The day I had been waiting for finally came. On 29th Feb morning, I checked my bonus using internet banking from home and decided to move the money to my husband's account. I know it sounds silly as the bank couldn't un-credit the amount credited into my account, but I decided to be 'kiasi' about it :)
After finishing with the bank transfer, I got my hubby to check if he received it and ask him for his resignation letter. I changed it slightly and printed it out. Then, I i-chat my team leader to inform him of my intention and for us to discuss about it privately. After which, I informed my close colleagues about the resignation personally as I think it's only fair they know about it earlier than the rest.
I think they are sad. It's always sad to know another of your colleagues is leaving, I understand. On the other hand, I think I would be sad to leave Singapore, my comfort zone. But at the moment, I am caught up with the preparation to migrate.
So far, we managed to get tenants to rent our flat, pending approval from HDB. I contacted a recruitment agent to help me look out for contract roles. I would need to change address for all my correspondence, cancel most of my credit cards, start sorting things out to pack and ship over to Sydney. We would throw a farewell party for our close friends at the end of March (my husband's idea). Pretty exciting :)
We have not decided which day we are going to fly but it would be either 2nd or 3rd week of April.
Australia here we come, we are going to contribute to your 40% tax :)
Saturday, March 1, 2008
Tuesday, February 12, 2008
Article: So long, mortgage stress
I am still wondering whether it's a good idea to rent and invest the rest of savings, rather than committing to a mortgage. Anyway, I would still need to rent for a couple of years to save for the deposit, before deciding whether to buy a house or continue renting.
I rented for 10 over years in Singapore before buying a flat a couple of years ago. I hate the thought having to move every 1-2 years.
So long, mortgage stress
Author: Paul Edwards Date: February 12, 2008Publication: The Age (subscribe)
The dream of home ownership is becoming less and less attractive, writes Paul Edwards.
Don't despair if you can't raise the deposit for the house you want - with a slight change of mindset you could be living in style while benefiting from whatever rich pickings there might be in investment markets.
Conventional wisdom says a home of your own is a holy grail. But that so-called wisdom might sometimes be wrong - is our national obsession with climbing the home-owning ladder right for everyone?
In Australia just over 70% of households own their home either with or without debt. That's about double the rate for Switzerland, even though the Swiss have just about the world's highest incomes.
The usual alternative to ownership is renting, and for many people this is not only the best way of getting the home of their dreams - they can often do it with the blessing of their financial advisers.
More and more people are questioning the sense of locking away savings in a 25-year mortgage and losing the potential of flexible alternative investments that might be less stressful and equally profitable.
So long as the money you would spend on buying is invested elsewhere at a similar or higher potential return, you could rent a much better home than you could afford to buy while still increasing your wealth.
Finance planner Hans Luiten - while declaring that he invests in both property and the share market - says it is generally agreed that shares outperform property in the long run.
"However, unlike property, not long ago you'd have found it difficult to borrow the full amount of a share portfolio. Now you can, so people are seeing the benefits of investing in something which can be sold in a matter of seconds, rather than go through the trauma of an auction or even private sale.
"The price of well-located Melbourne homes is beyond the reach of many people, but not if they choose to rent. They can live in property way above the standard they could afford to buy and, in the meantime, can be investing elsewhere."
Even the real estate industry agrees that buying a home is not always the best course. Neil Laws, president of the Real Estate Institute of Victoria, says there are times when renting is better than owning.
"If accumulating wealth while having somewhere to live is your primary aim it is worth considering the financial benefits of renting and investing.
"It may be that, depending on your housing requirements, it is more financially beneficial to rent and invest than to pay off a mortgage and maintain a home."
So why do we often feel we have failed in life if we don't own our own home?
Psychologist John Bacash says people become seduced by messages to buy a home even though it may not be appropriate.
"They see ownership as a symbol of security and status, when in fact it may be neither. This struggle to manage a mortgage regularly breaks up marriages and families.
"People should let go of their initial concepts about buying a home, do some solid research about whether renting might not be better for them, then trust their inner feelings to make the right decision.
"I think we're too often convinced by arguments such those put up by real estate marketers, and can feel inferior if we don't buy a home. Instead of succumbing to this pressure, people should decide what's best in their own case."
Darren McMullin, rental manager with real estate agents Kay & Burton, says he knows a number of extremely wealthy people who prefer renting to buying.
