren’t like the ‘average’ person.

Apprentice Millionaire

I agree with that, most people in general would go for the $ figure. I was referring to your previous one:

“But the majority of you will be after a numerical figure.”

But as you said the majority of us here arent the average joe.

Btw, care to share how far you are through on your way to financial freedom?

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 11, 2006 - 12:53 am

Yup, thats my aim Young.

If i can wake up one day and think, stuff it, i dont need to work today, then i’ll consider myself rich.

I choose my goals based on what i want out of life, and then work out the costs after.

“But the majority of you will be after a numerical figure.”

I disagree with you on that point Young, most people that ive spoken to about this have a dream they want to live rather than a numerical figure they want to have. Its a better way to go about it as well, as you can focus on the dream rather than the dollar figure. You cant enjoy money unless you spend it. Money is just a means to an end.

The dream is what its all about.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 10, 2006 - 1:31 pm

yea, tis crazeh!

but i guess they’re just like any other people running a business. You have your dopes and you have your knowledgable ones. It all depends who you speak to in end it seems.

Its funny, I guess i thought banks would be different, but i guess thats just a stigma.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 10, 2006 - 11:58 am

Hi Rayson,

Are the IP’s positive or negative cashflow?

600pw for own home!!!! yikes!!! 50K/year will not cut it I guarentee it!!

Im about to have my first child (about 4 weeks away) and have just gone through the process of “can we afford to keep the IP?”

We could easily keep the IP cos it was +CF however our PPOR costc $1800/month and we were looking at going back to a single income of $50K/year. Luckily ive got a payrise since then which makes it easier, but there are other ways to keep them all.

So, are your IP’s positive cashflow? Can you detail each IP and PPOR saying how much theyre costing you and/or not costing you per month. And do you have any equity available in your current portfolio, be it PPOR or IP’s?

Any other info, post it here, lay it all out on the table for us to see…eg personal loans, credit cards, everything.etc

Hopefully we can help ya out

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 10, 2006 - 12:22 am

which city?

In theory, there is no difference between practice and theory, in practice, there is….

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August 8, 2006 - 2:03 pm

Yes finally!

You wouldnt believe it either, after all that.

I emailed the branch manager today and told her what i had discovered and she replied saying casually “No worries, so shall we setup the Equity Manager then?”

*sigh*

As nice as pie as she is, I could have throttled her….[evil4]

Cheers guys thanks for the hand.

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 8, 2006 - 1:52 pm

Do you have any other source of income?

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

[kinkso0o0oMember@kinkso0o0oJoin Date: 2004Post Count: 61]

August 8, 2006 - 4:18 am

quick update:

I just got off the phone to one of the breakfree guys who was very helpful to my situation.

He set it straight and said there was no reason I couldnt go the Equity Manager loan and that there was no requirement for my salary to be deposited into the LOC.

So, serveral ANZ conversations later I have the required result. I just need to convince my branch manager now. I think I’ll just pass the breakfree guys name onto her and hopefully all will be sorted. [rolleyes]

Cheers guys and gals,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 8, 2006 - 3:25 am

Forgot to mention, the LOC will be used 100% for investment purposes.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 8, 2006 - 3:24 am

Hi Terry,

Yes, this is what I thought, however am being told different by ANZ.

Do you have a PPOR loan in your structure as well? I do, maybe that matters? As the AnZ said the Home Equity Loan would be better at keeping personal loans seperate from Investment loans. Unfortunetly i dont know cos ive never seen the product and tbh, i havent had much confidence in the ANZ explaining it.

Im glad you have the structure im after as it does give me some hop i can do it. (I dont want to pay the higher interest rate for the same functionaility.)

In a nutshell:
My current structure is 1 PPOR Loan with offset account attached. 1 IP loan Interest only. These loans are obviously seperate accounts.

I want to access the equity built up in the portfolio using the equity manager loan as said before (i have about 55K icould take out keeping me below 80% LVR across the portfolio). I would take out the LOC and let it sit there until I require the funds, then I will drawdown as needed.

Is this the same setup you have Terry? If not, can you explain the difference between yours and mine?

