Strategy?

[HandyAndy888]

Unfortunately, this cycle Rixter, assumes that the 7% growth continues, which, is a justifiable assumption, as it has for the last 50 years or so. Let's hope the growth continues.

I am wondering, if it's possible to fast track this process. Lets say you accumulate say 7 properties in 5 years.

In 5 years time, Property 1 ($250,000) has equity of 120K, 80% draw down is $96,000, which is a decent wage. Would this work? Year 2, draw down second property again at $96,000 and so forth and so forth. By year 7, you have owned your initial purchase for 12 years, so it's worth $500,000, so this time you could draw down the further $104,000 for 80% LVR. Could this work?

 

[marg4000]

I suggest you buy the best-value IP you can afford on your own. Leave relatives out of it, the chance of it ending in tears is not worth taking.

Then see how you go as a landlord. It is not for everyone. Even with a PM you will have to have some involvement in the whole process.

Don't try to run before you learn to walk. And be prepared for interest rate rises.
Marg

 

[Rixter]

When you say 'Draw out', does that mean you are taking another loan based on the increased equity? Or is there a way to take money out that isn't a loan?

Compleks, yes you borrow money (via a LOC ) based on the increased equity.

All the borrows you use (for what ever you like) is tax free to use

This is commonly referred to on SS as Living on Equity (LOE).

Hope this helps.

 

[Rixter]

Rixter,

when you draw down from the equity from IP1 (and IP2 ,3 ,4 in each subsequent year) what's the strategy used to meet the increased interest payments on the drawn down equity?

As previously mentioned in my stratehgy post above, all portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

Correct me if I'm wrong but the amount borrowed against IP1 after the 10 year cycle would be for private purposes and therefore not tax deductible either.

Yes this is correct, the interest for non-investment drawings such as lifestyle expenses are not tax deductable. - But having said that, sometimes some people can get too carried away with whats deductible & whats not, that they forget one's not paying tax in the first instance anyway.

In the overall big scheme of things however does it really matter (providing one's bought good quality well located assets that are appreciating at a rate faster than one's redrawing), if you have a portfolio Debt of $2M & over $4M of portfolio assets appreciating?? I dont think so! Unfortunately (for them) most people lose sight of the forest for the trees.

 

[RE rocks]

COnfused

Rick: From what i can gather i have made a spreadsheet

I want to understand how do you get 1 loan after another loan

Secondly, How do you service those properties

DO you have any calculators or your plans

Can you explain me a bit about LOE and low doc

Thanks

 

[Rixter]

I want to understand how do you get 1 loan after another loan

You use your existing equity for deposits plus costs & borrow the remaining funds required to complete settlement.

Secondly, How do you service those properties

As previously mentioned in my strategy post above, all portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

DO you have any calculators or your plans

My investment plan .....Plenty of calculators here.

Can you explain me a bit about LOE and low doc

LOE previously posted.

Lo doc is short for low documentation loan. You state your income but the lender doesnt require you to provide written documentation to prove what you've stated. Depending upon lender you can borrow anywhere from 60 - 80 tops LVR and require LMI to be taken out.

Hope this helps.

 

[kaiseriqbal]

Hi MTR,

Did you by chance purchase the two houses side by side in Minto.

There was a property in Minto opposite the rail line which had a fibro house and a brick house side by side for sale and on the ad it said that there could be a 7 townhouse development (STCA) and asking price was $725,000.

Cheers,

Mohammad

 

[Token Funder]

*snip*

Lo doc is short for low documentation loan. You state your income but the lender doesnt require you to provide written documentation to prove what you've stated. Depending upon lender you can borrow anywhere from 60 - 80 tops LVR and require LMI to be taken out.

Don't bet your future on Lo Doc existing in anywhere near the form it has in the past (or, arguably, does now).

 

[Rixter]

Don't bet your future on Lo Doc existing in anywhere near the form it has in the past (or, arguably, does now).

Goes unsaid.. the beauty is one can chop and change to what ever product and/or service (existing or yet to be released) one chooses at any time that best suits ones purpose.

