property investment

Discussion – Deposit bond

I just learned about something called Deposit bond while reading How to achieve Property Success by Margaret Lomas. It is quite helpful in helping people buying properties more efficiently.

Tl; dr;

Deposit bond is an insurance policy that purchaser gives to the vendor, instead of the deposit amount. This can be done because of various reasons. One of which is the purchaser may not have 10% deposit available after winning the auction, but still financially able to purchase the property.

To utilize deposit bond, one must seek approvals of the vendor. And have the auctioneer/vendor approves it on writing.

What is a deposit bond?

deposit button on keyboard
Source: smartline.com.au

A deposit bond is an insurance policy. It covers the vendor in the event that the buyer defaults on the purchase. The vendor will receive the full amount of the deposit, should the conditions of losing deposit are satisfied.

Instead of giving the vendor 10%, or any amount that represents a deposit, the buyer can just hand over the deposit bond. This means no money has actually been exchanged, and full amount of money will still need to be transferred at settlement date.

Benefits of a deposit bond

There are benefits to both buyers and sellers in the usage of deposit bonds.

For sellers, they enjoy the insurance that the deposit is fully paid, no matter the circumstances of the buyer. Since once the conditions are met, the insurance company will disburse the money. Then they will go after the other party to claim that amount back. It reduces the awkwardness when it comes to financials.

For buyers, the advantages may slightly be better.

  • They keep the deposit in their bank/offset accounts, and it continues to earn them interest/offset their mortgages during the settlement period.
  • In the situation where they are in the process of selling a property before purchasing another one. Buyers may not have the cash in their possession yet, and a deposit bond may be the answer to that circumstance.
  • The premium amount is small, on average it is 1-1.5% of the deposit.

An illustrated example of the deposit bond at work.

Jane purchased a property for $500,000, with a 6-month settlement term. She was required to put $50,000 as a deposit when she won the auction. However she did obtain the deposit bond for $500 and gave it to the vendor.

John also purchased a property for $500,000, with the same settlement term. However he pays the deposit up front.

Given that they both have other mortgages to pay, and assuming that their interest rates are the same at 4% pa. Over 6 months, Jane saved $1,000 ($50,000 * 4% / 2) in interest by parking that deposit amount in her offset account, while John has to pay that amount from his pocket.

JohnJane
Purchase price$500,000$500,000
Settlement term6 months6 months
Deposit$50,000$0
Deposit bond expense$0($500)
Interest over term period($1,000)$1,000
Total cost($1,000)$500
Illustration on John and Jane’s choice of handling deposits

Limitations of Deposit bonds.

Not surprising, nothing is all good. So what is the limitations of Deposit bonds?

First off, vendors have the right to not accept the deposit bond, and requesting the full amount of deposit to be paid up front. Especially in Victoria, where the deposit bond is not at all popular. This is why buyers need to obtain the approval in writing, should the disagreement arise later.

Previously, the deposit used to be transferred directly to the vendor’s bank account. They can use it to put down on another property if they need to, or pay the Real estate agents their commissions. The agents prefer to have the money sooner rather than later, so a deposit bond goes against their interest.

However, with the recent changes, everything has to be in escrow, meaning that a third party will hold all the money until settlement. In Australia, one such company is PEXA. Therefore it does not matter whether the deposit is in cash or in deposit bond anymore, since nobody can touch that money until settlement date.

Secondly, buyers will need to go through another round of financial approvals when they apply for the deposit bond. This can take more time before they can go out and find their next home.

Thirdly, it is hard to know the exact amount of the deposit in an auction situation, therefore normally the insurance company will insure the maximum amount of deposit on the maximum price that you can afford. As a result, sometimes it may not be beneficial to do so due to a higher premium. E.g. you’re insured for $50,000 deposit, but you only purchase a property for $300,000 (in this case, deposit amount is $30,000).

Summary

Deposit bonds are definitely something to look into, or be aware of when buying properties. I will certainly be exercising this options when purchasing my next property.

Should I be successful in utilizing deposit bonds, I will have a recap on the experience.

By Tuan Nguyen

property investment

Discussion – Rental guarantee

Many property advisory companies promotes their properties with rental guarantee benefits. While this sounds reasonable and brings many benefits to the buyer. Let us take a better look at this benefits.

