Looking for serious opinions

[XSorXpire]

I put my house in the paper last weekend for $100,000 above the valuation i had nine weeks ago and the second person through the door bought it. (Yay for me i say).

I am interested in what you would do in this position.

I owe $200,000 on my rental property. I do not need to live in that property.
It generates at the moment about $11000 a year. (but will rise if i tennant it again)
It is in a fixed interest i/o loan for another two years at 6.69%

With the sale of my home i have the $200,000 to buy it out if i wish and be totaly debt free owning my own home at 36.

I was thinking instead of investing the $200k into something that would generate a higher percentage than the home loan and use that to pay any shortfall from the rent. I feel that this would increase my wealth as i would have two investments working for me as opposed to just the equity increase from which i would have to draw and repay.

I understand the need for professional advice, but to go to a profesional with some ideas is better than to go with none at all. As such i am asking for your opinions. If i dont understand what you mean i will ask you for more info. PLease understand i am very interested in peoples opinions on wealth creation and WHAT YOU WOULD DO IN THIS SITUATION.

Questions
1) Do you think this would be viable and why?

2) What would you do in a similar position?

3) Who would you choose to invest with and why? (If you were to invest the money)

[dr00]

are you after capital growth or positive cashflow?

are you borrowing to buy another house to live in?

[Hewie]

As requested this is what I would do.

I would look at a couple of options.

Firstly I would go and see how much money I could borrow if I was debt free and how much its going to cost to service that debt both at current interest levels and up to 12.5% ( I like a decent buffer )

I would be weighing up paying out the mortage and borrowing to invest (either as a company or individual). vs retaining the mortage and investing the 200k.

There are some debt portfolio products out there that give you one over arching debt level which you can then split into a number of smaller parcels, with different terms and repayment options .. ie P&I, Interest only ... houses, investments, cars etc ... it means you can shuffle debt around without having to refinance all the time.

Just make sure you get an 100% offset on the overall amount or it can get a bit expensive.

Depending our your current personal wealth you can try speaking to the private banking areas of any of the bigger banks. They can do things that the retail sections cant. Obviously you pay a bit more ... but you can gain access to some useful tools.

200k is a good investment protfolio.... and if so inclined a small leverage account .. say 50% would see you with 300k worth of stock.

200k in blue chips that return a steady income and 100k worth of higher risk type investments for captial growth.

or 100k worth of stock leveraged to 150k and a deposit on another house/unit.

Just my 2c.

[Deej]

I would go and buy back the house you just sold.

: )

[XSorXpire]

are you after capital growth or positive cashflow?

are you borrowing to buy another house to live in?
[/b]

I would like cashflow to cover the short fall on the property.
I can either live in the Granny flat attached to the rental property and claim part as an investment, or gain cashflow from the property by paying it off. I also have an oportunity to live somewhare else.
I am not borrowing for another property as i feel it is a sellers market and am happy to wait for an oportunity down the track.

Firstly I would go and see how much money I could borrow if I was debt free and how much its going to cost to service that debt both at current interest levels and up to 12.5% ( I like a decent buffer )

I would be weighing up paying out the mortage and borrowing to invest (either as a company or individual). vs retaining the mortage and investing the 200k.
200k in blue chips that return a steady income and 100k worth of higher risk type investments for captial growth.
[/b]

Thanks for this Hewie.
The property i have kept has been a rental property for about three years. A year ago i fixed the interest for three years as i had no intention of selling anything. I have two years left at a better interest rate than i can get at the moment. The property was valued at $360k nine weeks ago, so i thought the bank would not lend me much more than i will have in my hand and will give me a higher interest rate plus fees.
I was thinking blue chip due to the growth of china for the next two years before making a longer term commitment. I would also like to understand the stockmarket a little better.
If i was to do this, (as you have described), what are the benefits of having a go myself as to an investment house?
What tools are available from the banks? I have an oportunity to get in to Macquarie. (opinion?)

I would go and buy back the house you just sold.
: )
[/b]

If i were to buy it back at market value i would certainly win yes.

[sathid]

Who did your valuation? From what I've seen valuations from real estate reps tends to be conducted differently (and gives different prices) than those by banks.

