Continuing to grow - Ideas

[random]

Gday RH

Ahwell , that's all a different story to the way the original post came over, wrapped to see those properties have done something after all .
Can't really add much to what's been talked through since but no doubt you'll navigate your way through the minefields by the sounds of it & onto a nice slack lifestyle one way or another eventually.

Good luck
Cheers

 

[capitalEyes]

Great LVR

Hi RH,

I'll have to go against the tide here a bit and say that I'm envious of your LVR. You've managed to convince a bunch of lenders to throw in more money for your set of assets than they have for mine, so good work. There are of course risks to manage, but my experience is the higher the risks, the more stake I have in managing them.

Maybe the only think lacking is a bit of patience...time will obviously increase your equity (as will the odd optimistic valuation). You obviously understand the power in putting very little down so just keep doing that,...but don't eat into your time buffer too much. Also, sounds simple, but if you have the feeling that cashflow is what you're lacking, buy the most CF+ prop you can for the equity you have available (and the highest LVR you can get) and see what that does. Keep balancing out your equity and cashflow and time buffer in accordance with what you're comfortable with, and what makes you look good to the next lender, and you'll be standing in the shadow of your castle before you know it.

Cheers
cE

 

[Ridin-High]

Hi RH,

I'll have to go against the tide here a bit and say that I'm envious of your LVR. You've managed to convince a bunch of lenders to throw in more money for your set of assets than they have for mine, so good work. There are of course risks to manage, but my experience is the higher the risks, the more stake I have in managing them.

Maybe the only think lacking is a bit of patience...time will obviously increase your equity (as will the odd optimistic valuation). You obviously understand the power in putting very little down so just keep doing that,...but don't eat into your time buffer too much. Also, sounds simple, but if you have the feeling that cashflow is what you're lacking, buy the most CF+ prop you can for the equity you have available (and the highest LVR you can get) and see what that does. Keep balancing out your equity and cashflow and time buffer in accordance with what you're comfortable with, and what makes you look good to the next lender, and you'll be standing in the shadow of your castle before you know it.

Cheers
cE

Hi CE,

Thanks for the feedback.

Cashflow at the moment is fine, but with interest rates forecast to sky rocket obviously need to make sure ive got some stuff in the bank.

This is my personal opinion but i believe Residential property is the wrong vechile for cash flow, i prefer shares over it, but i prefer a better total return then just pure cash flow (Eg i prefer BHP shares with their 3% yield compared to telstra with their 14% yield)

Regards.

RH

 

[Ridin-High]

Just posting an update, hope for some comments.

Flogged my share portfolio for a small profit after all holding costs (Circa 11-13k).
This would have been abit higher, but i made some dud purchases recently (not that i think the stock at that price was a dud, but the market did lol).

I've used the funds to reduce my LVR on property portfolio, thats now down to 80%
It's free'd up a crap load of cash flow.

I'll go into the reasoning behind the share sell off (note i only was involved for 6 months)

- Couldn't gear high level safely (without risk of margin call). I tried tho lol.
- The above point had me worrying and a margin call, so i sappose emotions getting involved, causing a few problems...
- Along with the can't gear high level safely, if the stock increase in value and i wanna draw equity to purchase again, its quite risky.
- My cashflow was on the edge, i've now free'd up Circa $3,000 p/m
- Spending to much time reading about stocks etc.

Now i've learnt some great lessons along the way, most of them already been told to me by this forum. But as most humans do, we insist on learning the hard way.
Thankfully i came out on top, wasn't forced to dump stock on a bad market.

It's funny the feelings you go through when trying to build a portfolio(not just shares, but overall), when selling the shares portfolio i felt embarrased. Abit like i've failed... but people saw if different and said, atleast you still made some $$$. I sappose it's a mindset (the failure one) that only an investor can feel (note investor can/should feel the other way, proud that they made a profit)

Now i've plonked approx 122k into my offset. I think i'll have a brief intermission, regather myself (i feel drained). Just put the savings away for now.

I think shares will form part of my portfolio in the fututre (forming part of income for retirement base).. so they haven't been struck out, just for now.

Any thoughts/feedback (good/bad) welcome

Regards,

RH

 

[oracle]

Any thoughts/feedback (good/bad) welcome

Regards,

RH

I don't think shares was your problem. I think it was the margin loan. You could have tried reducing your LVR on margin loan to much more conservative levels. Sure it means less profit if the market moved higher but it also means less stress about being margin called.

