Author Topic: my first investment  (Read 4621 times)

Falconer

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my first investment
« on: December 27, 2013, 01:08:22 AM »
So I am thinking what to do for my first investment and I am thinking of buying a property.

Here is my logic behind it: I am currently renting at 6000 US$ per year. But the cost of renting keeps going up in this part of town due to some major developments, so I expect to pay up to 7000 next year and I already stay in the cheapest part of town.

A 1 bedroom apartment in the area I would like to buy costs 217000 US$. I can save up the 15% down payment within 1 year if not faster. But in order to get the mortgage I will need to show one years worth employment with my company and since I only started 2 month ago I can not apply before 10 month from now anyway.

I am planning on paying back the mortgage within 5 to 6 years. All my savings from my basic salary would go into that. Bonuses and extra money earned from other business ventures I will invest else where.

I travel up to 5 month of the year and so the apartment would be empty at these times. Now a furnished 1 bedroom apartment can be rented out for 3 times the standard monthly rent. So my thought is that if I manage to rent out the flat for 4 month of the year I can get a full years worth of rent and stay in my property the rest of the year. Does this make sense?


Kristin

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Re: my first investment
« Reply #1 on: December 27, 2013, 04:29:11 AM »
Falconer,

It sounds like purchasing your first home is a great goal for your first investment.  Just remember that a lot of mortgages require that you put 20% down, and in a lot of states that will also prevent you from needing additional mortgage insurance.
Before you invest in a 1 bedroom apartment, keep an eye on comps in the area and see how quickly they sell.  Even though it may be a good rental investment later if you outgrow the apartment, you want to make sure you will be able to sell it when you need to.

Also, before you put all of your extra money into paying off your mortgage, make sure you are maxing out other tax advantaged investment options that you apply for such as your employer's 401k, Roth IRA, etc.  Right now a lot of people are well exceeding their mortgage rate in investment returns, so it makes sense to invest some of that extra money rather than paying off a low interest mortgage of 3-4% quickly.
Good luck on saving up your first down payment and your first home purchase! 

Falconer

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Re: my first investment
« Reply #2 on: December 27, 2013, 04:59:13 AM »
Hi, thank you for the advice. I should have said that I live in Abu dhabi, United arab emirates. So there is no tax to think about. Also I have no 401k etc I can pay into. There is no such thing in the UAE. Expats don't have pensions over here as most just make as much money over here and than get out of the country after an average of 11 years.

Property prices in the UAE are rising like mad. And the area I am planning on buying the property in is very well located. The new Abu dhabi government district is being build just around the corner so by the time I will need to upgrade to a two bedroom the market is going to be up.

Looking at mortgages that I could get now the interest rate is 2.99% with a 15% deposit. But it is only a fixed rate for 1 year. fixed rate for 3 yearrs is 3.99% and fixed for 5 years is 4.99%. What would you do? I am trying to find the historic data on the past treasury rate but have not been able to find it yet.

Hugh H

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Re: my first investment
« Reply #3 on: December 27, 2013, 05:07:18 AM »
Hi, thank you for the advice. I should have said that I live in Abu dhabi, United arab emirates. So there is no tax to think about. Also I have no 401k etc I can pay into. There is no such thing in the UAE. Expats don't have pensions over here as most just make as much money over here and than get out of the country after an average of 11 years.

Property prices in the UAE are rising like mad. And the area I am planning on buying the property in is very well located. The new Abu dhabi government district is being build just around the corner so by the time I will need to upgrade to a two bedroom the market is going to be up.

Looking at mortgages that I could get now the interest rate is 2.99% with a 15% deposit. But it is only a fixed rate for 1 year. fixed rate for 3 yearrs is 3.99% and fixed for 5 years is 4.99%. What would you do? I am trying to find the historic data on the past treasury rate but have not been able to find it yet.

The longer you can get a fixed rate for the better, as interest rates worldwide are rising and will likely continue to for the next several years.

Falconer

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Re: my first investment
« Reply #4 on: December 27, 2013, 06:04:04 AM »
So I should rather go for the 4.99% five years fixed rate?

Another option is getting the mortgage in germany. But than the exchange rate could work against me, or for me.

Kristin

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Re: my first investment
« Reply #5 on: December 27, 2013, 03:43:44 PM »
I agree that you should lock in a low rate for as long as you can.  That way if something happens financially, you are not struggling to make those payments.  You can always put extra payments towards the mortgage if you want to and pay it off as fast as you want.  But by locking in a 4.99% rate for 5 years gives you the freedom to have that extra cash to save, invest, etc.  Personally, I would go with the 4.99% rate and just make extra principle only payments every month that fits into the budget.