"There's a client on my books who is about to sell his Toorak home and will rent for at least 18-24 months while he sees what is happening in the property market. Currently, he feels he can do much better in alternative investment fields."
It's a matter of mindset and maths. Once you accept that renting might not be a bad proposition, a simple calculation could blow apart the notion that money paid to a landlord is wasted money.
Take the case of a couple with no savings, but annual earnings of $150,000. They can rent something really good for $40,000, allow $85,000 for living expenses and tax, and save $25,000 a year towards a deposit for their own place.
Alternatively, they can dismiss the idea of buying their own home and use that $25,000 to increase their wealth through alternative investments, which can still include listed or direct property.
Or consider superannuants who sell the family home for $750,000 and add the proceeds to their pension fund. At 10% that $750,000 would earn roughly $1500 a week, with which they could rent a penthouse in St Kilda Road or a really luxurious home in an inner suburb.
Properties such as these often sell for about $1.75 million, so our superannuants would be living in considerable style and, best of all, the $750,000 is still preserved in their pension fund.
Darren McMullin agrees, and cites an Elsternwick property worth about $1.2 million which rents for $1200 a week and a $4 million Toorak mansion which rents for $2600 a week.
Indulge your fantasies and consider what would happen if you sold that Toorak mansion, invested the money wisely, and joined the rental market.
Your $4 million invested at 10% would return about $8000 a week - before tax - which would let you rent another mansion for $2600 a week, have $5400 a week to invest - and keep the $4 million in one piece.
Interesting? The concept gets even better when you consider that, as a tenant, you don't have to worry about rates, maintenance, body corporate fees and all the other nasties that beset the property owner.
If you see a crack in the wall all you have to do is point it out to the owner and let him or her worry about it.
A major consideration in the rent or buy debate is the behaviour of the housing market. Conventional wisdom says you will always make money from well-located real estate, and while that may be true in the long term, it might not be true at the precise moment you want to sell.
Property can most certainly drop in value. It happened during the 1991 recession in Australia and it is happening now in America and possibly Britain. While there are few indicators to say it will happen here, history shows when America sneezes Australia often catches a cold.
This is something tenants don't have to worry about. Just like that crack in the wall, it can be filed away under NMP - Not My Problem.
Renting is viable now
One man who knows a lot about renting is Mark O'Brien, head of the Tenants Union of Victoria. He says the private rental market can work well for tenants who have financial capacity and can successfully deal with landlords and estate agents.
"Often these tenants can make the choice to live in the area they want but without the cost of home ownership," Mr O'Brien says.
"My family, for example, rents a new unit in a middle ring suburb. To buy with a standard deposit would mean mortgage repayments almost double what we pay in rent."
He says the transition to home ownership is now occurring later in life for most people and if they take out a 25-year mortgage in their late 30s, they may be unlikely to have the house paid off until close to retirement.
"Previous generations had the benefit of entering into home purchase earlier in their lives and at comparatively lower prices. The average house price has grown from about two or three times annual average weekly earnings to about five or six times annual average weekly earnings."
I rented for 10 over years in Singapore before buying a flat a couple of years ago. I hate the thought having to move every 1-2 years.
So long, mortgage stress
Author: Paul Edwards Date: February 12, 2008Publication: The Age (subscribe)
The dream of home ownership is becoming less and less attractive, writes Paul Edwards.
Don't despair if you can't raise the deposit for the house you want - with a slight change of mindset you could be living in style while benefiting from whatever rich pickings there might be in investment markets.
Conventional wisdom says a home of your own is a holy grail. But that so-called wisdom might sometimes be wrong - is our national obsession with climbing the home-owning ladder right for everyone?
In Australia just over 70% of households own their home either with or without debt. That's about double the rate for Switzerland, even though the Swiss have just about the world's highest incomes.
The usual alternative to ownership is renting, and for many people this is not only the best way of getting the home of their dreams - they can often do it with the blessing of their financial advisers.
More and more people are questioning the sense of locking away savings in a 25-year mortgage and losing the potential of flexible alternative investments that might be less stressful and equally profitable.
So long as the money you would spend on buying is invested elsewhere at a similar or higher potential return, you could rent a much better home than you could afford to buy while still increasing your wealth.
Finance planner Hans Luiten - while declaring that he invests in both property and the share market - says it is generally agreed that shares outperform property in the long run.