[Hewie]

Thanks for this Hewie.
The property i have kept has been a rental property for about three years. A year ago i fixed the interest for three years as i had no intention of selling anything. I have two years left at a better interest rate than i can get at the moment. The property was valued at $360k nine weeks ago, so i thought the bank would not lend me much more than i will have in my hand and will give me a higher interest rate plus fees.
I was thinking blue chip due to the growth of china for the next two years before making a longer term commitment. I would also like to understand the stockmarket a little better.
If i was to do this, (as you have described), what are the benefits of having a go myself as to an investment house?
What tools are available from the banks? I have an oportunity to get in to Macquarie. (opinion?)
[/b]

Typically a bank will lend to about 80% of a properties value .. so your looking at 288k based on that 360k figure you gave.

The interest is tax deductible and so are the fees, and if it lets you get into a better position (product wise) its worth investigating.

You can always ask the question ...

Ok .. in terms of you investing in the market (online broking) and using a full service broker there are cases for both.

Obviously ... an online broker is far cheaper ... last I checked your paying about $20 a trade. This is versus usually a minimum of $80 for a full service broker. The biggest difference between the two is with a full service broker you get advice and opportunites that you wont be able to get from a discount house.

Now. People are going to argue no matter what I tell you .. some people HATE using stockbrokers and like to try to do it themselves, I personally like using a full service ... because I like my IPOs and capital raisings and you need a broker to get access to these.

Besides .... if they make you 100k in a year do you really give a fuck if you paid them 5k ?? I mean .. at that rate ... heres my 50k ... make me a millionaire.

Things to remember .. not all broking houses were created equal. You need to find the one that suits your needs and your investing style. Feel free to PM me if you want to discuss a few.

Banks provide your debt tools. Loans, equity lines etc ...

Maquarie .. ? as in the stock MBL ? or as in the broker ?

As for knowledge of the stockmarket ... well there are heaps of books out there ... personally I wouldnt bother with the ones like ... "How to be a millionaire in 6 months through thrading options" .. and things like that. They are interesting later down the track .. but when your just begining they can muddle the situation.

Just grab a couple and have a read ... the mechanics of the market are fairly easy to get your head around .. its the pyschology of it thats more difficult.

ASX publish a number of information booklets that cover the basics pretty well.

And my last piece of useless wisdom is ...... dont get too attached to your money.

Money is just money .... dont get emotionally tied up in your investments ... if your taking a loss .. take it and move on. Learn the lesson but dont do the "what if" thing or the "I shoulda done this or that" ...

I know so many people that have lost far more than they had too just because they wouldnt just sell out a loosing position and move on.

[big_harold]

Agreed - broker topic is controversial.
When you are investing peanuts (ie less than 20K) they are not really interested and the cost to value ratio is all wrong.
But if you have more than 30K it is best left to a good solid broker.

For more controversy I'm tending to think we are getting closer to a major "correction" in the market. Yesterday was perhaps a taste of things to come. Both stocks and property have enjoyed a very rosey couple of years when it seems almost no one can lose. If you invest for the long term this aint a problem - but chose carefully if you go down the margin lending loan, as banks will require you to maintain this "margin" or ratio when your stocks flounder.

If buying shares yourself do some quick research into global economics.
Eg.
I have bought Woodside as a medium/long term because of the notion of PEAK oil, the Iran controversy and the fact that they are heavily geared into Gas (an alternative fuel source to oil). Research is the key.

I think both stock and property are ALWAYS going to do well long term BUT always leave yourself a CASH SAFETY NET of 6 months minimum. Meaning if you lose your job you can meet all your obligations for 6 months.

Finally be aware most people (including myself) aint qualified to give advice so take it all with a pinch of salt. I like to listen to rich muddafuggas

[Hewie]

Sorry I reread your post.

A couple of the benefits of investing in the stock market.

You can sell your investment in a few days .. and settlement is 3 days later ... so its usually a more liquid market. (obviously this depends on the stock your selling)

You can invest less.

You can get higher returns ... ie you can go into higher risk investments .

You can leverage within your portfolio to increase your exposure .. or sell out to decrease it.

Overall .. I personally feel the market is a bit more flexible than property investments.

But thats just me.

Finally be aware most people (including myself) aint qualified to give advice so take it all with a pinch of salt. I like to listen to rich muddafuggas
[/b]

Most ..

