在澳大利亚 I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo
I lurk here - I spend some time away.....then get frustrated at my lack of action come back and read my little heart out then repeat.....been doing so for 10 years.
Done all the reading Rich Dad series, Jan Somers stuff and heaps more. I consider myself fairly well versed in the theory of IP investing.
I understand some of the key topics, equity, cross security, tax and using tax variations for cash flow etc. etc.
I have email alerts coming to me daily with regular good deals IMO.....
I have a good stable job about $80 to $90k, a wife and two kids. Wife doesn't work and has no plans to (which is our preference -family choice)
PPOR approx $320k value with $237 owing. Have a few K in the bank. No consumer debt at all. Live and want to invest in the outer north of Adelaide.
I hesitate on affordability, I don't want to put the family into a tight spot with private school fees coming and living expenses climbing.
But I also can't stand the idea that I know all this stuff but can't or won't act. I want the financial security IP can offer and would choose to leave work as soon as I could if the portfolio allowed.
I have the somersoft investing software and various other spreadsheets to show me the numbers. I think deep down I don't trust the numbers and am concerned about over committment.
Thanks for reading.
I hope you can enjoy life on the old age pension then
Good luck with that or your super
I am trying to break the cycle and be proactive. I am interested in peoples opinions, thoughts and stories on how they overcame similar hesitations. I doubt I'm alone.
My story should not be read as a statement, more of a what do you suggest question. I'm all ears and want to get started.
I want to trust the numbers and begin.
Firefrog said: ↑
I am believe it or not trying to break the cycle and be proactive. My story should not be read as a statement, more of a what do you suggest question.Click to expand...I doubt you are alone either. I was trying to scare you into action.............10 years of studying the numbers without taking action was a complete waste and cost you $100K's.
If you continue to do nothing then the pension awaits. You will be in good company. Most people do nothing.
After 10 years you know the numbers - there's nothing to trust - just do something
The trust thing is not about the the value of the investment that is without question.
I think I am concerned about cash flow in the first year or so, as it stands now we have the odd tight time where bills etc. make me feel a bit lean on cash.
Being really honest with myself I think that is the big one for me, fear that I will make us so tight for cash that it causes stress........
Firefrog said: ↑
Being really honest with myself I think that is the big one for me, fear that I will make us so tight for cash that it causes stress........Click to expand...
And that's a perfectly genuine concern, too, I believe. Whilst I know full well that property investments can be a great vehicle for building wealth, I have also seen the other side of the coin for some people wherein property investments can also drain cashflow. Severely.
So, I think, it becomes a matter of risk mitigation. Some ideas off the top of my head;
- keep a cash buffer up your sleeve to cover unexpected expenses;
- hold the right insurances to cover worst-case scenarios;
- structure your investment(s) so that they are cashflow positive, rather than negative; and,
- make use of paygw variations to boost cashflow instead of waiting for your tax refund at year-end.
I'm sure that there are other ways, also.
Your SANF (sleep-at-night-factor) is important, though, so find a strategy that works for you without causing you too much stress. The whole point of all this investing stuff is to make life a little easier and more enjoyable; not to detract from it!
JamesGG pretty much says it all. The only thing I would add to that is that starting small might be an additional strategy to reduce the risk of cash flow issues.
Look for a smaller, more manageable investment for your first one.
I was afraid when I signed my first contract a couple of years ago. None of the things I was afraid of then have come to fruition.
When I sign a contract now, my greatest fear is that my pen will run out of ink before I've fininshed signing and initialling all the pages
Don't let fear hold you back. Identify the risks and concerns, then work out how to mitigate against them and get to work!!
You need to be sure that you have the $ to invest especially considering that your wife won't be working and the upcoming private school fees. You may need to revisit these decisions if you are serious about investing.
If you are serious about overcoming your fears then I would suggest seeing a psychologist for a few sessions.
Have you tried 'writing off' 10% of your household income for a period of time?
Do that for a few months and make sure you totally lock those $$$ out of sight and out of your family budget. When you prove to yourself that you can now live within your 'new' means, maybe you will be ready and have a nice little deposit to help out! 3-6 months should convince you.
Firefrog - Goal setting!
Do you have and have you formed the habits of effective goal setting. Do you actively practice goal setting?
