Having a nicer PPoR now vs having IPs/investments for the future

Elevators suck.

I went to a private school (paid for by the grandparents) but grew up very poor.

The friends who would come over and stay at my mum's very modest house are now life long friends.

The "elevator" kids are nowhere to be seen....

Getting back on track @KayTea have you considered selling your PPOR using that tax free cash to make some of your IPs cash flow positive and renting a nice place?

Could be a way to get a boost to your income and get a nicer place (that someone else can maintain)?

 

I'm in the delayed gratification camp - firmly. And my situation is great example of why ....

Have lived in a modest home for many years. Post war era fibro/clad home in Sydney's west. Worth a lot - sure... what isnt in Sydney? But a modest home. This has been a deliberate decision, as I have had the means to upgrade for several years. But I have been completely content to stay in that home whilst I accumulated sufficient assets and more importantly sufficient income that has in turn allowed me to pay the first PPOR off super fast and now upgrade to a much larger one without any financial risk and without selling anything

Yes, delaying the upgrade by a few years meant buying at the peak of Sydney's market, but that additional cost to purchase is a one off/fixed cost, and is far outweighed by the sizeable portfolio that was achieved by delaying things, which will continue to generate income and equity for years to come.... and Im not selling the old PPOR, which has a house + granny flat... so thats going to mean I will have additional income ! ( well, two technically )

So you can have your cake and eat it too, if you do things in the right order, with the right strategy. But you wont get it done by accumulating loss making or neutral cash flow assets , unless you earn a very big income, or unless they strike gold ...and even then you would need to sell them to get ahead, which leaves you with a big home but no early retirement. Building a portfolio based around dividend reinvestment/debt reduction was the secret to my success...

Build a portfolio that generates sufficient income to pay off the PPOR without selling anything Then pay off the PPOR. Then upgrade the PPOR and repeat.

Never be envious of the "Joneses" with big homes and fancy cars ...more often than not - much more often than not in fact, they are usually no competition at all. Typically they will be hugely leveraged... fairly cash flow poor and would crumble under the pressure of a job loss, redundancy , illness or injury or a 2% rate rise. In other words, they look like they are doing better than you but it only looks that way , in most cases. If all of their income is being used to pay of the trophy home, credit cards, car loans and o/seas holidays , they probably aren't doing too much investing... and if they are, its probably negatively geared investing that sucks any remaining cash flow out of their household... it becomes a house of cards relying solely on growth.

Always remind yourself... which would you rather be? The Joneses, or the person who has a rock solid, high cash flow portfolio in place before spending on a trophy home... and who then pays it off in 10-15 years with the cash flow from what they already own.... Who do you think is better off, safer and retires with a better lifestyle?

PS - You can remind those school kids and their parents of their snobbery when you see them later in life , as they go to work and you go on your leisurely morning walk

 

Same here. Our PPOR has been very modest whilst building a largely cf+ portfolio. Just finally buying a block of land with sea glimpses this year (hopefully) and building a beautiful 2 storey on there to do justice to the views. This will be our next ppor. Cashflow from the portfolio will cover the mortgage payments comfortably without selling anything until I want to.

The new ppor will be lovely but I'm only buying it because I can and really Im more than happy in the little glorified shed we live in now. As above, most people will be working their whole lives to fund their image and that's fine. I prefer my freedom.

 

I agree - it was wrong that the cheap, cash flow positive properties , guaranteed to increase by a million were only available to select few people.

They should have made it that anyone who wanted could buy them.

 

Have you considered rentvesting? Rentvesting does not necessarily mean shacking up in a run down dump for $100pw while you pour all your cash into IP's for 10 years. If you are already established in your portfolio, you can rent out your current modest PPOR and the funds from that alone could already net you a nicer rental property to live in

The disparity in cost of renting vs owning a PPOR in the middle-upper to upper end of the market is significant. E.g for $1000pw you could be renting a property that would cost $2mil to buy (in Sydney anyway). The upper end of the market also tends to be more stable and negotiable if you are a long term tenant. My advice is to find out as much as you can about the landlord, where they are, when they bought the property, how much they owe on it, was it rented previously and for how long etc etc.

You will be surprised at how many very wealthy people rent where they live (especially in the US) even though they could buy, and already own mcmansions and penthouses outright

 

Why not just rent?

Despite having a portfolio now pushing teens $ wise we still rent. I love being a renter - all care no responsibility. Wife thinks differently but cest la vie.

And regarding that offhand comment re Southerners bragging about their successes without work put in...what can I say, you make your own luck.

In general theres been a lot of Schadenfreude-esque sentiments from a lot of posters. Why?

 

We've rented our whole lives also - this is our first home that we've lived in and it took me 39 years to get it. And if things took a turn for the worse, I'd rent again in a heartbeat- the only thing that sucks about renting is the 3 month inspection.

 

If you sold the worst performer now, take the loss, how much would it be?

If you sold the other in bne with cgt, would it be much?

