$2m in 22 months - Rob's story ..

[sash]

Wow Rob....how do you sleep at night!

On a more serious note....$1900 per month....wow...a bit high for my comfort level. Nice growth though!!!

My monthly shortfall has decreased a lot over the last year or so as interest rates have declined.
I'm re-financing my fixed loans to reduce my monthly interest costs. This puts me in a better cash flow position and gives me some equity release as a buffer against future rate rises.
Current monthly shortfall is around $1900 per month. It was a lot higher than this, even before I purchased IP 7.
I pay little (almost no) tax, so a big chunk (more than half) of this shortfall is funded by my tax breaks.
Hope that answers your question.

 

[Rob Williams]

Wow Rob....how do you sleep at night!

On a more serious note....$1900 per month....wow...a bit high for my comfort level. Nice growth though!!!

How do I sleep? Like a baby.
Sleep for an hour. Cry for an hour. Sleep for an hour
The growth has been cashed in and is sitting in the bank. That's my comfort.
Not to mention the other investments I've channeled some equity into.
It's really only $900 out of my own pocket.

 

[Trogdor]

Wow Rob....how do you sleep at night!

On a more serious note....$1900 per month....wow...a bit high for my comfort level. Nice growth though!!!

Thats a shortfall of around 1% of portfolio value, pretty good in my book.

$19, $190, $1900 or $19,000 per month is pretty irrelevant when looked at in isolation to portfolio value and earned (and other) income.

Congrats Rob - great work. Good for you.

Some observations - with rents lagging a long way behind capital values and rising rates Id say we've got a period of flat prices and rising rents. If Rob's fixed his rates should see that 1% shortfall reduce.

 

[Fudge]

Apparently, I'm an infrastructure analyst. Not quite sure what that means, though.
I'm in IT. I sit in front of a computer screen all day, waiting for something to happen. It never does.

Ahhh, so now we know how and when you search for deals

I can imagine you have figured out how to install one of those quick screensavers you can hit with a touch of a button, to give the impression that you are working on some mathematical algorithim......or anything that resembles work.

Cheers,

F

 

[Rob Williams]

Ahhh, so now we know how and when you search for deals

I can imagine you have figured out how to install one of those quick screensavers you can hit with a touch of a button, to give the impression that you are working on some mathematical algorithim......or anything that resembles work.

Cheers,

F

I call it the "Boss Button".

 

[MissHoney]

Well Done Rob

Hi Rob,

Well done to you on such a great achievement. Thanks too for sharing and being so open regarding how you got started and how you are growing your empire.

From what I've been reading, lots of us are learning from you.

I, for one, have just had a brain buzz over Rixter's Capital Growth Averaging Strategy. I'm not sure if I totally 'get' it though and would love to hear how you have tailored Rixter's theory to make your series of purchases in 22 mths.

And, I have had my question of "what is capitalising interest?" answered. Thanks!

I'm glad to her that X-Coll can be useful. I've been using it too but have reached a point where I need to extract myself from the bank's stranglehold over me and am desperately trying to refinance with much stress and frustration.

This, though, brings me to my other lesson learned: that perhaps courage, determination, endurance and tenacity are required to really get it together in property investment. Usually I have the determination and tenacity thing in bucketloads. Except today, where I'm feeling a bit flat about my latest property acquisition that will probably (and unfortunately) fall over this coming week. I probably need to start a new thread to get SS investor's opinions and advice as it is far too complex to go through here and I don't want to detract from the 'congratulations' in the message! Basically, what I am trying to say (in a very long way) is that perhaps it is the case that every investor hits some kind of 'wall' and feels that overwhelming sense of frustration, as I do now. And perhaps "defeat is the mother of success", as per the popular Chinese maxim, because it is through defeat that we refine the pathways to success.

Thanks again for sharing Rob and looking forward to the next installment!

Mel

 

[crc_error]

$1900? thats a big chunk from your pay packet each month!

I would assume you have most of your portfolio fixed? Otherwise its then you would not be able to sleep

Do you capitalise any interest?

 

[Perp]

perhaps it is the case that every investor hits some kind of 'wall' and feels that overwhelming sense of frustration, as I do now. And perhaps "defeat is the mother of success", as per the popular Chinese maxim, because it is through defeat that we refine the pathways to success.

Too right! Even the very successful property investors seem to have encountered some hiccups along the way. I sure have, and I just need to keep reminding myself that one day, the situation I'm facing will just be an anecdote to tell. "Remember the time that we were so broke that..."

