Hi Guys,
I am currently in the process of selling my PPOR due to a split with my girlfriend. After sale I hope to have around $60k cash. I also have an investment property in Albert Park (50% ownership with my friend).
After I sell my PPOR I can get a loan of approximately $360,000 based on my $60,000 wage. That will give me around $420,000 to invest.
I am contemplating buying a house close to the CBD (Melbourne), doing a quick reno, renting, and then holding for long term (10 – 15 years). I would then use the rising equity to either purchase more property or invest in other asset classes such as shares, commercial property trusts, etc.
QUESTION : What would you do in my situation ? $420,000 to invest and 26 years old ? Given the current market conditions would you invest in Property, Shares, Commercial Property Trusts, Managed Funds or something else ????
I am very interested to see different opinions !
Thank heaps [biggrin]
Brad
I’d probably do something similar.
Have you considered just buying the girlfriend out? Save stamp duty and costs.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I would most likely buy a smaller property and keep my debt levels low. It sounds like you would be in mortgage insurance territory if you only have $60k in cash and are looking to buy something for $420k. I am not a fan of blowing thousands of dollars on mortgage insurance.
Also, buying something smaller may leave you with the funds you need to renovate and add value. I would then try and use this to diverify my property portfolio or diversify into shares depending what suited you.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
I would be cinsidering what you want to achieve and your timeframe.
If you know where you want to bethen the path might be clearer.
If you don’t know where you want to be then you can do anything and get there [biggrin]
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for the fast reply guys !
Personally, I think mortgage insurance is pretty minimal when you look at the big picture. It will allow me to borrow an extra $40 or $50k and when that is invested and compounded over 10 – 15 years the difference is amazing !
My goal is to be financially free in 10 years time. Some people may laugh at this goal but I see it as being realistic and I am willing to do whatever it takes to achieve this !
I am not scared of taking risk and I am happy renting for the next 10 years. This will allow me to use the majority of my income for investing.
I am interested to see what other people would do in my situation to fast track the road to financial freedom ?
Thanks Terry,
I have considered buying my girlfriend out but our current loan on the PPOR is $400k. I would also need to borrow an extra $60k to pay her out ($460k total). I would love to do it but I think that would be stretching things just a tad !!!
Hey Bradles C,
If I were to invest *your* $420,000, I’d invest it in my back pocket…
Personally, I’d look for an area that you’re more likely to get a good rental yield. This makes the loan more servicable while the market is slow on the capital growth side.
I’d also try for a place that doesn’t force you to overextend to the maximum of $420,000. Take it one step at a time – if you can get a place for $320,000, that leaves you with some equity left over to get the next IP more quickly (as well as being a more servicable loan in the meanwhile). Also, don’t forget to factor in purchasing expenses – you haven’t mentioned if you additionally have any savings for land tax, solicitor’s fees, inspection reports, renovation costs, etc.
I don’t know your renovating experience, but it’s one of those things that – thanks to a few renovation shows – everybody thinks is pretty easy, but often blows out in both cost and time. If you’re new to this, make sure you get a place that really doesn’t need much more than a coat of paint and new carpets – and budget for a blow out. This will give you some extra equity in the house, but only if you keep your reno costs down.
I was going to give you a long reply about my experience in real estate over the last 26 years but decided not to. All I want to say is that I always purchased the best house as close to the CBD as I could afford. I would say “in twenty years time this will be prime real estate” and guess what, I was right. What I have found is that I had to work very long hours and days , up to four months, without a day off to service the debt. I did not have a holiday for twelve years, I got married and had a three day honeymoon. My wife and I live poorer than anyone I know and we own several million in real estate. WHY! Because of cash flow. You can only work so many hours in a day to service you loans. You become a slave to your property trying to buy the best house that you can afford. Rule number two is keep your debt down. Look at the returns today and how quickly you can pay the debt down so that the deal is giving you money not taking it. From my experience I would buy a property that would not cost me an arm, a leg and lots of my time to own.
Thanks for the advice Luci and Bofclark !