Tl; dr;

As the old saying goes, “If it sounds too good to be true, it probably is.” 

Rental guarantee often indicates that the project, or a particular property, has some negative aspects. These issues are not highlighted by sale agents because of obvious reasons. 

If a project offers rental guarantee benefits, it is highly advised to research a lot more into the project, see if they are viable to your property strategy in the long run.

Benefits of Rental Guarantee

There are multiple benefits that can come out of this scheme, provided that the sellers hold up their end.

Firstly, it is often advertised of having a guaranteed rental income that is the same with the current mortgage interest rate, or higher to represent a good cashflow amount. This amount can cover the interest payments and all buyers have to spend is for principle payments and other operating costs. And since it is guaranteed, investors can have their peace of mind if the property cannot find tenants for an extended amount of time.

Secondly, it is much easier to forecast cashflow if there is a rental guarantee scheme in place. You can always have that much income, and if the property can find tenants, it will be even more income. The sky has never been bluer.

What are the dark sides of Rental Guarantee?

Who pays for the Rental Guarantee?

Just taking an example from Property Update.

The developer wants to sell properties at $600,000. However the market price in that area is around $520,000. And the rental yield is about 4.6% in that area.

If he offers the rental guarantee scheme, say 6% guarantee over 3 years. The amount to spend on that scheme, provided that there are tenants is $600,000 x (6% – 4.6%) x 3 = $8,400 x 3 = $25,200.

So if he can sell the property at $600,000, factor in the rental guarantee, he can still walk away with a nice bonus comparing to the market price of that property.

So the first hidden gem is that most of the time buyers actually pay for their own Rental Guarantee.

What happens after the scheme expires?

Most investors found that after 3 years, the yield drops back to its real value. If the market has not responded to the rental growth, they are stuck with an under-performed property.

Worse case, if investors try to sell, they can only sell it at market value. And if within those 3 years, the capital growth is not as good as it was advertised, they may end up having a property that is over-priced, and unable to find a buyer.

One more thing to note is banks are cautious to lend to this kind of properties. They will NOT consider the rental guarantee amount, but taking in the real market rent amount instead.

Do you actually get paid?

Sometimes, the entity operating Rental Guarantee scheme can go broke. And in that event, all “guarantee” is simply gone.

Let’s say the developer creates another company called Rental Guarantee Pty. Ltd. with $1 equity. This company will provide rental guarantee to the investors in a project. Then when people come around asking for the guarantee payment, the company simply goes bankrupt.

Since there is no regulations related to this scheme, it is totally possible to do so. Developers do not need to register with a government body to assimilate this scheme.

What can we do to protect ourselves?

If you are offered properties with this scheme. You need to do more research into the area.

  • Find out what is the market rent, and how much growth it has over the years.
  • Find out what is the average market price over the area. If the advertised price is a lot higher than the market price, it is certainly something to look further into.
  • Ask if you can have any discount if you just don’t take rental guarantee.
  • Check the entity that provides the scheme, as well as their ability to honour the payments.
  • Note for myself – Best thing to do is just don’t buy into those projects.

Summary

Rental guarantee is advertised mostly by developers and their reseller networks. Although on the surface it may seem beneficial, but personally I think it is a way to rip investors off of their hard earned money.

This is by no mean saying that there is no investor that benefits from this. I just feel that the chance I can land such benefits is minimalistic.

I do not think I will buy into any of those projects in the foreseeable future.

By Tuan Nguyen

2 black swans

Book review – Black Swan

Black Swan is a phenomenal book that everyone should read. It discusses about the unexpected, and the impact that it has to our lives.

Tl; dr;

We should be more aware of unexpected events, as they bear significant consequences comparing to expected events. If we are aware that they can happen, we will tread more carefully in everything we do, especially in our investments.

The book can be yours here.

What is a Black Swan event?

The term “Black Swan” was coined by Nassim Nicholas Taleb, in his book of the same name. A Black Swan event is an event that rarely happens. So rare that most people do not expect, or think that it is impossible to happen.

The inspiration of the term dates back to pre-colonial age. During that time, people believed that all swans are white. The belief was solid for hundreds of years. Then when the British came to Australia, they first encounter a swan with black feathers.

2 black swans

Black Swans (source: birdlife.org.au)

This discovery forfeited the belief that all swans are white, and completely unexpected. But it happened.