 

[Rob Williams]

$1900? thats a big chunk from your pay packet each month!

I would assume you have most of your portfolio fixed? Otherwise its then you would not be able to sleep

Do you capitalise any interest?

I've switched all my fixed to variable. I'm still holding 2 fixed loans which I'm breaking very soon.
I'm not seeing any value in fixing at the moment. The premium is just too high.
I started breaking out of the fixed rates to improve my serviceability, so I could refinance more easily and release equity and improve cash flow.
So, now I'm sleeping just fine. Actually, I've never stressed over rates, cash flow or much else as I always have good contingency plans in place.
$1,900 might seem like a big chunk from the pay packet, but as I've mentioned many times before, I pay no tax so my net income is around $1,100 or more greater than it would be if I didn't have negative gearing losses and just paid tax at marginal rates, like everyone else.
So, it's really only costing me $700 or so out of my pocket, the way I see it.
I did capitalise interest on a couple of loans, but the need for that diminished with the decline in rates. The money I put aside to cover the interest shortfall has been moved to other investments, as has some of the equity release funds.

 

[crc_error]

so if the $1900 is at a low interest rate, how much was your 'loss' prior to the rate reduction cycle?

What is your plan should rates go back to up 8%? as this shortfall could quite easily double or triple.

This is where I got caught in 2005. back in 2003 I had 3 IP's, costing me virtually nothing. However once rates turned, and peaked over 8% my holding costs sky rocketed. Unfortunately rents didn't go up.

Do you plan to capitalise should rates go up to 8%? In your model, what is your plan of attack for this situation? Thanks.

 

[Rob Williams]

so if the $1900 is at a low interest rate, how much was your 'loss' prior to the rate reduction cycle?

What is your plan should rates go back to up 8%? as this shortfall could quite easily double or triple.

This is where I got caught in 2005. back in 2003 I had 3 IP's, costing me virtually nothing. However once rates turned, and peaked over 8% my holding costs sky rocketed. Unfortunately rents didn't go up.

Do you plan to capitalise should rates go up to 8%? In your model, what is your plan of attack for this situation? Thanks.

The shortfall has been a moving target. It peaked at around $2,400 from memory. Sa rates declined, I purchased additional properties. As I did that, my tax reduced. During which time, rents were raised.
It's very much a dynamic, 3 dimensions thing.
I have budgeted on rates going up to 7% in the near future with little impact.
By the time that happens, I'll be pushing rents up, which will lessen the impact. I'll also start to dip into the buffer (equity release funds put aside to fund the shortfall) as required.
Any new purchases that I make this year will be at an 80% LVR, using the equity release funds in the offset account to cover 20% deposit, stamp duty and reno costs.
Then I can reval 6 months later and pull those funds back into the offset account.
This methodology was working fine when rates were 9% and has continued to work as rates have fallen then risen to current levels.
It should continue to work with forthcoming rate rises.
I have sufficient buffer to fully fund the shortfall for many years at 8% + rates, with no input from me whatsoever. Another lesson I learned from Bill Zheng's teachings. Indeed, most of my strategy has evolved from things I've learned from him.

 

[crc_error]

so basically your using equity release funds to fund your negative gearing shortfall? so really your not to concerned where rates go.

 

[Rob Williams]

so basically your using equity release funds to fund your negative gearing shortfall? so really your not to concerned where rates go.

I fund the shortfall from my PAYG income. I can increase that contribution, if required.
The buffer will cover it, but the longer I fund it myself, the further into the future my buffer will last.
No, not too concerned. Rates have averaged around 7.5% (I think) for the last 10 years or so. Even if they average a higher rate for the next 10 years (as I suspect they will), I'm not concerned.
To live a good and fulfilling life you need 3 things:

1. Something to do
2. Something to look forward to
3. Someone to love

Worrying about interest rates doesn't come into the equation, so all I can do is mitigate the risk and try to make the most of life.

 

[Rickardo]

Then I can reval 6 months later and pull those funds back into the offset account.

Rob,

I notice you have a number of IP's which you are constantly getting revalued / refinancing. Are these held in your own name, and if so how do you do this without obtaining a significant number of credit enquiries on your file?

 

[Rob Williams]

Rob,

I notice you have a number of IP's which you are constantly getting revalued / refinancing. Are these held in your own name, and if so how do you do this without obtaining a significant number of credit enquiries on your file?