Luci, if you put “my” 420k in your back pocket its not going to earn any interest ! I would invest it, much better return !!! [biggrin]
Serviceability will be my biggest issue over the next few years but I still prefer the idea of negative cashflow over positive. My plan is to use the Peter Spann strategy where I will buy quality property in prime locations (close to cbd). Do a basic reno (paint, floor coverings, general tidy up), then rent the proeprty for long term. The property will most likely cost me between $30 – $90 per week. As equity rises I can purchase more property OR if serviceability is a problem I can start investing in positive cashflow investments such as Shares, Commercial Property Trusts, etc. These positive cashflow investments will pay for my negatively geared properties. My negative properties should also go positive after 3 to 5 years (with increased rent).
This is the plan anyway ! I still think that buying quality property in great locations will pay off more in the long run (10 – 15 years). While I am young I would rather focus on long term growth than immediate cashflow !
Any thoughts or ideas on my “plan” ??? I know there are many “positive cashflowers” out there so I would be interested to hear your point of view !
Bofclark,
Congratulations on your property portfolio ! Several million in real estate is a fantastic achievement ! Have you also invested in shares, property trusts, etc to help pay for your negatively geared properties ?
Why don’t you start drawing down some of your equity to start living ? Go on a holiday, buy a new car, have some fun ! I think you deserve it after 26 years of hard work !
Hi Braddles,
Great to see that you have the drive, some cash and some ability to do renos.
I think your strategy of buying close to the CBD sparkle up, increase rent and wait for CGs is sound and will no doubt work over time.
As Steve preaches: problem plus solution equals profit. I am using this approach at the moment by find suitable houses for dual occ or units. There are opportunities to do just this in many areas of Melbourne such as Noble Park, Dandenong and Frankston to mention a few.Or perhaps in your local area.
Another option is to buy undervalued units close to the CBD such as Marybyrong that will surely go up in the next few years. PS I have one for sale if interested.
Good luck.
Herb[cigar]
hrm
Hi Bradles C
I would say ride the big wave and research the WA market. We are experiencing amazing Capital Growth, with no signs of stopping at this point in time.
My Perth properties are just growing and the climate over here is very different from East, from posts I have read.
The largest property valuer here in Perth who has got his finger on the pulse predicts continued excellent growth – south coastal corridor, Mandurah, Rockingham, Pt Kennedy, Madora Bay, Singleton. Our south coastal properties I believe are very much undervalued, and there are plenty of opportunities for smart investor.
I am building in Bunbury at present – last year’s growth 37%. This area is experiencing biggest boom in 30 years, rents retuns great, and huge demand. My builder advised me that he has 10 people from eastern states currently in process of building.
Why wait for an opportunity, dont take my word for it – start searching the net.
Regards, Marisa[biggrin]
Thanks Herb and Marisa !
Herb, I am also very interested in dual occ and hope to branch into this area when my portfolio grows a little ! Do you see dual occ investing as too risky for beginners ? Is it a nightmare trying to get council approval for subdivision ?
I love the idea of purchasing a run down property with a large backyard, subdividing, building a new unit at the back and renovating the original house. Then you can either rent both properties (probably positive cashflow) or sell for profit.
Marisa, I have never been to WA (would love to go !) and have no idea about the property market over there ? Unfortunatelty I can’t afford the plane ticket to check it out ! Once I get some cashflow I will definately organise a trip. I am very jealous of the weather in Perth. Always seems fine and sunny !!!
Bradles,
Sounds like you’ve got a good plan to me. I’m a Peter Spann / Jan Somers / Steve Navra kinda investor too and so your particular strategy sits well with me. I do take the point though, that you shouldn’t overcommit yourself. Leverage is great for maximising your growth, but it needs to be done within your comfortable servicing levels and also allowing for potential risks. e.g. allow for interest rate rises, rental vacancies etc and factor this in to your servicability equation when figuring how much you can “comfortably” borrow. Then also keep a cash reserve to buffer against the unknown. It will significantly help with your SANF. [biggrin]
Your on to a winner IMHO, and at a great age to start.