The same thing had happened in the past so many times, each time caused magnificent consequences. The “11 September”, GFC, and this Coronavirus health crisis, etc. are considered Black Swan events. All of them just happened, hardly nobody expected them, and bear (terrible) consequences.

To be classified as a Black Swan event, one must be completely unexpected. If we already know of a certain “risk”, it becomes a “Gray Swan”. For example we know that a plane crash is unlikely to happen, the chance is minimalistic. In this case, a plane crash is a Gray Swan event.

Why we should ignore the Gaussian bell curve?

Galton board

A Gaussian Bell curve represents the standard distribution of certain events. Statisticians use it to classify risks of various matters, from Casino machines to complicated financial products.

However, this model will never be able to handle extreme outliers, which normally bears the most consequences. The chance of such outlier is unbelievably small, and most of us will never see all beans tilt to the far left or the far right of the board above.

Let’s say a casino assessing risks for the business. They figured out the most harmful events that could happen are cheating, so they upgrade their machines, install cameras and other measures to prevent customers to play dodgy. This could save them, say a few millions of dollars a year. However, there are events that potentially screw up their profit, things like a staff accidentally pour water to the on-premise servers, causing the casino to shut down for a day; or a terrorist just happen to detonate a bomb inside the casino. These events are, like the managements say, impossible to happen. But when it happens, the whole business suffers, and can go bankrupt because of a single such event.

How do we become more aware of such events?

These events, as the definition says, completely unexpected. Therefore we can only be aware of something harmful could happen. We do not know exactly what, just need to open our minds that such events can happen.

When we are open to the concepts, we will be more careful to the things that we do. Sometimes redundancy is a good thing. Sometimes optimization exposes us to these Black Swans. Executives are prone to maximize their company profits, via various methods. One of which is optimizing operating cost. Let’s say they cut costs and only employ 1 person to do multiple things, the workload may be enough for 1 person. But if that person goes on leave, or be sick, then the whole optimization concept is exposed to certain consequences.

How do we capitalize on positive Black Swan events?

Not all Black Swan events are bad. Some are positive and can be capitalized upon. Considering a venture capital, they are the prime example for capturing the benefits of Black Swans. They know, statistically, that 95% of startups fail. However, they focus on the remaining 5%. Let’s say they fund 100 startups, they are exposed to the chance that 1 to 5 of them can be successful. And if they are, the venture capital fund can recover all the losses from the other 95 failed investments.

Black Swans can be subjective

An event can be a Black Swan to us, but may not be to others.

Considering this, a chicken that get fed everyday for 60 days. On the 61st day, it gets butchered. To the chicken, being killed is a Black Swan. Since all historical data points towards the prediction of being fed on the 61st day. However, to the butcher, it is not even considered an unusual event.

Summary

Being aware of Black Swan events can help us in our lives. We do not need to be too scared to do something, just because it potentially causes harm to us.

If you want to buy the book, you can get a copy here.

“Always hope for the best, but prepare for the worst.”

By Tuan Nguyen

stock investment

Investing – Why do I decide to buy VTS?

VTS is a Vanguard Investment product. It tracks the total US stock market index. You can read more here.

This week I bought a small amount of VTS, opening my position in investing in VTS.

Tl; dr;

VTS is one of the most popular ETFs that Australians invest in. It exposes us as Australia residents to the US market. In a way, we can invest into US market by buying VTS and related products.

You don’t need to beat the market, you go with the market. And ETFs are a good and simple way to do that.

Why ETFs?

ETF stands for Exchange-traded fund. It is a stock that involves other stocks. Normally an ETF will track an underlaying index of a collection of stocks. We have ETF that tracks Gold price (NYSEARCA:GLD), we have ETF that tracks Steel price (NYSEARCA:SLX). Basically we can group anything that share a common characteristic, and create an ETF for it.

With the above concept, an ETF should reflect the average value of the underlaying securities. This also applies to ETFs that track a group of company stocks. VTS tracks the whole US market, meaning it is the representative of all companies that operate in United States.

By investing into an ETF, a busy person can just keep pouring capitals into ETF without thinking about picking stocks. Therefore freeing up the time to concentrate to other important matters.

Why VTS?

As stated above, VTS tracks the whole US market. Considering US companies have the potential to grow a lot more than Australian companies. It makes sense to expect a higher growth rate by investing into an US market tracking ETF.

