Eliminating the shortall

[Corsa]

I fund all my IP deposits from OPM borrowing against my existing property portfolio equity. There is no large cash input anywhere on my behalf.

I think Rixter has the Nirvana here. It costs him nothing to hold his portfolio so he may as well continue to invest in IP's. Using Equity to fund the difference is the end game.

For me, last financial year I funded 8 properties that overall as a portfolio are negative geared each year to the tune of $28,000 p.a.

My tax return, I get $20,000 back.

So it costs me $8,000 per annum to hold.

The portfolio is worth $2m so for my cost of holding ($8,000) the portfolio doesnt even have to grow to make it beneficial.

I only have 4 years of active investing behind me so I have to wait till another boom time for my equity to grow significantly again.

So, I think using Shares or Equity to fund the shortfall is great...but if you can't acheive that straight away it just becomes managing cashflow and you can get the withholding tax variation to ease cashflow issues if that is a problem. No need to eat 2 minutes noodles every night I promise!

I also hit the servicability wall mid last year, and the way that I have got around that is to increase my income. That won't be so easy for most people so using cashbonds, shares etc become viable alternatives to managed the banks lending criteria.

Best Wishes

Corsa

 

[Puppeteer]

Hi Pup,


What are your yields like?

Hope to see you at CT.

6.7%, 13.2% (now PPOR), 7.4% and 3.6% (after Capital Gains on this one, and only had it for a couple of months)

I'm at 80% LVR (minus whatever I've gained in the last 3 months). Do you aim to sit lower for LVR to account for the 3-4 year period?

 

[Ray Brown]

...Lets say you have a LOC with a credit limit of $150k

Does this explain it better for you?

Thanks heaps for your help, however my problem is the bank wont lend me much more money at all, even though my LVR is extremely healthy and I have surplus cash to save. I would LOVE to have a $150 LOC but they wont give it to me.

I live very cheaply (no plasma tv, second hand everything etc) and I think perhaps the bank thinks I've got less uncommited income than I have. They put me into the standard cookie-cutter I guess.

thanks for your help, you have given me an idea of how to proceed.

 

[grubar30]

6.7%, 13.2% (now PPOR), 7.4% and 3.6% (after Capital Gains on this one, and only had it for a couple of months)

I'm at 80% LVR (minus whatever I've gained in the last 3 months). Do you aim to sit lower for LVR to account for the 3-4 year period?

Hey, they're not bad yields by any means.....just bring that last one up 4% or so (easier said than done!) and your back in the hunt for your next IP.

George

 

[Merovingian]

A few years ago we over came one of the serviceability hurdles by presenting a simple business plan to NAB and they accepted it. This enabled us to borrow more and further grow our asset base.
We got the business plan format off a westpac business web site and simply put in our details.

Isn't that bordering on deception?

Just curious as to how you came about executing this scenario.

 

[calvin@34]

Is my maths screwy???

Exactly right.

Say you buy your first property that costs $50 per week, (nice even figures follow). That is, you start of with a cash flow deficit of $50 per week. You now own 1 IP.

Then, in 24 months, it is making you $50 per week in rent. You are now $100 per week better off than 24 months ago. You then go out and buy two more properties, which each cost you $50 per week. Now you are again $50 per week out of pocket, but you now own 3 properties.

24 mths = 3 IPs, agreed.

Then, in 24 months, say the rent increases at the same pace for each property, so you now are getting $350 per week, (add $100 to the rent of each property).

2 x 24 mths = 48 mths, agreed, but I only get $200 ($100 for IP1 + $50each for IP2+3) + $50 of my original input = $250 = 5 IPs as per before.

Now, you buy more property, which each initially cost you $50 per week, so to get back to your initial cash flow position, you would buy an extra 8 properties, each costing you the same $50 per week.

assuming another 24 mths so that the rent defecit can go positive = 3 x 24 = 72 mths and I can only buy another 5 IPs following the patern above. This would mean that I end up with 8 IPs!?

You now own 11 investment properties, which cost you $50 for the lot. Think of the capital gains you would have accrued over this period of time, (minus what was used for purchasing the other IPs).

So in this theoretical 48 month period, you have bought 11 IPs.

I must have missed something as I get a total of 10 IPs in 72 mths. Sorry, I don't mean to be critical, but where did I go wroong?

