Explain how one can keep accumulating property

[Les]

Another way of looking at it, if you have Equity, DSR is no longer a problem.

But if you don't yet have Equity, maybe you need that TIME that Frank mentioned - or one or two smart investments.

Rolf L often says "If you have Equity, DSR is not a problem". So Equity is numero uno. And maybe that is also where "critical mass" starts to come into it.

Regards,

 

[redwing]

Is Rolf L or someone esle able to expand on that, I dont see how being asset rich (equity) but cash poor (income) can help break through a serviceability barrier?

I mean even with lo-doc you still have to prove income dont you?

(confused) RedWing

 

[simonjulie]

Is Rolf L or someone else able to expand on that, I don’t see how being asset rich (equity) but cash poor (income) can help break through a serviceability barrier?

I mean even with lo-doc you still have to prove income don’t you?

(confused) RedWing

IMHO,Yes, you have to have the financial ability to justify the borrowing but that serviceability area can not always be clearly defined so it is all down to interpretation and good salesman ship from the investor.
Example:
Jo Blow has 5million $ in assets and wants to grow a negatively geared portfolio with no other income other than sales and rents from his assets.
The lo doc declaration asks what your projected income will be for the next financial year. To Jo Blow that kind of question is an open one. Just like How long is a piece of string?
Jo blow could say he planned to sell two or three of his assets in that time period and that would show an income in conjunction with his rental income to the value of what ever would justify the lenders serviceability criteria.
After the loan has been issued then Jo Blow could then realise that his assets are strong enough to not require selling assets and so moves on to the next deal.
The serviceability criteria represents a point in time.
This example shows that Jo Blow has actually fulfilled the serviceability criteria in an effective way. If Jo Blow then after the event has a change of circumstance then "that's life", always changing.
Jo blow, as long as he continues to meet the lenders other requirements can then live happily ever after.
Simon

 

[saucy gibbon]

Though, Joe Blow must always think "how low can Joe Blow go ? in terms of his dough.

or to quote Clint Eastwood " A man's gotta know his limitations".

You need to be realistsic, the bank's lending criteria may be based on a conservative generalisiation, and you may not fit that generalisation, but you still need to be realistic as to how much $$$ you need to get by.

 

[redwing]

Aha..Thanks Simon,

That opened my eyes a bit.

RedWing

 

[simonjulie]

You need to be realistsic, the bank's lending criteria may be based on a conservative generalisiation, and you may not fit that generalisation, but you still need to be realistic as to how much $$$ you need to get by.

Totally agree with you Saucy.
Jo blow would need some pretty good escape strategies and other safety nets under him to continue to grow. He would be relying on Capital Growth to stay in the game.
Simon

 

[ArJay]

Ok..just read this thread and it's a doozie so I hope you don't mind my bumping it into action again.

My question with lo/no doc and cashbonds is that don't the banks have a DSR's for a reason? Do the risks involved in capitaising the holding costs of further IPs past the point of "normal" lending outweigh just waiting it out until rents increase?

I understand that at the point where perhaps an investor has a relatively low LVR but can't service any more loans this may be an attractive option, but aren't there risks involved with capitalising interest etc? For example the reliance on the banks to release equity into a LOC. What happens if for some unknown reason the investor is DSR'd up the ying yang and the bank(s) will no longer release the equity?
Has this happened?

R

 

[simonjulie]

Ok..just read this thread and it's a doozie so I hope you don't mind my bumping it into action again.

My question with lo/no doc and cashbonds is that don't the banks have a DSR's for a reason? Do the risks involved in capitaising the holding costs of further IPs past the point of "normal" lending outweigh just waiting it out until rents increase?

I understand that at the point where perhaps an investor has a relatively low LVR but can't service any more loans this may be an attractive option, but aren't there risks involved with capitalising interest etc? For example the reliance on the banks to release equity into a LOC. What happens if for some unknown reason the investor is DSR'd up the ying yang and the bank(s) will no longer release the equity?
Has this happened?

R

Hi ArJay
IMHO, the key to this strategy is the effective use of ones LVR and the ability to use only the Lazy Dollars tied up in equity.
Firstly, one has to decide how much equity is Lazy and how much is important to hold for safety of the portfolio.
Idealy for me, the LVR if raised through borrowing for the maintenance/growth of the portfolio, is used in the same way as a farmer keeps a supply of feed in his shed ie: to carry the stock through a dry period, or to take advantage of buying more land/stock when the opportunity is there.
I fear with property investment, too many folk borrow money that is not really there, meaning that the market has not fully established a firm base price for the property. The valuations may only reflect a growth trend for the area. Unfortunately for some investors this easy money can become a rod for their own back, with similar effect and outcome to taking cash advances on credit cards to pay the minimum monthly payment on the same card.
So IMHO,this kind of borrowing is a double edged sword so beware and be well educated in its use.
Simon

 

[ArJay]

Hi ArJay
Unfortunately for some investors this easy money can become a rod for their own back, with similar effect and outcome to taking cash advances on credit cards to pay the minimum monthly payment on the same card.
So IMHO,this kind of borrowing is a double edged sword so beware and be well educated in its use.
Simon

Thanks Simon.

This is a really, really good point. My next question is how does one manage to become educated/informed in this area.?

Say for yourself, I have noticed in the past that you use spread sheets to great effect in managing your portfolio especially in a big picture sense. Are you at a stage where you are able to make an informed decision thru these to know when borrowings for maintainence/growth of the portfolio is warranted?