VTS historical performance

VTS historical performance

From the earliest recorded time (2009) to the most recent days, amid the CoVid-19 crisis in 2020, the value has grown from $60.30 to a whopping amount of $204.20. An increment of nearly 3,400% within 11 years. That is 11.72% compounded rate annually.

Not a lot of investment instrument can perform like that over a long time, especially when you don’t need to think about it and basically just keep throwing money buying ETF.

To compare against Australian share index, VAS.

VAS historical performance

VAS historical performance

We can see that even without the drop (peak at about $90.55), the compounded rate of return after 11 years is about 5.4% annually. A figure that is much lower than the US market.

But what about VHDG, tracking a bunch of ETFs itself?

Let’s take a look at the historical performance.

VHDG historical performance

VHDG historical performance

There is not much to discuss here, since VHDG does not have a long track record comparing to the above 2 ETFs. But from what we can see, it grows at compounded return of about 6.5% annually. This rate is not bad for our current situation, when the RBA cash rate is at all time low.

Summary

Considering all historical data, I have positioned myself into VTS. With the current drop, I have the advantage of investing in 2019 again (the current price is the same as early 2019).

In the future, I will pour more capitals into VTS, mainly because I have passion with real estate and decided that it will be my main investment form. Stock market will be my secondary. Therefore I do not want to spend much time picking stocks.

By Tuan Nguyen

stock investment

Investing – Why did I fail in my first CFD trade?

Following up on the previous post about CFD trading, I ended up losing all the deposits due to no risk management plan in place.

As a retrospection, I would like to reflect on what I learned and how to improve my position in the future trades.

Tl; dr;

Due to the massive fluctuation caused by the Coronavirus, my positions on CFD breached the 20% stop loss. Therefore the system sold my position and I lost my capital. This is mainly due to me not having a good risk management.

Is is a good period to jump back in using CFD? Probably not, due to recent events, my salary dropped 25%. Therefore I will need to temporarily suspend more risky investments for a short while.

The down side of CFD

As you might have guess, the major flaw of CFD is when the market goes against you big time. For my case, the stock I bought was AIZ, and it went down at least 40-50% in the last 4 weeks, making my position go bust. at 20% drop. I bought it when it already went down 20%, and from there it dropped another 30% and push the share price down to $0.8.

The problem is that we cannot control the market, therefore this is the risk that CFD traders have to bear. Let us make some calculations on how long we have to go to recoup our cost before we just don’t care about whether our position is foreclosed or not.

CFD calculation

As calculated above, we need at least 5.5 years to recoup the principle, and anything after that is pure profit. We don’t need to care whether the principle is lost or not. This is assuming that we do not get margin called during that 5.5 years.

To summarize, the risks are significant when deciding to leverage to buy shares and to get good return are as follows:

  • Market can be fluctuated more than what we are allocated for.
  • Companies have to pay dividend continuously during the period we are involved in.
  • Overnight fundings have to be prepared before the dividend starts rolling in (normally we need to prepare a year of interest).

How to mitigate risks?

The above risks are only what I can think of. There must other risks that I have not been able to forecast.

However, let’s take a look at how can we reduce our exposure to these risks, or how to have a risk management plan.

Fluctuation market:

This may be hard to mitigate, since it is completely out of our control. However, there are some points that can help.

There are multiple types of fluctuation. Company-specific fluctuate can be neglected by choosing blue chip companies. They are more resistant to market changes and therefore the chance of them dropping below our stop loss (20%) is small.

Industry-specific fluctuate is harder to forecast the risk. Something could happen that disrupts the whole industry. Therefore a criteria when choosing which company to buy can include only buying companies that participates in old industries, such as banking, supermarkets, real estates, etc. These industries have proven track records and can be a bit more sturdy.

Worldwide fluctuation, or a global crisis, affects everyone. This is basically a dead sentence to people who are already participated in CFD trading. Market is absolutely impossible to predict, and the change deltas are unrealistic. To respond to this risk, the only thing that I can think of is not using a traditional CFD way to leverage in share investing, but rather using a different source to leverage, e.g. property equity.

