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#1 8mimi8

Posted 26 November 2012 - 07:35 PM

Hello ladies,
After months of lurking, i am now bracing myself for the first ever post.

I like this forum as the responses mostly are not sugar coated, something that i need at the moment.

Background info
I am recently married, i am 27, my DH is 30. We both work full time and pulling in 145k combined income per annum.  Take home is approx $8.9k p/m. We have no kids but considering TTC in the next 18-24 months.

Our overhead per month is 3.3K , this takes into account the mortgage and everything that is essential including the odd takeaways. I don’t factor in gifts, clothes, booze etc as i don’t view these as overhead/bare necessities item so to speak (IYKWIM).

We live in a tiny 2BR duplex, our minimum pmt is $1200 p/m. Have been overpaying this since we bought in 08 and at the moment, we have 94.5k to go for it to be fully paid off.

My headache is our three investment properties. They are on interest only loan. We have refinanced last month and at present, the loan amount is 657k at 5.81%.

They are all negative geared, after very conservative and thorough calculation; we have a shortfall of $1,750 pm. I know that this will be claimable coming tax time, however the monthly payments (and the associated strata, repairs, insurance, rates, water costs) seem to be attacking me left right and centre..and its killing me softly..( i am the budget person for us, he is more “she’ll be rite” type of guy).

I have been saying/discussing/asking him to consider our option in selling the most non performing unit thus, reducing our loan to 436k, but he doesn’t think that way.  His reasons were – market is not good, and we should be in this for the long haul, look at the big picture, never sell assets..you name it. But in my defence, we can then allocate the money to pay down our mortgage, i think that itself is an investment to our future. I know that from the outset, it looks like we do have a good buffer but i constantly feel like it is only going to take us one major thing like job loss to tip us over the edge..
My main worry is..what happen when we go down to one income (only plan to do this 2 years max), i don’t foresee his income to rise exponentially in the next 2-3 years. And we cannot just up the rent to decrease the shortfall.., we can but not by much.

And eventually i want to upgrade to a 3 bdr house, nothing fancy as we can always do it up slowly. But 3 bdr in my area is starting at 380k and i already feel like we are mortgaged to the hilt.

He is being reasonable with this, and its not just a flat out no that i'm hearing,he is willing to consider all options however i know that if we do sell, he will not be happy abt it.

I need your point of views, am i being too risk averse and not seeing the big picture? I guess i just don’t want our budget to be so tight when we go down to one income for something that may or may not generate profit in the future.

Thanking you guys in advance for reading. English is not my 1st language so apologise for any weird phrases/grammars etc
-Mimi-


#2 olikat03

Posted 26 November 2012 - 09:12 PM

I agree with what you have said. We are going through a similar thing.

We have our house and three other investment properties. We had an issue with one property and it has slowly been sinking us. I am a bit like you and want to sell and put the money back into one of the mortgages. Dh was against it but now is seeing the benefits of doing so.

I want to get rid of two of the properties and rent one out (we were going to sell it when we moved out of it and back into the house we are in now but the return on rent will be really good so we have decided to keep it for two years rent it and reassess.

I feel like we are playing catchup all the time and I just keep thinking if we don't sell something we are just going to keep going the same way we have been.

I guess i will be watching what replies you get to see what others suggest.

#3 Lees75

Posted 27 November 2012 - 07:23 AM

QUOTE (FluffyOscar @ 26/11/2012, 09:49 PM) <{POST_SNAPBACK}>
Meh, sell an IP. It's not worth the stress. A 3-br house at $360k is cheap as chips, you can pick one up later. I take it you don't live in a capital city in Australia?

Or she lives in Adelaide original.gif

#4 Guest_Dinah_Harris_*

Posted 27 November 2012 - 07:42 AM

It seems to be fairly cut and dried to me.
If you have a shortfall of $1,750 per month you need to:

* Get a promotion so that you earn $1,750 per month extra
* Raise the rent of the properties to cover an extra $1,750
* Reduce expenses of the properties by $1,750 per month
* Re-negotiate the loans so that the payments are reduced by $1,750 (given they are interest-only, this is extremely unlikely)

If the above options are not workable, then the solution is rather obvious - sell one of the properties.  You are right in that you are right on the edge, and it would only take one catastrophe to push you over, like an illness or job loss.   Not having some breathing room in your financial planning is absolutely crazy.
How long do you think you can sustain going backwards at a rate of $1,750 per month for?  I would say, be proactive, get rid of one of the properties yourself before the bank does it for you.

#5 Moo point

Posted 27 November 2012 - 07:42 AM

If you're planning on dropping to one income for a couple of years once you have a baby, start trying to live on one income now. Although DH and I don't have any IPs or even a mortgage, we started living on one income only and saved the rest for a year before we started TTC.

You don't want to be shocked at what compromises you will have to make once you have a baby. Not to mention you may need funds for IVF (worst case - we did, out of pocket more than $10k before having DS), or job loss as you mentioned, or medical costs, or you may even decide that you don't want to go back to work full time or that both of you want to work part time.

I have no advice re: the market, but if you will still have 2 IPs and will be more financially buffered then I would sell the other IP.

#6 SeaPrincess

Posted 27 November 2012 - 11:51 AM

QUOTE (8mimi8 @ 26/11/2012, 05:35 PM) <{POST_SNAPBACK}>
i am the budget person for us, he is more “she’ll be rite” type of guy).

This is us exactly. Whenever I want to make major changes to our budget I have to make a detailed list of our expenses - mortgage, insurances, power, water, gas, rates, car rego, phone/s, internet...... the works. He is always surprised at what our fixed outgoings are, but will then work with me to find the best solution.  Before we had our first baby, I did this and then we looked at how it compared with his salary at the time. Perhaps that might help?

