I've done it all the wrong way....but survived !

Hey all

Not a regular poster here by any measure but today 3 posts. Last for today. Promise.

I was over at SS forum for a while and migrated over here. I have learned so much about investments and myself along the way and have enjoyed the many great contributions.

Here is a list of my 'mistakes ' made along the way. I am sure the brokers here and Terry will be pulling their hair out. Of course, if I had been on the site longer I definitely would have done things a bit better. No real regrets but here is what I have done;

- Used own capital to place big deposit an IP in late 2009 whilst having a fully paid off PPOR
- Paid the investment loan down with no offset account
- Previously paid the PPOR off with own capital rather than create off-set
- Cross-collaterised the PPOR and the IP.
- 2.5 years ago locked in the Investment Loan at 4.99% for 5 years

I couldn't have erred from the 'text-book ' approach more if I tried.

In my defence there were good reasons to do the above and most related to my circumstances and investment personality. At times I have 'regretted ' the above especially when unexpected expenses arose and I had to manage my capital a bit carefully without access to my funds.

Of course, the one thing I did well was to buy the IP when I did.

Having done the above and now knowing much better. The only advice I will give is to read this quality postings on this site well and ensure that whatever you do, choose the strategy that gives you the most flexibility.

Again, my choices suited my circumstances and financial personality with no real regrets or down-side, but even given that, it would have been more prudent to gives myself more flexibility with little down-side.

all the very best

 

@Bunlee you made the best decisions you thought to your circumstances at the time. At least you made the decision to invest and pay down debt.

You could also look at releasing equity in both properties and un x-colling to help youmoving forward.

 

Kudos to you @Bunlee, great mindset. And fantastic effort as well. The things you have done are called learnings to me. Some would call it a mistake. Each individual's circumstances is different, so what works for other's doesn't mean will work for you. Good on your for finding a strategy that suits you and that you are comfortable to employ.

 

Hey if its worked for you, who is anyone else to complain

 

I am now officially bald.

But it goes to show that just getting in and doing something is the most important part.

 

Agreed - the biggest mistake of all is probably to do nothing. One cannot save one's way to glory these days. It is important to invest.

 

Great to hear others haven't walked the golden path to success - but rather waded through bog and still got(getting) there.

Thanks for sharing. I feel your story has also highlighted that whilst financial and ownership structure are very important - asset selection makes us or breaks us. How has your IP gone and where and what type of property was it?

 

Admitting your mistake is much more bigger.

 

My thoughts on these mistakes...

- Used own capital to place big deposit an IP in late 2009 whilst having a fully paid off PPOR
If the PPOR is fully paid off, a cash deposit isn't really a mistake. There might be circumstances where you'd be better off to borrow the deposit, but if everything is status quo it's not a problem.

- Paid the investment loan down with no offset account
Same as above. Ultimately paying down any debt is a good thing, but focus on paying off non-deductable debt first.

- Previously paid the PPOR off with own capital rather than create off-set
Paying off your PPOR is a very good thing to do. The "interest only with offset" strategy usually only applies if the PPOR might become an IP in the future. Otherwise, pay it off as quickly as possible.

- Cross-collaterised the PPOR and the IP.
Not ideal, but for one IP, not the end of the world and can easily be fixed at this point in time.

- 2.5 years ago locked in the Investment Loan at 4.99% for 5 years
If you were trying to save money, fixing then was a mistake in hindsight. If you were trying to mitigate the risk of rate increases, this is a reasonable strategy. I've done the same myself, for better or worse.

Without further context there's nothing here that is a really bad move and some of these decisions could be considered very good practice.

A fully paid off PPOR and an IP - this is doing better than most people!

 

One more post

Thank you all for your comments, very much appreciated. If O'k I will share a bit of my thinking and the figures with you. More therapy for me than anything else

Again, whilst not fatal, the correct approach would have been for me to have taken a more flexible strategy as many of Terry's posts highlight.

It would have saved Terry's follicles By the way Terry, excellent contributions from you over the years mate..excellent.

Pipeclay - Southern Suburbs of Sydney, a 3 Bedroom Villa, 2 baths, 2 car garage, stand-alone on about 400sm I think.

One thing I can say is that many of my decisions were based on my knowledge of my financial personality and to an extent, my upbringing. I suppose the positive side is to "know thyself "

The dates and figures may not be totally accurate due to my not 100% memory.

Back in 2008 I owed a little bit on my PPOR and had quite a few shares and some money in the bank.