Falconer

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Re: my first investment
« Reply #6 on: December 27, 2013, 11:20:34 PM »
Thank you for the input.

I spoke to my parents back home and they suggested to take the 2.99% loan until the variable gets to high compared to germany. Than they would take out a loan in germany with a lower fixed rate and use it to pay of the loan in Abu dhabi. In germany they can get a below 3% fixed interest rate for 10 years.

I am slightly confused in regards to you saying I could pay of the loan slower and invest the money else where. I thought MMM says paying of a mortgage is one of the most important things to do. Should I not pay of any debt first before investing money in anything else?

turboseize

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Re: my first investment
« Reply #7 on: December 28, 2013, 02:46:02 AM »
That depends on interests rates and your risk tolerance.

Kristin

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Re: my first investment
« Reply #8 on: December 28, 2013, 06:22:12 AM »
That depends on interests rates and your risk tolerance.

Exactly, if you are paying 2.99% - 4.99% on the mortgage, you could also earn 6%-8% annually by investing in ETFs.  It also depends on your risk tolerance.  If you are stretched too thin by making that short-term 2.99% payment every month and don't have any money left over to save/invest elsewhere, then it might not make sense for you.

For example, I recently purchases a new home and locked in a 30 year fixed rate of 4.25%.  I could have also locked in 3.99% for 15 years, but I would rather have the freedom of having that extra 15 years locked into such a low rate.  This allows me to focus on paying off my student loan that is at 6.8% much more quickly.  Once I'm done with that, then I will double up my mortgage payments to pay it off faster.  If something happens in that time period and and me or my wife loses a job, or other finanical emergency, then we are not stuck with a high mortgage payment every month.  It just gives us that extra wiggle.  You can always pay off a mortgage as fast as you want and save a lot in interest, but it is also important to protect yourself.

Falconer

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Re: my first investment
« Reply #9 on: December 28, 2013, 09:56:28 AM »
Now I am confused. So why don't I just put all my money into ETFs? I have no loans to pay of, no debt. All my spare money can go into investments. I understand to not lock myself into too high payments so I can still pay it off even when I lost my job or just rent it out and move into a smaller property. but why not pay it off as quick as possible? and than move on to something else?

Peony

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Re: my first investment
« Reply #10 on: December 28, 2013, 11:44:57 AM »
Now I am confused. So why don't I just put all my money into ETFs? I have no loans to pay of, no debt. All my spare money can go into investments.
Maybe you *should* just put all your extra money into ETFs. Owning a home is not always the best investment. Do not rush into this. As you are in a situation that rather unique, you should seek advice that can be specific to *your* situation (German expat? living in Dubai, probably temporarily?). Some questions that spring to my mind: If you, as a foreigner, own and then sell a property in UAE and make a profit, will the gain be taxable? If so, at what rate? (Are there really no taxes at all in UAE? If that's the case, wow.) Are there penalties for prepaying on the mortgages you are considering (there usually aren't in the U.S., but apparently there often are in other countries, so you'd have to find this out)? Are you planning to stay in the UAE permanently, or will you be moving on after 11 years (or sooner)? If you will not be staying, what would be your plan for the property? What other investments are available to you (ETFs or other), and how do they compare, as investments, with the apartment you are interested in? Are you comfortable with having all your extra funds tied up in UAE real estate, as opposed to a more diversified portfolio of other investments? If you are going back to Germany (or wherever you're from) and living there eventually, would it possibly make more sense to buy something there, which your parents could manage for you in the short term? Etc., etc. You have many things to consider, so take your time and don't be pressured because prices are rising where you are. If you are living well below your means and saving a lot, you have time to move judiciously. Also, I agree with Dmy0013, $6000 or $7000 a year for rent does not sound like a lot.

Falconer

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Re: my first investment
« Reply #11 on: December 28, 2013, 12:38:58 PM »
first of all thank you for the lengthy replies. A few points are much clearer to me now.

As far as I know there really is no tax at all when selling your house. But I will double check that.

From what I see Mortgages can be payed of much earlier over here without penalties. I think after 1 year I could pay the full amount. But again I will double check.

My rent currently is so low because I am renting a room from a friend in his 3 bedroom apartment. And he is the king of haggling and got the price from 27000 US$ down to 17000 US$. But He is actually moving to Minnesota in the summer so I think my rent will go up by quite a bit after that.

The point by Peony made on having all my investments tied up in UAE real estate is very good. Considering the ups and downs we had here in the past.

My plan is to stay in the UAE until FI. As I can do my job only in this country and the lack of taxes is just very attractive.

thank you very much for all the help