House Me - Part 1

Not sure what has bitten me these last few days.

I've been obsessed with houses. Or more specifically, buying them. The market has been depressed for a few months now, which is a welcome change from the rapid growth of the last several years. Young investors will probably have about 1-1.5 years to capitalise on this brief reprieve if the economists are anywhere near accurate. I intend to be one of them.

But firstly, why the urge, and why now? I guess there are many factors: the need for cashflow; the desire to own a home; the ability to travel about to different locations without paying rent; the security of having a second low-maintenance income stream; and the urgency to mobilise dead cash. All these things together spell HOME. Oh, and I forgot to mention that, having lived independently for 3 weeks now and absolutely LOVING it (the responsibilities and chores in kind) my senses are so much MORE acutely attuned to the various characteristics of what makes a good house.

And it makes financial sense, too. Currently we (family) have two properties besides our own home. Both are fully owned. One has a house and is turning over a steady income, but maintenance is high because the house is old. The second is a piece of land with no house, and therefore generates no income. We don't want to sell either house because both are in pretty good locations - one of them has ocean views and the other is a stone's throw (meaning about 10 minutes) from Gold Coast. In the future, we're going to need a pretty robust cashflow to set up some business ideas I have in mind - which means that the current arrangement will have to change.

So how is it going to change?

The main gist of the plan is to use the piece of land that is doing nothing as collateral to secure a loan to finance the purchase of an investment property. The property in question will need to be positively geared such that it should turn a net profit of 2-8K per year. This will allow the loan to be repayed slowly but surely in addition to the contributions from mummy Lim and myself.

The second phase of the plan will involve purchase of another similar investment property in the vicinity of the first (to save on agent costs). This will occur when 50% of the loan of the original investment property has been repaid. This time, the Gold Coast property will be used as collateral. With two properties, one turning a net profit of 5-10K, two income streams refinancing the loan, the risk of defaulting and losing collateral to the banks is low. Tax credits can be gained from price depreciation in equipment and - within 1 year - we'll have added another $20K per annum onto mummy Lim's retirement income. Once the loans are fully paid off - give that about 5 years) that will be about $50K, and thats not including price inflation. And that doesn't include the increasing price of house and land values.

This all feeds into a longer term plan to secure an eventual housing portfolio of about roughly 6 properties that will eventually be used as collateral to expand Daddy Lim's property business from Philippines to Australia. Of course, it will be pretty tough, what with the property market behaving like it has, lately, but tough doen't mean undoable.

So let's get down to business, shall we?