I was looking at the share market and thought that it was worth a big lash on shares like CBA, APA, LEI, HVN, etc. Well.....my bank account went down and my margin loan went up and before I knew it I was the owner of loads of shares going down in value. Nothing that more money would not fix and I averaged down. I thought that the market offered huge value.


By about early-mid 2009 my margin loan was around $160,000 !!

No problems, the market started to turn I think in that year.

My wife got pregnant and worked up until the last few months of the term.

Whilst she was pregnant she suggested that a local villa for sale was great value. In the end we bought it for around $630,000.

The PPOR was paid off and we decided to x-collaterise and borrow 105% (about $665,000)

So...for a moment in time I owed;

Margin Loan $160,000
IP $665,000
Total $825,000

That didn't worry me too much. However, with a baby coming I started to take some of my GFC profits (too early as it turned out but I did pretty well) and paid down over $150,000 off the loan within a week of it settling I think

During the next few months I sold a few shares and paid more down.

After the birth of our child my wife wanted to be 100% mum and not go back to here professional career. At that point it hit me that all we had worked for was to create choices in our lives....the best choice for us was to give our child his mum 100%.

After that point I sold more shares and took profits.

The margin loan was now $0 and the IP Loan was a bit over $350,000.

My priorities changed and so did my risk profile

I think a big reason in my mind at the time for paying down the loan by so much was not so much ignorance but I knew deep inside me that I would always want access to capital and may hit the stock market big again. I think by taking the money away from being accessible, it was prudent knowing my personality.

Ignorance played a part too !!!

Anyway, text book mistakes were made and if I had the time over I probably would have followed a different path.

I hope I haven't bored you all. Regardless of the outcome I still believe Terry's strategies provide the most flexible outcome.

My intention is to sit tight for the 2.5 years of the fixed term remaining, pay the $10,000 pa capital down on the IP loan and build up my cash reserves and put them into full offset after the fixed loan term.

I hope my sharing provides some positive food for thought for some of you..........flexibility is best in all aspects of life.

best regards

 

Take it over to the first world problems thread!

Really though, you are hard on yourself for making so many "mistakes" but really, you are in great shape!

An unencumbered main residence and low LVR IP give you heaps of options. If I were you, I would be celebrating my position!

You have lots of options moving forward. You also have time to develop a strategy. Good position to be in overall. Well done!

 

In the end it's all about your Nett position. And yours is excellent. Nothing you listed is unfixable, bar the Break Fees if you choose that option.

 

Hey all

Thank you for your responses.

Peter T - thanks for taking the time to itemise your response in detail (and for going easy on me )

Perth Guy - yep, I agree about the 1st world problems comment, to be honest paying down the IP debt has freed me up to focus on the things that matter in life.

More than happy to have less eye on the investment gig now.

Pipeclaw - sorry, I omitted to answer one of you questions. The IP has gone really well. I imagine it is worth a bit over $1.1m, brings in rent of $600pw (under market I think - really nice family there), lots of depreciation benefits. All credit to my wife for this investment.

Not too concerned about the Fixed rate for another 2.5 years, happy to see it out. The reason I locked in was to guarantee my financial commitments for the ensuing 5 years.

One thing I would like to highlight in this post that I think is important,ie:

Buying the IP was the best investment decision i (actually my wife) have ever made. Of course there are $$ gains but I think the selling of the shares and placing the proceed into property provided a ' peace ' that shares would not have provided me. Specifically, it changes the mind-set to one of more conservatism and long-term rather than chasing a piece of rope that has no end and can lead to ruin if not kept in check.


Again, thank you all for your patience and comments. I hope that the discussion provides some food for thought and helps in some way. It has certainly provided me an opportunity to reflect and learn.

all the very best

 

Thanks for sharing @Bunlee and you are not alone in your journey when it comes to making "mistakes".

Few of us have done it perfectly and I to have made plenty of mistakes along the way but the way I see it that is how we learn, by making mistakes.

 

Nice share @Bunlee !

 

Hi Peter,

Can you expand bit more on non deductible debt, keen to improve my knowledge

 

@property novice if you've got a PPOR debt (non deductible), you should prioritise paying this off (either directly or via an offset account, depends on your strategy).

If all of your debt is tax deductible (you've purchased and paid off your PPOR and never expect it to become an IP, you only have loans on IPs) then paying off the loans on your IPs is good.

There's nothing with paying off loans, just prioritise the personal stuff over the investment stuff.

 

Ok, got you. In my case I dont have PPOR (currently renting a room). I paid 25% of my IP loan. And been saving to buy a next one.

 

That means less money for the future main residence.