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  1. #1

    Default Advice and thoughts please - Bought first property, what next?

    Hi all,

    Its been 6 months since i purchased and moved into my first house at age 29.

    I think i am doing very well, all the utilities bills and mortgage has been paid on time.

    I want to climb the property investment ladder, i have 2 options, move out and rent the existing house for $470-490 p.w or buy another smaller 2 bed house in Mt Wellington or Otahuhu, live in one room and rent the other room out? or should i concentrate and pay as much as possible but still having a life style and get the house paid off?

    I have been paying $331 more than i meant to on my repayments (min $949.50 fortnightly, actual repayment $1,280). I calculated that if i keep up the $1280 repayment the house will be paid of in 16 years (i will be 45 years old!) if the interest rates remains the same 5.79%.

    Set out below is my maths:

    Purchased Oct 2014 - 3 Bed Room, Mangere East $438,888
    Current balance on home loan $347,000
    Fixed for 2 years at 5.79% (commenced Oct 2014)
    Fortnightly Repayments $1,280
    Insurance $950
    Rates $1,600
    Income from spare rooms fortnightly (power,water etc.. Included) $720
    Power, water, internet and sky fortnightly expenses $210
    I spent $1,700 on a heat pump
    Last edited by Envesty; 05-03-2015 at 08:58 AM.

  2. #2
    Join Date
    Oct 2013
    Posts
    1,628

    Default

    With a $347k non-deductible home loan, you need to pay that down as fast as you can. Paying down private debt has a very high after-tax return, and has zero risk. In some ways of thinking about it. It actually has negative risk.

    Others might suggest otherwise, but there's almost no way to beat the return of paying down your personal mortgage.

    Getting in flatmates/boarders is a great idea. Do that, and use the money to kill the mortgage.

  3. #3
    Join Date
    Dec 2003
    Location
    Wellington
    Posts
    606

    Default

    Yup it's not a sexy view - but I didn't buy a rental until I had a freehold home. Also do you have a partner? Are kids an option in the future? Your priorities may change in the future. And yeah how would you go if the mortgage rates hit 9% as they did about 4 years ago, or 18% which they did a bit further back...

  4. #4
    Join Date
    Jul 2012
    Location
    Tavua, Fiji
    Posts
    3,347

    Default

    At the risk of sounding schizophrenic........
    I completely agree with the above, BUT:
    In isolation it is a poverty mindset view. You won't get ahead financially just owning your own home.
    The above advice is a good risk minimisation position only.

    So if you are comfortable with good debt and your personal finances are in order, which they appear to be, then renting your house and buying another one and getting flatmates is a fabulous idea. As you are young then buying a house every now and then can be relatively low stress way of building your wealth.
    If you want say 5 or 6 years you are likely to pay 800K for a 400K unit now.
    If you buy now then you will have that 400K in your (equity) bank instead, PLUS have your current home increase in value.

  5. #5
    Join Date
    Oct 2013
    Posts
    1,628

    Default

    Yep. I think 'freehold' is probably a bit much. But there's no reason to even start thinking about putting money into an investment property until you've got a solid slice of equity in the PPOR. (EDIT: But I agree with Damap, if you focus too hard you'll hurt yourself long term. It's a balance between financial security and financial gain. See next paragraph)

    If you're in a good position in a year or two, consider reborrowing on your home (see an accountant for best structuring; I'll be interested in new clients by then) rather than 'saving a deposit'. And still don't buy anything cashflow negative. Keep plowing the cash into the personal mortgage!


    Also, as an aside, check with your bank whether there is a break fee on your loan. 5.79 for 2 years is a bit high at the moment, with [forgot name] doing all rates up to 5 years at 5.3%. Even a break fee might be worth it if you work it out over a period of 2-3 years. On a 300k loan, 0.5% is $1500 per year.

    And there are other strategies to help mortgages disappear faster. Search the forums for them. The one I like (but requires a lot of financial discipline, seems like you'd be fine) is to put EVERYTHING on a credit card during the month, put all your wages into the mortgage, and pay off the credit card using the mortgage (small revolving credit facility) when it's due, to avoid interest. Also if you're paid fortnightly but the mortgage is set monthly, make your payments fortnightly. You end up making 13 payments in a year. It really adds up.

  6. #6
    Join Date
    Jul 2012
    Location
    Tavua, Fiji
    Posts
    3,347

    Default

    Also an aside Envesty it's great to see your posts from I am wanting to buy to buying and now it's all working well. Great job!!