If you wait for capital growth on the worst performer how many years do you think you need to wait till it breaks even? Will this make 100k clear profit in the next few years?
Cause if it won't I would consider changing your game plans even if it's a loss now, and start a project that adds value. Otherwise you're wasting time you will never get back and you should be able to add value instead of holding onto neg property and hoping for growth.
If you can't be bothered adding value then you can be lazy and do what most of us do and buy in booming areas, im sure it will be quicker than waiting till the next cycle occurs.

Maybe have a chat to your accountant and see what can be done.

 

I still luv you xx

 

Sorry, but this is a horrible mentality to have.

Whilst I don't disagree that there are plenty of people out there living beyond their means, assuming that everyone with something nicer than you is financially less responsible is a totally baseless assumption.

Moreover, declaring that they are "no competition at all" is hypocritical. Just as they are in a pursuit to enjoy life's more luxurious offerings, you are in your own pursuit to grow a healthy portfolio. While you see no competition in them, they see no competition in you. You are each playing different strategies in a game with no common end goal.

Your language sounds less like sensible financial mentality, and more like self-consolation for opportunities dismissed for the sake of a number on a balance sheet.

We all end up in the same box at the end of our journeys, what matters is how much of the journey we can responsibly afford to enjoy to the fullest.

 

Do you mean specifically on this thread or on PC in general?

 

Thanks, @Barny - you've made some great points. And, nope, I can't see this place clearing 100K in profit within the next few years - but, outside of Sydney, and inner Melbourne, I'm not sure how many places would - can I please borrow your crystal ball...... Plus, aren't the bigger profit spinners in need of a bigger buy-in price?.......

 

Thanks Simon, we did, very seriously, discuss rentvesting for quite some time before purchasing our current PPoR.

While we could definitely see the positives, especially financially, the lack of 'stability' with knowing where we may be living each 12 months wasn't going to work for us. I think, if I was younger, and probably childless etc, it would be much easier, and I know for some people it works very well. For some, the constant 'unknown' can actually be rather mentally debilitating.

 

Hi @KayTea,

One of the reasons I decided to become a bit more active on propertychat, apart from seeking advice from others, but also to relay my own experiences and insights with property. I do emphasize with your situation in that you are taking positive measures and making the effort to ensure the social and financial well-being of you and your family. I don't think I've got answers, but can relate to experiences as follows.

In my mid 20s, one day I woke up, mattress on the floor, renting a room in a share household after some time moving from Sydney to Brisbane in the 90s, and said "I've had enough". At the time, I was a "rentvestor" (although the term didn't exist then). I had some properties including a unit in Parramatta, and a unit in Coogee Beach, and another apartment in Kangaroo Point QLD (this is another story), when it seemed all I was doing was paying out for I/O mortgage payments at high interest rates, rental expenses, quite low yields, money in / money out, and as a professional, was living like a student hanging onto those properties waiting for the big day (this was in the doldrums of mid to later 90s). My friends were like overseas in London having a good time, other friends were starting families, and I was watching the budgets. I ended up selling the Parra / Coogee property - yes, made some money (more than my salary at the time). But then, of course the boom in Bris/Syd happened in the early 00s where prices significantly increased - today that Coogee property is close to $1m after originally buying it for $170K. I did end up buying my own PPOR (a townhouse in Norman Park, loved that property and held it for 13 years before selling it (I had paid it off) to fund renovations on a Qlder that I had bought and now got a nice PPOR (noting that my Sydney friends properties are now worth millions arrgh )

But now with the benefit of hindsight, what were the lessons learned:
i. Property can take a long time to significantly increase in value (same as rents), and really we don't know when, we could say in 10 to 15 years but it's hard to say - there are factors like wages growth, interest rates, population growth, infrastructure development, sentiment, etc - got to be able to hold for the long term.

ii. Buying a PPOR first, getting stuck into the mortgage, adding value makes a lot of sense, when you got equity, one can use that for other properties. (Note I wasn't so aware of mortgage offset accounts back then). Looking back if I had just bought a reasonable PPOR in Sydney or kept the Coogee property as a PPOR only at the time, probably would have been far better off today (probably giving seminars!). Anyhow, I think there's an argument to start off with a PPOR, increase the equity and then start buying IPs.

iii. If starting as rentvestor, eventually you will want your own PPOR, and so one could consider their initial rentvesting portfolio as just a means to raise reasonable capital (by selling part or all) to get their PPOR (once again aim to have plenty of equity in it) and then start IP portfolio 2.

iv. Stop worrying about what others do / have / don't have - somebody once said to me "everybody has a boss, just focus on what you do". We are not valued on what we got, but who we are. There's too much noise out there in world distracting us - so taking the view of being gracious and thankful for what we have is a blessing, sometimes having a zen like attitude - having nothing means you can everything helps (e.g. a lot of guys like flash cars and motorbikes and always spending money on them (great), but I'd rather spend the money on travel, having too much stuff I think can hold one back).

v. Having a PPOR is nice, one of the most calming experiences I've had is living in my own home, doing what I want, not having to worry about a landlord, that feeling of security, and stability (but at the same time also like a bit of adventure and have travelled around a bit so also don't mind renting elsewhere when necessary to have that 'spice of life' feeling). So renting elsewhere and renting out your house is certainly feasible.

