1st Investment Property

Hey all, first post but have been reading the forums on and off over the last couple of years. We are looking to buy our first investment property in the next year or two, but are not sure if we will have the savings/equity to begin.

Senario:
Both wife and I (mid-late 30s) are in stable jobs earning 80-90K each with yearly increases around 4% projected over the coming 5 or so years.
PPOR roughly valued at 650-700K, with 520K mortgage.
1 child in High School, no plans for more.
10K on credit card, after a big family holiday this year, which we plan to pay off in 6 months.
10K car loan to be paid off in 2 years with current repayments $500pm.
After the credit card is paid off we should be able to save around 20K per year.

Question:
How soon could we get finance for an investment property? Looking around 300-350K price range, as close to neutrally/positively geared as possible.

Thanks

 

If you have the deposit you probably could get finance now. You don't seem to be saving much though from your incomes... I would talk to a good mortgage broker about your options. I'm sure some will post in the morning, looks like we're both insomniacs

 

Mortgage, rates, HECS, private schools fees, sports etc. Tell me about it, the money just goes. Not having a deposit now is the biggest problem, hence the question.

 

Yeah I hear ya. We chose not to have kids (yet) precisely because of all those expenses would make it harder.


Perhaps you can extract equity from your PPOR and use that as a deposit. I would get a proper valuation done on your property to see exactly how much you would be able to get out, then go from there mate.

 

This would be ideal, but i would think the LVR is too low and will cause issues with mortgage insurance and the like. Our PPOR rate is fixed for a few years also, which will also cause issues drawing equity during this period. Might just have to knuckle down and save harder.

 

Best to talk to a good mortgage broker who can go over your situation with a fine toothcomb.,

 

Depending on the valuation of the property you may be able to get equity for a property but probably not quite enough when you take stamp duty into consideration. None the less it'll be a heap quicker than trying to save the whole lot.

You may need to look at your budget a bit, having good incomes and borrowing for holidays isn't ideal and you'll want a decent cash buffer in place before you buy so there may be some things to tweak to make it all come together.

 

Hi,
Thanks for posting, welcome to the forum.

My thoughts:
1. I think you have a debt problem and you need to budget better. For instance, you have credit card and car loan debts. Unless the rates are super low, like a 2% car loan, I'd like to see them eliminated asap. Personally I would never put a holiday or any purchases full stop on a credit card unless I had funds to pay it back within the same month. And I'd never take out a car loan. I'd buy second hand.

2. Your home loan is still pretty high imo. Though admittedly it could be worse. I'd like to see this come down. When my partner and I bought our first house our loan was 500k. Partner put in 100k of funds and we each committed to repay 2k a month to pay it off, (so 4k between us), well above the required repayment. Ps. This can also be done with the putting every leftover cent into an offset account. After 7 years our debt was down to 80k and interest outstanding was under $10 a day. But we still threw lots of money into the home loan.

3. I see you chose private school. Your choice, you know it costs money.

Now to fix:
* If the credit card interest rate is high, consider converting to a personal loan or moving the debt to an interest free card for 6 months. Make sure no extra debt is added.

* Can you rent out a room of your house for cashflow? Note there would be tax consequences

* Please smash your consumer debt.

* I'd also like you to bring your home loan debt down too (via offset account is ideal, especially if you ever want to convert the home to an IP). I'd like you to have that breathing space.

Do this, keep reading. You could start buying IPs but I think your general debt is a concern for me.

 

An easy way to budget better is to get your employer to transfer money directly to your offset account.

Do an online calculator and set goals for the debt level. Hold family meetings every 6 months and go through what you are trying to do - include your teenage child and teach them how to manage money.

The only way to become wealthy is to spend less than you earn.

 

fixed rate may not be a problem to release equity ( depending on the lender you are with), however agree with you that the LVR might be an issue. and it appears now your options might be limited.

 

That's too simple......you sure you're right.....?

 

Based on your info provided, you're in a very similar setting to us in terms of income etc. The differences between you and us are that we just ticked into our 30's, pay crazy daycare fees instead of school fees, and have a bigger PPOR mortgage.
Yet we still manage to put ~$5k/mth EXTRA away into our PPOR mortgage

Sounds like you need to put your head down and budget better in prep for these great investment plans.

