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Where to Start? So Many Questions!

Discussion in 'General Property Chat' started by SerenityNow, 27th Nov, 2015.

  1. SerenityNow

    SerenityNow Well-Known Member

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    Hi Everyone!

    As the title says, I've got so many questions about property investing and kind of don't know where to start! I've spent the last month or so reading a lot, and have read many of @Terry_w 's posts on laws etc. I normally wouldn't bother other folks with my questions, but everyone here was so helpful to the guy with 3.1mn cash, so I hoped I might get some advice too :) Although I don't have 3.1 mn cash - yet ;)

    Here's my current situation:
    My husband and I have no dependants. We're 32, and due to starting our careers late, our only assets/debt are:
    ~200k cash
    ~200k equity in ppor
    ~600k loan against the ppor [am I doing the math right? ppor purchase price was ~700k, currently worth, very very conservatively, 800k], no LMI
    ~30k super (him; I am a self-employed writer with no super)
    Our incomes are ~100k (him) and ~200k (me)

    Our goals at this stage are to grow our wealth, and I'd also like to get some CF if possible.

    We're thinking of having kids, and having parents stay with us a few months of the year, so would ultimately like a bigger ppor. Maternity leave would not affect my income much, I think (most of it is from royalties from things I've written in the past).

    I know I should get some insurance, so first question is, who do I go to for insurance? Life, disability, income protection - am I missing something? Of course, once I start investing in property I guess I would need landlord's insurance?

    My husband is starting to come round to the idea of renting a residence (we have no kids, and while I currently work from home, I'm not sure how I'll do that with kids, so might have to rent an office down the line anyway). So our first step would be to rent out the ppor, and start claiming depreciation and interest against it?

    I'm unsure as to our borrowing capacity, but I think we can get another 600 - 900k in loans? (I suppose this should be my second question) My husband has no interest in using his super to invest in real estate, and I agree with him that it's best to be a little bit diversified.

    At some point down the line, we might like to buy a ppor to reside in for the stability - but I'm flexible on this one.

    I keep hearing that I should put some money in super, but I'm not convinced about the benefits of putting in money that I won't be able to touch for another 40 years; a cash buffer seems more important to me at the moment, rather than asset protection/tax benefits.

    I guess my basic question is, what do I do?! Where do I start? Does anyone have recommendations for property lawyers/accountants in Victoria? Given our relatively young age and lack of dependants, how much should we gear up? My husband's job is incredibly stable, but I have massive (hopefully, probably, unnecessary) self-doubt regarding my own income.

    We currently own the ppor jointly - should we do a spousal transfer so that it's only in my/his name, and then purchase our IP's seperately? Our leave the ppor joint and purchase IP's individually? Or just do everything joint? He is not in a professional position to be sued, and my work doesn't incur expenses so hopefully there's no risk of bankruptcy/litigation.

    My husband is extremely risk averse, so I am not interested in NRAS or developments. We'd be looking for buy and hold properties; I'm aiming for good CG (researched my suburbs already due to excess enthusiasm ;) ) with a decent 4%-ish rental yield.
     
    Last edited: 27th Nov, 2015
  2. Bayview

    Bayview Well-Known Member

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    The first thing that jumped out of me was having $200k in cash, and still a $600k loan on the PPoR.

    The MB's here will tell you to set up an offset account against the PPoR and whack all the cash (well; most of it) into that - reduces the loan interest by a good chunk, but still gives you access if required.

    By the way; you can usually only access 80% of your property value for borrowing, so your usable equity based on your figures is: $40k.

    You may be able to go higher, but this projects you into the realm of more risk and possibly LMI costs on any borrowings.

    On $300k per year, I'd be inclined to do the above, and continue to use dramatic debt reduction on the PPoR via the offset.
     
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  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    If you plan to make the current PPOR an IP in the future, then convert the loan repayments from P&I to IO to maximise the tax deduction you will get on the mortgage.

    Take legal and accounting advice before doing a spousal transfer. The IP (current PPOR) may be negatively geared now and better off in the highest tax payer's name for tax deductions but in a few year's time, as rent goes up it will become positive geared and then the highest income earner will be paying tax on some of the rental income at the higher rate.

    Talk to a FP who also recommends property and not just managed funds they receive a commission on. See an Insurance Broker to sort out all the insurance you need.

    See a MB about how to use some of that equity and lazy cash you have sitting around, to leverage yourself (even if it is conservatively) into some investments.
     
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  4. SerenityNow

    SerenityNow Well-Known Member

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    Thanks Bayview - I should've clarified that yes, the cash is in an offset at the moment.
    If we rent out the ppor, we should get about 700pw.
    Is it expensive/difficult to convert P&I to IO?
     
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  5. Bayview

    Bayview Well-Known Member

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    You can easily cover the P&I, so I think just stick with that and talk to one of the MB's about your structures for some investing.

    Never a bad thing to be paying down debt (some folks don't agree with this) - especially a PPoR debt which is not deductible (unless you are renting it out).

    You would need to set up either an LOC or something of that nature against the PPoR to access the equity.

    And any other loans - separate and secured by the property you are purchasing, and with a different lender to not x-coll.
     
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  6. wombat777

    wombat777 Well-Known Member Premium Member

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    Once you've spent a little time working out your strategy and goals for achieving that strategy, make sure you take active steps to invest. Otherwise you'll get stuck in analysis paralysis ( a few on these forums in that boat ).

    Get a loan approval underway. This will make the rubber hit the road on narrowing down locations and selecting a property or properties.