Companies pay dividend continuously

The risk of our chosen company not paying dividend, or reducing dividend payment is real. However, we can partly mitigate this risk by choosing companies that have a long track record of paying dividend, as well as increasing dividend payment annually. We can also look at their financial reports and see if their dividend is sustainable.

Overnight funding

This is probably the only thing that we can control. Basically we need to keep an amount of cash in the trading account to pay for the overnight funding charges. This is completely in our control so there is no excuse not to have enough funding. If we cannot pay the overnight funding, the platform might sell our position to cover the cost.

Summary

CFD trading is considered a high risk instrument. We need to be aware of foreseeable risks and find ways to mitigate them. In other words, we need to have a risk management plan in place.

My strategy going forward is to leverage into property and buy some dividend shares that can cover the interest rate from the mortgage.

By Tuan Nguyen

stock investment

Investing – New way to CFD trading

Recently I have been told about margin trading, and decided to give it a go. However, instead of buying shares with only my money. I trade with CFD, which comes with greater risk, but higher rewards.

Tl; dr;

I invest into dividend stocks that pay dividend more than what I need to cover the margin loan interest rate, and pocket the difference.

There are risks involved such as margin call when stock price drops to a predetermined level, companies decide to pay less dividend than before, etc.

What is CFD?

CFD stands for Contract for Difference. According to investopedia, a CFD trade pays the difference between buying and selling prices, and enables trader to borrow money to buy shares. For example if I buy at $10 and sell at $11, I will profit $1 per share. However if I buy at $10 and sell at $9, I lose $1.

There are other fees involved when trading CFD, as per below.

  • Brokerage fee: this depends on the brokerage platform, normally ranging from 0.01% to 1%, applies to both buying and selling positions.
  • Interest rate: the interest rate that trader needs to pay for the margin loan that he or she borrows to trade. The interest rate is predefined in the PDS of the brokerage website, and it can be as cheap as (RBA + 2.5%) to as high as (RBA + 9%) or even higher that I am not aware of.
  • Guarantee stop loss fee: in the event of stop loss sell, if the price already moves past the stop loss point, this will ensure that I can still sell the share at that stop loss points. E.g. I buy stock at $10, stop loss is at $8, but the stock drops under $8 before I have a chance to sell. If I pay for the guarantee fee, it will sell the shares for me at $8 instead.

Risks when trading CFD.

I need to take massive risks when trading using CFD.

  • Margin call: when the stock falls below a certain threshold, the platform will sell my share automatically to preserve the amount that I borrowed, which basically will crystalize my loss.
  • Higher exposure to the market, and higher exposure to loss due to leveraging.
  • Noone can time the market correctly, and accurately predict the movement of a company stock.

How do I (potentially) reduce the risks?

  • Utilizing an angle of CFD: CFD shares can receive dividend at ex-dividend date. Therefore I do not need to time the market to make profit. In an ideal world, if I buy in a share that pays more than the interest rate, I can pocket the difference without waiting for the share to appreciate in value.
  • To prevent margin call, or to lessen the blow if that happens, I place a realistic stop loss level. This will ensure that I do not lose all my capitals, should the price drops too low.
  • The mindset is simple, if I trade 10 positions, I just need to win 8, and accept the other 2 as necessary losses.

Let’s talk number

AIZ numbers

As per the calculations above, with the assumption that the price movement is minimal, we can pocket $402.86 after a year waiting (allocate some of that to pay tax please).

This trade was executed yesterday, and all data you see is the actual figure.

There are a few caveats with this approach.

  • Cash reserves to pay interest every day: we need some cash sitting idle to pay interest every day at midnight as the holding cost.
  • If stock increases in value, interest is also go up because of the formula that the brokerage service uses to calculate interest amount.
  • Not for inexperienced trader, since margin trade requires steel-like mindset, able to follow a pre-defined set of rules.

Summary

CFD trading is a high risk form of investment. With a different approach angle, we can significantly reduces the risks. However even with this approach, the risk is still massive and therefore I do not recommend people to follow my method unless they spend some time researching the feasibility of the approach.

Make no mistake, my passion is still with Real estates. This is something that I experiment on the side only.

By Tuan Nguyen

2020

Discussion – My goals for 2020

Setting goals is a good way to start the new year. Here are the outline of what I plan for my life in 2020.

