First of all greetings to you all and thanks ever so much for the many hours of enthralling reading.
A bit of background about myself and family (I have pages of the stuff but I'm sure I can still get my point across without complicating things too much):
-We live in Wellington
-My partner and I are in our late 30's with two young children.
-I am the one out of the two of us that enjoys property and wants to make and investment out of it. My partner is interested but not as keen to commit as much time as I am to pursue IP.
-We have no IP's yet,
-Have been on an enjoyable and somewhat challenging learning curve since February re IP
-My partner and I still have a mortgage on our lifestyle home of around $43,000 which will take around 2 years to be repaid everything remaining the same. The mortgage has been on a BNZ rapid repay for the last 4 years since we purchased it and our debt is being reduced according to what we have budgeted.
We have around 90% equity sitting in this home, in my thinking doing nothing.
-Thus the idea to use the equity to leverage into IP's.
-I would consider us to be conservative-slightly moderate risk takers when it comes to investing, especially with large amounts of money involved in a property transaction.
-We do not have other investments, cash etc with which to leverage.
-We have a family trust set up and a newly formed (empty) LAQC.
-Our property goals are in 15 years time to replace our current income (in todays dollars) and build equity
strategy for this:
to purchase long term "buy and holds" and increase value where possible a bit further down the line, with things such as adding carport,garage,room etc. Nothing too adventurous/expensive.
-purchase positive cashflow properties before depreciation claims, use P&I, once personal mortgage repaid. (sounds wonderful and very easy to type into the computer)
I started out thinking that I would use the equity in our house to use as the 20% deposit to purchase our IP's.
I have run through many analyses trying to jiggle this and that and the only close solution has been to provide a debt free/cash deposit of around 20%-25%. and put me on the happy track to P&I happiness, and positive cashflow before depreciation.
Now of course the problem arises - we don't have a cash deposit to set the first one going.
I of course want to purchase now or in the near future, and can see the following acceptable options:
1) Buy at well below market value to provide the invisible deposit to produce the positive cashflow
2) Repay the current home mortgage of $43,000 (2years) and take another (2 years) to save $40,000 for a deposit. That is 4 years away.
3) Increase our income to achieve 2) faster.
I have looked at selling our house to free up cash equity and buying another home for a lessor amount. The financial cost I estimated would run close to $20,000. Real estate fees $15,000 just to start and then shifting costs, conveyancing for selling and purchasing, trustee documentation, as the house is in the trust. So, I didn't really think that this made to much sense to make and instant loss of $20,000.
I have looked at IP analyses on properties ranging from listing prices $180,000 - $220,000 taking into account 100% leverage, interest only over 20 years, claiming deprecation on buildings and chattels(just the normal IRD stuff allowable), no account for property management expenses and squeezing the purchasing price down to ridiculously low prices, and maybe I have came across making $10 a week at the most, then decreasing to -ve figures after about 5 years due to depreciation claim reducing significantly.
What I have picked up from general reading over the forum is that investors that do have mortgages still remaining on their homes have already invested in IP's. For those readers out there who are in this situation what did you do before you bought your first IP? did you use the equity in your home as the deposit for your IP's? if so how have things worked out for you? if not, what did you do?
If someone is in the same or similar situation as me and has managed to make sense of things please come out of the closet and let me know what you think?
Looking forward to hearing from you,
till next time,
Annett
A bit of background about myself and family (I have pages of the stuff but I'm sure I can still get my point across without complicating things too much):
-We live in Wellington
-My partner and I are in our late 30's with two young children.
-I am the one out of the two of us that enjoys property and wants to make and investment out of it. My partner is interested but not as keen to commit as much time as I am to pursue IP.
-We have no IP's yet,
-Have been on an enjoyable and somewhat challenging learning curve since February re IP
-My partner and I still have a mortgage on our lifestyle home of around $43,000 which will take around 2 years to be repaid everything remaining the same. The mortgage has been on a BNZ rapid repay for the last 4 years since we purchased it and our debt is being reduced according to what we have budgeted.
We have around 90% equity sitting in this home, in my thinking doing nothing.
-Thus the idea to use the equity to leverage into IP's.
-I would consider us to be conservative-slightly moderate risk takers when it comes to investing, especially with large amounts of money involved in a property transaction.
-We do not have other investments, cash etc with which to leverage.
-We have a family trust set up and a newly formed (empty) LAQC.
-Our property goals are in 15 years time to replace our current income (in todays dollars) and build equity
strategy for this:
to purchase long term "buy and holds" and increase value where possible a bit further down the line, with things such as adding carport,garage,room etc. Nothing too adventurous/expensive.
-purchase positive cashflow properties before depreciation claims, use P&I, once personal mortgage repaid. (sounds wonderful and very easy to type into the computer)
I started out thinking that I would use the equity in our house to use as the 20% deposit to purchase our IP's.
I have run through many analyses trying to jiggle this and that and the only close solution has been to provide a debt free/cash deposit of around 20%-25%. and put me on the happy track to P&I happiness, and positive cashflow before depreciation.
Now of course the problem arises - we don't have a cash deposit to set the first one going.
I of course want to purchase now or in the near future, and can see the following acceptable options:
1) Buy at well below market value to provide the invisible deposit to produce the positive cashflow
2) Repay the current home mortgage of $43,000 (2years) and take another (2 years) to save $40,000 for a deposit. That is 4 years away.
3) Increase our income to achieve 2) faster.
I have looked at selling our house to free up cash equity and buying another home for a lessor amount. The financial cost I estimated would run close to $20,000. Real estate fees $15,000 just to start and then shifting costs, conveyancing for selling and purchasing, trustee documentation, as the house is in the trust. So, I didn't really think that this made to much sense to make and instant loss of $20,000.
I have looked at IP analyses on properties ranging from listing prices $180,000 - $220,000 taking into account 100% leverage, interest only over 20 years, claiming deprecation on buildings and chattels(just the normal IRD stuff allowable), no account for property management expenses and squeezing the purchasing price down to ridiculously low prices, and maybe I have came across making $10 a week at the most, then decreasing to -ve figures after about 5 years due to depreciation claim reducing significantly.
What I have picked up from general reading over the forum is that investors that do have mortgages still remaining on their homes have already invested in IP's. For those readers out there who are in this situation what did you do before you bought your first IP? did you use the equity in your home as the deposit for your IP's? if so how have things worked out for you? if not, what did you do?
If someone is in the same or similar situation as me and has managed to make sense of things please come out of the closet and let me know what you think?
Looking forward to hearing from you,
till next time,
Annett
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