Nice, easy, fake, round numbers, but I hope I illustrated the point: it works — if you select good real estate, and of course, you have the equity to pull out of each property, when a new purchase is required.

I hope this is not where I mucked up. Please advise......

 

[skater]

Isn't that bordering on deception?

I wouldn't think that was deception at all. Just showing the facts & then the bank has all the information they need to make a decision. It just means that they are more likely to see things in the way you want them to see them.

 

[Rixter]

6.7%, 13.2% (now PPOR), 7.4% and 3.6% (after Capital Gains on this one, and only had it for a couple of months)

I'm at 80% LVR (minus whatever I've gained in the last 3 months). Do you aim to sit lower for LVR to account for the 3-4 year period?

Yes the LVR will reduce over this period as the Portfolio CG increases, so as to increase and maximise my equity safety buffer.

It's currently well below 80% and still reducing very nicely thanks to the WA holdings within my portfolio.

 

[simonjulie]

Isn't that bordering on deception?

Just curious as to how you came about executing this scenario.

I don't see how a legit business senario is boardering on deception.
The bankers are big boys and they can make their own judgements whether there is any deception present don't you think?
Shock, horror!!!!
Simon

 

[Merovingian]

I hope this is not where I mucked up. Please advise......

Nope, you're right. My figures are atrocious — I did them in my head, so what do you expect.

Once I started plugging figures into Excel, I realised that while the "formula" still does work, it works at a different rate. Basically, as time goes on, rents will increase and loan repayments may stay relatively constant. This means that any well bought property would have a high probability of becoming CF+ in a couple of years.

 

[Merovingian]

I don't see how a legit business senario is boardering on deception.
The bankers are big boys and they can make their own judgements whether there is any deception present don't you think?
Shock, horror!!!!
Simon

Totally agree with you — I just wanted some views on it.

Nice lateral thinking, by the way...

 

[kelvinh]

Rixter

I like the stratgey... Thanks for sharing with us...

You know of any decent books(pref Australian) that go into this strategy or similair property investing strategies etc...

Regards

Kelvin

 

[Rixter]

Rixter

I like the stratgey... Thanks for sharing with us...

You know of any decent books(pref Australian) that go into this strategy or similair property investing strategies etc...

Regards

Kelvin

No I dont sorry Kelvin....As far as I know Im the only one whos applying this cross mix of strategies into what I call Capital Growth Averaging (CGA).

 

[redwing]

I think its a great Strategy Rixter, but I'm wondering why townhouses as it goes against the land appreciates buildings depreciate concept?

Why not a newer type house on a large block or a slightly older house with subdivision or development potential?

PS_ what is the definition of a townhouse
A quick Google confused me even more so GOOGLED

Redwing

 

[Rixter]

I think its a great Strategy Rixter, but I'm wondering why townhouses as it goes against the land appreciates buildings depreciate concept?

Why not a newer type house on a large block or a slightly older house with subdivision or development potential?

PS_ what is the definition of a townhouse
A quick Google confused me even more so GOOGLED

Redwing

Redwing, I purchase new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions

2/ To minimise my maintenance & repair costs

3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates

4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr for several reasons to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units and high rise apartments.

The mains ones being (in no particular order) -

1/ Lower maintenance & upkeep for the tenant

2/ Lower purchase or entry level into a Higher capital growth suburb area.

3/ Rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons -

Lifestyle & Economic.

4/ Greater tax advantages & effectiveness.

5/ Able to hold more individual properties spread across different markets in your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak.

A townhouse is basically a two story villa.

Hope this helps to answers your questions

 

[Puppeteer]

Hey, they're not bad yields by any means.....just bring that last one up 4% or so (easier said than done!) and your back in the hunt for your next IP.

George

Yeah. I'm getting pretty good rent on it at the moment. It's a very strange situation down there. All of the REA's are kinda in each other's pockets so it's like dealing with one big agency. Property managers are very reluctant to put rents up down there for some strange reason. They rent properties in less than a week and have no vacancies, but still try to encourage land lords for low rents.

I just told them what I wanted, and I got someone in (about $50 a week more than what they recommended). Generally the rents in the WA are heading in the right direction, so hopefully that yield will come up over the next couple of years.

I may end up selling off the house I have in partnership at some stage, and that will give me some significant capital to play with.

I can probably afford one more right now, but I would need it to be CF+ or Neutral otherwise I will stall.