Cheers,
MichaelHi Brad,
I’ll juat go find my bank account details for you. I will invest it wisely for you. Mabey buy a Ferrai.[biggrin]
easymoney
Thanks for the advice Michael ! Interest rate rises, rental vacancy, etc could place some pressure on the serviceabilty so I think its important not to borrow to the absolute limit. I think you have to take a certain degree of risk for this plan to work but I will always keep some spare cash in case things go “pear shaped” !
Easymoney, I would LOVE to buy a Ferrari too ! My car is an old VR commodore and its done over 310,000 kms ! It’s very tempting to spend some of my cash on a new car now but if I can be financially free in 10 years time I will be able to buy a 2015 model Ferrari ! Now that is something to keep me motivated !!! [biggrin]
Hi Braddles,
As with any investment there are risks.I am new to dual occs, I’ve got two on the go at the moment. Yes, councils can be a pain but I guess it’s like anything new, you have to aquire the knowledge. I have one at Wantirna for 3 units and this ones been knocked back (Not approved) so we went to Vcat and failed again. At this stage we know exactly what will be approved so second time around should be smooth and quick sailing. We resubmission the application only last week.I must point out that we were trying to get the max out of the 810 sq m block.The process started about 18 months back.so they can take some time.
The other is at Dandenong South and I received the Council approval 7 months after purchase. The old house at the front of the block in under renovations at the moment and I estimate thatI shoulld be able to fully recover all costs to renovate and the development approval costs when it sells (after 12 month). This mens that I get the DA and land for free.
You would be interested to know that I’ve seen adds in the local rags for properties that have development approval.I estimate that I could profit $40-$60K if I sold now. Similary for the Wantirna property I had it for sale with a local RE . It was being sold with permit and plans and we had 2 builders perpared to offer me about $80K profit.
I was very nervous (out of my comfort zone)with the thought of building 3 units but I plan to build the dual occ this year. I will assess the Wantirna situation when I get the development approval.
I have learn’t heaps. One very important thing is to find a switched on Architek who has had expereience with the Council you plan to deal with.
regards,[cigar]
hrm
Thanks Herb !
Sounds like you are doing a fantastic job with Dual Occs. I think Dual Occs have huge potential. Once I buy my first 1 or 2 IP’s I will definately branch into this area.
Surely there are some positive cashflow investors out there who think my investment strategy is flawed ? What would you do with $420k given the current market conditions ? Are you turning to shares, managed funds, etc over property ? With interest rates rising I think it will become harder and harder to find quality positive cashflow property ! Any thoughts ???
What you could do is actually buy 6 or more +ve properties that you will be able to borrow more by re-evaluating them after ie 1 yeat and buy land near the areas for the long haul that will boom based on your research.
YOUR GREATEST ASSET IS THE INFORMATION IN YOUR HEAD AND THE AGE OF YOUR INFORMATION
[biggrin]
Thanks Michael !
In my opinion buying 6 positive cashflow properties given the current market conditions could be an absolute disaster ! To buy positive cashflow properties they would need to be in rural areas. These areas have experienced HUGE growth over the past 6 years and in my opinion prices will be going down over the next few years rather than up. Interest rates are sure to go up over the next few years so potentially these positive cashflow properties could go negative. The end result could be 6 negative cashflow properties with little (if any) capital growth over the next 5 to 10 years.
The positive cashflow strategy would have worked well in 1999 prior to the boom that we just experienced. Steve obviously did extremely well ! I think everyone has jumped on board since reading Steve’s book and they have started buying positive cashflow properties in rural areas. This has inflated rural prices well above sustainable levels and these prices will fall back to a more sustainable level over the next few years.
I have also read Steve’s second book and I think that his new strategy will still work. Finding solutions to solve problems. Eg: Buying a property with Dual Occ potential, renovating the front property and building a unit out the back. Rent both properties and receive positive cashflow.
The market has changed and we need to change our strategies to suit the current market. I read Steve’s first book last year and I was pretty dissapointed to find that his original strategy doesn’t work in the current market. To all newbies out there (like myself) start thinking of a new strategy that will suit your individual style. Stop asking “where do I find positive cashflow properties” and start finding solutions for problems ! Positive cashflow properties are created not brought (read Steve’s second book !).
I am sure there will be many people who disagree with my ideas so let me have it ! I love a good debate [biggrin]
Bradles
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