Current Situation and Moving Forward

Enjoyed the read on Due Diligence by Jacque on the site as I have a few processes i use myself

However, I was hoping i could throw my current siutuation up for Debate by the seasoned Investors here..

My situation has been up and down but currently sits as per the attached..I'm also looking to top up my loans and lock in the equity to the value of a $150k LOC across 3 of the IP's (outside of the HDT) plus look to purchase another IP in the new F Year (in the HDT)


Income via personal exertion stands at $55k plus wife would be earning $10k p/a (last year$0) and one dependant at 19 months add to that the IP income and expenditure

HDT lo-doc loan just jumped to 7.49% from 7.24%..I thought i was on a FI-IO loan..learnt the hard way it's a Variable I-O loan

Any thoughts welcomed

Redwing

 

Hi mate

Just going thru a refinancing exercise at the moment with Rolf from www.asapfinancial.com.au (Rolf Latham on this forum) so don't know if switch fees are relevant in your case, but there are a couple of semi-reasonable 5 year fixed rates around at the moment. In our case we had to switch because the we didn't meet the serviceability requirements of the existing lender on one of the IP's.

Dunno for sure, but to purchase another on your incomes you might need to be a bit creative too ? ;-)

Mind you, given that's the only one you're exposed to, assuming the others are fixed, it looks like a good mix of fixed and variable at the moment in your portfolio ?

I also sympathise - we also have a dependent too in our 19 month old daughter ... much more work than any of the IP's ;-)

Good luck
Carl

 

Hi Red

Some nice cg you've had there in WA
Are you only investing in property, Red, or have you diversified into other areas such as shares, funds etc?

 

Sold out of my shares about 6 months ago Jaque -MGX, ZFX,PCG,REA,HVN,CMQ,ETR,CSR to name a few..did a bit of trading and then sold out to buy the last IP

Leant a lot about setting Stop Losses, Moving up Profit Stops and setting Triggers as well as some very basic charting.

I've held shares in the past and have come to realise my preference is for quality buy and holds (as with IP's) rather than trading.

(as an aside I'll hold about 65,000 shares in a company IF they ever list after spending 4 months working for them)

I've spoken with the loans manager at my bank and look to be able to set up a LOC (as a Safety Buffer) for around $150k against 3 of the IP's (1-3-4) held with thier bank..the thought here is to *lock* in equity and top up the loans, this also will give me an option to look at other opportunities hopefully

Redwing

 

Are the properties all in Perth?

If so you might want to use your secured LOC to look at a different market... one of the cooler (as in not over-heated) ones in the eastern states, where it is a buyers market. This would also diverify your exposure to the RE markets. I am looking to do something similar with my next purchasse.. and go to a different state than QLD where all my IPs are.

I am also looking at options for fixing the interest on some of my properties.

 

Yes Tzaki all IP's are in the Perth Market, I'm quiet happy to reap the CG rewards here whilst looking elswhere (can't see value for money here at the moment, but even this late into the WA cycle some people are doing well).


I've begun looking in other areas as well where there are better yields whilst still having CG potential

Redwing

 

Good idea, Redwing
Though some booms look as though they will never end, the reality is that vendors often struggle to sell for the same price as what they paid some 2-3 yrs later on the downturn swing of the cycle. See my example in the Interesting Auctions thread about a vendor who just lost some $100K on a resale. It happens.

 

But with everyone thinking the QLD market is cold (maybe because they read the average for the city without checking individual areas), it's just starting to look interesting again...

Dave

 

Hi Redwig,

I think you should refinance the properties you can and lock in the increase in equity. As you are well aware, Perth has experienced considerable gains of late, and that will eventually end. My main concern is the affordability issue. How will you stand if interest rates go up a couple of percent (unlikely at this stage, but nevertheless possible)?

I think you should consider investing some of the LOC in an income producing fund to increase cash flow. This will give you more options in the future. But...I don't know all of you financial details and therefore discuss it with a good financial planner if you have doubts.

 

Thanks Takestock,

Looking at topping up and locking in at the moment, 3 loans are FI-IO, and one is variable IO (which just went up, however, increased rents actually lowered our weekly holding costs).

Managed Funds have been considered, problem being finding the right one ..as for a Financial Planner I'm yet to find one that I'm happy with (I saw a funny signature by someone on a stock forum once saying that their post is only their personal opinion and for financial advice you should consult a financial planner; who above all else knows the benefits of a trailing commision- or similar)

Redwing

 

Played around with the original chart as I think the calculations were off base(I'm an Excel Novice and Maths would have to be my *weakest point* so feel free to add any suggestions/advice all feedback is welcomed).

I was one of those kids at school that when the maths class started we may as well have been doing chinese..
Redwing

 

Update

LOC has been established against three (3)of the IP's at $150k, the thought is to Purchase $50k in NAVRA Retail and look at another IP as well as hold some funds as a Safety Buffer.

Here's a Scenario I've played around with, but dont worry, I am erring on the cautious side to start with..

IP Values $1,080,000.00
IP Loans $640,000.00

LVR 59.3%

However by using the LOC and 50% for some Managed Funds and 80% Margin for another IP this could effectively give me control of;


Total Value $1,560,000.00
Total Loans $1,150,000.00

LVR 73.7%

Assuming 8.5% for the Margin Loan, 7.24% for the IP loans Cost is $1,622 p/wk

Now add Income of 10% (rough guide) for Managed Funds and 4% for IP's gives $1,407 p/wk

IP Costs of 2% means this "all" roughly costs me $215.27 p/wk or aound $11,194.04 p/yr

.....not considering tax and depreciation benefits etc

How does this look?

-PS Posted Navra paperwork off today

 

V interested to hear your thoughts REDWING as your figures correlate v closely with my own. Even the LVRs and total under control.
I too am considering something v similr to you.
Love to hear more.

 

I have the OK from my Broker to look for another IP and have decided to look at another State (all IP's In WA at present) so will initially look for something at up to $250k to establish a *footprint* eslewhere..maybe a Unit or a townhouse at this stage

I will let the NAVRA Funds run for a while and then may Margin against them once I'm comfortable as its all new to me.

 

You're not the only investor diversifying outside of their home state of WA, Redwing, and with the frenzy surrounding your current boom, it's definitely a contrarian way of thinking
I have a WA client at the moment who's spreading his risk across two other states as, like all smart and experienced investors, he knows the good times eventually come to an end with booms. You only have to look at Sydney three years ago (peak) and see what the resales are now getting to realise that property is indeed erratically cyclical- there's no consistently smooth upward line as is often touted by seminar spruikers and the like.
If it were only that easy, we'd ultimately have more competition as investors
Picking the bottom is also no easy task, but I believe we're close enough in Sydney to start collecting good buys in preparation for the next stage of the cycle.
Where are you looking to put your $250K?

 

I'm looking at "best use" of my LOC as well as we move forward..

be interested in your thoughts/plans as well Giddo