"However, unlike property, not long ago you'd have found it difficult to borrow the full amount of a share portfolio. Now you can, so people are seeing the benefits of investing in something which can be sold in a matter of seconds, rather than go through the trauma of an auction or even private sale.
"The price of well-located Melbourne homes is beyond the reach of many people, but not if they choose to rent. They can live in property way above the standard they could afford to buy and, in the meantime, can be investing elsewhere."
Even the real estate industry agrees that buying a home is not always the best course. Neil Laws, president of the Real Estate Institute of Victoria, says there are times when renting is better than owning.
"If accumulating wealth while having somewhere to live is your primary aim it is worth considering the financial benefits of renting and investing.
"It may be that, depending on your housing requirements, it is more financially beneficial to rent and invest than to pay off a mortgage and maintain a home."
So why do we often feel we have failed in life if we don't own our own home?
Psychologist John Bacash says people become seduced by messages to buy a home even though it may not be appropriate.
"They see ownership as a symbol of security and status, when in fact it may be neither. This struggle to manage a mortgage regularly breaks up marriages and families.
"People should let go of their initial concepts about buying a home, do some solid research about whether renting might not be better for them, then trust their inner feelings to make the right decision.
"I think we're too often convinced by arguments such those put up by real estate marketers, and can feel inferior if we don't buy a home. Instead of succumbing to this pressure, people should decide what's best in their own case."
Darren McMullin, rental manager with real estate agents Kay & Burton, says he knows a number of extremely wealthy people who prefer renting to buying.
"There's a client on my books who is about to sell his Toorak home and will rent for at least 18-24 months while he sees what is happening in the property market. Currently, he feels he can do much better in alternative investment fields."
It's a matter of mindset and maths. Once you accept that renting might not be a bad proposition, a simple calculation could blow apart the notion that money paid to a landlord is wasted money.
Take the case of a couple with no savings, but annual earnings of $150,000. They can rent something really good for $40,000, allow $85,000 for living expenses and tax, and save $25,000 a year towards a deposit for their own place.
Alternatively, they can dismiss the idea of buying their own home and use that $25,000 to increase their wealth through alternative investments, which can still include listed or direct property.
Or consider superannuants who sell the family home for $750,000 and add the proceeds to their pension fund. At 10% that $750,000 would earn roughly $1500 a week, with which they could rent a penthouse in St Kilda Road or a really luxurious home in an inner suburb.
Properties such as these often sell for about $1.75 million, so our superannuants would be living in considerable style and, best of all, the $750,000 is still preserved in their pension fund.
Darren McMullin agrees, and cites an Elsternwick property worth about $1.2 million which rents for $1200 a week and a $4 million Toorak mansion which rents for $2600 a week.
Indulge your fantasies and consider what would happen if you sold that Toorak mansion, invested the money wisely, and joined the rental market.
Your $4 million invested at 10% would return about $8000 a week - before tax - which would let you rent another mansion for $2600 a week, have $5400 a week to invest - and keep the $4 million in one piece.
Interesting? The concept gets even better when you consider that, as a tenant, you don't have to worry about rates, maintenance, body corporate fees and all the other nasties that beset the property owner.
If you see a crack in the wall all you have to do is point it out to the owner and let him or her worry about it.
A major consideration in the rent or buy debate is the behaviour of the housing market. Conventional wisdom says you will always make money from well-located real estate, and while that may be true in the long term, it might not be true at the precise moment you want to sell.
Property can most certainly drop in value. It happened during the 1991 recession in Australia and it is happening now in America and possibly Britain. While there are few indicators to say it will happen here, history shows when America sneezes Australia often catches a cold.
This is something tenants don't have to worry about. Just like that crack in the wall, it can be filed away under NMP - Not My Problem.
Renting is viable now
One man who knows a lot about renting is Mark O'Brien, head of the Tenants Union of Victoria. He says the private rental market can work well for tenants who have financial capacity and can successfully deal with landlords and estate agents.
"Often these tenants can make the choice to live in the area they want but without the cost of home ownership," Mr O'Brien says.
"My family, for example, rents a new unit in a middle ring suburb. To buy with a standard deposit would mean mortgage repayments almost double what we pay in rent."
He says the transition to home ownership is now occurring later in life for most people and if they take out a 25-year mortgage in their late 30s, they may be unlikely to have the house paid off until close to retirement.
