25/09/2012
Question: I’ve been reading up on a lot of the areas in the Hunter Valley and it seems like the area is going to boom. The problem is right now my finances aren’t good and it will be a number of years till I’ll be in a strong position to get another investment property. As we all know, booms don’t last forever, so this makes me a little concerned. I feel like I might miss out on all the opportunity.
I know it’s easy to say that booms happen all the time and that if I miss out on the Hunter Valley boom over the next few years, there will always be somewhere else to invest, but I have a particular interest in this region because it’s where I live. I think I know it better than wherever the next hotspot is going to be and I feel like that’s an advantage.
Under these circumstances, do you think it is a good idea to stretch myself financially just to take advantage of what’s happening right now? I have a little bit of equity I can access in one of my investments, but even so, I’ll be very limited in what I can buy. I also currently have $8,000 in credit card debt and my wife and I are thinking about having another child.
I guess what I’m trying to say is that investors always state how important it is to “time the market”, but I just want to know if timing is worth potentially overextending myself?
Answer: The idea of over extending is never smart, but perhaps we can look at your situation a new way. Your question relates to the 3M’s: mortgage, marriage and mini me’s (kids).
You and your wife should first examine your current mortgage; there are some great loan products that could help, by actually reducing your interest rate on the current property. A great broker can also show you how to use that credit card to maximise payments and frequency to free up cash. The goal would be to extract another $50 a week to help pay for that new property. Time to have a mortgage health check.
When considering a mortgage for the new proposed investment in the Hunter Valley, some suburbs or postcodes are what funders call “A-class areas”. Banks love these suburbs and lend higher than normal LVR on the right property – meaning that a borrower, even an investor, can still borrow up to 95%. This should help you get into a good part of the Hunter market even with a low equity base, so speak to your broker about it.
Secondly, we need to examine the marriage. Well what I really mean is the budget. Remember an investment property can be run on just as little as $50 a week or less, so let’s now find an extra $50 a week from our household budget. Saving money can be implemented by finding little ways to save. Will you apply it? I don’t know. Many people have blockages with their personal spending habits.
Don’t know where to look? Here are some ideas:
- Bulk buy groceries
- By clothes and shoes online. You will save 75%
- Your car: drive a bomb and don’t get a car loan
- Eat in, not out
- Get rid of pay TV
Finally, there’s the mini mes (kids). Remember, as you have more dependants, the harder you are judged by banks on your ability to service more debt. As you’re planning a new child, it may be also prudent to plan buying that new property first. In the long run the extra property will help your family. It will be your wealth legacy to your children. It is certainly worth exploring.
- Answer provided by Sam Saggers, Positive Real Estate