[XSorXpire]

Finally be aware most people (including myself) aint qualified to give advice so take it all with a pinch of salt. I like to listen to rich muddafuggas
[/b]

I agree, but for me opinions are always welcome. This can help stimulate interest and allow questions to form.
Thank you for your help.

Who did your valuation? From what I've seen valuations from real estate reps tends to be conducted differently (and gives different prices) than those by banks.
[/b]

I paid a licenced valuer for taxation purposes.

Maquarie .. ? as in the stock MBL ? or as in the broker ?
[/b]

I was given the direct line of the investment advisor for maquarie bank in the city by a very rich geologist i met through my last job.
I am very grateful for this Hewie, i will PM you for info shortly. I would like to reread this again and grab the brouchers from the stock market first.

Thanks again
XS

[Hornet]

Just my opinion, remember. I could be waaaaaaay off the mark on some of this, so take it with a BIG grain of salt.

1. Is this viable?
If you were to move into the place you're talking about, then yes, that's viable. Your home is not tax deductible, so paying it off is a good idea. If you're talking about keeping it as a rental, then I'd be paying enough off so that it is generating positive cash flow, because the debt in a rental is tax deductible and can work for you. Then whatever you do invest in won't have to cover the shortfall between repayments and rent.

2. What would I do?
With $200,000, you can invest in 6 properties using 10% deposit (on $200,000 properties) plus 5% in borrowing costs (roughly). This may be a bit too far on the negative gearing side, so, as you said you wanted a cash return to continue to cover the rental you already have, this probably isn't the way to go. The plus with doing this is that you have 6 chances of cashing in on the current growth cycle.

Personally, with the average property in Perth hitting around $300,000 to $350,000, I would use a 20 to 30% deposit on 2 or 3 properties. If you do everything properly, i.e. get a quantity surveyor to assign depreciation and use a property manager for renting/repairs, then you should be able to come out at least breaking even.

With this scenario, you don't have all your eggs in one basket, so to speak, and will have 3 or 4 properties, including your current rental, generating income as well as capital growth. With current trends, you'll have them all growing at the current growth (mine have returned 22%p.a. over the last 3 years) for the next few years (the property growth cycle looks set to continue that long at least) all the while at least covering all the costs, repayments, etc.

All these scenarios have some pretty large debt. If you're worries about that, don't do it. Having said that, I'd love to have $2,000,000 owed to the banks all tied up in property on IO loans. If they were all around the average Perth price, I'd have 6 of them all growing at the current rate, plus generating rental income. In 10 years I could sell 2 or 3 to pay off a fair bit of the others and semi-retire. NICE!!!!

Most banks offer some good packages these days for people that have large amounts borrowed. I have a package with ANZ (Breakfree) that, between 150,000 and 250,000 gives a .5% discount on the current rate, between 250,000 and 750,000 gives .6% discount and for amounts over $750,000 gives a 0.7% discount. Plus no fees on any of your accounts, a credit card and an offset account.

Win-win in my book.

But then, I am biased towards property.

• Minimise vacancy by;
• buying in areas people want to live
• making improvements that make people want yours and not the one next door
• making sure things that need fixing are done promptly (a good prop. Mngr is worth his weight in gold)
• charge the average rent for the area, or maybe slightly under. What's $10/week if you have someone renting?

3. Who would I invest with and why?
For a few years now I've been getting newsletters from The Investors Club, www.tic.com.au. I won't go into why or why not to use them, as so far I haven't used them, but they are definitely worth a look just for info on how they use property for investment purposes, tax deductions, etc.
There's also property wizards, www.propertywizards.com.au and they will look for property for you once you give them the attributes you're looking for in a property.

So there you go... my $0.02.

The bill is in the mail.

[Flamedance]

Hi XSorXpire
Hornet has some great ideas there but as you say Perth appears to be in a sellers market at present but I would still look at reducing debt in the rental property with a buffer as Hewie mentioned of say 12.5% (Nice figure that). Don't pay it out just get it to a level where it covers itself and generates 5-10% profit. I'm not a big believer in negative gearing so if an investment is in the red I cut it.