Make sure you set goals and write them down for daily review, but above all else the most important part to goal setting is that of attaching a date and time frame for attaining the goal/s.
Its the date/time frame that creates your sense of urgency and calls you into action.
........and as you already identified, from starting this thread, its the action you are lacking.
Its the starting that stops most people as you are experiencing.
The real learning is not from books, forums or alike - but from summoning the courage to not letting your fears dictate your destiny and take the first step by jumping in and learning from hands on practical experience.
Food for thought.
You have the ability to do the numbers.
Find a property that will give you natural to positive cash flow.
JUST DO IT.
Worst case will be to sell at a marginal lose.
The experience will repay you 10 fold.
And that will put you above the average regardless of the out come.
Rixter - At work I'm a list writer, list of things to do and they get done. Personal life just gets done as something urgent demands attention. We live in a successful routine but no formal set of goals or time frames.
Indifference - I have begun this idea. Christmas is making it hard but I am on track to prove this to myself.
Rob - Does starting small mean a unit or similar? It seems that purchase price and obtainable rent are coming out a similar weekly cash committments regardless of purchase price. Eg if a buy a unit at $235k I can get around $220 in rent and likewise if I buy a 3 bed villa for $275k I can get about $270 $280 per week in rent. I run those scenarios in PIA and get very similar weekly cash flows.
Firefrog said: ↑
Personal life just gets done as something urgent demands attention.Click to expand...There's the call for action I was talking about. Thats is why it gets done!
Firefrog said: ↑
but no formal set of goals or time frames.Click to expand...And there in lies the root of the problem. What you are currently experiencing is merely the symptom of the cause as you've stated above.
Now that you've identified and acknowledged it, you are half way there to overcoming it.
Hope this helps.
We first "thought" about investing in 2001 but didn't go through with it until 2007. I cringe at how much cash we could be sitting on.
It wasn't until the birth of our first that was the push i needed.
Maybe get your finance organised and it might just follow from there.
Myers Briggs may help
Myers Briggs can be googled and done on line. It will expose your true pesonality type. It may save you the Counsellor costs because you can self diagnose what is holding you back.
If you put away the 10% for 3-6 months as a trial run and survive your cashflow fear and still hesitate, some self analysing may be the best investment.
Knowing yourself - really knowing your true profile - (and you may find a few surprises) can open up a whole new world of possibilities.
Good luck with whatever you decide. Your very honest posting seems like you have already taken the first step of where you know you want to be. I 'm sure it has also helped many others who have read it challenge themselves.
Firefrog said: ↑
PPOR approx $320k value with $237 owing. Have a few K in the bank. No consumer debt at all. Live and want to invest in the outer north of Adelaide.Click to expand...But..... do you have the means/commitment to put money aside?
Your PPOR: what was the original loan amount and how long has it taken you to get there? This will help us understand yor situation a bit better.
There's tme - Take it gradually.
Firefrog said: ↑
I hesitate on affordability, I don't want to put the family into a tight spot with private school fees coming and living expenses climbing..Click to expand...Hi Firefrog,
Raising a family on one income, with private school fees to pay as well as everything else is certainly expensive.
I agree with JamesGC - your concerns are valid and it is good that you have taken these into consideration before embarking on an investment program. The last thing you want to do is to invest and put stress on members of your family.
Firefrog said: ↑
I have the somersoft investing software and various other spreadsheets to show me the numbers. I think deep down I don't trust the numbers and am concerned about over committment.Many of the successful property investors that I have read of in Jan's books have artificially made their properties neutral and gone from there. Furthermore, the way I read Jan's books (I may have misinterpreted them), but as I understand it she and Ian paid off 5 properties in full and therefore had established a very solid equity base before leveraging into more IP's.
Thanks for reading.Click to expand...
Jan gives a sample in one of her books of an investor who buys a PPOR and 9IP's over a 20 yr period. In her example saving cash along the way is part of the plan.
Would it be worthwhile knocking off as much of your mortgage as possible? Then, when you have paid down (or put the money into an offset account) you could buy an IP, knowing that you can easily afford the repayments. In fact, saving a deposit for an IP, or enough to make the IP neutral or ve+ could help. There is no rule to say that you have to borrow 100% of the purchase price of an IP.
Taking your time to get things right is wise and reminds me of the tortoise and the hare.
I'm with Rixter.
