What is your opinion? Should I buy one more IP in this situation?

[ipinvestor]

Hi All,
First of all, Thank you very much SS Family members. I have been learning from SS for last 4 years since I migrated in the land of opportunities. It is time to get your opinion and advice to make a critical decision in the journey of property investment. I did not know anything about properties but I started the journey and made mistakes and lesson learnt.
Here is a spread sheet, please spare some time to check the figures and advice me whether I should but one more IP or I should not buy any more.
Current situation: We have 5 IPs. Last purchase was in Dec 2012, it is not included in the spread sheet asView attachment Holding cost for properties.xls the spread sheet reflects our last year’s income, expenses and tax saving etc. We approached a financial institution for one more loan, they said, we can borrow max $500K plus LMI if we have 10% deposit and settlement charges including stamp duty.
Spread sheet shows that last year we had to put $80 per week per property from our pocket.
If you were in our situation, would you buy your 6th IP?
As you know, it is difficult to find positive geared property, would you still but –ve geared property?
We have income protection insurance and life insurance. What other mitigation strategy we should use to cover our back.
Our property manager is going to increase rent for all 5 properties.
Thanks.

 

[mrmonopoly]

Hi All,
First of all, Thank you very much SS Family members. I have been learning from SS for last 4 years since I migrated in the land of opportunities. It is time to get your opinion and advice to make a critical decision in the journey of property investment. I did not know anything about properties but I started the journey and made mistakes and lesson learnt.
Here is a spread sheet, please spare some time to check the figures and advice me whether I should but one more IP or I should not buy any more.
Current situation: We have 5 IPs. Last purchase was in Dec 2012, it is not included in the spread sheet asView attachment 8475 the spread sheet reflects our last year’s income, expenses and tax saving etc. We approached a financial institution for one more loan, they said, we can borrow max $500K plus LMI if we have 10% deposit and settlement charges including stamp duty.
Spread sheet shows that last year we had to put $80 per week per property from our pocket.
If you were in our situation, would you buy your 6th IP?
As you know, it is difficult to find positive geared property, would you still but –ve geared property?
We have income protection insurance and life insurance. What other mitigation strategy we should use to cover our back.
Our property manager is going to increase rent for all 5 properties.
Thanks.

Not knowing anything else about your circumstances i.e. goals, risk profile, dependents, timeframe etc will make it very difficult to give you an answer as to whether you should or should not buy another property.

Your portfolio on the surface however does appear scarily cash flow negative and for SANF you do need to give serious thought as to how sustainable this is and if it is actually getting you any closer to your goals. Have you seen much CG to date to at least compensate? How does the performance thus far track your forecasts?

My only advice would be not to give up looking for CF+, it is very much out there and I don't mean just in remote towns. If it was easy to find everyone would be buying it, but the key is to keep researching and know how to transform a property to one that is CF+.

Treat your investing with a commercial mindset always.

 

[devank]

Do you have enough buffer? How long can you mange if you loose your income?

Personally, because I'm not an aggressive investor and have two young kids, if the bank says that I can borrow 800K then I go for only 400K.

I would personally wait for the IPs to become cash flow neutral (at least with tax refunds). Remember you are receiving almost 30K as tax refund which makes everything look better.

 

[ipinvestor]

Not knowing anything else about your circumstances i.e. goals, risk profile, dependents, timeframe etc will make it very difficult to give you an answer as to whether you should or should not buy another property.

Your portfolio on the surface however does appear scarily cash flow negative and for SANF you do need to give serious thought as to how sustainable this is and if it is actually getting you any closer to your goals. Have you seen much CG to date to at least compensate? How does the performance thus far track your forecasts?

My only advice would be not to give up looking for CF+, it is very much out there and I don't mean just in remote towns. If it was easy to find everyone would be buying it, but the key is to keep researching and know how to transform a property to one that is CF+.

Treat your investing with a commercial mindset always.

Thank you very much mrmonopoly for your advice. Here is some more information. We do not have any dependents. Both sons got married. We both work full time. Our goal is to work for 10 more years and retire. We are 50-51.
Since we bought, all 5 properties appreciated as below.
IP-1 $445K to $525K
IP-2 $390K to $425K
IP-3 $290K to $325K (we did reno for $5K)
IP-4 $348K to $360K
If we loose job, we have income protection insurance. Can we consider it as income to claim tax benefit? If we go on that path?
Thanks.

 

[ipinvestor]

Do you have enough buffer? How long can you mange if you loose your income?

Personally, because I'm not an aggressive investor and have two young kids, if the bank says that I can borrow 800K then I go for only 400K.

I would personally wait for the IPs to become cash flow neutral (at least with tax refunds). Remember you are receiving almost 30K as tax refund which makes everything look better.

Thanks Devank for your feedback and advice. We have about $50K sitting in offset account, is it enough buffer for rainy days?
We want to wait till our IPs become cash flow neutral but the market will bounce back. We do not want to miss the boat. Everybody on SS says, it is right time to buy when market is down. So ..................should we wait for 3-4 years till our properties become neutral?
Thanks again.