Yes, all held in my name.
I'm not re-financing the same properties over and over.
Early 2009, I re-financed 2 IP's to raise equity release for a new purchase. I've since re-financed another fixed rate loan on IP 3 to release equity.
I'm about to settle on yet another fixed rate loan to relase equity and improve cash flow (and serviceability).
I have the last 2 fixed loans being scheduled for re-finance in the near future.
In between all that, I had a reval done on the most recent purchase/reno.
My broker hasn't bene too worried about the credit hits, other than a couple where I didn't meet the criteria of the bank (ANZ and CBA) and another where they gave me a ridiculous valuation and I withdrew the application (RAMS).
Maybe I made it all sound like a lot more re-fi activity that it really was? Anyway, after these last 2 re-finances, I'll have re-financed each property in the portfolio, but the LVR will still be a comfortable (for me) 65% or so.

 

[jingo]

so if the $1900 is at a low interest rate, how much was your 'loss' prior to the rate reduction cycle?

What is your plan should rates go back to up 8%? as this shortfall could quite easily double or triple.

This is where I got caught in 2005. back in 2003 I had 3 IP's, costing me virtually nothing. However once rates turned, and peaked over 8% my holding costs sky rocketed. Unfortunately rents didn't go up.

Do you plan to capitalise should rates go up to 8%? In your model, what is your plan of attack for this situation? Thanks.

Hi crc_error,

Just out of interest, did you have buffers - ie cash and LOC's to back you up? If so, and with the benefit of hindsight, would it have been possible for you to have used some of this to get you through the high rate period - meaning you may have been able to keep your IP's?

Also, since 2005 when I presume you sold, there have been significant rent rises and capital growth in most capital cities. (Not sure where your IP's were). Not to mention the extreme drop in interest rates! That may have helped you - which is what I think Rob is saying - Rob has the cash (LOC's etc) in place ready to use as required.

Regards Jason.

 

[Rob Williams]

Rob has the cash (LOC's etc) in place ready to use as required.

Absolutely!
12 months ago, I was unable to service another loan, had no cash and heavily reliant on my income to service the shortfall as other investments were long term an not very liquid.
12 months later, the situation has totally changed.
More borrowing power.
Plenty of cash to use in conjuction with the borrowing power for any new opportunities that arise.
Plenty of cash to fund the shortfall if needed.
I owe my current position to the advice of my mortgage broker and the lessons he has taught me with respect to strategy.
I guess I owe some of my success to myself for actually taking the advice (there was some tough love in there) and taking the leap of faith that allowed me to move forward and secure my current position.

 

[luckyone]

So Rob do you worry that you're not getting all the best tax breaks by having all the properties in your name? There's so many people on here who say that you should set up such and such a trust. How come you haven't gone down this path?

 

[jingo]

Absolutely!
12 months ago, I was unable to service another loan, had no cash and heavily reliant on my income to service the shortfall as other investments were long term an not very liquid.
12 months later, the situation has totally changed.
More borrowing power.
Plenty of cash to use in conjuction with the borrowing power for any new opportunities that arise.
Plenty of cash to fund the shortfall if needed.

Having significant funds to use as a buffer against rising interest rates, vacancy periods, non paying tenants, etc, etc is a great feeling, isn't Rob! (Not to mention the positive things as well - ie further investments, lifestyle etc).

I mark learning how to set up our reserves through equity releases etc as a turning point. It was the point that I was able to separate our personal finances completely from our investments.

Regards Jason.

 

[yorkiefish]

Absolutely!
12 months ago, I was unable to service another loan, had no cash and heavily reliant on my income to service the shortfall as other investments were long term an not very liquid.
12 months later, the situation has totally changed.
More borrowing power.
Plenty of cash to use in conjuction with the borrowing power for any new opportunities that arise.
Plenty of cash to fund the shortfall if needed.
I owe my current position to the advice of my mortgage broker and the lessons he has taught me with respect to strategy.
I guess I owe some of my success to myself for actually taking the advice (there was some tough love in there) and taking the leap of faith that allowed me to move forward and secure my current position.

hi rob,

do you use bill zengs mb for your financing?? who do you use in there dept.?

i tryed a year ago with one and didin't work out so well, she's now set up on her own....

your thoughts on your strategy sound good as well if you like to go into more detail or p.m me .

thanks in advance.
yorkie