Hi there I have been trolling around this site for quite a while and thought it was time to become a member, anyway I would like some advice on what I should do in my current situation. Let me give you a rundown of my situation, I'm engaged to my partner (we are both 26) and we have two young boys 2 and 2months my partner is a stay at home mum and won't be returning back to work for at least another 4 years, we recently moved to the Pilbara where I work as a electrican, I rent my house from my employer for $116 p/m which includes power and water. We are looking to get ahead in life where in the past we lived quite a false luxury life. We are now saving more money than we have before, I net about $5800 p/m and my expenses are $500p/m for our car loan which we have approx $20g owing and our overall living expenses of $ 3000p/m which leaves around $2300 in savings per month and our overall savings are around $20g. Our ultimate goal is to buy a IP while we stay here for around 5 years and then move into it but Im not sure this is the right way to do things, should I try to buy a IP now or should I pay off the car loan and be totaly free of debt before purchasing or should I invest in something else, basically I'm not looking to get rich but to just finally buy our own house and have it payed off in 10 years if achievable. I would greatly appreciate and value your help.
welcome pilbara boy, what a great position to be in. First of all do you have equity in any other property? as you need 20% deposit for your IP, depending where you are looking to purchase,you may need to save a larger deposit. As i see it you have a couple of options. You can use your $20g savings to pay out the car loan which would then enable you to save around $2800pm. If i was in your position my preference would be to see if my parents would allow me to use their property as security for the 20% deposit and buy in a good growth area. Soon as the property increased by 20% i would transfer security so their house was no longer encumbered by your IP. Then you could pay as much as you could in extra repayments to build up equity in the IP so you can then purchase another IP. Then when you are ready to purchase your own home you will be able to sell both IPs and keeping some money aside for capital gains tax, you can use all of the equity built up in the two IPs for a deposit for your home. There may even be enough to buy a home outright. Hope this was helpful, Philb.
If I am in your situation I would try to pay off the car loan first as the interest rate on that is at 13% and up. Your rental is mad cheap and something to be taken advantage of. The more capital you gain before you make your purchase, the less debt you will incur when you actually buy a house and the less financial worry as well.
Too many people are encourage a very aggressive leveraged growth strategy which may have worked in a booming market but certainly not in a downturn like now. Don't be aroused by the fear of missing the boat for "explosive growth", you've seen the interest rates and the slowing economy at the moment. You can definitely take you time to get a dream home. Better to build up a substantial war chest first before that.
P.S. Your monthly income is pretty alright, but living expenses of 3 grand seems excessive. You will save a lot more if you are able to reduce that.
Welcome to the forum.
Wealth creation requires you to have a different mind set to most people.
You have a car loan of $20,000
What do you think your car will be worth in 5 years time?
What is the interest rate of your car loan ?If it was say 15% over a five year loan it will cost you approx $8,500 in interest
If you paid an extra $1000 a month you would pay off the loan in 15 months and save $6500 in interest costs.
After the fifteen months you would have an extra $500 a month in cash flow to use for property investment.
Also if you go for a loan for property the existing car loan reduces how much you can borrow from a bank.it is really an eye opener to buy a $35,000 car and see it for sale 6 years later at $12,000 that is a loss of $23,000 plus the interest no the car loan.
It really depends on what you purchase for example a $190,000 house with a $20,000 deposit would be a repayment of $2300 a month (but pay 1150 a fortnight) but you need to factor in extra funds to cover the mortgage insurance and stamp duty costs also. Would be paid off in ten years based on a 10% interest rate. Assuming you are not taking any rental income into account.
The main thing is can you borrow the money with your car loan still outstanding.
A visit to a lending person at your local bank asking them what is the maximum you could borrow ?
Would give you an idea on what you can buy and what deposit you may need and also what extra costs you might incur.(you may also need to factor in the cost of one of your kids starting school in three years time for a school uniform, school fees, books, ect)
Also if you are claiming family benefits from the Family assistance office and you own a negatively geared property you may have the negative income added back to your income to calculate your deemed income levels to work out your family payments or Centrelink parenting payments.
No offense, but Duckster what you are advising is a very aggressive gearing strategy which is predicated on a rising market. Choosing to get deeper into loans is partially what is making the current housing downturn worse for a lot of first time familiies and the cause of a lot of mortgage distress and foreclosures.
I believe that prudent investing and not over-extend oneself is always a sensible option.
Hi Pilbara Boy
You have some great opportunities in your situation.
There are some interesting strategies to consider in your situation with one income, renting somewhere that might not be your long term residence ( you can own a Principal Place of residence and rent somewhere else when on a contract etc.
Managing the Family Tax Benefits etc might also be an issue for you.
You have might the right decision to get on track.
The false luxury life is common problem so don't be too hard on yourself!
Are you strictly an employee or contractor?
I have clients all over the place even in Japan – don't let distance be an issue.
If you are interested in exploring some general directions send me an email.
In your situation you have a great opporunity to get ahead and leave the other "false luxury" people to eat your dust.
Onwards and upwards!
PS don't forget to spend some time with the kids while they're are young – priceless experieces to be had!
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