A few novice questions

[simonjulie]

Hi Alex

The whole idea is that you either let that doubling in 7-10 year reduce your LVR by half or you sell down reducing debt with the profits.

In either case it is a long term project and certainly not an overnight success.

Cheers

Hi handyandy
I hope I am not going off the track here.
An alternative strategy could be, to keep growing the portfolio and balancing the lvr at a comfortable level. Live off the some of the rental income and suplement the holding costs from achieved growth in equity.
Simon

 

[handyandy]

Hi handyandy
An alternative strategy could be, to keep growing the portfolio and balancing the lvr at a comfortable level. Live off the some of the rental income and suplement the holding costs from achieved growth in equity.
Simon

Hi Simon

Absolutely, there are a multitude of strategies that can be followed but then we get into the whole argument of the wherefor and whatnot

I was taking the simplest strategy to try and keep it in context.

Although the whole living of the rent seems to be an academic exercise, as with all the expenses that accrue there is very little left for you as the owner certainly not if you are also still servicing debt. Which is where you are refering to using the growth to supplement the rental income.

Personally I have taken a different and maybe somewhat higher risk strategy which presently is generating income that exceeds the gross rental income substantially. As per my post

http://www.somersoft.com/forums/showpost.php?p=197177&postcount=18

in the thread

Growing while LOE

http://www.somersoft.com/forums/showthread.php?t=24684&page=2

Obviously this strategy still requires a fair amount of equity to accomplish the desired result.

Cheers

 

[avura]

Thanks for those links handyandy

It took me a while to get through all of the posts, but it was all good info. I understand your point about property being a long term strategy, but it is a little disheartening to think someone with 3m+ equity is finding it hard to see a 100k/yr CF. I guess the real issue with that case is the PPOR holds most of the equity.

It's also interesting to see what people hope to achieve from property, although when someone says they want $x CF, I'm not sure if that is before or after tax; I'd assume before.

In retrospect, my comment about thinking a 100k CF was easily achievable now seems somewhat ignorant. LOE is one thing I took for granted. I'm not sure if many people have considered purchasing a sound business to bring in CF. Sure there is risk, but if you know the product/service, market and area, it could potentially provide a much greater return than any investment property.

 

[simonjulie]

Although the whole living of the rent seems to be an academic exercise, as with all the expenses that accrue there is very little left for you as the owner certainly not if you are also still servicing debt. Which is where you are refering to using the growth to supplement the rental income.

I don't quite follow you on the above. Academic? I'm using this strategy at present. No probs so far borrowing to grow the portfolio with low doc products. I don't generate any other income except for rent and sales of property. And at this stage I have not had to sell too much to keep the finance serviceability wheels turning. It's a bit like reaching a crytical mass and then allowing momentum to follow through. Hard to explain simply.
Simon

 

[handyandy]

Sorry guys

Its all about what you call enough. For me, I am out to replace the income that I was getting from my business. This income was in the multi mils. So this is what I meant about 'academic'.

Just on straight rental income after all expenses I am getting something like $150 - 200k clear ($500k gross), but to match or exceed my previous income I need to generate $1.5mil, am just about there but as mentioned there are risks.

I'm not sure if many people have considered purchasing a sound business to bring in CF. Sure there is risk, but if you know the product/service, market and area, it could potentially provide a much greater return than any investment property.

This certainly worked for me alllowing me to build a substantial property portfolio which I am now leveraging to utilise elsewhere.

Hard to explain simply.

Absolutely!!!!! Simon, as I have already indicated there are many different ways to achieve your aims and it sounds like you are doing great. In fact I would love to hear your story some time. Maybe along with DD1 form another panel at a SIG night?

Cheers

 

[simonjulie]

Absolutely!!!!! Simon, as I have already indicated there are many different ways to achieve your aims and it sounds like you are doing great. In fact I would love to hear your story some time. Maybe along with DD1 form another panel at a SIG night?

Sounds like a good idea.
Simon

 

[alexlee]

Thanks for those links handyandy

It took me a while to get through all of the posts, but it was all good info. I understand your point about property being a long term strategy, but it is a little disheartening to think someone with 3m+ equity is finding it hard to see a 100k/yr CF. I guess the real issue with that case is the PPOR holds most of the equity.

