To buy or not to buy another investment property

[Marjie]

Hello there,

Just looking for a bit of advice. Currently have 2 properties, one rented out and the other I live in - between the 2 have approx $220k in equity. Not sure if the time is right to purchase another rental. Also whether I should move out of my property, rent that out while renting myself somewhere else, to get the tax benefits etc.
I have gone to Investors Forum once before and they were very keen on my acquiring a further property, and then another etc - reckoned I could retire by 40!

[donna]

Welcome to the Forum Marjie!

Umm before you know it - you'll have a crowd lining up to get a slice of your equity!

It's a good thing you've found this forum - where other investors can provide you with their experiences and knowledge to assist you in your decision making.

Personally, I'd be saying don't get too carried away with others saying you will be this and that by this time. Do a lot of 'independent' research and ensure the choices you have suit your goals and investment strategy.

As many of us know - property investors are seen as potential 'cash cows' by businesses and individuals with a lot to gain personally from our investment choices - so what I'd be asking myself is: how is this individual/business going to gain from the advice they are giving me? Then I'd be seeking a completely different approach maybe 2 or 3 different approaches, weigh them all up and elect the one that suits ME.

Don't be rushed into anything!

Yay.

Donna :P

[fudosan]

I would always ask myself the following questions:
1. Do the numbers stack up in this deal?
2. Are the qualitative aspects acceptable?

[Monid]

I'd agree with the others, personally take a somewhat conservative approach. Nonetheless, you seem to have a fair amount of spare available equity... If you can find a deal which is cashflow positive, not in a town exclusively populated by ferals and so on, why not buy the place. My current money is on the mid-priced places ($100000) in Rotorua (Not in Fordlands, though if you are willing to take a gamble with rougher areas it could pay off, our property there has been rented for a year with no problems, is in immaculate condition and returns us $170 a week for the $50000 we paid for it!) The return on these is still reasonable %7-10 and they are in relatively good areas.

Diversification is another way of playing it safe as well, currently your property eggs are in two baskets the more baskets the better.

On renting out your house and renting yourself? I would only do this if the place you were going to rent would cost you significantly less than the rent you will recieve for your current home. After all what you are effectively doing is paying someone else's mortgage off for them.

Cheers David

[Marjie]

Thanks David for your input. Yes if I rented my place out it would get around $280-300/week. I would be paying round $120-130 for a room somewhere else (& the mortgage repayments are $100/wk on my place).
So my outgoings would be approx $220/week and income approx $280/week leaving $60/week profit (plus tax benefits from not living there), so guess its worth it??

[Monid]

Its an interesting question, I am personally still hesitant, why not get flatmates in your present home? This would still have some of the tax advantages and you might make more money. I just don't like paying other people's mortgages.

I would also ramp up the repayments on your home $100/wk over what term?

Ours was $150 a week when we bought it on a 25 yr term in 2001, a year later we doubled the repayments to $300 and now it should be paid off in 2007. Getting rid of your personal debt as fast as possible ought to be one investment goal.

[pixie]

Lots of people keep saying "buy" but unless it is positively geared then you have simply straddled yourself with debt. And turned yourself into a little hamster on a treadmill racing around and around with heaps of stress to be added to your life. And remoed other choices from your life such as the big OE, having a change of lifestyle etc. Be careful before you assume masses of long term debt that a) it matches your long term desires and b) you can weather any storm in rent changes or interest rates or damaged property.

Go steady and enjoy this forum. There are good people in here with their feet on the ground.

Work hard but remember to enjoy your life. :-)

[fudosan]

While most of us here prefer positive cashflow properties, is it also valid for a high-inome person (good saver with good financial discipline) to buy negative cashflow properties with high captial growth at bargin prices, so as to minimize tax and build up tax-free capital gain?

[Marjie]

Thanks for all your replies.

It is a difficult position I think. Yes I could get in a flatmate so would have another $100 or so a week, and yes I could increase my payments to $200 or so a week meaning it would be paid off in the next 3ish years. I guess i thought renting all your properties out would mean more tax benefits, and yes, paying someone elses mortgage but wherever you are you are paying something right?

[Marcus]

I think Fudosan is touching on a valid point.

We don't all have the the same needs and criterea in property. Nor do we all use the same strategies. Buying negative geared property may be OK for some people, but not for others. There are still some uninformed or miss-informed that are heading off down the "hard road" not having done enough homework, that will find out sooner or later that a "boo boo" has been made. But that is for them to discover. The "boo boo" may not matter whether they purchased +ve or -ve C.F. properties, more that they failed to plan.

Regards,
Marcus.

[Marcus]

Yes I could get in a flatmate so would have another $100 or so a week, and yes I could increase my payments to $200 or so a week meaning it would be paid off in the next 3ish years.

Great stuff!

and yes, paying someone else’s mortgage but wherever you are you are paying something right?

If you get in Flatmates you have more control over the goings on in the house . If you lived somewhere else, would you be in a "flatmate" situation anyway?

I did this for a few years (more for the company) until recently. Suited my lifestyle well.

Regards,
Marcus.

[Monid]

yes, paying someone elses mortgage but wherever you are you are paying something right?

Wrong if you pay off your place in threeish years then you won't be paying more than just the rates and repairs on it! Then if you still want/ have got flatmates you have a productive paid off asset, and the money you were paying on that mortgage can be switched to paying off your other properties. (Whats more you can re use the money youre paying off as equity which can be used to finance more investments (preferably cashflow positive)

This is basically the strategy we are following, paying our house off as quickly as we can then living rent free and turning our present mortgage repayments into getting our IP's debt free as quickly as possible, because thats when you make the real money from them.

Cheers David

[duvetray]

My strategy is also simlar to davids and i echo his comments, however when looking at new investments when using equity or cash its vital to understand the cash return on that sum from day 1, otherwise there are other areas to put your money, risk = return