Tl; dr;

  • Straighten my finance.
  • Purchase at least 1 more property.
  • Grow emergency fund to 3 months living expense.
  • Write at least 52 blog posts.
  • “Challenge” gather a good deal to present to investors.

First thing’s first….

financial review

Reviewing my current personal financial situation, I think it is in a mess currently, with loans are everywhere and there are no system around them. So for 2020, I want to restructure my finance to have a better interest rate on my loans, better visuals on how the investments are going.

At this moment, my loans are as follow.

Loan Interest Notes
Home loan (now investment) 3.85% fixed 2 years, ending 04/12/2020
Investment loan 4.16% a bit high at the moment, can be lowered to a considerable amount

I’m aiming to have them lowered, considering there may be further rate cut from the RBA going into mid 2020. I would consider fixing the interest if the RBA lowered the cash rate to 0.25.

The good thing from low interest rate is that my cashflow from the properties will be much better and I can save them up to invest in more properties.

Property purchase

property investment

As some of you may know, I want to be a professional investor, concentrated to properties. So in 2020, I will be active to find a suitable property for me to purchase, and looking to renovate it to make some instant equity, as well as structuring it to at least neutral geared after tax.

I have been reading up a lot about the topic. And it is challenging to not fall into “paralysis by analysis” syndrome. Basically it means that researching too much leads you to the state where you see risks everywhere and do not start taking action.

By leveraging the young age that I have, mistakes can be fixed. I will prepare myself to purchase at least another property, fixing it up, putting it up for rent, and reconsider my financial position to see if I can redo it all over again. If I find problems in any steps, there will always be people who are keen to help.

Emergency fund

emergency fund

This is what I learned from various books like The Barefoot Investor, The Total Money Makeover, etc. I have grown my emergency fund to be sufficient for about 1.5 months now. And the goal for 2020 will be growing it to at least 3 months of my monthly expense.

This way I have a good cushion to fall back on, should any unexpected events show up. I will just park it in a high saving account (I use ING, with their high saving account at 1.95% pa).

Blog posts

Fullstack developer illustration

Of course I will continue writing blogs. It is entertaining and providing me a way to memorize what I learned, as well as sharing my knowledge and perspective to the world.

The goal for 2020 will be writing at least 52 blog posts, or 1 each week. This should be achievable, considering I only spend around 3 hours to create an article.

Upcoming blog posts will focus more on property investments, rather than just technology aspects that I have been posting. I feel like I have absorbed so much knowledge regarding property investment that I should go out and implement, then report my findings to you all.

“Challenge” present a good deal to investors

This is what I would like to try out in 2020. Where I can find an outstanding investment opportunity and gather all information needed. By presenting it to the investors, I hope to raise private funds to buy another property. This is a bonus challenge for myself, and I really hope that I can achieve it.

Summary

Well that is a lot of goals that I set for myself in 2020, and we have already finished the first week of 2020. I better be fast before the year ends.

By Tuan Nguyen

career achievement

Retrospective – What I achieved in 10 years?

10 years seems to be a long time, however to me, it sometimes happens so fast. Let’s look back and see what I have achieved in the last 10 years, and what I plan for the next decade.

Tl; dr;

What did I do?

  • Arrived in Australia.
  • Finished Bachelor degree.
  • Bought a house, and some investment properties.
  • Visited various places in Australia and the world.
  • Moved to Melbourne and obtained a good income position.
  • Got introduced to financial education.
  • Became an Australian citizen.
  • Founded a company.
  • Found a girlfriend 😀

What am I planning for the next 10 years?

  • Get personal finance organized.
  • Buy more properties :)))
  • Get married.
  • Achieve financial confidence.
  • Give back to the community.
  • Help suitable people to reach financial confidence as well.
  • Travel to various places.

What did I do and achieve in the last 10 years?

I arrived in Melbourne on the 14th of February, 2010. So it is almost 10 years living in Australia. I did a Bachelor degree of Information Technology and had the opportunity to work for IBM as an intern for a total of 5 years (2011 – 2015).

Graduation photo

Funny enough, I did not work there as a programmer, but rather a network engineer (SAN storage engineer). However I did have some opportunities to create automated scripts for the team to use (mainly in daily healthchecking, and storage provisioning).

In 2013, with some helps from my beloved parents, we purchased a property in Ballarat, and I lived there until I moved to Melbourne in 2016. Back then, the property price was $175,000; which we negotiated down to $160,000 and got the property with a small home loan, thanks to the stable income from IBM internship. The broker said it was the smallest one that he filed since he started his career.