    Aim for a 5%+rental yield if you can achieve it. That puts you ahead of interest rates. Just be careful to select areas with attributes that will justify capital growth - economoy doing well, infrastructure improvements, good amenities in the location - shops / transport / schools. Try and find properties within walking distance of these elements.

    Also consider properties that have down-the-track potenial. e.g. knock down in a 5-10 year plus timeframe and develop. Corner blocks, large blocks or dual-street access blocks are perfect for this. Properties with these attributes generally get snapped up by investors quickly. Also read up on planning codes and zoning in the areas you are interested in. Google is your friend.

    Also - know how to do cashflow calculations yourself. I just use a little spreadsheet in my phone or you can use a spreadsheet on google docs.
     
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  7. pommy

    pommy Well-Known Member

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    Hi @SerenityNow

    I am in the same boat as to "Don't know where to Start".

    I've been reading TerryW's posts on the bus, looking on REA/Domain at lunchtimes and night time after the kids are asleep. And I think a lot, and weirdly dream about it then have more clarity the next day.

    Your financial situation sounds very good and I get the impression that you are a hard worker (200k salary career require dedication to get) so best of luck.
     
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  8. SerenityNow

    SerenityNow Well-Known Member

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    @pommy Thanks, that's very kind of you to say - I've tried to work hard, but mostly I've been very very fortunate in terms of just being at the right place at the right time :) Also, I'm self-employed, so my income is slightly riskier than that of a salary :(
     
    Last edited: 27th Nov, 2015
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There are no commissions for planners these days, except on insurance.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Since you are planning to move out I would change the loan to IO. Make sure you don't use the cash in the offset account to invest. Hopefully the value is more than you estimated and you could borrow a bit more under a LOC. You could then use this to pay for the deposit on the next property and borrow 90%. This could be the future dream home perhaps like my other strategy post.

    I wouldn't do a spousal transfer yet, but only later when there is more equity build up. Perhaps just as you move out.

    Keep saving. But with little equity you may have 2 choices
    1. use offset cash to invest or
    2 pay down the loan and reborrow

    Neither is the ideal as both will result in cash being tied up, cash which could be used to fund the new PPOR. But in this situation it would be better to pay down the loan and reborrow because you can covert this debt later by using the spousal sale strategy.

    I have written a tax tip on the difficult choices of using offset cash v paying down the loan and will post later tonight.
     
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  11. SerenityNow

    SerenityNow Well-Known Member

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    Thanks for the reply @Terry_w , it's much appreciated.

    I was hoping to use the 200k as a deposit for buying IP's since I have some borrowing capacity; is this too aggressive?
    My savings should also increase over the next 6 months (I get paid delayed royalties from a huge company, so I know how much cash I'll have in a few months' time) so that should give me more of a cash buffer.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you do that you will have less cash for the dream PPOR.
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Id take a big step back..............

    And work out what you want the end game to be, so once you know your destination you can work a path.

    Define what in actual, real quantifable terms are you looking for this investing to bring you ?

    And almost as importantly, its important to get buy in from all parties to the transaction - ie spouses

    ta
    rolf
     
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  14. SerenityNow

    SerenityNow Well-Known Member

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    You're right. I guess first thing is a serious discussion with the husband re: the dream ppor, but he just says, "I'm happy to live anywhere". I don't mind renting for a bit due to the 0 offspring bit. Since I plan to sell the current PPOR within the next 5/6 years to take advantage of the cgt-free rule, I figure I can use that cash/etc to buy the dream ppor, if at that stage (5 years later) it works for us. Also, I'm kinda keen to get property-investing ;)
     
  15. SerenityNow

    SerenityNow Well-Known Member

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    Thanks rolf.

    I think as I type (doesn't everyone? :cool: ) So typing out these questions and hearing from more experienced folk like you and @Terry_w has been incredibly helpful :)
     
  16. melbournian

    melbournian Well-Known Member

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    @SerenityNow End game or where you want to be 5-10 years time and also identify suburbs you want to target. you see the other poster atang going aimlessly from frankston, bayswater seaford, box hill apartments, cbd apartments and then getting frustrated with why prices are no x, y,z or sizes and quality of design and finishes. Melbourne as you know is group of multiple micro markets with many demographics, income level which can affect prices and demand. What someone might buy in box hill might no be what someone might pay in point cook or even cbd. And this applies to finishes and fitouts.
     
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  17. bob shovel

    bob shovel Well-Known Member

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    If your looking to buy a new ppor, look for something with an office or room to run the business, and also look at hiring someone or contracting work out to spread the load! Working from home I think requires dedication and a specific work area where you can actually work.
    Given the incomes you mentioned and id assume very hands on role, also look into an aupair or live in nanny arrangement, back packing nurses are fairly cheap!
     
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  18. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Good advice from Rolf, @SerenityNow. Work out what your end game is and ensure both halves are sharing the same vision.

    You're in a very good position to make significant impact on your future (especially at your age), but you'll want to know specifically what you're aiming for (e.g. age to retire, x amount of passive income by x date etc) then work out what you're comfortable to do to make it happen (e.g. delaying the purchase of a PPOR, how much capital you're willing to use towards wealth creation etc).

    On the face of it, you could potentially tap into $40-$100k of equity from your PPOR which would create a capital base of $240-$300k to form your safety net along with deposits/renovation costs etc.

    But again, come back to defining your end goal and go from there :)
     
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  19. joel

    joel Well-Known Member

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    200k a year holy bananas maybe I should become a writer
     
  20. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Don't forget, if you veer down the Author path you will create recurring income (royalties) too ;)