You need some goals. You need to write down some simple goals and put it on your fridge and make yourself accountable to those goals.
Go make a deal mate. Then make another.
Pay Yourself The School Fees
Once upon a time, we had three small children.
When No: 1 Son was in Grade 6 we were required to advise the Primary School which Secondary School he would be attending.
Well, that was quick! Where did six years go? We hadn’t really thought about secondary schools much, and hadn’t put his name down anywhere, so this was a bit of a problem.
He decided to take matters into his own hands. Despite some very good local Government schools, he decided he wanted to attend a boarding school.
‘Mummy’ he said, getting out his calculator, ‘When you take into account how much food I eat, and how much hot water I use, it won’t cost much extra to send me to boarding school.’
Mike was horrified. The boarding school in question was closer than the government school. ‘People will think we don’t love him!’ Mike said.
So even though we tried to talk him around, the boy was adamant.
‘Mummy’ he said ‘You can’t make me go to the government school. If I can’t go to the College, I am going to run away’.
The College had waiting lists where babies were registered at birth. Nevertheless, I rang them up and told them the story. The Secretary laughed and laughed, took my details, and rang me back in half an hour.
‘The Principal says that this is just the type of student we want. When can you bring him in for an interview?’ she asked. And so, the boy-who-would-run-away went to College. As a Day Student.
So, this left us with our Do It for One, Do It For All policy staring down at three children x six years x Private School Fees. About the cost of a three bedroom house.
So I had a good think about this.
And this is what I thought.
If we impoverish ourselves by sending our children to Private School at a conservative cost of $180,000, and at the end of that time they have had (hopefully) six years of lovely school experiences, and perhaps a mark or two higher than if they had gone to the $18,000 all up cost of the government school, and we end up on the Pension, has this really done any of us any good at all?
So I decided that if we could ‘afford’ to send them to a private school (under the guise of ‘investing in their future’), then we had to match, dollar for dollar, that same investment in ourselves.
The school fees would be approximately $100 per child per week. Yes, for a number of years we would have two children at the school as the eldest one left and the youngest one entered, but we had to invest dollar for dollar, no excuses.
And that is what we did. We invested for them and we invested for ourselves.
I am happy to say, that the house I bought in 1994 for $105,000 is now worth about $350,000. Apart from the deposit, I have not ever had to make up the payments. I structured the deal so that the rent would cover everything, and it always has done.
So they all had a nice time at school and the Mission Brown single bowl sink house has effectively paid for the school fees and paid us as well.
If we sold it now (which we won’t) then we would see the $180,000 paid back to us. Of course, why kill the goose which lays the golden eggs? It doesn’t cost us anything and the cash flow from that property has enabled us to buy more properties, which are all happily clucking along, laying golden eggs as fast as they can.
At a conservative estimate, I reckon the Mission Brown house has increased in value about $45 each day, every day (plus the rent) since I bought it.
So, Firefrog, what is there to be paralysed about? You earn a significant income. If you want to spend it all, great, but if you want to set an example to your children, then put on your Nikes and start to walk the talk.
Do you know where the Mission Brown house is (was)? On my general school to shops run. It wasn’t anywhere fancy, it was in the same postcode and it had been on the market for months.
It has never been empty, and the mortgage is still about the same, about $65,000. It gets $320 per week rent.
Most importantly, because of that house, all three children (who are not so small anymore) also bought investment properties from their afterschool earnings at the local Bi-Lo. The Boy-Who-Would-Run-Away bought his first property ‘Off The Plan’ at 16 & half.
Yes, sir, that Private School education decision was a very important decision. We made sure that the children all worked from their 15th Birthdays and their work ethic and financial sense is remarkable. Plus, with the exception of the youngest who was very ill for some years, they all did reasonably well academically, too! However, the youngest (who is now 22) now controls property worth about $850,000 so he hasn’t done too badly, considering.
That $180,000 in School Fees has paid handsome dividends – because we made sure we paid ourselves the same as we were paying the school.
We simply could not afford to not do so.
Hope this helps
Get another bank account...
Can you try getting a second bank account (this is important) and have 10% of your income put in it?
The second bank account is important psychologically as you can set it up to have little/no ability to take money out.
Also if you dont have an offset account you need one. All your above minimum house repayments go into this account. Should you get into financial difficulty, you can use your offset account funds to pay off the mortgage(s).