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On My Way!

Discussion in 'General Investing Discussion' started by islandgirl, 27th May, 2007.

  1. islandgirl

    islandgirl Well-Known Member

    Joined:
    18th Sep, 2006
    Posts:
    118
    Location:
    Middle of beautiful Moreton Bay, Qld
    I feel like I've accomplished so much in the 2 months when in reality it has been the culmination of a lot of research/study to find the right strategy for me. I felt like the only way to learn more was to bite the bullet and jump in.

    In last 2 months I have invested in the managed funds that I think will give me a reasonable amount of capital growth but will generate at least $10K per annum income and 3 days ago I signed the contract on my first investment property. A beaut little renovated 3 b/r for $210K which should rent out at about $230-240/wk. Growth in the area has been running at between 22-27% in the last 2 years and I have researched the market very carefully to see what potential lies out there still. Even at a 5% capital growth (on which I based my conservative workings) I am still doing OK.

    I'm in a little quandry as to my next step. My overall aim is to gradually replace my salary. I would like to pay down my LOC which is paying for the investment property to a point where the house is cashflow positive. I'm not sure however if this is the fastest way forward. Would it be better to reinvest my surplus in more managed funds therefore generating higher income? I'm at the same point with some shares I owned previously, I can either hold on to these (I am pretty fond of my Fosters shares for one!) or I can see them now for a small profit and either drop back into my LOC or buy funds. These are worth about $20K so I could do a lot with the money. I would also like another property very soon however I only have about $100K left on my LOC to play with and there is another beaut little 3B/r I have my eye on.

    I've had to be very conservative and careful as my husband is financially illiterate and debt scared. I think I've done very well to get this far! Mainly due to the great advise and info on sites such as this one - Thank you all!

    Any suggestions on the road ahead would be really appreciated.
     
  2. Compleks

    Compleks Well-Known Member

    Joined:
    18th May, 2007
    Posts:
    348
    Location:
    Melbourne
    Congratulations!

    I've only just started to learn about investing myself, so I'm not able to give you any advice, but it's always good to hear other peoples success stories.

    I hope everything works out well for you.
     
  3. learning

    learning Member

    Joined:
    22nd May, 2007
    Posts:
    20
    Location:
    WA
    That's good to hear.

    $10K year sounds pretty good. Are you getting $10K/year because you are investing a large amount of money into the fund, or are you investing in funds with an extra large income component?

    If I could find a property similar to this one over in my neck of the woods I would jump at the chance to grab it. Think I am either going to wait for prices to fall or rents to rise. Since I am conservative like yourself, I do not want to get myself into a heap load of debt for a measly return. I feel as though I am better off building a good leveraged managed funds portfolio, and then when things cool down over here, start looking and buying and buying an investment property.

    I suppose you have the following options:
    1. Leave things as they are, pay off your debts and review your position in say 6-12 months time.
    2. Borrow more from your LOC and buy more managed funds / another investment property

    If you are conservative, you will probably take the 1st option. If you want to fast track your wealth plans, then you would take the second option. You need to take the path you most feel comfortable with. I am not going to say which path you should take, nor which one I would take. Doesn't seem right.

    Now might be a good time to teach your husband a thing or two about money and finance. Show him what you have done thus far, show him where you predict where you will be in a few years time, maybe get him to set a goal for yourselves and show him how you can achieve it eg. a holiday somewhere.

    Either way, you've developed a plan and you have actioned it. Its more than what most people have done. I am sure you will do well. Congrats and good luck.
     
  4. islandgirl

    islandgirl Well-Known Member

    Joined:
    18th Sep, 2006
    Posts:
    118
    Location:
    Middle of beautiful Moreton Bay, Qld
    Thanks Learning for the reply.

    Firstly I am able to get 10K from the diversifed funds because of the cash I was able to use to buy the funds and margin lend up.

    As I was thinking on the way to work this morning my preferred option I think would be to now use the available LOC funds left over to buy more diversified funds and really ramp the process up. I am a little concerned about the height of the market at the moment so I think I will sit back just for a month or so to catch my breath. At the moment I guess the remaining LOC funds aren't working for me and I need to revise this once I feel more comfortable.
     
  5. learning

    learning Member

    Joined:
    22nd May, 2007
    Posts:
    20
    Location:
    WA
    I was thinking about this too, after I posted my reply. Trying to figure out what I would need in order to safely generate 10K, but ideally, 20K a year. Unfortunately, I couldn't get the numbers working for myself. I'm aiming for at least a

    Have you thought about doing little, less riskier things, to speed things up? As I am no expert, what I type below may not be right, but I stand to be corrected. You could prepay a year or more of your margin loan interest off in advance by capitalising the interest onto your loan/paying it off yourself, using your tax refund to buy more funds, lowering your LVR during the next financial year by buying more funds/repaying the capitalised interest, and then in May next year, looking at your LVR, borrowing more, recapitalise the loan for the next financial year, and continuing the merry go round?

    More riskier, if you were confident of getting a return > 10% a year, for the life of the margin loan and the LOC loan, you could just borrow the max from your LOC, get an equally sized margin loan, and then invest that into your managed funds account. You could then use the income from your fund, or sell funds, to pay off your loans. While it would work with funds that return >10% year, you would probably want to do it with funds that are returning a bit more than 10% year.

    I would take any and all advice I give as suggestions. You need to do your own research and do things that you feel confident with. But in then end, you will never regret doing something, which you have already started.
     