vi. Finding out your property investing mindset is also key - I never really use to think about this, yes I read all the books, it was just something that was a bit of fun / hobby, never really thought about why and what was my style. In fact, I got out of it for awhile, but re-read the books, started to re-learn. Particularly in Brisbane, where I met other property investment people in a mutually collegiate environment (Brisbane Property Networking Group), my mindset also started to change. I realised I wasn't really a long long term investor (yes, maybe 10 years but probably no longer than that on a property), started to understand the concept of the "deal" about making money by positively transacting (e.g. renovation, subdivision, development, or trading - in my case "slow trading"). The mindset being "making a profit and making cold hard cash is OK" - you can develop the skills and continue to do that, it's not based on hope but based on calculations (cash in / cash out). So this really changed my thinking, I was so down on selling the Coogee property for a long time, but re-setting my thinking it was like "well actually I did a deal and made a gross 40% in 3 years" so not too bad). This has now helped set my thinking and tone for the future.

From propertychat, learning the views of say the likes of @euro73, has recently been another mindset enhancer of how I've been looking at things for my investing style. So now it's like getting PPOR mortgage down / equity up, do some positive transacting (e.g. I did a subdivision a few years back, sold one lot, built a house on the other lot, kept it / rented it - instant equity/cashflow neutral), look at some income enhanced property opportunities, maybe look at a splitter JV with a friend, buy long term (10 year plus) buy and hold, etc.

So with your situation:
i) If you can hold on, great - maximise tax deductions, tax variations, depreciation schedules, improvement in job opportunities, add value where you can, increase rents where possible, and hold on.

ii) Consider renting elsewhere if you need a bigger house then renting out your place in the short to medium term is certainly viable.

iii) Examine the impact of selling up your IPs, and how it may help with your cash-flow to pay down further your own PPOR mortgage, or vice-versa, selling up PPOR / renting elsewhere to improve cashflow and to be able to save more, or look for different deals.

iv) Join the Brisbane Property Networking Group (they meet every month at the Bronco's Leagues Club - see the 'real deals' from other investors, just people like you and I (no spruikers) and see what can be done, and to get that support and shared empathy. The first time visit is free.

v) And most of all, pat yourself on the back on the achievements you have made in your property investing journey, and the family and friends you do have that mean something to you and you to them - nothing better than that (and a bottle of good wine of course!).

 

thanks for sharing. great wisdom

 

Hey Jason
Balance is key, learnt this one a long time ago.

MTR

 

Thanks so much for sharing your story, @ORAC - you've certainly achieved, and learned, a lot, and your willingness to tell us of your experiences is certainly appreciated.

For the first time, I'm thinking that selling at least one of the IPs may be a good move - there really does seem to be limited opportunity for growth in that area, and looking at the number of properties already available for rent there (for the same $, but in better condition) doesn't bode well for me over the next little while.

The problem is, if I sell, it's very likely to be at (an overall) loss, so I won't get any funds to pay down the PPoR. Although, given that it is currently CF-, I can certainly divert the extra weekly cash that I'm paying into the IP loan onto the PPoR (especially now that the IP lender won't allow me to renew the IO loan, and I need to find even more cash for the loan repayments on the IP).

Looks like I need to do some number crunching....... And, while I trust myself (to some degree) work out the fundamentals, I think I really need to get a professional to help me work out the whole process (so I don't forget, or underestimate, the immediate financial strain of selling at a loss).

 

I'm in a position where I see the balance sheets /financials of hundreds of people each year, and have been seeing those for many years... I'm also contacted multiple times each and every month by PC members who are in the position I have outlined- or similar... So I have a fair amount of experience and evidence to base those "assumptions" on. They are a fairly educated set of "assumptions"

There's no self consolation going on here. I'm entirely comfy with what I have done. It has been deliberate.

My point was - don't blow all your capacity on the big/bigger/biggest PPOR home too early. Delay your gratification. Play a longer game of snooker rather than taking the obvious shot. The aim is to clear all the balls from the table, or as many as possible at least, not to get snookered too early.

 

My experience?

We sold our first PPOR after four years and bought our big family home, 4x2x2 and paid it off. We loved our home, it was big enough and very comfortable fir our family, so we had no need or desire up upgrade. So instead we invested in property and shares.

While investing we had the comfort and happiness of raising our family in very pleasant surroundings, and are now retired on a more-than-dreamed-of income.

So it does not HAVE to be a choice between living comfortably or delayed gratification, you can have both.

Our PPOR?

Bought 1979 for $50K (above our top budget!). Over the years we have probably spent close to another $50K on renovations and improvements

Current value $800K-$900K.
Marg

 

That I agree with 100%. I've done several simulations comparing IO vs P&I, managed vs index funds, debt recycling vs without, etc and the only surefire way to lose is to use up all of your serviceability on a PPOR before your portfolio has gained enough momentum to continue growing itself.

Once you reach a certain point though, the risk becomes delaying gratification for too long and no longer having the capacity to enjoy what you wanted to enjoy.