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  • Total Newbie- Here's where I am at.

    Hello everyone.

    I am a total freshie to property investing- although as I co-own my house with the bank I guess I have a foot in the door. I am already feeling a little overwhelmed with the amount of information (and difference of opinion) in the investing arena.

    I would like to discuss where I am currently at in my life, the basis I want to start on what some of my goals are as well as few questions on my mind.

    I am happy for people to discuss various points of where they think they would start if they were me. I would especially appreciate input from seasoned investors.

    Lets start shall we.

    I am 32. Have a fiancé, an 11 year old step son, and a baby due in December (my first). I work in a salaried position earning approx $64000, my wife to be is self employed and will be finishing work in about a month.

    I currently live in Auckland and currently have a private residence that is potentially subdividable. (I am currently trying to put through council).

    Its last valuation was in May at $225000, I have had an offer recently via a REA friend last week of $265000 with room to move up.

    I currently owe $147000 on this property. However, I recently consolidated debts of mine including a student loan to the total value of $47000 (probably stupid? - decided to do so to survive when baby came).

    I am intending to subdivide the property and sell the section to pay this $47000 consolidation. I have a buyer already for it (my dad) in a deal worth $125000 total. $100000 in cash and $25000 in equity in the property he will build on the back. After paying expenses approx $36000 and the debt consolidation $47000 hopefully will leave about $17000 cash (likely to go towards a deposit or against my current mortgage). It is likely that I will obtain the financing for this through my Dad, so will hopefully not incur too much expense and no real estate fees.

    I am currently on floating at 9% on both loans, and would like to go fixed on the Main home loan.

    This should leave us in a reasonable position in increasing cash flow (not servicing consolidation approx $150 p f/n) plus equity in the new property ($25000) and maintaining (albeit some what reduced) equity in the first house (I believe about $60,000 -$75000 depending). May look at then renting the first house out and rent somewhere else our selves (To have a little more space for the baby).

    From this better financial position I wish to then start to invest in other properties, mainly for long term security both in income and asset base (for my family and retirement), but also to fund some of my own ambitions. Such as a dog-sled expedition to the artic circle and studying to become a chef/restaurateur eventually opening a cafe.

    Wow....I know I’ve gone on....just read what I've written.


    I will keep my questions short.

    1 - When subdividing a property whilst on a fixed mortgage- will you incur penalties- do you require a new mortgage. Are there any issues I have not foreseen?

    2 - Is what I have described a sound basis to start from?

    3- where to from here? I have attended a 4 hour Rich Mastery seminar (espousing IO loans, rolling deposit, RevIQ data analysis etc) which seemed very good and have just read Anita Bell’s book which espouses the opposite tactics (Pay off as soon as possible). I would be interested in you thoughts or any threads where these different strategies are debated.

    I know I have a lot to learn – and I do appreciate your thoughts.

    Thanks - I know that was a lot to read.

    Regards

    Dave

    Last edited by muppet; 04-10-2005, 09:18 AM.

  • #2
    Hi Sayde

    Welcome to PT

    My Thoughts......


    - When subdividing a property whilst on a fixed mortgage- will you incur penalties- do you require a new mortgage. Are there any issues I have not foreseen?

    You should not incur penalties but check with the bank you may want to get valuation done on the portion of security you will be leaving the bank.

    2 - Is what I have described a sound basis to start from?

    Yes it sounds like you have thought it out rather well.
    My only advice is to take in all information you are offered from this site, friends, books, seminars and then act on what you beleive is the best for your situation.


    3- where to from here? I have attended a 4 hour Rich Mastery seminar (espousing IO loans, rolling deposit, RevIQ data analysis etc) which seemed very good and have just read Anita Bell’s book which espouses the opposite tactics (Pay off as soon as possible). I would be interested in you thoughts or any threads where these different strategies are debated.

    I like Interest only others don't, I like rolling the deposit others don't.
    I believe that both are a fast track to great property profits as long as the market stays the same or goes up in a down market I would want to be paying principal on that mortgage.

    There are some good threads about what books to read on this site but I would recommend looking at Jones on property by Bob Jones, Real Estate Investors secrets by Graeme Fowler and Rich rewards in real estate by Phil Jones this selection will give you a heads up as to how people are doing it in NZ.

    Try and look for the over all stratergy of thought involved rather than the nuts and bolts of how to do it.

    If theres anything else just ask.

    Cheers

    Steve

    Comment


    • #3
      Hi Dave,

      Welcome to PT.

      Regarding the P&I vs. IO debate... if you're only paying interest, who is paying off the mortgage? Personally, I use IO but I have a smaller floating mortgage that I pay lump sums off. To never pay off any principle is risky relative to your servicing ability and the state of the market. Would you still be ok if interest rates rose 2%? Phil Jones' approach relies on capital gains which as we know does not always happen. It took a decade for the Auckland property market to recover after the '87 sharemarket crash.

      I suggest that you discuss what you're doing with your bank as your situation is changing and you don't want to be caught out.
      You can find me at: Energise Web Design

      Comment


      • #4
        Hi Sayde,

        A warm welcome to PT.

        My preference is IO with revolving credit facility, which allows me to pay off the principle as fast as I want but still keep the flexibility to borrow to buy more properties.

        There was a debate a while ago on these approaches. TAke a look at:

        P & I or IO, which do you prefer?

        Comment


        • #5
          Thanks for the replies everyone. I agree that I need to understand the stratergies and how to best employ them in given situations.
          I will talk to the bank about what we are doing. How do you get a valuation on a prospective subdivinon I wonder. Guess the bank can tell me/or I can talk to a valuer.

          I guess I also don't want to get knowledge constipation where I get so confused I don't act.

          I will keep reading and listening.

          Thanks again

          Comment

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