In Ballarat, I have the opportunity to make friends with many people and they brought me to various areas that gave me the experience of how Aussies do in their weekends. I’ve been to numerous camping sites, walking tracks, skiing and even went to a scout camp retreat. Ballarat is a small town and there are not many activities, but somehow being with the nature helps me not feeling boring.

Some activities I engaged includes

Skiing

Skiiing

horse riding

Horse riding

spear fishing

Spear fishing

I also travelled to other countries as a tourist, e.g. Italy, Russia. The trips gave me a lot of new perspective, as well as opened my eyes to different cultures that I will express more in future blog posts.

What did I do in Melbourne?

After nearly 7 years in Ballarat (2010 – 2016), I decided to move to Melbourne after securing a better occupation after my granted PR. Funny that it only took me 2 weeks to get accepted as a PHP developer, and another 2 weeks to resign from IBM. So after 4 weeks I jumped from working in Ballarat to commuting and working in Melbourne.

After 9 months of commuting, and every Saturday driving for an hour to Melbourne for inspections, I decided to purchase another property that I called home for the next 4 years.

melbourne home

Since moving to Melbourne, everything exploded. Events happened so fast that looking back now, I probably have grown more after 3 years in Melbourne than the previous time in Ballarat. I got introduced to financial education via the first book I read Rich dad poor dadAfter finishing the book, I got curious and since then have read multiple books on the topic, e.g. Barefoot investor, The Richest man in Babylon, The 4-hour work week, etc. Now I am developing my own financial plan following some of the advice that I learned from the readings.

In 2016, just before I moved to Melbourne, I officially became an Australian citizen after 6 years living and studying. It was a big milestone and opened the doors to multiple opportunities that otherwise blocked for non-citizen.

dual passport

Last but not least, I got a girlfriend :D. She is smart and beautiful and I feel lucky to have her.

MJ and I

What’s my future look like?

First priority will be getting my financial position organized, since I have not had a good structure just yet. Only recently I have consulted several financial planners and see if their expertise align with my goals. 2020 will be a great year and I hope I can secure a good position in the first half of the year.

I have decided that investment properties will be the investment vehicle for me. Therefore buying more suitable properties is crucial to achieve a solid future. From the advice I got, I will need at least 5 Millions worth of net worth to be able to have a splurge life without having to work anymore.

Once I achieve financial confidence, I hope to give something back to the community. Either in the form of charitable funds, or going to exotic places and help people who have less luck than myself.

I also want to help other people who share the same vision for the future to achieve what I have. Once I have the experience, it is definite that I will pass on the knowledge to people. It is better to have more friends that share and achieve the same goals in life.

Marriage pressure is increasing year after year. However I hope that I will get married within the next 10 years. It is a long time so reasonably safe to assume.

Summary

“Most people overestimate what they can do in a day, and underestimate what they can do in a month. We overestimate what we can do in a year, and underestimate what we can accomplish in a decade.” – Matthew Kelly, The Long View

With the above forecast about my future, I am certain that I can achieve a lot more than what have been outlined. I believe that I create my own luck and will take all responsibility for my decisions.

My final question for you is, what did you do in the last 10 years?

By Tuan Nguyen

property investment

Discussion – National Rental Affordability Scheme

National Rental Affordability Scheme, or NRAS, is a government scheme to help low to moderate income people with an opportunity to rent homes at a lower rate.

Can investors like us take advantage of that? Let’s find out.

Tl; dr;

  • NRAS pays landlords with an incentive that is 20% or above market rent to offset what tenants need to pay.
  • NRAS commenced on 01 July 2008, and has been through 5 calls for applications.
  • There will be NO further call under this scheme in the foreseeable future.
  • NRAS targets low to moderate income tenants, and targets medium to large-scale investment body (usually 100 or more houses).
  • Payments usually comes in a form of refundable tax.

What is National Rental Affordability Scheme?

NRAS

Source: knowledgesource.com.au

In Layman’s terms, the government will pay a portion of rents to the landlords, and approved tenants will pay the remaining.

E.g. If market rentals is $1,000 per month, Australian government will commit to pay at least $200 per month, and the tenants only need to pay the remaining $800.

