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**donna** · 14-12-2009, 05:20 PM

Hi MattLloyd481 - welcome to PropertyTalk.

We have quite a few regular posters in mortgage brokering so you'll get some good feedback from them.

Utimately your level of risk will determine what you do - play it really safe on the left side to letting it all hang out on the right side. I guess you will work out where in the middle you are.

Your age is definitely a bonus - and may lean you towards the right more than the left.

Cheers,

Donna

**Keithw** · 14-12-2009, 08:37 PM

Firstly, Matt, congratulations for taking the plunge, most are 2 scared. You have made a good start.

Your plan is sound, however my personal preference is always hold onto the property if possible & use its equity by borrowing against it rather than selling it (particularly since you want to use the funds to develop more property).
Then there is no issue with tax on the capital gains, which you will be liable for if your intention at the time of buying is to sell for a profit at a later date as opposed to generating an income from the rent.

You need to seek some professional advice that is specific to your situation, & I understand you are just looking for options on this forum, so I will give you my thoughts (not advice)

The first thing I would suggest you look at is a revolving credit account as part of your existing loan, so that you can deposit your savings against your property, until you decide to use them for something else, at which point you can draw it down again.
Since you are overseas and currently neutrally geared, i imagine that there is no benefit to you to keep your gearing high and offset against any other NZ income, so paying the loan down may make sense for you. After all, for every dollar you increase the equity (ie reduce the loan), you should be able to borrow around 70 -80% of it to buy the next place, and you are reducing your risk.
You are also getting a better return on that money, as saving 6-7% on loans money is much better than earning 1 - 2 % taxable interest on your savings.
If you hold your savings separate, then you can use the whole lot for the next place, but are taking a bit more risk should the market / interest rates turn bad again as some would have us believe.

You should also look at any tax you may end up paying as you reduce the IP loan and hence the property starts making a profit. Thus the savings should probably be "lent" to the property entity(depending on whether you have it in your personal name or on a trust or company- an LAQC would be of no use if you are neutrally geared)
If you had NZ income, or your UK tax dept allows you to offset NZ losses against UK income, the situation is different, as by reducing the loan with your savings, you will also be reducing the offsets you have against NZ / UK income. In this case it can be more efficient to keep the gearing high, but of course your risk is also higher.

Depending upon your attitude to risk and ability to cover loans should there be no tenants, I consider now is still a good time to find yourself another neutral or positive property. If your intention is to buy multiple property over time, then if you are buying neutral or positive property each one it is advancing your plan while those types of property are available, which i suggest in a years time they will be very hard to find.

Hope you can make sense of that lot. Hopefully one of the brokers or Rosco will chirp in with their suggestions.

**Jumpin** · 14-12-2009, 09:17 PM

Hi Matt
Welcome to PT.
The banks will probably not allow you to buy 5-6 cheapie rentals if they are CF neutral. You will run out of funds for routine maintenance, repainting / carpets. etc. The properties may possibly appreciate in value, or they may not. But who cares? If you dont have the cashflow to keep them running you will hit a brick wall. Remember, council rates, insurance etc will increase at least as fast as rent increases. So if the house in CF neutral now, it may still be CF neutral in 5 years - or more likely be CF negative when interest rates go up. Can you afford to be paying 12% interest rates?
You need to ensure you remain CF positive - probably by paying off capital or by buying well.
You may wish to trade but that's a whole new ball game with new risks that need to be understood before embarking.
So make sure you have a plan, and make sure it leads you where you want to go, and continually alter the plan as new knowledge comes your way.
Remember,accumulating properties is not the end game, it is a pathway that could make you money, or lose you money depending how well you play the game and understand the rules.

Appreciation of $25k sounds great. but remember, that can evaporate overnight if the market goes south again, and if you need to sell in a hurry, half of that will go to the RE agent. Long term this is not a worry, but make sure you are in a position to be in long term - many people are currently finding that this is not as easy as it sounds.

Good luck,

Tim

**Barter Trader** · 14-12-2009, 10:29 PM

Building a portfolio

Mat patience is the key incredient. The money you do have is best spent on getting registered valuations and doing home work on your next purchase. As there are alot of force sale situations around get your finance sorted out from a lender on the basis they lend you 65% against the CV or registered valuation as at that point you have borrowed 100% of the purchase price.. When you do buy you are unconditional and can settle quickly. If the rates are low and you can fix it when it turns then do so. Buying like this means you could get 1 to 6 properties and never have to do it again. The advantage of buying at 65% of LVR is that you haven't over exposed yourself to over gearing, but are at risk to having vacant properties if tenants leave. Consider having 6 properties within 2 years and shutting shop to now concentrate on running the portfolio. You would need to have $5,000 per property as a sinking fund so consider your dollars. Once the market is at a point where you are 50% geared your wages/salary is now yours to live off and your retirement is in place and your only 30 years old. I wish you all the best. Dont get gready buying at 80 to 90% LVR you are just working for the bank as a free unpaid debt collector. Talking to people, educating yourself, building repore with real state agents, mortgage brokers and your bank manager is the best tool. Don't get emotionally involved in a property always be prepared to sell it if something should change your goals ie. marriage, children etc. Good Luck. I had 80 properties at 22 years of age that were purchased from one lender at 100% finance. I collected the rents and sold them slowly and went into a different market, boarding houses with gross returns of 20 to 24%, thise were the days.

Originally posted by mattlloyd481 View Post

Hi all,
As a newbie to the PI scene, i plunged in to the market in April, buying my first (of hopefully many) investment property, a little 2 bed house in Hamilton which is neutrally geared. I was stoked to finally be in the market and on my path to riches. Problem now is what to do next...
I have saved another chunk of money (~15k) and want to re-finance my place to get another one, but am now wondering whether i am better off putting in a lump sum payment off my existing loan and focussing on getting it paid off ASAP. Im only 26 - should i take on more debt and keep my LVR high? Loan is only 200k at the moment. My place has appreciated by ~25k since i brought it in April, so i have a little equity to work with now. My basic 10 year plan is to accumulate around 5-6 cheapie rentals that are pretty much cash flow neutral, then when i finish my big OE and am back in NZ (~6 years time) I will do them up a bit and sell so that i can free up some cash to get into some property developing.
Im sure theres experienced people out there who can offer some advice to a newbie like myself on the best stategy and way forward. What would you have done different if you could go back in time?
Open to all comments/criticisms...

Thanks,
Matt

**mattlloyd481** · 17-12-2009, 01:59 PM

Thanks for the advice guys.

As there are alot of force sale situations around get your finance sorted out from a lender on the basis they lend you 65% against the CV or registered valuation as at that point you have borrowed 100% of the purchase price.. When you do buy you are unconditional and can settle quickly

Sorry a bit confused here BarterTrader. Are you meaning that i should try to purchase properties only at a 35% discount from the CV? Wouldn't that take me forever to latch onto such situations? Or are you meaning i have to put in 35% of my own cash into each purchase? You are right though, i need to have patience and not get greedy, exactly what my parents keep telling me!

I believe the UK has reciprocal tax agreements with NZ, so i can potentially use my NZ properties to offset against UK sourced income. However i agree that a highly negatively geared situation is just risky. I can get minor benefits just from offsetting the rates, maint, deprec, insurances etc, thats good enough for me right now...

**Barter Trader** · 17-12-2009, 02:09 PM

Matt just buy at 65% of CV or RV. Be careful with some RV's as alot of them are out dated so make sure your lender is happy with valuer.

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