Rory

 

[simonjulie]

Thanks Simon.

This is a really, really good point. My next question is how does one manage to become educated/informed in this area.?

Say for yourself, I have noticed in the past that you use spread sheets to great effect in managing your portfolio especially in a big picture sense. Are you at a stage where you are able to make an informed decision thru these to know when borrowings for maintainence/growth of the portfolio is warranted?

Rory

I think that the experience gained from just "walking the walk" is a major form of education. A wise man once said "the only difference between me and say Donald Trump is that he knows and has experienced a heep more stuff than me."
Yes, spreadsheets have helped me as I am an artist at heart and they expose the creative side to my nature as well as expose the number crunching cold hard facts of investing.
I must say though that some people want to know everything before they act and some people act before they know everything and somewhere in between is investing Navarna.
Simon

 

[see_change]

My next question is how does one manage to become educated/informed in this area.?


Rory

One thing to be aware of is that most of the people promoting this style of investing have really only done it during the last property cycle when things have been good and most people investing sensibly in property have done well.

Having said that I've only been investing for an even shorter time frame than Simon and Julie .

See Change

 

[ArJay]

Hmm...cheers guys.

At the risk of hijacking this thread I'd like to ask a few more Q's from you guys.

At the moment I'm currently deliberating taking leave from work in order to renovate on a more hardcore basis. I really enjoy the work. This is basically the crux of my questioning...

Trying to buy with CG in mind and, as many in here are, am looking to build a portfolio thru gaining equity and rental yeild via renovating. Been crunching numbers tho and just can't seem to see how this can be done. Even in best case scenarios the properties will still be neg geared to some point and the LVR still going skyward despite adding value...

Is there something I'm missing? Is this do-able?

Rory

 

[Rixter]

I must say though that some people want to know everything before they act and some people act before they know everything and somewhere in between is investing Navarna.
Simon

Aint that the truth!

Well said Simon.

 

[oc1]

Trying to buy with CG in mind and, as many in here are, am looking to build a portfolio thru gaining equity and rental yeild via renovating. Been crunching numbers tho and just can't seem to see how this can be done. Even in best case scenarios the properties will still be neg geared to some point and the LVR still going skyward despite adding value...

Is there something I'm missing? Is this do-able?

You can either use equity to service your interest bill, or sell one project a year to do the same thing. Its like taking 1 step back to take 2 steps forward.

Cheers

Oscar

 

[ArJay]

True Rixter...that really sums it up brilliantly.

Which leads me to more "inaction" .
oc1 I understand the theory of 1 step backward 2 steps forward so cheers for the quick tip there.

Wondering tho a couple of things. Without working we'd have to use equity for some degree of living expenses. My wife earns a fairly good living but not enough to sustain us both especially with kiddies on the horizon. Adding this and the capitization of the holding costs to the equation it still looks like the LVR is climbing faster than the equity can be grown.

With the market the way it is at the moment renoing and selling just doesn't get the results it did a few yrs back and I don't reckon it can eliviate the probs with LVR.

Sorry if I sound like a party pooper but as Trump said "take care of the down-side and let the up-side take care of itself".

R

 

[Rixter]

Sorry if I sound like a party pooper but as Trump said "take care of the down-side and let the up-side take care of itself".

R

ArJay, to quote someone else -

"Whether you think you can or you think you can't, you are Right!"

Hope THIS provides you some food for thought.

 

[simonjulie]

One thing to be aware of is that most of the people promoting this style of investing have really only done it during the last property cycle when things have been good and most people investing sensibly in property have done well.

Having said that I've only been investing for an even shorter time frame than Simon and Julie .

See Change

Hi Sea Change
I agree with you, however I have been buying realestate since 1974 and the techniques and strategies that have enabled me to do well over the past 10years and more so the last five years, have evolved over a much longer period. What is important for someone starting now is understanding that this strategy is not a "get rich quick" one. It may take a lot of hard work and experience to establish a portfolio in the first place. Once a working platform is established then the real fun starts.
I still remember sitting in the audiance at one of Steve Navras talks in Canberra, five years ago. He was demonstrating a working model of his Cash bond strategy. He said (at that time) if a couple had assets of around 2.4 million with a 50%lvr those people could quit their jobs and do something else with their time. When we met with Steve a week or so later he told us that we had already done the hard work and the rest will be easy and limitted only by the way we choose to invest our money.
We bought a Cash bond through Navra invest but cashed it in after a few months because times changed and so did our strategy.

Cheers
Simon

 

[coopranos]

financing question

Gday Folks
Just a quick question related to the topic:
if you are just starting out and only have a couple of properties, is it pushing the envelope a bit to suggest to the bank that you are going for a low doc loan on the basis of being a Professional Property Investor intending to sell a property?
Any thoughts on this?
Cheers folks!

 

[simonjulie]

you may find that lenders won't look at you as a serious property investor until you have a track record as such. You will probably find someone to lend you the money if you have sufficient untouched equity that they can take as security. This will work for a while and then they'll say you are rent reliant and that's when you will need to develop some kind of structure to move forward.
Simon

 

[coopranos]

property

Cheers for that Simon.
i wonder if you might be able to point me in the direction of some information that may explain a type of structure that you allude to.
Any book/website/other info you can point me to that you have found helpful on the topic would be greatly appreciated, thanks so much for your time!