It's also interesting to see what people hope to achieve from property, although when someone says they want $x CF, I'm not sure if that is before or after tax; I'd assume before.

In retrospect, my comment about thinking a 100k CF was easily achievable now seems somewhat ignorant. LOE is one thing I took for granted. I'm not sure if many people have considered purchasing a sound business to bring in CF. Sure there is risk, but if you know the product/service, market and area, it could potentially provide a much greater return than any investment property.

It's common with people who have their PPOR and that's it. Of course, if you manage to build a portfolio over 20 or 30 years (actively investing, not just paying off your PPOR) you'll probably develop the skills to generate CF, too.

By the same token, if you can make great profits in IPs too if you know the area / market through renos, developments, etc. i.e. you can make big money in anything, shares, bonds, businesses, IPs. It's all about what you are comfortable with. In my case, for example, I'm looking for the lazy way out so I'm not going for a business that involves work on my part. I need something I can walk away from for a few months at a time if I want to.
Alex

 

[avura]

I need something I can walk away from for a few months at a time if I want to.
Alex

I know what you mean Alex.

I saw a post from you elsewhere mentioning that a trip to Italy somewhat influenced your requirement for financial independence. I had a similar 'revelation' on a snowboarding trip to Canada and Switzerland early last year. I'd love to be able to stay away for months at a time without worrying about the finances.

Back to your post though, I guess I'll have to stay content with my 350k PPOR. Since it's worth much less than any of my IPs, it may be hard though!

 

[alexlee]

I know what you mean Alex.

I saw a post from you elsewhere mentioning that a trip to Italy somewhat influenced your requirement for financial independence. I had a similar 'revelation' on a snowboarding trip to Canada and Switzerland early last year. I'd love to be able to stay away for months at a time without worrying about the finances.

Back to your post though, I guess I'll have to stay content with my 350k PPOR. Since it's worth much less than any of my IPs, it may be hard though!

The trip to Italy made me realise that I need more time as well as money. That's why I'm staying away from investments that, while profitable, will require a lot of my time. I've trained myself to be able to quit my job and go away for a few months, so that's a start.

In my case, I've worked overseas for the last couple of years so I haven't had to think about a PPOR. All the savings go into IPs and shares. When I come back, though, I'm sure I'll do what everyone else does and spend too much money on my PPOR. Hopefully by then I'll have a portfolio big enough to grow by itself.
Alex

 

[asdf]

When I come back, though, I'm sure I'll do what everyone else does and spend too much money on my PPOR. .
Alex

Better bring that suitcase of cash back with you or be prepared to pay some hefty CGT. I think you'll find a large deposit is necessary to buy a piece of dirt in this still very expensive city. I saw a complete pull down job on the wend. 600m from Curly beach thats going to auction this wend which will start in the $900s. Every one in Syd just seems to want that PPOR and don't mind paying for it either. Get ur unit in ur 20s, have kids then buy a bigger place for the toddlers then out the suburbs again to the schools when they are older still. Then theres undeductible reno costs. I think people spend more like 50% of their disposable income on their homes. I suppose thats why the majority of the population have "JOBS".

 

[alexlee]

Better bring that suitcase of cash back with you or be prepared to pay some hefty CGT. I think you'll find a large deposit is necessary to buy a piece of dirt in this still very expensive city. I saw a complete pull down job on the wend. 600m from Curly beach thats going to auction this wend which will start in the $900s. Every one in Syd just seems to want that PPOR and don't mind paying for it either. Get ur unit in ur 20s, have kids then buy a bigger place for the toddlers then out the suburbs again to the schools when they are older still. Then theres undeductible reno costs. I think people spend more like 50% of their disposable income on their homes. I suppose thats why the majority of the population have "JOBS".

Yeah, I know. I've been looking on the net. Sydney is nuts. Current target is an older house for around $500k in the Epping / Eastwood / Ryde areas. Expecting the Australian economy to go bust and property prices to fall by 20%, too. Projections on the portfolio suggests that I can afford a $500k house with a decent sized deposit (25%+) without selling any of the existing IPs.

After that, expand the investment plans and eventually get that $10m mansion on the water. I've seen a few that are VERY nice.

I agree that's why the majority of people have jobs. I don't count myself as part of the majority, though. Few of the people on this forum would be part of the majority, either.
Alex