Hey guys Ryan here from onproperty your daily dose of property education and inspiration and today I’m answering the question from Sanja as to what would I do if I had $80,000 in equity and already owned my own home. Well I have a loan on my home, the bank still owns it.
Now I just want to be extremely clear this cannot be considered as financial advice. This is my own opinion as to what I would do in my specific situation, so this shouldn’t be applied to anyone else’s situation and should just be for fun and general educational purposes only.
I think $80,000 in equity is a great amount and you can do a lot with $80,000. You could put it into one big property as a 20% deposit, you could potentially purchase a $400,000 property or a little bit less because you’re going to have to pay stamp duty and stuff like that or you could split it up into smaller chunks and look at purchasing more smaller investments and maybe even putting down less of a deposit so that you have to pay lender mortgage insurance but that you would still get to purchase more properties.
Now if it was me and my $80,000 depending on my borrowing capacity, let’s say I had the borrowing capacity there, I would actually look at splitting that $80,000 and purchasing two investment properties. I wouldn’t just look at one because if I only own my own home then I would like to grow my portfolio little bit faster and so I would look potentially purchasing two investment properties. My favourite price range is somewhere between the $200,000 to $350,000 mark that’s what I feel like my sweet spot is and so I would look specifically for houses within that $250,000 maybe $300,000 or $350,000 mark depending on exactly what I decided to go with it would depend on how much I would put down. Maybe I would do one property with the full 20% deposit to avoid lenders mortgage insurance and the second property I would do a 5% deposit so I’m only paying lender mortgage insurance once. However if I split it up equally you’re probably paying less lenders mortgage insurance on each one. It’s probably going to work out the same but it really depends on the lender.
For me specifically I would look at properties within a two hour distance of where I live and the reason for that is I would like to purchase something that I could actually put some effort into and increase the value of that property. Now the thing that I would probably look at if I was looking for a property would be something that I could split into two incomes; would generate two incomes because for me my biggest motivator is passive income and having that income coming in. A lot of people go after the massive capital growth and they want to achieve that, for me and the lifestyle that I live, every bit of passive income that comes in is a little bit less money that I need from other things that allows me to live a less stressful life. So some people go after the let’s go hard, let’s do 5 or 10 years of just eating canned beans and not spending any money on ourselves and then in five years because of all the capital growth we are going to be bam, we will be filthy rich and we can completely retire.
But that’s not the approach I would take, well I run my own business and I enjoy what I do so having different levels of passive income coming in would mean less stress for me, would mean less reliance on the business income and would overall give me a better life. What I would look at is properties that I could add value to probably through some cosmetic renovations so I would want that property to be structurally sound and I would go about getting the building and pest inspections done on those. I would also want to invest in properties that I could split into a dual income. The easiest way to do that is to either have a granny flat already on the property or to get a granny flat built which you can do for around for $100,000. Whether I would go ahead and build a granny flat I don’t know about that one, I would probably look for properties that already had it or I would look for properties that I could actually somehow divide into two separate incomes and obviously go through the Planning Commission and stuff required there.
So really that’s what I would, when it comes down to my research I would start really wide, create a two hour radius around me. I would use something life Google Maps and look at where two hours was maybe stretch it to two and a half hours if needs be and I would kind of create a radius around there and begin looking into suburbs in areas that I think have the potential to be positive cash flow but have also have the potential to grow. But remember I’m trying to create my own equity and not necessarily rely on the market. So even if the market stays stagnant for sometime I’m not necessarily too fuss about that because it’s the passive income that I want. Ideally if those two properties could generate enough passive income that pays my mortgage on my home loan then I’m basically mortgage free, rent free. I’m not but I don’t feel the effects of that on my life so that would be an amazing accomplishment to have that.
So if I had $80,000 I’d be looking at purchasing two houses. I want to avoid units because of the strata and body corporate and the lack of control that you have over a unit and how money is spent. So often depending on what types of people live in the blocks will depend on how the money is spent. I want to have full control over my investments that’s why I’m going to go for a house or something like that. Something I can add value to through cosmetic renovation, something that I could turn into two different types of incomes maybe through a granny flat, maybe splitting that property in creating a dual occupancy, upstairs-downstairs, back and front, something like that. I would also look at an area that I think is stable, one that’s not declining, but for me capital growth isn’t the major priority because I’m trying to manufacture equity myself so if it grows that’s a bonus but if I know that I can go in there and do some work and create $20,000 in value or whatever it maybe well then that’s what I am trying to achieve.
But for me it’s all about taking control myself, you’re being conservative, not expecting too much from the properties I’ve purchased but also spreading my investments so that I can have a better return on investments hopefully because you’ve got multiple different properties rather than just the one because if I invest in one and it wasn’t very good that sucks but if I had two and one didn’t do very well but one went up in value then that’s going to be a good outcome regardless.
Sanja I hope that answers your question, I hope that gives you some food for thought. Remember this specifically applies to you and your actual situation. This cannot be considered financial advice because this is what I would do for my particular situation with my particular financial goals. So I hope that expands some people’s minds, let them know the inner thinking of my mind and I hope you enjoyed this episode. I’m actually going to go back to my old catch phrase which, my site used to be called Positive Cash Flow Australia. Originally I had cash loan investor, I went to positive property Australia but then that was conflicting with positive real estate and they actually own the trademark positive property so no law suits there or anything but I decided to move away from that when I found that out because I just didn’t want to deal with that sort of stuff. Then I went to positive cash flow Australia and I started out all my videos doing those and my catch phrase was stay positive so that’s what I’m going to end with now instead of remember your long term success is only achieved one day at a time so last episode maybe the last time you will hear that so until tomorrow remember stay positive.