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

[kinkso0o0oMember@kinkso0o0oJoin Date: 2004Post Count: 61]

August 7, 2006 - 2:56 am

Cata is right on the money!

When i think of a business plan tho, it seems to hard and complex. Instead I just break it all down, starting with goals. Real life goals. From there its all just project management imho.

Start from the end and work your way back to your current position whilst breaking it down into milestones.

Eg, I want to own a helicopter or I want to buy a yatcht sail around the world or i want to live on $75,000 a year when i retire.

So, you now have a goal, but you need to quantify it.

How much is it going to cost? Research, find out how much a helicopter or yatcht is and all the assoictaed costs on running it etc as part of your Life goal.

When do you want to achieve this goal? 20 years from now? 10, maybe 5?

So now, you know your goal’s costs and how long you are willing to wait for it.

Now you have a plan (rough as it may be) on what you want to achieve from investing. This is most important step in my opinion.

And from here you can start planning your investments to match your goals.

If you need $100K in 5 years, you need to earn $20K in per year. (Note, this is not taking into account the power of compunding as well as associated investment costs. These are just simple examples to explain the concept).

So, you buy an investment vehicle that will provide $20K for the first year. Or try for 10K in the first year and then $90K for the next 4 years.

Eg You could leverage and buy a $200K house which returns > 10% return through +CF and/or CG. Or leverage shares to achieve the same.

Once you know what you want at the end, the investment plan creates itself almost.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 6, 2006 - 2:10 am

Hi elkam,

Im on the pro package with ANZ as well. I had 2 properties revalued a week ago. Normally they would do a drive by for both but i requested a internal inspection in one (lots of renos). The other was just a driveby by my request.

So i think its still the same if you request it.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

[kinkso0o0oMember@kinkso0o0oJoin Date: 2004Post Count: 61]

August 6, 2006 - 2:03 am

Hi James,

Yes, positive thinking is very underrated. That said, there is positive thinking and there is foolish thinking. Positive thinking goes hands in hand with good research, go into every deal with your eyes wide open.

In every cycle, shares or property, there is an upside and a downside. Insure your downside by fixing rates, drawing equity using LOC or selling then, focus on the upside, cheaper houses, increased yields.

Im not saying thats whats going to happen but there is always an downside and an upside, you just need to identify them. Note: They maybe different for me than they for to you as it always depends on what you want to achieve.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 3, 2006 - 1:33 am

Originally posted by gmh454:

Thanks for the reply Damon appreciate your time.

Interesting times ahead, more so I think with the economy rather than property.

No problem gmh, its always good value to discuss these issues in an open forum where views can be challenged. It keeps us honest whether we like it or not

One thing I forgot to mention. I was talking to our PM the other day about rental stock and she mentioned she had 90 applications for a standard 3 bedroom house! :o .

Cheers

Damon

In theory, there is no difference between practice and theory, in practice, there is….

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August 2, 2006 - 2:49 am

Originally posted by gmh454:

Damon okay, if the rise does not lead to

increased unemployment
decreased consumption

then you may be right

As to ….”investors have to pass on the increased cost” I thought supply and demand would make such a possiblity irrelevant.
What has a landlords problems got to do with renter A and B outbidding each other for house C.

Damon have you seen this in practice yet …

Yes, ive seen this in practice in my target areas, so im basing my view on what Ive seen in these areas over the last 23 months.

Less and less people have purchased in these areas due to property getting too expensive or out of reach combined with the media doom and gloom stories. The % of rental property available has reduced a massive amount and in turn I have seen rents increase 10-15%.

Yeild has increased due to property prices dropping and I have seen this across the board from my researched areas.

As for landlords passing on costs of ownership, this is just another factor on top of the supply/demand law which I believe will increase rents.

All this is based on my research in my target areas. tbh, I dont care what the national figures are, their impact doesnt alot when you invest in markets within markets, yes, they need to be considered however they are not the be all and end all.

If you want to be “right” on your POV, I can guarentee you will be in some areas, in others I believe you will be wrong. The challenge is the finding them.

I enjoy the conversation, as a young investor it keeps me re-evaluating and adjusting my plan as needed. Thanks.

Cheers,

Damon

In theory, there is no difference between practice and theory, in practice, there is….