"Previous generations had the benefit of entering into home purchase earlier in their lives and at comparatively lower prices. The average house price has grown from about two or three times annual average weekly earnings to about five or six times annual average weekly earnings."
Saturday, February 9, 2008
Gold Coast Marathon
I'm toying with the idea of going for Gold Coast Marathon in July (06-07-08). The entries will only open in April but I am thinking of booking tickets to Gold Coast in advance. If I book the tickets now from Virgin Blue, it would cost $ 180/person.
I am thinking that my PIL would be interested to go too, but my husband told me that there is a possibility that they would not be ready to move to Sydney by then. Still, I persuaded my husband to book the flights to Gold Coast for 2 of us first :P and buy for them later.
As for hotel, I read from SG Runners forum that July is low season for Gold Coast so I hope we can book for the hotel later.
Hmm... still thinking if we should book the air tickets now :)
I am thinking that my PIL would be interested to go too, but my husband told me that there is a possibility that they would not be ready to move to Sydney by then. Still, I persuaded my husband to book the flights to Gold Coast for 2 of us first :P and buy for them later.
As for hotel, I read from SG Runners forum that July is low season for Gold Coast so I hope we can book for the hotel later.
Hmm... still thinking if we should book the air tickets now :)
Sunday, February 3, 2008
Private Health Insurance
I decided to buy PHI in early Jan as advised by my friends in Australia. Since we have been trying for a baby for quite some time already, it would be good to have some coverage to reduce our hospital bill in case I'm pregnant later. Also, it would help if we decide to go for IVF.
There's a waiting period of 1-year so that is the reason why I bought the plan now. Also, since I just turned 31 I would need to pay extra levy/charge if I don't get PHI by next June after turning 31.
I was quite in a hurry to buy the plan so I asked among my friends for recommendation and decided to go with Medibank.
There's a waiting period of 1-year so that is the reason why I bought the plan now. Also, since I just turned 31 I would need to pay extra levy/charge if I don't get PHI by next June after turning 31.
I was quite in a hurry to buy the plan so I asked among my friends for recommendation and decided to go with Medibank.
Transaction Account
I have been doing some research here and there to decide which bank and account type we want to open in Australia. Currently I have one with INGDirect and Citibank but would probably need to open one for joint account with my husband.
So far, I think BankWest looks good, but I thinkn we'll decide there and then. I just realise that we can even open a bank account from Singapore, using Westpac. The bad thing is, the account has monthly fee attached.
That brings me to another issue, it seems most of the transaction accounts have monthly fees attached. In Singapore, it's zero if minimum balance is >$500. I would need to find a bank that has a good transaction account (low fee with free atm transaction, etc), a high-interest saving account and free-fee credit card.
A great website to do the comparison is http://www.infochoice.com.au/
So the search continues...
So far, I think BankWest looks good, but I thinkn we'll decide there and then. I just realise that we can even open a bank account from Singapore, using Westpac. The bad thing is, the account has monthly fee attached.
That brings me to another issue, it seems most of the transaction accounts have monthly fees attached. In Singapore, it's zero if minimum balance is >$500. I would need to find a bank that has a good transaction account (low fee with free atm transaction, etc), a high-interest saving account and free-fee credit card.
A great website to do the comparison is http://www.infochoice.com.au/
So the search continues...
Sunday, January 6, 2008
Getting rich: the basics
Step 1 - Borrow to invest
BORROWING to invest is the key to serious wealth accumulation, whether it be through investment property or geared shares.
That’s simply because it increases your exposure to investment markets (bringing market risk) but also more rewards (sharemarkets have always gone up in the long term). How much risk you take should be in proportion to how secure your income flow is and economic conditions.
Step 2 - Choose shares wisely
The best companies listed on the sharemarket are currently growing and paying dividends at around 17 per cent a year.
It makes sense to borrow when interest rates are 7 per cent to invest in, say, the banks. While some choices like BHP are obvious for the long term, most investors are not good at picking stocks and do well to take advice of stockbrokers or professionals, such as by investing in listed investment companies such as Argo, Australian Foundation Investment, Milton Corp or unlisted managed investment funds (which carry higher fees and have tax traps).
Step 3 - Think quality and long term
Successful long-term investing is about buying quality assets that pay income, which is the key to its value as a stock and wealth creation.
Share prices might go up or down and even occasionally ‘crash’, but the best companies still make profits and pay dividends.
