Author Topic: Case Study: You have the file...  (Read 1355 times)

MrWholesome

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Case Study: You have the file...
« on: January 31, 2019, 04:21:59 AM »
Hello,

We're a married couple in Australia (31m and 26f) and looking for advice on what you would do as your next move. I'll keep this short and to the point. Currently, we are just snowballing one of our property loans and taking advantage of low interest rates. At the same time we are renting in a cheaper area in another town.

Monthly Income
His - $5300.00 after tax
Hers - $3124.00 after tax
Rent Property 1 - $1737.00
Rent Property 2 - $1824.00
Rent Property 3 - $1440.00

Total = $13425.00


Monthly Expenses - Investment Properties
Rent Property 1 - $1524.00
Rent Property 2 - $1468.00
Rent Property 3 - $5008.00

Other property Expenses =1700.02


Monthly Living Expenses

Groceries - 560
Electricity - 100
Rent - 940
Car Registration - 65
Pets - 50
Health Insurance - 333.3
Contents Insurance - 20
Fuel/Car Maintenance   - 50
Internet - 35
Phone - 30
Gas - 15
Teacher Registration & Union Fees - 95
Clothes - 100
Gifts   - 100
Medical Visits (acupuncture etc) - 80
Total = $2573.30
      
Remaining   1151.68   
      
Assets
Property 1 - Loan $317k @4.98% principal and interest, value $506k
Property 2 - Loan $305 @4.98% principal and interest, value $440k
Property 3 - Loan $285 @4.98% principal and interest, value $479k

Superannuation   Current   
Wage 1 (9.5 % employer contribution on $91 000 pa plus 5.5 % personal contribution).    135000   
Wage 2 (12.75 % employer contrubtion on $56 000 pa plus 5% personal contribution)    40000
« Last Edit: January 31, 2019, 04:24:02 AM by MrWholesome »

MrThatsDifferent

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Re: Case Study: You have the file...
« Reply #1 on: January 31, 2019, 04:40:18 AM »
The expenses for rental #3 are $5008, with income of $1440?

Your budget doesnít have anything for travel, holidays or hobbies

No other savings?

Also, what are your questions and whatís your goal?

MrWholesome

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Re: Case Study: You have the file...
« Reply #2 on: January 31, 2019, 05:23:36 AM »
Ok great questions let me clear that up.

For the third property, the minimum payment is $1404 per month. The idea is that making the higher payment amount it will take 4.7 years to pay off the loan totally and move onto the next. In the perfect world all three properties should be paid off in 12 years. We can withdraw from this property but haven't as yet (No other savings was heavily tied up in property as you can see)

How does that sound?

The remaining $1151.68 is being used for all those items you have mentioned.

Ultimately the goal is to be financially independent in 10 Years.

Q1) If you were in my shoes right now would you change anything or stick to my plan. As an example should I put a portion of our wages each month into a fund?
Q2) With living expenses, property expenses at a minimum the only thing that we could increase is income. Should we look to venture out into a side hustle business or something else to increase our income?

ysette9

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Re: Case Study: You have the file...
« Reply #3 on: January 31, 2019, 10:55:27 AM »
So your mortgage on property 3 is $1404 and your rent from it is $1440? It looks like your properties are pretty poor investments if your goal is income. Are they appreciating like crazy? Is your goal to sell one or all of them eventually?

I know real estate investing is very location unique, but at a first glance it appears that you would be better off putting your money into the stock market instead of these properties. What am I missing?

Tuskalusa

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Re: Case Study: You have the file...
« Reply #4 on: February 02, 2019, 08:33:11 AM »
Iíd be inclined to sell property 3 and use the proceeds to pay down one of the other properties. Iíd prefer to have two highly profitable properties vs. 3 that are marginally profitable. Understand youíre long term goal, but you have a lot of leverage in your current structure. Personally, I wouldnít be comfortable with that debt ratio.


