We are wanting to break into the property market and purchase an investment before prices keep escalating. Unfortunately, an accident had wiped out our savings, put my other half out of work for 2yrs and eventually into credit debt beyond my wildest dreams.
She has been back at work now for 12months and we are in a great forward motion, but continually feel lost with what to do moving forward.
My thoughts on moving forward is to try and break into the market and save a deposit as quick as possible while smartly using balance transfer strategies to dodge interest incurred on the debt.
Our cash flow is fantastic now, but the looming debt which feels like it will hover for an eternity given the amount owing with a market always on the rise. What to do to beat it?
Firstly, what would one suggest for breaking into the market with a low deposit?
Secondly, just some general ideas on what direction to take with our circumstances would be greatly appreciated?Kinnon BellParticipant@kinnonJoin Date: 2014Post Count: 151
Are you looking to buy an IP or PPOR?
Doing balance transfers can do a lot of damage to your credit record when you apply for the credit cards. The low interest rate can be attractive but if you’re looking to purchase a property they can sometimes do more harm than good.
If the cards are on the higher rates of around ~20% most banks have a low rate card option. If you haven’t done so already swap the cards to a lower interest rate card. This isn’t a new application – it’s just a product swap.
You could also look into getting a debt consolidation loan, but generally the rates on personal loans are similar to low rate cards so other than the mental thing of knowing you only have 1 payment instead of a lot and knowing you can’t ‘spend’ the money again there’s usually not too much to gain.
Without knowing all your details the (low) 5% deposit + costs market is getting very tough to get in to and having a bit of consumer debt probably won’t help things.
I understand what you’re saying about prices but if I were in your position I would knuckle down and get rid of the debt ASAP then save for a deposit. The best time to buy is always 5 years ago.
Read the total money makeover. Unless you can get a deposit and costs together, make an investment pay more than your debt, you’ll never be even. For example If you have even a low 11% credit card on $100,000 what will it take to get that kind of growth in a property? Probably easier to pay stuff down right now than save a deposit. It’s really about the maths. If you want others to help you’ll need to explain in detail. When you do that you’ll probably be able to work out the answers yourself. Not saying you need to give us details but nobody will know for sure unless you do.
Balance transfer cards I used plenty of, they’re good to suspend the debt, but you may now be able to borrow much with too many loans. Read up on mr money moustache blog. Find out just how much you can save.
Personally, unless you only have small debts I would focus on that first as a general first rule of thumb.
Good luck, it feels good to pay stuff off. You can do it.
*not able to borrow too much for loans.BangersParticipant@bangers01Join Date: 2014Post Count: 23
Your position is somewhat akin to mine, whereas I had no injury, I racked up an enormous debt in the last year self-funding some overseas training. Given this is now at a cost of 10% interest p.a, I figure that paying this down is a guaranteed 10% p.a. saving. My experience with 2 properties is such that I’ve never achieved this return yet, so debt needs to go first or I’m going backwards.
I read total money makeover a week or two ago, it sounds like its the right time for you to read it and consolidate your efforts thus far.
Thanks you to all that have replied, I really appreciate the insight. I didn’t want to give too much detail straight up, but given what I’ve read, I’ll elaborate.
I had $34k on credit at start of March 2014, I did a balance transfer with 0% interest for 16months (it’s released Dec later this year). I’m paying $500p/month on it and shelving a surplus amount into an account ($5,700 thus far) earning 2.96%. So I’m using the Banks to work in my favour at present.
So the way I see it, I can use that savings to pay back the bad credit, or use it towards an investment and hope these 0% balance transfers stick around and do it again down the track.
A key concern that makes me also want to jump into property is the fact that we will be paying $34k in tax this financial year.
So I guess the keys facts for me at present are:
1. 0% interest currently on the credit cards
2. 2.96% being earned on what I’ve called the Credit card balance deferral
3. $34k in tax for the financial year
4. Approx. $2k per month able to be saved into the deferral account (after the $500 p/m credit card pay down)
Hi Kinnon Bell,
Again thank you for your time. To answer your question, we are looking at buying an investment instead of a Principal place, because of the potential tax deductions (not that I understand it yet) and the greater amount of leverage we will have staying renting and investing as opposed to purchasing and investing. Again, is that a fair thought?