 

[Aaron_C]

You are hardly cashflow negative...in fact with depreciation tax benefits you're probably marginally ahead. If you find something worthwhile I wouldn't worry about a few dollars a week...just make sure you are in a position to buy when that opportunity does come up.

 

[Blurbman]

Hi Ipinvestor,

While obviously we don't know what type of income protection insurance you have, if it of the usual type, it won't provide any cover/payout if you are made redundant or unemployed.

Those types of policies usually only cover you for things such as serious health issues and are unable to work for extended periods, or if you have suffered an accident which prevents you from working.

Don't assume that it 'protects' all income, or that it will put you in the same position you are now no matter what the event of. Maybe check your PDS, or see a mortgage broker.

 

[ipinvestor]

Hi Ipinvestor,

While obviously we don't know what type of income protection insurance you have, if it of the usual type, it won't provide any cover/payout if you are made redundant or unemployed.

Those types of policies usually only cover you for things such as serious health issues and are unable to work for extended periods, or if you have suffered an accident which prevents you from working.

Don't assume that it 'protects' all income, or that it will put you in the same position you are now no matter what the event of. Maybe check your PDS, or see a mortgage broker.

Thank you Blurbman,
I have an income protection insurance that covers redundancy as well as serious illness and accident. If employer sacks me for any misconduct or fraud or any other reason, it won't cover.
We can not eliminate all the risks but by income protection insurance we can minimise the risks, that's I am trying.
Regards;
Ipinvestor

 

[ipinvestor]

You are hardly cashflow negative...in fact with depreciation tax benefits you're probably marginally ahead. If you find something worthwhile I wouldn't worry about a few dollars a week...just make sure you are in a position to buy when that opportunity does come up.

THANK YOU Aaron.
I am in the position of buying another IP but ...............I am bit concerned about -Ve gearing. All the properties are negatively geared and people talk about cash flow positive.
I also want to buy +ve cash flow property, but can not find in Perth.
Regards.

 

[devank]

We have about $50K sitting in offset account, is it enough buffer for rainy days?

That is enough to cover the current IPs for a year if you don't have any personal income.
What is the waiting period of your income protection? Take into account that it generally covers 75% of your income. Some of them are 75% of only the last income. I believe that means that if you go part-time for any reason then it is only the 75% of the part-time income!

I'm sure Aaron's view has more weight as he would have seen many cases.

 

[mrmonopoly]

You are hardly cashflow negative...in fact with depreciation tax benefits you're probably marginally ahead. If you find something worthwhile I wouldn't worry about a few dollars a week...just make sure you are in a position to buy when that opportunity does come up.

The spreadsheet suggests depreciation is accounted for already and the cash flow of the portfolio was $16.5K negative a year.

Different strokes for different folks but the opportunity costs of what the $16.5K per annum could be used for are huge.

Investing is all about the numbers and with a 90%+ LVR and exposure of $1.6M+ not including the recent acquisitions I'd suggest you are wise to try balance this portfolio out with something a little more CF+.

Time will eventually turn the investments neutral and I'm sure Perth will have its day in the sun again but if I was in the same position I would be diversifying to different areas as a further risk mitigation strategy (whilst also lowering land tax obligations) and be VERY wary of adding more NG property.

Casting your net wider than Perth will also make the decision less emotional and allow you to focus strictly on the numbers.

This is not advice, just my opinion.

 

[redwing]

Looking at the spreadsheet your not using the ITWV available from the ATO?

A better picture may also be available by showing all properties, including PPoR, LVR loans/vals, rents...if you feel comfortable doing so?

 

[Propertunity]

We have 5 IPs. Last purchase was in Dec 2012, it is not included in the spread sheet ...

I'm guessing you meant Dec 2011?

If you were in our situation, would you buy your 6th IP?

Qs for you:
1. You don't say which state your IPs are in, but I'm guessing all in WA? If so will IP #6 push you into paying Land Tax?
2. Do you own any direct shares? If not, then your portfolio is completely overweighted into property.

 

[ipinvestor]

I'm guessing you meant Dec 2011?

Qs for you:
1. You don't say which state your IPs are in, but I'm guessing all in WA? If so will IP #6 push you into paying Land Tax? Yes, All properties in WA.
2. Do you own any direct shares? If not, then your portfolio is completely overweighted into property.

You mean shares? Like Rio Tinto, BHP etc? Sorry, I know nothing about shares. I like to invest in shares, but need some education.

 

[Aaron_C]

Don't worry ipinvestor - the people who say they know a lot about shares, don't know anything either. Think the 'talking heads' on Bloomberg or Sky News.

 

[ipinvestor]

Thank you very much everybody, who responded and advised.
Conclusion:
(1)Shares-Not for me.
(2) Thanks Devank, I called my income protection insurance provider to review the conditions. Now it is not based on %age of income, it is fixed amount $100K per year.
(3) Thanks redwing: I did not know about ITWA. I filled form and sent to the ATO
(4) Still thinking to buy one more IP, but this time I am looking for +ve geared or neutral property.
Question: Is it possible to find +ve geared property around Perth?

Thanks.