NRAS started on 01 July 2008, and was planned to go through 5 calls for applications. However the last call did not commence since the Scheme only supports 38,000 allocations. I.e. Only 38,000 properties can be approved for this scheme.

Who can benefit from this Scheme?

beneficiary

Source: travelinsurancegungei.blogspot.com

Low to moderate income tenants need to be approved to rent  the properties that were approved for this scheme. This means there are 2 separate approval processes that applies to the tenants and the properties. Tenants only need to pay up to 80% of the market rent, and the lowest is 20%.

E.g. If market rent is $1,000; tenants only need to pay between $200 to $800, depending on the approved finance.

The scheme aims to organisations that have about 100 or more houses, provides them with a financial incentive for up to 10 years. This means individual investors will not be able to apply for the scheme directly. However if they buy properties that are already approved, then the scheme will go with the properties.

Financial benefits come in the form of refundable tax credits. The amount of the tax credits is available here.

One thing to note is that the tax credits adjusts for inflation. Which means the amount of credits will be different each year, protects the investors from inflation.

Summary

NRAS is a scheme to help low to moderate income Australian to be able to rent their homes by providing financial incentives to landlord.

It is no longer open to apply in the foreseeable future. However if individual investors buy an approved property, the scheme will follow the dwelling.

By Tuan Nguyen

property investment

Discussion – First Home Loan Deposit Scheme

First Home Loan Deposit Scheme has been in the news since the Coalition won the election. Let us take a deep dive and see what it is and how you can benefit from it.

Disclaimer: information provided in this blog post does not constitute financial advice, please do it at your own risk.

Tl; dr;

  • The scheme is only for individuals who have not bought a property before, or for couple who BOTH have not bought a property before.
  • May work with FHSSS, according to the proposed plan.
  • Up to 10,000 applications per year.
  • No Lender Mortgage Insurance required.
  • Supports low and middle income class.

The scheme

The Coalition government, in the attempt to win the election, rolled out their plan to help low and middle income families to own a house without having 10-20% deposit. According to the plan, eligible applicants only need up to 5% deposit.

The plan allows average Australian to own their house easier, continuing the Australian dream.

The plan commences on 01 January, 2020. You can apply for it here.

What are the benefits

benefits of first home buyer scheme

Source: news.com.au

Multiple benefits are introduced with the scheme, as seen below.

  • Buyer only needs 5% deposit to apply to buy a property as their home.
  • No Lender mortgage insurance applied to properties bought under this scheme.
  • May work with First Home Super Scheme Saver, i.e. if buyer already has 5% of the property value in their super, they may be able to use that to buy the home they want.

An example of a property that can be bought under this scheme.

Property price $600,000
Buyer’s saving $15,000
Super balance $15,000
Saving + super $30,000 (5%)

With the above financial situation, he/she may be able to buy the property. There is no stamp duty since it still eligible for stamp duty exemption.

Disclaimer: there are other fees that can be applied as well, e.g. lodgement fees, PEXA fees, etc.

The catches

the caveat

Source: murfett.com.au

Of course it doesn’t come free, there are multiple caveats that come with the scheme.

  • Only 10,000 successful applications per year. This is quite reasonable and I don’t think there will be a shortage.
  • Australian citizen only, i.e. PR holders will not benefit from this scheme. Indirectly this reduces the potential applicants amount.
  • If a successful applicant refinances, the benefits will be gone. I.e. they will need to pay LMI once they refinance with less than 20% deposit on the house.
  • Applicants will need to have their annual taxable income less than $125,000; and a couple of less than $200,000 combined taxable income. This should not be a big concern, considering the income threshold is quite high.
  • If applying as a couple, both people will need to be first home buyers.
  • Only supports property that have values up to a threshold, this threshold depends on regions. You can find the full table here.
  • Banks want to charge a higher interest rate on properties under this scheme. More information here.
    • This is understandable. If buyers only have 5% saved up and not 20%, there are chances that they are not as responsible with money. Therefore the risk of defaulting is higher.

Summary

There are a lot of benefits for people who can take advantage of the First Home Loan Deposit Scheme. However they will need to be more responsible with their finance so they can keep their home.

Reading the fine print is crucial for families who apply. There can be multiple conditions that you need to know of before signing the contract.

By Tuan Nguyen