With investments, look forward to prospects, not to past performance, consider the merits of the investment not the tax breaks. diversify your holdings and keep an eye on the economy at home and abroad (China is currently a major factor in investment horizons now)
Step 4 - Time your run
It makes sense to buy blue chip shares when the market dips, when shares are going cheap. Investors soon get the hang of the market's boom and bust cycles - but are often slow to take advantage of opportunities because they focus on the falling share price and don’t take a long term view of the value of a company.
Investors are more inclined to buy shares in a bull market when prices are high, as they don't want to miss out, but this is often the worst time to buy.
Step 5 - Tax deductible borrowing
Tax deductible borrowing against your home, shares or other investment allows you to build wealth while reducing your overall tax bill.
Australian share investments often pay imputation credits for tax already paid at the company level; 12 months’ interest can be paid in advance. This is a good way to offset one-off income that could push your overall tax rate up; and borrowing against an existing portfolio unlocks cash without creating a capital gains tax (CGT) liability.
BORROWING to invest is the key to serious wealth accumulation, whether it be through investment property or geared shares.
That’s simply because it increases your exposure to investment markets (bringing market risk) but also more rewards (sharemarkets have always gone up in the long term). How much risk you take should be in proportion to how secure your income flow is and economic conditions.
Step 2 - Choose shares wisely
The best companies listed on the sharemarket are currently growing and paying dividends at around 17 per cent a year.
It makes sense to borrow when interest rates are 7 per cent to invest in, say, the banks. While some choices like BHP are obvious for the long term, most investors are not good at picking stocks and do well to take advice of stockbrokers or professionals, such as by investing in listed investment companies such as Argo, Australian Foundation Investment, Milton Corp or unlisted managed investment funds (which carry higher fees and have tax traps).
Step 3 - Think quality and long term
Successful long-term investing is about buying quality assets that pay income, which is the key to its value as a stock and wealth creation.
Share prices might go up or down and even occasionally ‘crash’, but the best companies still make profits and pay dividends.
With investments, look forward to prospects, not to past performance, consider the merits of the investment not the tax breaks. diversify your holdings and keep an eye on the economy at home and abroad (China is currently a major factor in investment horizons now)
Step 4 - Time your run
It makes sense to buy blue chip shares when the market dips, when shares are going cheap. Investors soon get the hang of the market's boom and bust cycles - but are often slow to take advantage of opportunities because they focus on the falling share price and don’t take a long term view of the value of a company.
Investors are more inclined to buy shares in a bull market when prices are high, as they don't want to miss out, but this is often the worst time to buy.
Step 5 - Tax deductible borrowing
Tax deductible borrowing against your home, shares or other investment allows you to build wealth while reducing your overall tax bill.
Australian share investments often pay imputation credits for tax already paid at the company level; 12 months’ interest can be paid in advance. This is a good way to offset one-off income that could push your overall tax rate up; and borrowing against an existing portfolio unlocks cash without creating a capital gains tax (CGT) liability.
Where do I start? Working your way up the property ladder
I think i'm putting any interesting article that may be useful for reference in the future in this blog :)
The question that I am frequently asked at seminars when it comes to investing in property is...exactly where do I start? Do I buy my home first or should I start with an investment property?
Well, let me try to answer this simply yet provide you with some easy tools to begin your property investment career and create a successful portfolio.
First things first – buy your own home
Owning your own home is the first step most Australians should take on the property ladder.
I know that with the market the way it is today some readers will be concerned as to whether they can even afford this baby step.
The key to making this happen is to keep it realistic! Okay, perhaps you can’t afford the new, luxury house you had in mind, but we all need to start somewhere. And you may be able to get there a bit sooner than you think by taking advantage of the first home owners grant.
Keeping your first home goal realistic and within budget is possible – you may just have to lower your expectations a little. Perhaps you could consider a property that needs a bit of work done to it or buying in a suburb adjoining the suburb you first thought of buying in if your ideal location is a little too pricey.
Often by buying a property to which you can add value or by buying in an upcoming area, you can get your foot in the door at a good price. You may then find that within a year or two, you’re sitting on a property that has earned you equity. Equity is the amount of home you own outright less the mortgage.
So if your home increases in value because you’ve made some improvements or the area it’s in has experienced good growth and at the same time you’ve been making repayments to your mortgage, your home will be worth more and therefore you will have extra equity to fund your first investment property!