 

[RE rocks]

need clarification

"So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with"

Can you elaborate with an example. I'm not too sure what you mean by draw out upto 80%

 

[farmilor]

$250k x 80% = $200K

through a refinance, LOC, or some other arrangement .....

 

[Alex P Keaton]

If it is an apartment/flat, try to buy on the top floor (Many of these complexes are 3 stories - ground, 1st and 2nd) and either to the front of the building or the very back. Look for north facing apartments if possible with a balcony. (Not always possible but desirable).


All the best.

Regards Jason.

May I ask why choose the top floor?


thanks

 

[Rixter]

May I ask why choose the top floor?


thanks

View, no neighbour noises from above, and ceiling space access.

 

[Alex P Keaton]

View, no neighbour noises from above, and ceiling space access.

You can see a nice view. city skyline, couple of towers.

oh ok, no noises from above

what do you need ceiling space access for? not sure


Anyway I was curious and had a look at past sales. The vendor bought it back in September 2004 and paid $122 K. Thats not bad appreciation. $100 K in 5 years!

 

[Rixter]

what do you need ceiling space access for? not sure

Access options for storage, insulation, repairs/maintenance, air conditioning and other future renovation make overs etc.

 

[jingo]

May I ask why choose the top floor?


thanks

Top floor appreciates well - often fetching higher price than others in the block. Mainly because there are no sounds from neighbours above, which in a flat can be significant! Top floor is also viewed as being more secure. If you can get one at the rear of the block even better, as there are less adjoining walls, meaning your flat should be quieter!

The draw back is the amount of stairs you have to climb to get up there! On the plus side the area I buy in has many young people renting - students, hospital staff, city workers, etc. Even retirees who live in the area own flats on the 1st and 2nd floor.



Regards Jason.

 

[blaster]

I agree you can only bother with so much theory imo , overload = time to stop pussy footing around and get out there , buy something .

Future borrowing quicker like said right through = buy something that you can build equity from instead of just waiting, a reno, sub or something .

I've fallen into the hold some , build up and sell some plus land banking , a personal favorite. I've collected 3 freebies in 18 mths now , me vedy happy. And I can add 3 more to that if I want to do a sub later . I am finding sub work doesn't agree with me though so I'm veering away from those ideas lately.

Cheers

 

[JulieW]

Beginner Advice

I'm new to this as well but I've found wonderful advice and information on this forum - use the 'Search' function and read, read read.

So in keeping with the spirit of the forum, here is my 2 cents worth.

It will be totally bewildering and all the plans you have now will likely change in the next 3 months. Mine did. To simplify things. Learn everything possible reading and look at properties at the weekend. And -
1. Look at what you can borrow.
2. Look at what 10-15 percent less will purchase - forget about houses, units, flats sort of narrowing down. Just look at what your dollars will buy.
3. Start to learn what median prices mean and what yield means.
4. Look at properties under the median price you can afford to pay (ie. the 10-15 percent less range). Look at others more expensive when it is convenient so you can see what the extra purchase price gets you. (e.g an open for inspection around the corner)
5. Work out what sort of maintenance/renovation you can do yourself and what costs are usually involved in the other (e.g painting, carpeting, kitchening etc).
6. Once you've worked out what you can afford, choose what type of property fits your pocket and ambitions. Then start looking at only that style of property, but since you now know what you're looking at, keep your mind open to bargains.
7. Know what a fair price is and don't expect you'll force a bargain with too low offers and running the property down with a list of faults. You may find a bargain but only if you can truly recognise one.
8. Finally, sage advice I saw here on the forums - the bargain of a lifetime happens every week.

 

[Alex P Keaton]

Top floor appreciates well - often fetching higher price than others in the block. Mainly because there are no sounds from neighbours above, which in a flat can be significant! Top floor is also viewed as being more secure. If you can get one at the rear of the block even better, as there are less adjoining walls, meaning your flat should be quieter!

The draw back is the amount of stairs you have to climb to get up there! On the plus side the area I buy in has many young people renting - students, hospital staff, city workers, etc. Even retirees who live in the area own flats on the 1st and 2nd floor.



Regards Jason.

cool im glad you came on to reply before i go make my offer

thanks

 

[Alex P Keaton]

thanks guys