MrThatsDifferent

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Re: Case Study: You have the file...
« Reply #5 on: February 02, 2019, 12:51:50 PM »
Ok great questions let me clear that up.

For the third property, the minimum payment is $1404 per month. The idea is that making the higher payment amount it will take 4.7 years to pay off the loan totally and move onto the next. In the perfect world all three properties should be paid off in 12 years. We can withdraw from this property but haven't as yet (No other savings was heavily tied up in property as you can see)

How does that sound?

The remaining $1151.68 is being used for all those items you have mentioned.

Ultimately the goal is to be financially independent in 10 Years.

Q1) If you were in my shoes right now would you change anything or stick to my plan. As an example should I put a portion of our wages each month into a fund?
Q2) With living expenses, property expenses at a minimum the only thing that we could increase is income. Should we look to venture out into a side hustle business or something else to increase our income?

I wish I could help more here but real estate isnít my forte. After reading the advice of Go Curry Cracker and JL Collins, Iíve decided to be a renter for now. I have to admit, the stories from the US of people buying cheap properties and then getting rents to cover is so enticing, but Australia doesnít seem to have it that good. Have you read the Barefoot Investors advice against being lured into investment properties? The analysis Iíve done so far kinda confirms that what you lose in stamp duty, all the extra time, paying agents and agencies commissions just isnít worth it. So far youíre negatively geared, those arenít great investments to me, they just let you say, you have 3 properties. And does the debt snowball idea even make sense with all of the recommendations to keep the mortgage and pay as little as possible?

My strategy was simplicity. To me, yours is complexity. Youíve got more going out than coming in. Youíre missing out on the opportunity to let compound interest grow your money. My money is in 3 places that have the lowest fees: an online HISA, an industry super fund and Vanguard.

If I were in your shoes, Iíd get rid of at least one if not two of the worst performing properties, donít buy anymore and then invest that into Vanguard or putting into an offfset account, after maxing out my super to $25k. Iíd also,spend time forecasting your pathway to your goal with different scenarios, no properties, 1, 2 or 3 properties.  Itís a worthwhile exercise.

Also, those other things youíve left out of your budget should be in your budget, know where all of your money is going and is meant to go.

FreeBear

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Re: Case Study: You have the file...
« Reply #6 on: February 03, 2019, 03:06:54 PM »
Looks like you have a good income relative to your expenses and, therefore, a good savings rate.

It could w*rk out, if nothing goes wrong.  What if you lost your job?  It seems like you could survive by just paying the minimum on the 3 rental mortgages.  However, what if you lost your job AND you lost one tenant at the same time.  I'm concerned that you don't have enough cashflow if anything goes wrong; could be in trouble in a month.  I've very concerned that you don't have any kind of savings except your superannuation (old age retirement pension?).

Perhaps it would be wise to hold at least 3-6 months of your after tax wages in cash.  Maybe another 6-12 months invested.  I suggest doing this before putting an extra $4-5K/month toward the rental mortgages.  You need to be prepared for bad things to happen!

marty998

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Re: Case Study: You have the file...
« Reply #7 on: February 04, 2019, 03:30:37 AM »
Perhaps it would be wise to hold at least 3-6 months of your after tax wages in cash.  Maybe another 6-12 months invested.  I suggest doing this before putting an extra $4-5K/month toward the rental mortgages.  You need to be prepared for bad things to happen!

This is where offset accounts come in really handy. Allows you to hold onto the cash and save on interest at the same time.

marty998

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Re: Case Study: You have the file...
« Reply #8 on: February 04, 2019, 03:33:37 AM »

Assets
Property 1 - Loan $317k @4.98% principal and interest, value $506k
Property 2 - Loan $305 @4.98% principal and interest, value $440k
Property 3 - Loan $285 @4.98% principal and interest, value $479k

Who do you currently have your loans with? Those interest rates are not the best you could be getting.