1million in Equity!
- Thread starter TROM
- Start date
Nice in theory guys but I doubt this strategy would've been too popular in Japan for the last 10 years. Would've chewed up your equity just holding to the damn things and sent you broke at the same time. But hopefully interest rates will be at 0.25% when that happens and all you're up for are IP maintenance costs. Food for thought in a deflationary environment...
Good point, that's why it's best to wait until you have some decent equity in your IP's before you try this. In my case they have increased in value by about 80%since I purchased them, so now I can utilise the LOE strategy or as I'm doing, using the equity to fund the interest on the IP's. My accounant advised that the interest on interest is tax deductible provided that interest is used for the IP and not taken as cash.
Freed up heaps more of my income to purchashe more property
Buying investment property wouldn't have been a popular strategy either..... let alone LOE. Might as well close down SS if we are going to follow Japan........
stuff japan.. the way i see it the property bubble could deflate and i could lose all the value of my properties... the only thing i could do to combat this is to sell up everything now and live in a hole until 30 years when things start to inflate again (cash won't last long will it)...
orr.. alternatively i could have strong mindset, take a so called "gamble" in the eyes of a pesimist and levarage my assets and continue the path to a rich life...
man id rather die fighting then live scared.
orr.. alternatively i could have strong mindset, take a so called "gamble" in the eyes of a pesimist and levarage my assets and continue the path to a rich life...
man id rather die fighting then live scared.
There really are other options.
Too big a question, too late at night, too unqualified. Sorry.
You young fellas have the greatest tool man has ever devised.... The Net... at your fingertips. I'm a clapped out old fella and it has changed my life. Let it change yours, do a lot of reading and you will be able to tell me instead of asking. I hope you got along with your Dad. If so accept this as if he told you this.
Why not, even if property prices drop,as some area's have and some still will come down in value,what happens then the lower prices will attract more investors which then will increase the volume of sales,then it comes back to supply and demand then the next cycle starts..willair..
Too big a question, too late at night, too unqualified. Sorry.
You young fellas have the greatest tool man has ever devised.... The Net... at your fingertips. I'm a clapped out old fella and it has changed my life. Let it change yours, do a lot of reading and you will be able to tell me instead of asking. I hope you got along with your Dad. If so accept this as if he told you this.
C'mon pops don't discredit yourself like that. BTW im not seeking answers just opinions, there's many good arguements for both sides of the story, and like always, the future remains unknown - nothing will change that.
Definitely, and it's proven if you hold your property assets long enough prices recover and increase even after massive deflation. If it does go bust and i go bankrupt the world would have to be in complete disarray, and that being the case im still a mug, on the streets, fighting the depression anyway.
There is such a thing as an educated guess, Stumunro. Don't just ignore Japan. Read about it. Study it. That way if (when) we have a crash and everyone starts raising the spectre of Japan, you've already through it through and concluded it's not going to happen here. I don't think a Japan style slow crash without a full economic recession will happen here, because of differences in how the government will react to a crisis.
Fighting is better than living scared but fighting just for the heck of it isn't very smart either.
Alex
definitely haven't ignored Japan, the arguements been pointed out a few times, and my take on it remains the same; there are a few significant differences in our economy (and the way it's regulated) and even a property market that is starting to show a different trend to Japans bubble burst. My conclusion and strategy is to continue striving to buy while the market shows signs of growth, and a supply / demands are still being met. I'm not going to strain my LVR to the max, but i'm not going to slow just yet. When the market really does start to fall im hoping i have my finger on the pulse to make the right decision.
But that's just my take and like always no one should base anything on this apart from understanding it's just my opinion
But that's just my take and like always no one should base anything on this apart from understanding it's just my opinion
THAT is really the key point, in my opinion. Buying when the market is going up is straightforward. What do you do when the market goes down? Australia in the 90s went through years of flat to down markets before the next boom started. If we have another one of those (perfectly possible), will you be willing to buy or at least retain your properties when the market is down and everyone is shouting get out while you can, citing Japan as an example?
Alex
Its age old adage that during recession's and the big depressions the rich got richer picking up all the broken pieces. I am very hoping to be in a position when the time comes to make that choice, the position im being in today, if the market was to fall next year i honestly feel that i wouldn't be in as good a position then if it was to fall in 10 years time and i have leveraged my assets to giv e me more equity to play with. Yes it's a big balance, you want to keep moving forward but still keep a decent LVR so that when the times comes you can not only sustain your investments but also go picking for more.
Stumunro,why not look at everything like this so many people are influenced by the opinions of friends and family,most of those people only invest intheir super-ppor,by the sounds of things you are only looking at the downside in everything that's fine, but you will always find a downside in everything..
The only way i know to is too utilise various opportunities at the same time,what ever they may be,property is only one and most will provide the same result in the long-run, you wait till monday morning on the ASX when it drops 150 points in the first hour of trading,who it that going to worry,the people that cut and run on some medias opinions,or the hardened investor who just sits back lets the price drop then buys back in?,make up your mind on who you want to be it's not that hard....willair..
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Hi Alex and Rixter,
I'm trying to really picture this concept and was wondering if you could provide an example and elaborate a bit?
I take it this is also the way to help leverage buying additional properties not so much for the initial deposit but the ongoing short-fall between interest and expenses vs. rental income?
Do you just capitalise the interest?
Do you wait until the rental income meets (or exceeds) the interest on the IP thereby going into neutral or positive cashflow so that you can maintain somewhat equal cashflow when you have to supplement the shortfall for the next IP purchase?
As you can tell I'm a bit of a noob so go easy
There’s no set formula for this. And no formula works 100%, because it depends on so many unknowns like availability of credit.
LOE is more than just borrowing against equity to fund the shortfall between interest and rent. This is interest capilisation.
You can have positive cashflow from negatively geared (net tax loss) property. The big difference is the effect of depreciation.
I’m not sure what you’re trying to ask, psyk. The things you quoted were about LOE, which is borrowing against equity to use as LIVING expenses. This is different from borrowing more just to meet –ve property cashflow.
Alex