Plus damaging credit rating with balance transfer? I thought, given that I’m always making good payments on time all the time, my credit rating would still be quite good? While this is about my 6th balance transfer, I figure if they keep saying yes, I will keep dodging the high rates credit cards can incur. I’ve never paid more than 2.5% on any large amounts on cards in my life time. But it concerns me if it effects my credit rating?
At the end of the day, we are over credit debt and watching house prices continue to soar and it will be a long way from now until our heads are above the water while we pay extraordinary amounts in tax between the both of us. There’s got to be ab better way!Kinnon BellParticipant@kinnonJoin Date: 2014Post Count: 151
If you’re happy renting then rent where you want and buy an IP where it makes business sense can sometimes be the preferred option, as like you said, you then have deductible debt as opposed to non-deductible debt if you were to own your PPOR.
$34k isn’t as bad as I was envisaging. My comment on you credit report isn’t so much to do with payments but the credit hits every time you apply for a new card. If you have an over-active credit report the banks do like this so much. When you apply for a credit card it shows as a ‘continuing credit commitment’ and if you cancel the card it is not reflected on your credit report. The 6 balance transfers you have done – what time period is this over?
It’s in the banks best interests to grant as much lending as (responsibly) possible. The normal Joe will get the balance transfer and won’t pay it out within the specified time frame. This is how the banks make some of their money.
I have a slightly different mindset when it comes to tax. I agree in paying as little as legally possible but it also the more tax I pay means the more I am earning. So if I’m paying $200k a year in tax that means my income is also sizable. Paying $1 to save 50c in tax is a bit of a false economy.
Negative gearing has it’s place but if you’re looking at building a decent portfolio then you will be hitting serviceability walls pretty early on. If you’re looking at just a couple of properties (but buying IP’s is addictive!) then NG isn’t so bad as you usually get the capital growth to help offset the lack of cash flow. But if / when you sell you will more than likely be up for capital gains tax so they always get you in the end!
Other than reducing your tax paid do you have any other goals you’re hoping to achieve out of property?BangersParticipant@bangers01Join Date: 2014Post Count: 23
I’m far from an expert, but if it were me (and as I said, it pretty much is), I’d keep saving as you are with a view to paying out the debt. Then put the equivalent of your credit card payment plus your savings amount into your growing deposit, then buy once your deposit is enough, ie snowball your credit card payments into your savings.
I’d forget about paying less tax for now, you will only be paying for the privilege, and in my mind not a good reason to invest. No-one wants to earn less money which is the surest way to decrease your tax. I’d happily forgo my negative gearing for an ongoing profit and more tax.
I agree with bangers.
Sure you have manoeuvred well with min payment on 0% and 3% interest on saving. Look into UBank highest interest.
Anyway, you’re fighting well, but after that credit card you owe tax money. They’ll let you pay in instalments but it won’t be free.
I know you want to invest but the skills you will gain paying off the debt will help you to buy later. Continuing this money shuffling is a bit smoke and mirrors. It’s a lot of activity without necessarily doing much. You’d have to bang out the calculations to be sure but the safe money is on paying down debt.
I just want to thank you all for the great advice. A lot has happened since my post in that January.
In May 2015 a few months after getting this advice and continuing on track solidly, I received a call form the landlord saying the owner is selling. My plan was to be ready to start looking around Jan 2016. We scrounged the $$ together and made it happen. Long story short, settled in July 2015 for $417k and it ticked everything in my criteria for a first investment.
Possibly expanding the family, we will need a bigger place. So an evaluation came in at $500-530k and wanting to work the credit debts into the mortgage, I’m over juggling, balancing and trying to pay down everything. I know it’s not ideal and I really did try hard. I am very excited though to have found a house in Melb Eastern Suburbs and to be possibly positively geared within 16months of purchasing. I can thank all the books for the knowledge that brought the awareness and the mindset. Thank you, thank you, thank you for the links, I’ve found them all helpful & actually Bangers, I’ve ordered that book today Money Make Over which includes the activities, I think it’s perfect timing now to do so. I’ve always been good with money until unforeseen things over these years and I’ve slid and felt like I’m drowning ever since.
But now comes a new chapter/problem – What expenses do I need to keep in mind with our first investment? Rates, Mortgage Payments, Rental Protection Insurance, does anyone know typical property manager fees? and is there anything else I need to budget for in ongoing expenses? Is there a typical check list of items that can be found?