Get rid of the credit card and car loan debt asap. These will drag you down when trying to get investment funds.

 

@Saul Goodman what was your original loan balance and value of property? Did you pay LMI for the original loan?

How have you come up with the estimated value, have you seen comparable sales?

I would be speaking with a decent banker/broker would likely find there is a bit you could do straight away.

$520k / $650k is 80% could potentially get out $52k+ pending LMI

$520k / $700k is 74% could potentially get out $96k+ pending LMI

 

Thanks for the replies everyone. I know we have had some 'reckless' spending recently that we are paying for now. Credit card debt will not incur any interest, balance transfer, by the time we repay it. This is uncommon for us to carry any credit card debt.

I think you are all confirming what I suspected that we are not quite there yet to get started on an investment property. We have had late career changes and went to uni as mature age students. I feel we are at a stage now to really set things right moving forward. I've got the better half on board by reading The Barefoot Investors book and we have committed to better budgeting and planning.

Thanks again, I wanted to get a general idea before going to a broker, don't want to waste anybody's time if we are not ready financially.

 

The biggest waste of time is to not get the right advice early - a good broker is happy to spend a little bit of time looking at your situation to give you some goals to work towards. I'd say a good 50% of the people I speak to aren't quite ready yet, but can be given specific advice so they have something to aim towards.

It's a part of the human condition that we generally will achieve things quicker and with greater frequency when we have an achievable goal to work towards.

Speak with a good investment focused broker now - they will give you some figures to work towards. Repay the kindness when you are actually in the position to move forward by going back to that same broker.

 

Very nice of @Gockie to write this up.
OP should read this a few times, take notes, and make a plan to apply it one step at a time.

@Blacky posted a very detailed response in the 'how to invest on a low income' thread how to tighten up the budget which is well worth a read too.

Without fixing these things, it doesn't matter how good your income is, if you keep spending it all and going into debt on non-necessities like holidays, you can't get anywhere with investing. Every person on here has learned how important cashflow is to their investments, and they could not get there until they learned to manage their personal cashflow (they are directly linked).

Of course you will enjoy some nice holidays over the years the way you are going now. But you will retire on a very low income. If you have ever spoken to a low income retiree I don't see how it has not scared the living daylights out of you into taking action.

 

Thanks for the mention @Anthony Brew

To the OP.
I think any good broker could get you into more finance if required.
However in line with other posters, @Gockie for one, you have a spending problem.

If you are going to tell me that you are earning $150k++ annually and can't smash $20k of debt within 12 months - you need not say more.
Think about it. You're pulling $12k/month and need to put aside $1600/month (aka 13%). The fact you even had to put a holiday on the card in the first place is telling.

Ok. So that's me giving you a kick in the butt. Sorry for being 'harsh'.

Go and buy "the bare foot investor". It's a good book, and though I don't agree with some of his items I like how he sets up people,just like you, to be able to redefine their spending (saving) habits. Work his steps and I'm sure it will help to get your spending back on track.

You can afford a loan/IP. But I'm not sure it will do you a lot of good until you have things under control.

That's my 2c

Blacky

 

Not harsh at all. The more reading I do, the more I recognise our missed opportunities, and the more I know things have to change. I've shared this thread with my wife and it's been a sobering experience for her also.

We have committed to knocking off the debt ASAP and tidying up our expenses so we can truly begin. Hopefully through a more disciplined approach we can consolidate lost time.

I've spent the last couple of days reading The Armchair Guide to Property Investing, borrowed from the library not bought, see I'm saving already. At the least, these next few months will be a great opportunity to research and so we can hit the ground running. Any other recommended books, blogs, websites would be great, though I will be mining these forums for gold. Lots of generous posters, appreciate your efforts

 

You can consider reading Mr. Money Moustache (Google it). He's pretty out there with cycling as a main form of transport in the Canadian winters... otherwise, he does make sense.

 

Start with 'The Richest Man in Babylon', it will change the way you think about savings etc. You can probably download the pdf. Google it.