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Thinking of first IP

Discussion in 'Investing Strategies' started by volante, 6th May, 2007.

  1. volante

    volante New Member

    Joined:
    6th May, 2007
    Posts:
    2
    Location:
    Adelaide, Australia
    Hi all,
    I have just registered for this site but have been reading a lot of posts since discovering these forums about a week ago and have gained a lot knowledge, ideas and inspiration from reading some of the posts by experienced and wealthy individuals.

    I'm currently 21, working full time and living at home with my parents. Over the last 9 months or so I've been building a diversified investment portfolio consisting of some managed funds and ASX-listed stocks. My current net worth is about $12k but I am gearing quite agressively with LVR currently at 68% using a ComSec margin loan. This risk doesn't concern me too much as I have enough income from my job to cover the interest and make additional investments fairly regularly. Once my portfolio gets a bit bigger I will probably drop the gearing to around 50% to have more of a safety margin.

    I am considering whether an investment property would be a good strategy at this stage or not. If I was to have an IP I would like it to be cashflow-neutral or close to that, as I would like to continue putting my spare income onto my margin loan to purchase more stocks. I've seen some properties that sell for about $130k and have $150/week rent. From my calculations, if I was to save $50k deposit for a house like this, I could mortgage the remaining $80k over a 15 year term and the rent would almost cover all of the loan payments. If I did this I would like to hold on to my stock portfolio rather than selling it to get the $50k, so is it possible that I could use a LOC loan to access that $50k equity and keep my other investments as they were? Maybe this would be pointless as it would effectively be like mortgaging 100% of the IP?

    Sorry if I seem a bit confused or make no sense. I'm trying to work out whether I should continue to invest in stocks/funds which I am presently fairly comfortable with, or whether it would be a smart move to venture into real estate (something I don't know so much about) to form a nice foundation for wealth in the future.

    Thanks for any comments/advice or experience you can share.

    Volante.
     
  2. Here_To_Learn

    Here_To_Learn Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    315
    Location:
    Sydney
    Volante, I guess it all depends on what your long term goals and risk profile are. Here is an interesting article I read last week. Should hopefully help clarify cashflow vs Capital Growth question.

    Cash flow or capital gains
     
  3. volante

    volante New Member

    Joined:
    6th May, 2007
    Posts:
    2
    Location:
    Adelaide, Australia
    Thanks Here_To_Learn,
    My goal is to maximise capital gains through investing in growth assets and using leverage. I have a high risk tolerance as I am investing for the long term, but at the same time I have to avoid a margin call since I have no one to bail me out if such a situation arises. I am thinking that it would be best for me to stick to shares/funds at this stage as I would much rather actively manage my investments than to buy and hold a property and make monthly payments for many years. I was hoping that I could do both but I don't want to negatively gear property as this will leave me without money for shares. Perhaps LPTs would be a good substitute?