Good luck.
R



#7 Mpjp is feral

Posted 27 November 2012 - 03:11 PM

We have done a PAYG variation  which allows us to reduce our tax rate on a monthly basis (by the negatively geared amount) rather wait until the end of the year to get those losses back.  So this means we get a greater cash amount each pay that we are then able to apply back into the investment.

http://www.ato.gov.au/individuals/content....nt/00188348.htm

I've probably explained this badly - but our accountant set it up for us. Its made things MUCH easier - but the downside is that you dont get that enforced savings/ nice tax return.



#8 secret~sammy

Posted 27 November 2012 - 04:05 PM

If you’re having rational discussions about money you’ve got half the battle won OP, so many, many couples don’t.

Looking past the sell/don’t sell now discussion could you do the numbers on some what-if scenarios to discuss with DH, with and without the IP you want to sell:

  • How long could you keep paying the bills out of savings if one of you lost your job tomorrow?
  • How long could you keep paying the bills out of savings if you lost a tenant tomorrow?
  • What will your situation look like in 18m + 9m?

Maybe one of you will change your mind after looking at these numbers.

The other thing would be crunching numbers and discussing ‘triggers’ to selling the IP. Under what circumstances would DH agree to sell the IP:

  • Interest rate changes
  • How long a period of unemployment
  • How big an increase in the property market.


#9 CallMeFeral

Posted 27 November 2012 - 04:23 PM

Great advice above.

OP, only you can judge your risk appetite. DH and I are very risk averse and very under leveraged, and while it certainly saved us a lot of stress during my time off work and when he lost his job, it's probably also meant we are less far along financially than we otherwise would be. Whether that balances against the reduced stress levels... hard to judge. Probably does in our case as any more stress and we'd be divorced Tounge1.gif

I think all you can do is prepare a few scenarios and see what your numbers look like in best/worst case scenarios, including job losses, interest rate rises, etc. In my own (somewhat risk averse) case I'd at least make sure that one salary could cover all living costs plus the IP shortfall PLUS have a 6 month to a year buffer in case of job loss. But that's me!
Only you can decide what you are comfortable with.

#10 steppy

Posted 27 November 2012 - 04:39 PM

I think your reasoning is sound - if it will put you in a better position and allow you to own the home you live in, while keeping 2 investments, it will give you more security and also more room to move in future.

I can see your partner's point also, but if this is worrying you I think it is better to take a cautious path for a little. You can always buy again in the future when you feel it is more under control.

#11 8mimi8

Posted 27 November 2012 - 05:27 PM

Thanks for the replies so far.

We live in melbourne, 28 km from the cbd. 380k is the absolut bargain that i've been seeing given the state of the market.

to Dinah Harris :
I am due for payrise soon, hopefully 11k but sensing 7k to be the final offer. The expenses are kinda hard to reduce however, we are trying our best now to be on top of all the paperworks, receipts etc.
both of us are like dumb and dumberer when it comes to organising paperworks. i am shamed to admit that we have not lodged our tax return for the last 2 FY ph34r.gif . total slackers...!!!
but we are trying to rectify this, and the goal post is to have this lodged in the next 2 months..maybe this is why i feel poor all the time.

Ange 75 &Schmach:

we are doing the - live on one pay - thing starting january. we will bank my whole pay and live on his, no iffs and butts..i think this is the way to go to show us the actual financial picture.

Meplainjane brain:

thanks for the tip, will talk about this with the accountant soon, however do you know if by doing this we run the risk of not paying enough tax?...to get an unexpected tax bill will be horrid at this point..

secret sammy & Call me al G

totally agree...i will do the multiple scenario thing in detail as we go, in the mean time our position is as follow:
How long could you keep paying the bills out of savings if one of you lost your job tomorrow? assuming both of us lost our job, we could do 18 months.
How long could you keep paying the bills out of savings if you lost a tenant tomorrow? err...maybe 1 yr.
What will your situation look like in 18m + 9m? 18m (hopefully preggo), 9m (got the tax return and at peace with the decision..whatever that be)

it feels good to write things down, help to keep my mind in order

thanks

#12 Mpjp is feral

Posted 27 November 2012 - 08:04 PM

QUOTE (8mimi8 @ 27/11/2012, 06:27 PM) <{POST_SNAPBACK}>
Meplainjane brain:

thanks for the tip, will talk about this with the accountant soon, however do you know if by doing this we run the risk of not paying enough tax?...to get an unexpected tax bill will be horrid at this point..


We manage this by calculating using the maximum rental income possible, and only deducting our interest payments on the property. That way we still can claim all the other expenses on the property, and adjust the income part at the end of the year if for some reason we end up with less income than we expected (bc of vacancy etc). So far its worked for us - we end up with a small refund based on the expenses on the property. I think if you calculate using ALL possible deductions and maximum income then you could face a tax bill if you end up with less income than expected.

#13 au*lit

Posted 27 November 2012 - 09:17 PM

Having multiple negatively geared investment properties is not financially sustainable, unless you have some other investments that are bringing in significant income.

In your situation I would sell at least one IP (possibly two, depending on how they are performing) and put any funds left from the sale(s) into the mortgage of the property you're living in. Continue to pay this off as you are and/or upgrade to a bargain house.

Once you've paid off your own home, use the money you were paying on that mortgage to pay off one of the remaining IPs. Then put the money you were using to pay off your mortgage and rent from the first IP towards the second IP.

You can probably see where this is going, each property gets paid off quicker as there are more funds flowing into it. You can then look at buying more IPs (one at a time) and paying them off increasingly quickly (one at a time). You should eventually get to a point where the rental income is enough for you to live on, and you can retire.

IMO this is sensible property investing.




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