Costly mistakes what should i do now?

Hey guys

I'm a late 20s newbie investor looking to get into the game (salary around 100k), I know i have made of an alot of investment mistakes so please looking for advice where to go from here. Please find below my story

Bought a block of land in Cranbourne North for 175 (448 sqm size) in 2011, settled 2013. However never built on it as the estate didnt have timeline to build. Paid interest and principle on it last 3.5 years

Bought a block of land in Ocean Grove for 150k (490 sqm size) in for 2012 with cash I had saved most of my life so didnt pay any mortgage on it, yet to build on it aswell as it wasnt costing me any interest payment, however paid rates land tax etc on it last 4 years.

I have realized this is a costly mistake as I would have been alot better off in equity if I built on them earlier instead of having assets wasnt earning me anything (Ocean Grove rent will be around 475 per week and I will be positive cashflowed). I have just signed up with 2 builders to build on them, going to live in Cranbourne North so I can at least get the FHOG.

However I am wondering what I should now? Just wait for them finish building in 2017 and buy something else with equity or buy another block of land and land bank it for a year or so as they are massive delays these days between deposit and settlement. I have 30k sitting in my offset account atm for the land deposit, or should I buy established however I dont think I can afford established right now as most of the houses in Melbourne inner ring is 1m+. My salary is around 100k

Looking for some direction where to go from here, even advice regarding how to setup my loan structure once building commences etc are appreciated. Thanks in advance guys

 

I would sell the land ( as not earning any income at all ) n use the proceeds to buy a house.

 

On a salary of $100k with your current borrowings plus future construction borrowings, what is your remaining borrowing capacity? i.e. will the bank lend you any more? That might answer your question straight away.

If it were me, I'd wait for the contruction to be near completion before making another commitment. There's many things that can go wrong with a build and you're about to do 2.

 

OK so you bought land and because it did not have a house on it, it was not earning income. Don't do that again. But you are fixing that now by engaging a builder. (BTW, buying a block of land and not building on it for a while is not what is called "land banking").

Get vals done on both properties once you have houses constructed and see if there is any equity you can release for further deposits on properties that have rental income - houses or apartments. You don't need to spend $1M on an inner ring IP. Outer ring or strong regional works fine too. Inner ring units can also be good. Consider investing out-of-state to avoid land tax and concentration risk.

 

I agree hence I'm leaning toward buying land in likes of officer or Clyde right now just to be in queue so once im done building those 2 I dont have to wait for years for land, land in Arcadia or Elliston right now dont title until 2018, by then my 2 builds are done. Happy to be told other wise. Thanks for the comments guys

 

Advice above has been given for your situation.

Moving forward, imho the best thing you could do is get some property education into you. If you wanna sit the math test, make sure you read the textbooks. You'll most likely have a better result.

Education is key for the future. It will make all the difference.

Good luck and you're doing much better than most who do nothing. Just gotta get that education into you now.

My 2 cents.

 

Keep the$30k cash you have now. Leverage off the property you have for new investments and move the $30k into the offset of any non deductible loans. It also acts as a buffer. Better off borrowing to make purchases that will be deductible than using cash.

Don't beat yourself up, you are in a great position.

 

Thanks i just keep thinking I wasted all these cost (interest payments, rates, land tax) for nothing which is quiet depressing from my back of the envelope calc its over 100k wasted made up of rental income, tax deduction and building cost increases . I see alot of member on this forum who have have 20+ properties etc which makes me feel im underachieving bad.

 

I have no idea how they did it

 

Don't look back, look forward.

Yes, there are some who have more properties, but an awful lot who have fewer.

For a start, next year you will have two homes and you are still under 30. To my way of thinking, that will put you in the top couple of percent for your age group.

You have a solid income and have bought two assets.

Get the houses built and one rented out, take time to hang about this forum, rad books and generally build up your knowledge.

Get rich slowly. Even if you focus on buying one property every couple of years, by the time you are 40 you will own 5 or 6.

You may not think so, but you are doing extremely well.
Marg

 

Just told you above

 

Thanks Marg for the word of comfort, appreciate it alot. I guess I'm just trying to dig my way out of the ditch i created myself. One question when I have the rental property built, can I take out my equity on the land and pay max interest on it?

 

Maybe have a read of @Terry_w 's posts on structure? It's explained how best to set things up there...

Oh, and congrats! You're in a great position even if you don't realise it...

 

What was the proposed use of the land when you bought them ?

Selling could trigger at least capital gains and possibly (dont rule it out yet) GST when (if) you sell. The land at Cranbourne will always have a period of pre-residence time subject to some form of when its sold. GST may be involved when you sell and getting that right could save you a bit as there are ways to minimise that but if you ignore it the issue remains and you cant minimise that GST.

IMO you need to decide what you will do with each (keep or sell) and estimate the amount of equity after taxes if sold or you keep etc. That will help define your plans and address if you intend to keep how to gear it so you max deductible loans v's non-deductible etc.

Tip : Borrowing against equity isnt deductible unless you use the borrowed $ to buy an income producing property.

 

They were both purchased as an investment, I always liked Ocean Grove as I was raised up there so I thought one day it will be a good holiday house. I dont think I am going to sell any of them and just leverage future loan against them.

Regarding the equity borrowing part, so that mean its fine to take the equity to buy another investment properties down the track?

Thanks in advanced

 

you may have been able to claim the interest and expenses on the land.

 

1. Stop beating yourself up! Seriously? You've got 2 decent assets with good potential once you build on them. and you paid cash for one!!? I know people in their 40's with triple your income and nothing to show for it apart from flashy cars and holiday photos.

2. Stop comparing yourself to "people who have 20+ properties". Who cares what others have or have done? If you want to copy them, then read their stories, find out what they did. You'll probably find a bunch o ideas that you cobble into a strategy that works for you. It won't happen overnight either. For what it's worth I'd rather have 10 x $500k properties, than 20 x $250k properties (only half the headaches)... net assets is key, not number of properties.

3. Sort out your loan structures before you build. Talk to some of the brokers on this forum, see who you relate to and work with them.

Good luck and enjoy the journey!

 

1. You are not in a ditch.
2. You are actually standing on a mountain. Sure, had you done things differently the mountain may be higher. Then again, maybe it would not. You will never know.
3. Stop being so hard on yourself. You are really doing very well.
Marg

 

Thanks for the comment again guys, all taken on board. I cant give myself the whole credit for saving enough to buy the land, as I boarded for free in my parent's investment property (so in a way I lived with parents). So that enabled me to save heaps more.

BTW Terryw, can I still claim interest on it, retrospectively?