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Discussion in 'Introductions' started by wombat777, 20th Jun, 2015.

  1. wombat777

    wombat777 Well-Known Member Premium Member

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    Started latish on my property journey.

    Bought land to build my PPOR in 2012. Got the build underway in 2013 and moved in during 2014. Land + build cost at $734k.

    My first IP is in Decpetion Bay at $340k and will settle next week. Next step is to get some repairs and a few tidy-ups done before I find a tenant.

    Initial goal is to establish some equity matching my PPOR acquisition and build cost then accumulate sufficient property to support a passive income that will eventually replace my PAYG income.
     
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  2. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    When is "eventually"? :)
     
  3. wombat777

    wombat777 Well-Known Member Premium Member

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    I'm on a strong PAYG income. 12 to 15 years is the goal to enable me to gradually reduce my PAYG hours to 4 and then 3 days per week ahead of retirement.

    Adventure travel is my other major interest outside of property, so more time for travel is another goal. Always like to have my next trip in planning. Inca Trail and Patagonia will be next.
     
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  4. Azazel

    Azazel Well-Known Member

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    Congrats Wombat, good stuff. You probably have a fair bit of equity in the Sydney place?
     
  5. wombat777

    wombat777 Well-Known Member Premium Member

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    Around $350k to $450k.

    At the moment I have a split loan on my PPOR. 50% fixed, 50% variable. The fixed portion won't switch to variable for about another 20 months. Plan is to refinance and extract some equity at the time. I'm hoping that the market in my area will stay strong until I can extract some of that equity.

    I have a thought to look at break fees on that fixed loan. If they are not excessive it might be worth considering refinancing so I can extract some equity earlier.

    In the meantime I have cash I can use towards deposits for two more IPs. I also have a separate buffer of cash and shares.

    With further IPs, I want to always try and stay at no more than 80% LVR across my portfolio including PPOR and IPs.
     
  6. Azazel

    Azazel Well-Known Member

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    Sounds good. I'm going through refinancing at the moment, getting a bit more difficult with the recent changes. Would recommend doing some research and getting the ball moving if it's what you want to do, could be more restrictions on investment lending coming.
     
  7. beachgurl

    beachgurl Well-Known Member

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    Wombat you may find you don't need to fully replace your income. If you are not accumulating properties and have paid off your Non deductible debt then I'd be surprised if you need to maintain your current income.

    I'm working on an end goal of 100k passive, only cos we still have small kids. Even then, 100k pays for a lot of happy meals and cruises.
     
  8. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    If you are considering breaking, I'd be monitoring your break fees daily and if the number stack up, bite the bullet ASAP.

    If rates move down again (which is looking likely) your break fee will skyrocket. It might already be astronomical but it's worth asking.

    I was in a similar situation a couple of years ago. I watched my PPOR beak fee fluctuate from under $10k soon after I took out the loan and realised fixing was not the best decision given my plans, all the way up to $40k following two 25BP rates cuts..the loan was just over $250k.

    I asked daily what me break fee was and as soon as it was below $20k I broke the loan then proceeded to convert to I/O payments and bought two IPs shortly thereafter with my new borrowing capacity (and equity I accessed from the freshly broken loan).
     
  9. wombat777

    wombat777 Well-Known Member Premium Member

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    Thanks for the tip.

    Is it possible to calculate break fees myself?

    There have been two recent sales (last month) in the $1mill to $1.150mill range in my area. My house is comparable although was valued at $850k in April because of sales to that time. I might be better waiting for a few more sales to help support a strong valuation.
     
  10. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    No but your bank can tell you in a matter of moments. They change daily and are tied to the market swap rate. You can see a 1 day old version of the swap rate here:

    http://www.afma.com.au/data/BBSW

    If you track the break fee + swap rate each day you can get an idea by just watching the swap rate move.

    Regarding the valuation.. tough one there. If strong recent sales have occurred that might be enough to give you a ripping val. Not many nearby are needed to heavily weight your valuation. The thing to consider is what if the next few sales nearby don't help your cause as they're lower than the current recents. Or will they probably be even strong and improve it?

    I've had it go both ways.

    BIG result in a block I owned in = great val for me.
    Someone I helped buy under value in the block next time mine (I found the property and negotiated for them knowing full well it was going to hurt my forthcoming val) = bad val for me. Cost me 3 months but it was the right thing to do.
     
    Last edited: 20th Jun, 2015
  11. Azazel

    Azazel Well-Known Member

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    How long have you got until your fixed loan period ends?
    You could get a valuation earlier to give you an idea.
     
  12. Azazel

    Azazel Well-Known Member

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    You could you keep an eye on sales and go if/when they dip? The valuer doesn't take too recent sales into account right?
     
  13. wombat777

    wombat777 Well-Known Member Premium Member

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    I think I will just hold off for 12 months. It turns out that my fix was for 2 years and not 3 years. That means based on the date the fixed loan was setup there's actually only 11 months to go.

    I used a break fees calculator and it worked it out as around $2800, although not sure how correct this would be.
     
  14. wombat777

    wombat777 Well-Known Member Premium Member

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    IP #1 settled today. Repairs and some spruce ups start tomorrow and then next to find a tenant.

    Now starting the research and due diligence for my next IP :)
     
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  15. Azazel

    Azazel Well-Known Member

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    Good work, that must be a relief.
    And that's the ticket, no time for basking in your own glory, back to work!
     
  16. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    AFAIK (could be wrong) they're not meant to take unsettled sales into account (so there's a 6 week window) but I wouldn't want to take the chance.

    I'd wait for a favourable nearby sale and order a val when it's due to have settled.
     
  17. wombat777

    wombat777 Well-Known Member Premium Member

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    I now have my first tenant. Paperwork still to be signed though. Only had to drop my asking by $10 per week in the 4 weeks it has taken to find a tenant.

    By my calcs this will be $156 cashflow positive a month after expenses and depreciation are taken into account. Thanks @Depreciator for the great schedule.
     
  18. wombat777

    wombat777 Well-Known Member Premium Member

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    The first rent payment for my first IP hit my account today. Feel like a real investor now :D
     
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  19. Azazel

    Azazel Well-Known Member

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    Good stuff, well done!
     
  20. Coota9

    Coota9 Well-Known Member Premium Member

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    Congrats wombat..