Stepping out as a first timer
Not many of us are easily able to save the deposit for that first investment property, so chances are you will have to re-mortgage, in other words borrow against the increasing equity in your own home.
You should not do what the majority of us were taught by our parents and just keep paying off our home.
The reason many people never get started with property investment is because they are too scared to take on more debt and borrow against their home. They often think - “I’ll pay off my mortgage before I take on more debt.”
This is a thought process that will sabotage you if you let it!
Again, the key is to be realistic about what you can afford and when you can afford it. I would never suggest that first time investors get in over their heads, but you have to make a start and leap frog off this new equity you have built up.
Servicing the debt on your first investment will be easier than paying off your home loan because if you structure it right both the tenant and the tax man will help you make your mortgage payments. The tenant does it by paying rent and the tax man hlps through depreciation tax benefits.
The criteria you use to buy an investment property are different to those used when buying your home. You choose your home with your “heart” and its natural to make some emotional decisions. But you should choose your investment with your “calculator” based on sound financial considerations. And if you if you feel stuck seek professional advice. Consider using a buyer’s agent who is specializes in property investment.
Consider buying your first investment in an area that has good capital growth and perhaps something that needs minor cosmetic improvements that will be attractive to tenants, near all the right amenities and will therefore always rent and re-sell well. It doesn’t have to be a house. You could consider buying an apartment in a great location that tenants will be scrambling to rent from you.
With these key ingredients you can’t go wrong. Again, just make sure the numbers stack up, you can afford the commitment and you’ve done the necessary research to pick a winner!
Just remember the ingredients to success – good location, scarcity value of the property itself and popularity of the property and the area to both tenants and owner occupiers.
Of course, once you’ve spruced up your renovation project and added substantially to its value, it’s time to step onto the next rung of the property ladder and re-finance this investment. This may be easier than you think as you will now have increasing equity on two properties – your own home and your first investment.
Don’t stop there – keep moving on up!
Now that you have a mini portfolio, your options suddenly increase. With a few properties working for you and producing equity the key is to keep the momentum going and take more steps up the property ladder.
The big problem for many of us is servicing the loans on these investment properties. If you buy well located properties in areas of sound capital growth, even in today’s markets where rentals are rising, the mortgage payments and outgoings will add up to more then your rental income.
This is where some smart financing helps. Many smart investors access the equity in their home or investment properties to help pay for the deposit for the next property as well as to service the debts on their loans.
There are many loan products on the market investors often choose a ‘line of credit’, which is a bit like having a big credit card. They have the capacity to borrow up to its limit and just like a credit card; they would only pay interest on any money they have borrowed on their line of credit, but not on the unborrowed limit.
But unlike a credit card, they don’t have to find money for interest payments. Any interest due each month can come out of their unused credit limit. So at the end of the month they pay their interest bill by increasing their loan amount to pay off the interest and the next month they pay interest on the new larger loan amount. This means they don’t need to find any spare cash to pay the interest until they reach their credit limit.
Effectively they are borrowing 100 per cent of the purchase price of their first investment property.
The sky’s the limit – building your portfolio
By now you have nothing to fear. You know the rules of the game, you’ve successfully bought a handful of properties that are all gaining value for you year in, year out and there’s no stopping you!
Just remember to always work within the realms of financial reality, do your research, focus on the rules of investment and you should be the proud owner of a successful property portfolio before you know it.
It’s also important to get your tax structure right. Make sure you know exactly how you will hold the properties (eg. as an individual investor, in a trust, etc), how you will organise finance, legal aspects, taxation and the like.
Remember – take it step by step up the property ladder and you‘ll make it to the top…without falling off!
http://www.realestate.com.au/review/nov07/where-to-start.html
The question that I am frequently asked at seminars when it comes to investing in property is...exactly where do I start? Do I buy my home first or should I start with an investment property?
Well, let me try to answer this simply yet provide you with some easy tools to begin your property investment career and create a successful portfolio.
First things first – buy your own home
Owning your own home is the first step most Australians should take on the property ladder.
I know that with the market the way it is today some readers will be concerned as to whether they can even afford this baby step.
The key to making this happen is to keep it realistic! Okay, perhaps you can’t afford the new, luxury house you had in mind, but we all need to start somewhere. And you may be able to get there a bit sooner than you think by taking advantage of the first home owners grant.