  6. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    In an ideal world to get ahead with gearing you want the income/capital gains to be higher than interest costs/inflation so if your margin loan is 9% and inflation is 3% you need to do better than 12% income and capital gains to be coming out infront. You may get some tax benifits to help out along the way depending on your situation.
     
  7. Redwing

    Redwing Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    476
    Location:
    PERTH..WA
    Congratulations Island Girl,

    We recently (Feb) picked up an IP in Brisbane for $234,500k renting for $260 p/wk so around a 5.75% Yield (soon rent will to go to Market Rent of $275-280), the townhouse next door is now on the Market for around $250k (a check on RP DATA showed that another property in the complex sold in April 06 for $250k).

    Did you purchase in Brisbane as well?
     
  8. islandgirl

    islandgirl Well-Known Member

    Joined:
    18th Sep, 2006
    Posts:
    118
    Location:
    Middle of beautiful Moreton Bay, Qld
    Hi Guys, Thanks for all the replies. Its taken me a while to get into a position to have the initial funds for the margin loan. We originally sold our PPOR for a good price and was able to buy better PPOR for less money. The surplus + savings have gone into the margin loan so in theory I need less to achieve more. By this I mean that instead of using LOC funds I use my cash so I immediately get the whole 10% on these. Then if I margin lend on this 50% I get 1 or 2% on the surplus. Of course if any of these funds such as Navra go over the 10% I get a much better bonus as well.

    It has taken a while to get into this position and the temptation was of course to use the cash for an investment property in the first place but I feel now using this method that I get multiple gains from the same money. I get capital gains from the investment property which is paid off by the tenant and the funds income plus I get some capital gains on the funds. It took along time of researching and reading and spreadsheeting to select the funds that consistantly provided the return I need. Once again thank you to all those on the forum for your continued supply of information and support!

    Redwing, in answer to your enquiry we have purchased in the Bay Islands in Moreton Bay. We leave in the group of islands with Russell, Macleay, Lamb and Karragarra. The islands are beautiful and just a 15minute passenger ferry ride from the mainland at Redland Bay and only 30-40 minutes then from the city. We live on Macleay and just love the lifestyle. I have been researching the market for a year or more and feel I have a really good handle on location and pricing and potential. When you consider that land in Redland Bay is now going for a minimum of $140K + for a basic block and you can by a good house block with water views for $65K the price differential is just too much. The market in the past 2 years has been running at 22-27% growth and is expected to continue in the short term. But its a tricky place and you have to be aware of the many variables on the islands, especially water access, mosquitoes, drainage etc. Its not a market that I would recommend for anyone unless you have local knowledge. The potential once they put sewerage on the island is big too and the growth rate of people living on the islands is enormous at the moment so the council has to do something soon. There are of course the usual rumours about bridges but I doubt that this will happen, but you never know. Certainly not in the short term anyway.

    The main reason I purchase here though is that I could find a reasonable house with good yeild that my husband could see and touch. There is not major costs to be spent on it and its a good one for hime to feel comfortable with. Once we get over the first hump I can look further afield if necessary and be more creative.
     
  9. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Well done Islandgirl- you formulated a plan, carried it out and achieved what appears to be a great result! Well done and keep the momentum going :)
     
  10. KevinH

    KevinH Well-Known Member

    Joined:
    6th Nov, 2005
    Posts:
    101
    Don't mean to be a wet blanket, but don't assume that prices will fall !!

    Rents have always been historically low in Perth from a yield point of view, compared to eastern states cities.

    Apart from the managed funds route, I would be looking to buy somewhere like Qld where the entry cost is more affordable and the yields typically better, and the past performance or CG more consistent.

    Kevin
     
  11. learning

    learning Member

    Joined:
    22nd May, 2007
    Posts:
    20
    Location:
    WA
    I was just basing it on what has been happening in other states. I have seen them fall lately. More likely, % rent rises will exceed the % house price declines. I personally feel that prices here are overpriced.

    Having just been there, I had a chance to have a quick look and I wasn't that impressed with what I saw. Mind you, I only "window shopped" and did not do lots of research beforehand, or go to home opens, or contact any agents. Went for a holiday more than anything. Did drive by some suburbs, unsure which ones. Can't afford the ones I like, the canal homesites on the GC, Sanctuary Cove look nice.
     
  12. KevinH

    KevinH Well-Known Member

    Joined:
    6th Nov, 2005
    Posts:
    101
    I was assuming that you meant Perth in term of a price correction.
    I doub't its coming any time soon if at all.
    Fundamentals are dead against it.
    Sales are still strong which suggest that prices are not so much 'overpriced' but just 'unaffordable' for many.

    There is a sector of the market that presents good buying ( investors bailing out of their new houses in the outlying areas like Rockingham, Mandurah, etc) but prices are still in the low to mid 400's.
    Replacement cost is now 500k or more so it looks to be good buying. Problem is rent yields is still ( and always will be) low.

    This will reflect in one off glitches when a particular seller accepts a lower price to cut and run, but the overall trend for median prices is still up.

    Other avenus is keystart first homebuyer option run by the govt. with prices sub 400k with equity share with the govt. but that is limited by income test .etc.

    Re Qld...I would suggest you overcome looking at what you 'like' and focus on the numbers to find what will 'work' as an affordable and realisable investment.
    The numbers work much better in Qld than they do for WA atm.

    KEvin