Now the stockmarket, One of my favourite quotes -
"Apparently I was the only man in America who did not have his ownfirst hand stock market information. I listened eagerly to what they had to sayand religiously followed their tips. Whatever I was told to buy, I bought. It took me a long time to discover that this is one method that never works".
Nicholas Darvas (How I made 2 million in 2 years on the stock market) creator of Darvas box theory.

Now bear in mind I am a technical trader, I have no emotion or loyalty to any stock - If the price goes up I buy it if the price goes down I cut it loose. I don't care that this company mines uranium or that my GF's fathers uncle works high up in that one. I don't care what company they say is Blue chip - Telstra is Blue chip and I won't look at that stock.

I agree with Hewie on margins - Leverage is great but don't go to the maximum give yourself a bit of room. You may want to check http://www.perthstreetbikes.com/forum/inde...ndpost&p=268056 as I listed some bits there that may help you.

The most important thing is not to jump into anything head first. Speak to a qualified adviser and even dump the cash into a short term Managed fund with a monthly rollover option until you know what you wanna do. And if you go the stockmarket practice on paper first. I don't want to scare you as it has been very profitable for me and I plan on "retiring" from the workforce within the next 2 years (I'm 33) As my goals are well and truly in place for my dream. But statistics show an 80/20 fail/win ratio in the market so do your homework and make sure you are in the 20% bracket. If you need any help I have heaps of links for info.

[big_harold]

Just my opinion, remember. I could be waaaaaaay off the mark on some of this, so take it with a BIG grain of salt.

With $200,000, you can invest in 6 properties using 10% deposit (on $200,000 properties) plus 5% in borrowing costs (roughly).
Personally, with the average property in Perth hitting around $300,000 to $350,000, I would use a 20 to 30% deposit on 2 or 3 properties.
[/b]

Your 6 property model would require way too much of your cash-flow to make up the rent to mortgage gap.

Your 2 property model requires that rent is about $300-310/week to approach break even.
Finding a property selling at $300K in an area that can generate the required rent is rare - people aren't going to pay $300/wk to live in the outlying burbs.

My 3x2 newish duplex in Yokine gets $300/wk and is valued at $425K.

I would consider puting a $200K deposit on a $500K house in Karratha that rents out for $600-700/wk.
As a basic set and forget investment BUT capital appreciation aint so good as the metro area.

Also IMHO I think The Investors Club is very very very dangerous.

[Hewie]

Hornet - Have you tried that model ? or is that completely hyperthetical ?

I would also be holding off form putting your funds into the market for a short period.

[Flamedance]

2. What would I do?
With $200,000, you can invest in 6 properties using 10% deposit (on $200,000 properties) plus 5% in borrowing costs (roughly). This may be a bit too far on the negative gearing side, so, as you said you wanted a cash return to continue to cover the rental you already have, this probably isn't the way to go. The plus with doing this is that you have 6 chances of cashing in on the current growth cycle.

Personally, with the average property in Perth hitting around $300,000 to $350,000, I would use a 20 to 30% deposit on 2 or 3 properties. If you do everything properly, i.e. get a quantity surveyor to assign depreciation and use a property manager for renting/repairs, then you should be able to come out at least breaking even.

[/b]

Hey Hornet
Just curious on the average prices there - I have been looking online for a house for the past few months and have not found one decent house in a desirable suburb for less than 400 and even then they are pretty average old homes on a sliver of sand. IMHO I think that real estate in Perth has gone into an overreaction and would not consider buying until the hype dies down a bit. Sitting here in Qld at the moment all I hear about is Perth property everyone has to get in on the deal with Paul Clitheroe and others like him screaming virtues of the cheap housing I would think there will be a bit of an adjustment coming to prices there soon but for now it's not a market I would be in.

