The next step, on a modest $80k income

What would your next step be in this situation?

• Married
• 3 young kids
• Single income - $83,000 + rent etc
  
• Renting
  
• 2 investment property's both PI on the cusp of being positively geared. (both in Adelaide)
  
• Mortgages of $500,000 all up, split fairly evenly between them
  
• Value around 680-700k all up, split fairly evenly between them too.
  
• Personnel loan of $16,000
  
• Savings $15,000

I would like to buy a place to live in, as the next property. This would not be a "dream home" but still very much looked upon as an investment, budget will not allow me to look at it any differently (had enough of renting). I am also very open to the idea of another investment property and being patent. Time frame I would look at would be around 3 the years mark, earlier if possible with a career change maybe thrown in around the 3-4 year mark. Other 2 investment property's would hopefully be positively geared by then + a little more equity.
My income/cash flow is the biggest hurdle as I see it.
"Get a better job" is not really an option, when I do change jobs I can't see my wage changing dramatically.

How would you move forward in this situation?

 

I'm not an expert here at all but a couple of things I'd consider.
- get rid of the personal loan
-can you actually borrow anymore?
-where are you located? Is it possible to move into one of your IPs

- I would guess that financially staying renting would be the best option but there's obviously more to the decision making than just money.

 

What’s the interest rate on the personal loan and what’s the term?

 

Removing ALL non-deductible debt, starting with that personal loan would be the first port of call, plus talking to a good broker to see if you are able to borrow any more.

 

Agreed - get rid of the personal loan and any other non-deductible debt (eg credit cards) first.

 

As already stated, get rid of the personal debt.

That will help, but it's not going to be enough. As socially inappropriate at this may appear, the thing that's really going to make a difference is to go from a single income household to a double income household.

 

Hi there

Welcome aboard

I haven't crunched the numbers - but a singled income of $83k with a couple of existing IP debts/personal loan means it's highly unlikely you'd be able to borrow more.

Realistically - if you wanted to purchase a PPOR you may have to sell of your investments, pay off personal debt and purchase a home within your budget.

If that's not your preference -then as mentioned above - moving to two incomes will help a lot but I also realise the challenge that could pose with three young kids.

Cheers

Jamie

 

Firstly, well done for asking the question.
First step to different results are different actions.

Essentially in your current situation, you're f....d.

I would increase my income and reduce debts starting with highest interest as mentioned above.

Next, unless you want to Hansel and Gretel your kids, you will need to increase your income. And I'm not talking by driving uber.

Upskill at work, learn to find properties and flip deals, learn no money down strategies, bring in JV partners, have your partner go back to work (if feasible with 3 kids).

Only way forward is up. It's a step most career investors have to follow anyways. It's no coincidence there's so many buyer agent, mortgage brokers on here who started in real estate investing.

Likely hit a wall and had to get into a higher earning role.

 

You could move into one of your investment properties, sell the other, and debt recycle your way up. Or move into one and keep the other, but divert all funds to the one you are living in. Prob best to pay off that personal loan in full straight away. Get the spouse working if you want to get ahead or accept that it will take you much much longer

 

Firstly, thank you for your responses, much appreciated.

Interest rate on the Mortgages is 4.2% (with offset accounts)

Interest rate on the personal loan is 6.1% with 3 years until payed off.

Rental income is $765 pw (combined)

I could pay it off with the savings but that dose not achieve a great deal.

The personal loan was a lifestyle choice for a camper trailer to get the most out of, while the kids are young.

It’s always a balancing act between lifestyle and saving. I feel it is a worthwhile investment in experiences with the family.

My wife home schools the kids so a fulltime job for her is really out of the question. She has shown an interest in becoming a property manager in the future, and would do well at it too as well. She runs a small home business already (5-10k pa max), and is great with running a business.

My other thought for our savings was to start another home business in manufacturing (my trade) Fitter Machinist/CNC. I know it’s a dying trade in Australia.

I would need to find the right niche market for this, but is a way of creating that extra income.

Moving into one of our property's is always an option, losing the rent on one hand cancels out what we pay, and doesn't move us forward.

Selling one to get into our own PPOR I feel is a backwards step, and I would hold off purchasing a PPOR until capital growth allowed us to purchase if need be. My current strategy has been buy and hold.

I’ve been looking at this from a lot of different angles, and without extra income it is tough.

I think we have it pretty good and are on the right track, (just a very slow track) not looking to make a fortune just be well set up.

I think the most we could borrow would be around $730k ($230k more than we currently owe) and we'd be lucky to get the $230k in our current situation.

Purchasing a positively geared property in a couple of years may be a possibility. Especially without the personal loan. I think, banks may differ.

I think the 3rd property is tough to get into as you tend to reach your ceiling loan limit. And that’s what I’m trying to push through, while still maintaining a good family life balance.

I’m sure there are others in similar situations even with both partners working.

 

Too many conflicting goals. Can't have it all at the same time, at least not in the beginning.

Most important thing you need is 2 solid incomes otherwise it aint gonna happen imo.

Alternatively selling off the 3 little dependents will also help.

 

From your posts I gather that you are quite young. Please bear in mind that some of us are much older (well, I know I am). There are many saying that you can't do it on your income & you need to get your wife out working as well, and while this will make it easier, it's still possible to do something significant on your income alone, but it will take time.

When we started off we were a single income family with two babies. Our income was well below the average income. We are now living off of our investments, so don't give up hope, but know this......it won't be easy.

You are wrong. You are effectively receiving 4.2% interest from the savings in the offset, but paying 6.1% for the loan. It's little things like this that make a difference over the long term.

Again, you are wrong. If you can pay off the mortgage on the property you live in (into an offset, so it will still be fully deductible if/when you decide for it to be an IP again), you come into the equation with a lot stronger hand next time you go looking for finance.

Take a good hard look at your budget. Cut costs. Remove the personal loan. Put the amount you were paying into the loan into the offset on the home you decide will be your PPOR. Whenever you can afford to, increase this payment into the offset. Wait! Wait until there's a lot more CG in your properties. This investing lark isn't a race, it takes time. Lots of time.

 

An analogy may be a fat person who wants to lose weight yet won't diet or exercise. Can't give up ice cream because...

If you don't make changes things will stay the same.

 

For the short term if you want to keep the savings buffer check to see if the personal loan has redraw facility and store it on the loan as others have mentioned it will have a better affect on overall interest paid.

 

Slow and steady wins the race, but at the same time I think it's important to acknowledge the good work and progress achieved to date. Sometimes we tend to keep on being driven to accomplish greater things but totally ignore the accomplishments achieved, but in saying that I am not saying you should always live in the past.