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Thread: The beginning

  1. #1
    Join Date
    Apr 2020
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    Default The beginning

    Hi guys,

    Please bear with me. Due to the current Covid-19 circumstances, I recently stumbled across this forum (cheers Covid). Iím not looking for a hand-out, but some advice, information & educating would be greatly appreciated.

    Shoutout to ďJaffaĒ for directing me to ďRich dad Poor dadĒ, Robert Kiyosaki which then introduced me to Ken McElroy & various other investors.

    As I enter the rabbit hole, I feel enlightened by the fraction of knowledge I have already gained, but concerned that I wonít be able to be content with how I was previously living my life (living to work). Now Iím not suggesting that Iíll ever have financial freedom, but at least moving in the right direction would some what scratch the itch.

    As you can tell, property investing is very new to me, I have a lot to learn.

    Hereís a quick introduction of the passed few months until now, on how I ended up writing this wall of text.

    - Started looking into building in a new subdivision.
    - Planned to sell our current property & build.
    - Decided to keep our property as a rental & build.
    - Found a section, signed an S&P agreement.
    - Was in the process of coming to a build design, which was very close.
    - Covid-19 arrives.
    - Lockdown begins.
    - Reconsider our options, regarding building or buying off the market.
    - Start looking into owning multiple rental properties.
    - Come across this forum. Start trying to educate myself by reading books, articles, listen to audiobooks etc.
    - Write this post.

    So with that being said, the goal would now be to make some smart financial decisions & begin with a second property, while also leaving the door ajar to eventually purchase a third.

    Iíve been liaising with a broker, we havenít been pre-approved but heís said weíd have borrowing power of around about $630,000 whilst keeping our current 2-bedroom property as a rental.

    Figures regarding our current mortgage & property;

    Property value: $410,000-$420,000 (approx, we havenít had it professionally valued).

    Mortgage: $240,000

    Weíve maximised our repayments to $1,900 per month to knock down the principle & gain more equity as quickly as possible.

    I understand we can borrow against the equity we have.
    - Would that mean we have $170,000 equity?
    - What % of that could be put down as a deposit?
    - Would the amount of equity used come off the loan amount required?

    E.g.
    Property: $400,000
    Equity: $100,000

    Loan required: $300,000?


    I understand starting small would probably be the best decision. Iíve read equity over rent in good, so investing in a lower quality property where you can own more equity would be the way to go? Especially if wanting to continue the ability to invest?

    We live in the Nelson region, I donít expect anyone to know much about the areas or the property market in this location.

    Ideally we would upsize from a 2 bedroom to a 3, and use the 2 bedroom as our first rental.
    With borrowing power of approx $630,000 if we look for a property in the region of approx $400,000-$450,000 providing the rental is making positive cash flow (and property value hasnít dropped) would that price range keep the door ajar for future investments as we wouldnít have completely capped out our borrowing power?

    I understand there is a lot of questions in this wall of text, positive or negative Iíd really appreciate any feedback, this is new to me but I will put in the time & learn as best I can.

    Thanks to all who take the time to read & possibly comment.

    I will have more questions down the track but for now Iíll leave it at that.

    Cheers! Take it easy

  2. #2
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    Default

    Loan structuring is important as is ownership of both your IP and OO (investment property and owner occupied).

  3. #3
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    Quote Originally Posted by Keys View Post
    Loan structuring is important as is ownership of both your IP and OO (investment property and owner occupied).
    Thank you!

    Any advice, tips, tricks of the trade, direction like this is greatly appreciated!
    Iíll take it all onboard & expand my knowledge.

    Cheers

  4. #4
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    Sep 2004
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    Default

    Not just loan structuring, but entity structuring - (who / what ) owns what is another factor.
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  5. #5
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    Never borrow money to purchase an OO if at all possible. Consult with an accountant on how to move the liability of your loans to an investment situation so that the interest is tax deductible. Do this in a way that is legal.

  6. #6
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    Quote Originally Posted by Keys View Post
    Never borrow money to purchase an OO if at all possible. Consult with an accountant on how to move the liability of your loans to an investment situation so that the interest is tax deductible. Do this in a way that is legal.
    Are you able to explain in laymenís terms exactly what you mean by never borrow money to purchase an OO (Owner occupied) property.
    Donít purchase a property to live in? only borrow to purchase an IP?

    So stay where weíre currently living & look for a good rental property rather than keeping our current property as a rental & looking for a property to live in?

    Thanks for your comment.

  7. #7
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    Suggest join your local Property Investors Association, there is one based in Nelson. Two books by Matthew Gilligan are excellent - Property 101 and Tax Structures 101.

  8. #8
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    Quote Originally Posted by adm View Post
    Are you able to explain in laymenís terms exactly what you mean by never borrow money to purchase an OO.
    There are (or were) ways to "sell" your OO to your company and turn it into an IP. The "sale" happens contemporaneously with the purchase of your new OO. Since your company borrowed the money to purchase a "business" the interest on that money is tax deductible. After that. If your P&I on both mortgages (Principal and Interest) is (say) $950 per week split evenly at $475 each then you need to consider putting your IP on interest only at (say) $375 per week and your OO on $575 per week. The bank gets the same amount of money. You retain the deductibility of the IP loan and you reduce the OO loan faster.

    As always Mr Phelps. Consult your accountant.

  9. #9
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    Apr 2020
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    Quote Originally Posted by artemis View Post
    Suggest join your local Property Investors Association, there is one based in Nelson. Two books by Matthew Gilligan are excellent - Property 101 and Tax Structures 101.
    Brilliant suggestion, I wasnít even aware of a Property Investors Association in Nelson. Thanks for the advice on the books also. Time to get my head down & start learning.

  10. #10
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    Apr 2020
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    Default

    [QUOTE=Keys;448084]There are (or were) ways to "sell" your OO to your company and turn it into an IP. The "sale" happens contemporaneously with the purchase of your new OO. Since your company borrowed the money to purchase a "business" the interest on that money is tax deductible. After that. If your P&I on both mortgages (Principal and Interest) is (say) $950 per week split evenly at $475 each then you need to consider putting your IP on interest only at (say) $375 per week and your OO on $575 per week. The bank gets the same amount of money. You retain the deductibility of the IP loan and you reduce the OO loan faster.

    Wow, how incredibly interesting. This is exactly why I made this thread, in hopes that you far more educated people would have the generosity to pass on some knowledge & direction to an amateur. I already have plenty more avenues to explore from these comments already.

    How I wish I thought about all this 10 years ago haha, ah well, we live & we learn... better late than never!

    Thanks once again to all who have commented so far!


 

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