Keeping your first home goal realistic and within budget is possible – you may just have to lower your expectations a little. Perhaps you could consider a property that needs a bit of work done to it or buying in a suburb adjoining the suburb you first thought of buying in if your ideal location is a little too pricey.
Often by buying a property to which you can add value or by buying in an upcoming area, you can get your foot in the door at a good price. You may then find that within a year or two, you’re sitting on a property that has earned you equity. Equity is the amount of home you own outright less the mortgage.
So if your home increases in value because you’ve made some improvements or the area it’s in has experienced good growth and at the same time you’ve been making repayments to your mortgage, your home will be worth more and therefore you will have extra equity to fund your first investment property!
Stepping out as a first timer
Not many of us are easily able to save the deposit for that first investment property, so chances are you will have to re-mortgage, in other words borrow against the increasing equity in your own home.
You should not do what the majority of us were taught by our parents and just keep paying off our home.
The reason many people never get started with property investment is because they are too scared to take on more debt and borrow against their home. They often think - “I’ll pay off my mortgage before I take on more debt.”
This is a thought process that will sabotage you if you let it!
Again, the key is to be realistic about what you can afford and when you can afford it. I would never suggest that first time investors get in over their heads, but you have to make a start and leap frog off this new equity you have built up.
Servicing the debt on your first investment will be easier than paying off your home loan because if you structure it right both the tenant and the tax man will help you make your mortgage payments. The tenant does it by paying rent and the tax man hlps through depreciation tax benefits.
The criteria you use to buy an investment property are different to those used when buying your home. You choose your home with your “heart” and its natural to make some emotional decisions. But you should choose your investment with your “calculator” based on sound financial considerations. And if you if you feel stuck seek professional advice. Consider using a buyer’s agent who is specializes in property investment.
Consider buying your first investment in an area that has good capital growth and perhaps something that needs minor cosmetic improvements that will be attractive to tenants, near all the right amenities and will therefore always rent and re-sell well. It doesn’t have to be a house. You could consider buying an apartment in a great location that tenants will be scrambling to rent from you.
With these key ingredients you can’t go wrong. Again, just make sure the numbers stack up, you can afford the commitment and you’ve done the necessary research to pick a winner!
Just remember the ingredients to success – good location, scarcity value of the property itself and popularity of the property and the area to both tenants and owner occupiers.
Of course, once you’ve spruced up your renovation project and added substantially to its value, it’s time to step onto the next rung of the property ladder and re-finance this investment. This may be easier than you think as you will now have increasing equity on two properties – your own home and your first investment.
Don’t stop there – keep moving on up!
Now that you have a mini portfolio, your options suddenly increase. With a few properties working for you and producing equity the key is to keep the momentum going and take more steps up the property ladder.
The big problem for many of us is servicing the loans on these investment properties. If you buy well located properties in areas of sound capital growth, even in today’s markets where rentals are rising, the mortgage payments and outgoings will add up to more then your rental income.
This is where some smart financing helps. Many smart investors access the equity in their home or investment properties to help pay for the deposit for the next property as well as to service the debts on their loans.
There are many loan products on the market investors often choose a ‘line of credit’, which is a bit like having a big credit card. They have the capacity to borrow up to its limit and just like a credit card; they would only pay interest on any money they have borrowed on their line of credit, but not on the unborrowed limit.
But unlike a credit card, they don’t have to find money for interest payments. Any interest due each month can come out of their unused credit limit. So at the end of the month they pay their interest bill by increasing their loan amount to pay off the interest and the next month they pay interest on the new larger loan amount. This means they don’t need to find any spare cash to pay the interest until they reach their credit limit.
Effectively they are borrowing 100 per cent of the purchase price of their first investment property.
The sky’s the limit – building your portfolio
By now you have nothing to fear. You know the rules of the game, you’ve successfully bought a handful of properties that are all gaining value for you year in, year out and there’s no stopping you!
Just remember to always work within the realms of financial reality, do your research, focus on the rules of investment and you should be the proud owner of a successful property portfolio before you know it.
It’s also important to get your tax structure right. Make sure you know exactly how you will hold the properties (eg. as an individual investor, in a trust, etc), how you will organise finance, legal aspects, taxation and the like.
Remember – take it step by step up the property ladder and you‘ll make it to the top…without falling off!
http://www.realestate.com.au/review/nov07/where-to-start.html
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