[Hornet]

Hey Hornet
Just curious on the average prices there - I have been looking online for a house for the past few months and have not found one decent house in a desirable suburb for less than 400 and even then they are pretty average old homes on a sliver of sand. IMHO I think that real estate in Perth has gone into an overreaction and would not consider buying until the hype dies down a bit. Sitting here in Qld at the moment all I hear about is Perth property everyone has to get in on the deal with Paul Clitheroe and others like him screaming virtues of the cheap housing I would think there will be a bit of an adjustment coming to prices there soon but for now it's not a market I would be in.
[/b]

Statistically speaking, the average price in Perth (I don't know if they mean from Kwinana to Joondalup or somewhere in between) earlier in the year hit the $300,000 mark. You'll obviously be paying more for a "decent house in a desirable suburb".
IMO, and I'm not alone, Perth is overpriced. I've got nothing against WA (hell, I moved back here after living in Qld, Canberra and Sydney) but housing prices shouldn't be the same here as the Eastern States. There is more population/infrastructure, and therefore constant demand, over East and that should dictate that prices are higher there than here.
What has happened is that people from over East have seen the cheaper prices here and started buying up. And then they forgot to stop at decent prices - for here... they're still buying coz we're still cheaper than East.
I think you're right... there is a correction (or at least a plateau) coming, but it might be a little way off due to the mining industry still driving the economy here for a while longer.
This is all speculation, of course, but it's mostly what I've read or heard from people that know more than me (which wouldn't take much ).

[Flamedance]

Statistically speaking, the average price in Perth (I don't know if they mean from Kwinana to Joondalup or somewhere in between) earlier in the year hit the $300,000 mark. You'll obviously be paying more for a "decent house in a desirable suburb".
IMO, and I'm not alone, Perth is overpriced. I've got nothing against WA (hell, I moved back here after living in Qld, Canberra and Sydney) but housing prices shouldn't be the same here as the Eastern States. There is more population/infrastructure, and therefore constant demand, over East and that should dictate that prices are higher there than here.
What has happened is that people from over East have seen the cheaper prices here and started buying up. And then they forgot to stop at decent prices - for here... they're still buying coz we're still cheaper than East.
I think you're right... there is a correction (or at least a plateau) coming, but it might be a little way off due to the mining industry still driving the economy here for a while longer.
This is all speculation, of course, but it's mostly what I've read or heard from people that know more than me (which wouldn't take much ).
[/b]

Hey Hornet
Not having a shot mate just letting you all know the word on the street over here. I can't wait to get back to Perth but I am tied up in a motel I have purchased . But all I hear is Perth. Statistics tell us Perth is the 3rd fastest growing city in the world right after Brisbane at number 2 yet you can still purchase property in decent areas of Brissy around 250ish. This is why I can't understand the prices in WA at the mo. I'll be sitting on the fence a while before getting into property in WA but with interest rates tipped to rise there should be some bargains coming up shortly from those who have over extended their wallets.

[dugy]

IMHO:

Unless interest rates go up an unreasonable amount I can't see the market easing.
Whilst we have the resources boom and the influx of people. They'll need a place to live.
Given Perth's geography, we’re expanding disproportionately quicker north and south.
Hence the prices of established, desirable areas going through the roof….and the area’s that previously weren’t so desirable……becoming more attractive to people than living in suburb 40min from the city.

[XSorXpire]

I was poached into a wealth creation company based on negative gered property investments about four years ago. I also had an oportunity to sit on a plane from perth to sydney with a fella who had come to perth to buy one of only two lambos in the country. He had made his money from positve geared property investment and challenging tax laws.
I understand how to accelerate mortgages thru property investment and the structure of your finances. I was poached for selling skills, but was the only one with an investment property and the youngest. I learnt a fair bit. I was also recently informed that the indicators point to three more years of property growth and that they are now sourcing properties in queensland for perth investors. I sold mine for personal reasons and i could not argue with the price, even the valuer that came yesterday for the purchaser was suprised at what i got.
I am more interested now in diversifying. I would like more fluidity for a year or two. I may look at property in Queensland next. I really dont work very hard and never have. I like to spend long periods working partime or not at all,. so banks aren't gona want to touch me for a while.
They say they will but i am more likely if i were to borrow to have to go thru non conforming lenders.
I love property. I have done well in nine years considering i started with nothing and spent less than half of that time working full time. I have not had a chance to get to the stock exchange for the pamphlets yet hewie due to my missing dog. i just wanted you guys to know ii am following what is being said.

Thanks
XS

[Dingo]

XS:

ASX Website

However ive just remembered your on dialup, the website should be fairly dial up friendly though, and some of the online courses (as hewie recommended) are great. Register as a member and its a great way to do some "paper trading" using their watchlist system, also gets you invited to various investor education seminars held monthlyish.