  7. #7

    Default

    Anthonyacat - My repayment is set fortnightly, i get paid fortnightly.

    And there are other strategies to help mortgages disappear faster. Search the forums for them. The one I like (but requires a lot of financial discipline, seems like you'd be fine) is to put EVERYTHING on a credit card during the month, put all your wages into the mortgage, and pay off the credit card using the mortgage (small revolving credit facility) when it's due, to avoid interest. Also if you're paid fortnightly but the mortgage is set monthly, make your payments fortnightly. You end up making 13 payments in a year. It really adds up.

    I never thought of revolving credit! If i put everything on the credit card how do i pay each month and is it easy to set up a revolving credit?

  8. #8
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,616

    Default

    Quote Originally Posted by Envesty View Post
    Hi all,

    Its been 6 months since i purchased and moved into my first house at age 29.

    I think i am doing very well, all the utilities bills and mortgage has been paid on time.

    I want to climb the property investment ladder, i have 2 options, move out and rent the existing house for $470-490 p.w or buy another smaller 2 bed house in Mt Wellington or Otahuhu, live in one room and rent the other room out? or should i concentrate and pay as much as possible but still having a life style and get the house paid off?

    I have been paying $331 more than i meant to on my repayments (min $949.50 fortnightly, actual repayment $1,280). I calculated that if i keep up the $1280 repayment the house will be paid of in 16 years (i will be 45 years old!) if the interest rates remains the same 5.79%.

    Set out below is my maths:

    Purchased Oct 2014 - 3 Bed Room, Mangere East $438,888
    Current balance on home loan $347,000
    Fixed for 2 years at 5.79% (commenced Oct 2014)
    Fortnightly Repayments $1,280
    Insurance $950
    Rates $1,600
    Income from spare rooms fortnightly (power,water etc.. Included) $720
    Power, water, internet and sky fortnightly expenses $210
    I spent $1,700 on a heat pump
    Hi Envesty,

    A few points.

    1) From your post you have flatmates and not boarders (food incl). So therefore each year you should be returning the income from these flatmates and claiming a portion of the expenses that relate to them. The outcome is probably around break even as you have a reasonable mortgage, or maybe even a small loss. Most people don't do this, and just think it is untaxable income which is not correct.

    2) Go to a mortgage broker and see what you can borrow

    3) Work our the cashflow on your current property if you do rent it all out. Work out your cashflow if you buy a new 2 bedroom with flatmate, and compare the overall cashflow from these two against your current situation. If it is less cashflow, can you still easily afford it

    4) Interest rate risk - I normally like some 5 year fixed loans, to reduce the risk of interest rates going up.

    5) If you can buy right, and the right property that helps you move ahead, and towards your goals, then now is always the time to buy. The difficulty is finding such a property!

    6) What are you aims and goals? And your risk level. Establishing these, then helps to assess what you should be doing. If you aim is to be debt free on the property in 20 years, then your current plan is working, so you would just keep paying off debt. If however you have a different aim/goal, you might have to be more aggressive. It is all about what you want, and everyone is different!

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  9. #9
    Join Date
    Oct 2013
    Posts
    1,628

    Default

    Quote Originally Posted by Envesty View Post
    I never thought of revolving credit! If i put everything on the credit card how do i pay each month and is it easy to set up a revolving credit?
    Most banks have a revolving-credit-type facility. ANZ calls it their Flexible Facility, BNZ has Totalmoney, ASB I believe has Omni. Basically you pay your wages into a mortgage account (or a separate account that offsets with your mortgage) so you get charged less interest, and then pull it back out again to pay the credit card bill. Ideally just setting up the credit card on a direct debit for the full amount on the final day.

    I've never seen any difficulty setting up a revolving credit facility. Sometimes it comes at a higher interest rate, but it's usually not much higher and the total amount will be small (how much are your total expenses each month, likely not more than a couple thousand dollars).

  10. #10
    Join Date
    Feb 2015
    Posts
    130

    Default

    Hi Envesty, You have obtained some great 'mentoring' friends on 'propertytalk'. Their massive depth of experience will for sure be helpful. Knowing what you want and challenge yourself always....Also the 'protection' of your hard earned assets from now on is essential. The world is full of 'gold diggers' .. a Trust maybe...? Chris


 

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