Any advice welcomed

[Jabroni]

Hi, I'm looking for some advice to plan how we proceed in the future. Obvious goals for us are to be financially secure

My wife and I are pretty new to PI but decided to get into it a year ago by buying 2 rentals properties valued over $650k.

We also own our own home valued over $600k of which we should be mortgage free within the year.

We have the rentals running in a LAQC and with the tax rebates are servicing this to approx $6k a year by topping up from our personal income.

Our combined income is over $100k of which I earn the majority so hence have the greater company share and achieve the tax rebate from.

Our current objective is to pay off our own home mortgage, and possibly my wife then stopping work and us starting a family.

Question is where to then?

Do we look to purchase more rental properties especially with the loss of one income from my wife? How can we manage the LAQC and achieve any more tax relief to be able to purchase more?

Sorry if this might sound a bit noobish, as mentioned we're new to this so learning as we go.

Many thanks in advance for any advice.

Cheers

[spaceman]

Get married first




I suggest buying a reading a series of books by Peter Sibbald a CHCH accountant ....they should give you a few ideas on how to maximise your tax efficency.

Cheers
Spaceman

[Jabroni]

Cool, I have been looking around to see if there are some books that would be of some help but so many to choose from. Will definitely see if I can find the one you have suggested.

One thing I was thinking of is if I should just look to buy another house and pay it off to own, where as my rentals are all interest only.

Thanks

[Glenn]

Well I think you are doing really well and doing it the best way.
Paying off the non tax deductable portion of the home mortgage is the smart thing to do.
I see a lot of investors doing just what you have done. Buy into property, perhaps join their local PIA then after about two years realise that they have no cash reward for all the output of nevous energy, spare cash, and weekends looking after three properties instead of one. There does always seem to be a big turnover of new members joining then leaving after two years. Many of these people are happy to take the capital gain profits and are even more happy to get their life back.
Most people on this site would suggest you really get moving at this stage.
My way has been to make haste slowely.
Like one more property every two years.

[ActionMan]

Goals

I believe your goals are too broad. Try Dean Leftus' site as to how to set goals. Goals are crucial to your success and they should be "SMART".

Obvious goals for us are to be financially secure

Our current objective is to pay off our own home mortgage, and possibly my wife then stopping work and us starting a family.

Rather as an example:

We will earn $100,000 passive income by December 2008 to replace my wifes income.

By having a specific amount you can then come up with strategies to achieve that.
Simple but powerful.

[xris]

I believe your goals are too broad. Try Dean Leftus' site as to how to set goals. Goals are crucial to your success and they should be "SMART".





Rather as an example:

We will earn $100,000 passive income by December 2008 to replace my wifes income.

By having a specific amount you can then come up with strategies to achieve that.
Simple but powerful.

Hello actionman,

You sound like you have just come out of one of those seminars.

What's wrong with Jabroni's goals? Being financially secure and starting a family sounds pretty reasonable and specific to me.

In fact the term 'financially secure' is quite a good one I believe, and is something most property investors aspire to, or have reached.

Being 'financially free' may also come at some later point, but those investors in that position would be fewer. Those who have reached that point quickly are not, in my book, property investors, they are property traders, speculators, developers - or just astute businessmen where property forms part of their business.

xris

[ActionMan]

Hi xris

I disagree. A goal has to be specific, measurable and with a set time frame.

Of course there is nothing wrong with a goal "to be financially free" but then without a time frame - never becomes an option.

A measurable goal allows constant review as to how ones doing.

Also being financially free differs to all people. Defining it clearly will allow one to know that its been achieved and thus rewarding.

AM

[Karma]

Firstly, I want to do the exact same thing Jabroni. My main motivation for investing in property is to allow us to live comfortably should i, the main income earner, decide to stop working to raise a family. I would love for BOTH me and my partner to be fulltime parents, parttime workers.

The easiest way to be financially free is to drop your standards, quit your job,sell your house, pick up a cardboard box from the supermarket and live in it. Not happy, but definately free of financial obligation.

We have really specific numbers in our short/med/long term goals. Right down to how much we spend on our Jetski and Ride-on lawnmower!

start with the answer:

ie $100Kpa passive income by 2012

and work backwards to find the formula..

ie: 10x properties earning $10K ea by purchasing two per year for 5 years.

that way your SMART goals fulfill the second and fifth requirements by being Measurable and Timely too. Also, the more short-term each step, the more you can define how attainable/realistic it is for you. i like to work in 6mth intervals.

S - Specific
M- Measurable
A - Attainable
R - Realistic
T - Timely

after all, any sucessful property purchase is just a numbers game, why shouldn't the overall gameplan be numbers too?

In your scenario:
-paying off your home mortgage means you have $xxx extra per week, which is $xxxxx pa.

-over (for example) a 5yr plan of purchasing property, your existing 2 properties' increases in rent mean you're making $xxxx profit pa (instead of losses) maybe?

-next, how many years until your newer properties are earning $$$ instead of losses?


how much does this equate to, and how many years will it take? bring on the excel worksheet!


then we can say "thats too far away" or "not quite enuf $$$"...

so we have to change the equation. basically, a property is an equation:

(rent) - (expenses) = (profit/loss)

to change from a loss to a profit, we need to change a figure. either increase rent, or decrease expenses.

first chance we get is to purchase a property which is positive cashflow already. if this is not possible, we can look at improving part of the existing equation.

Rent can only be increased as the market allows. we have little control here. in general it will increase over time, rather than decrease. so we can assume, given enough time, rent will have to become more than expenses, therefore ending in profit. maybe it could be worthwhile to add value to a property to increase rent? here, we need to use numbers again. if your property is already at above median rent, this may not be an option.

expenses we can control a little more. not so much rates, insurance, maintenance but mortgage. if we can afford to hold more equity in a property, we can decrease the amount owing, therefore the repayment.
you may want to use property trading for this? buy, reno, sell, and put the profit into an existing rental. maybe you could put savings from not paying a personal mortgage in as capital? do the numbers on a couple of scenarios maybe?

im just a learner investor too, but i see it as solving a problem. having numbers to work with can make it a simple addition and subtraction equation.

[Glenn]

I think you are right on the button Karma.
However I think that too many people would never see themselves buying two properties per year in the Auckland market and not getting the speed wobbles.
There are good ways and fast ways of doing this investment thing.
If an investor is going to be that rather than a trader then either they need to insert a lot of extra cash into the business in the early years or only buy cash positive properties.
Perhaps I am lucky. My first IP was 15% first year and now produces 25% on the original cost. Sure small and not very good for refinancing but anyone could and still can do it obviously with differing figures.
Anyway what I am trying to say is I think it is more important for each investor to find their own comfort zone and work that to their best ability.

[Gerrard]

Hi Karma, about the only thing I see missing is the "why". Why do you want $100k p.a.? I realise this amount was only an example, but I reckon it has to relate to your vision. What's your vision, then the financial side of it may be just one of your goals to help reach that vision.

Xris - It might sound happy clappy, but I reckon ActionMan was bang on.

Gerrard

[rustica]

Hi Karma, about the only thing I see missing is the "why".
Gerrard

Completely agree!