Anyways, you have to do what is best for you. Reducing debt is always a good thing in the end, even if it's good debt.

Cheers,
Oracle.

 

[Ridin-High]

Did all the numbers, including all costs (including deducting the cost of my cash in the pot @ 7% interest for the duration) and profit was $13,350 (approx) or $667.5 per week for the duration and i got a hell of an education.

 

[Ridin-High]

Was re-reading over the thread @ oracles comments in regards to building a bigger asset base.

I'm going to go down this path, shares you can't highly gear safely.
So i'll hit my broker up and see what my burrowing capcity is.

Will have to start reading about resi property again lol. Will probably just do the renovation thing for now, as the general opinion from the brains on the forum is at the moment in short-medium term only way to get $$$ is through reno/development/add value

Regards,

RH

 

[oracle]

Was re-reading over the thread @ oracles comments in regards to building a bigger asset base.

I'm going to go down this path, shares you can't highly gear safely.
So i'll hit my broker up and see what my burrowing capcity is.

Good luck RH.

I am also doing the same and working towards building a bigger asset base through resi. property. Earlier I did decide to liquidate my share portfolio but at the last moment decided not to. My share portfolio is a very small % of my overall assets.

Reason being I am happy to have some skin in the sharemarket as in the long term I intend to use sharemarket to generate cashflow for retirement and also bit of diversification from property. So I don't want to be out of the sharemarket game altogether. The lessons the market teaches you each and every day is invaluable and would go a long way later when I want to invest large sums of money.

Cheers,
Oracle.

 

[antonio]

Hey RH and all

Just wanted to say Thanks for all the posts.

It's been so educational and bless all u Somersoftenites

Wife and I are organising finance now to get ready for 2nd IP
and the whole debate of what was best plan to execute.

RH, I'm forwarded your post to my brother whose also coming to 23
to inspire him more.

A

 

[recruit2]

First of all congratulations on achieving what you have at such young age!!

Based on the above two comments and what you have achieved so far I would say you are not aiming high enough. I reckon you should aim for a lot higher and push your retirement plans bit further.

With the number of property and share market cycles you will experience in your life time I would suggest you focus on building a huge asset base. Worry about cashflow once you have built the asset base.

To give you something to think about. To generate 100K cashflow on an $1m asset base you need to generate 10% return all the time. Not impossible but certainly difficult.

To generate 100K cashflow on an $10m asset base you need to generate 1% return from your assets. Much easier to do even in difficult times.

You get the idea...

My advice, invest more in property (get the 80-85% leverage) focus on building huge asset base from which you can launch yourself into full time investing in 10-12 years time. It is boring in the initial years but I am sure it will pay off in later years.

In your early years of investing rather than how much extra cashflow I am generating it's better to set goals at how big is my asset base. I can say with confidence everybody who enjoys their retirement from investing have an asset base of atleast $2m or more. And the way that got their majority was due to the CG rather then the extra $100-$200 a week cashflow they made. Remember, more cash you earn more tax you pay which means that much less money which can compound over time. Therefore, if your goal is to retire, concentrate on getting as bigger asset base as you can.

Cheers,
Oracle.

That is very nicely summed up and great advice oracle - helped me clear up some thoughts too. I've always chased CG with property and never been interested in chasing purely CF+, but never really knew how to explain why.

 

[sash]

Wow!...I have seem some agressive investors ....you would have to be up there at the top of the heap.

I have seen this numerous times....I hate to say it but you have beem too agressive....to much debt too soon with little equity. If you are intending to buy more property you could be locked out for a couple of years due to your low serviceability.

You have about 1.15m in debts ....I have a similar debt level but have about 15-20 times your next equity (including your shares).

The balance between CF and CG is very important. It is important to get properties which have the potential to get 10% return in properties within 2-5 years. When you buy initially it is preferable to a return around 6-7%...plenty of these properties around the capital cities via a 5k reno. The other side of the coin is to renovate to increase equity which also increases rents in under rented properties.

At this stage you may need to sell one of you properties, make a small profit and buy into proporties with higher CF which is fundamental to growing your portfolio.

This one of the reaons why most people don't get past 3-5 properties....they don't understand the CF. If you intend to get over 10 properties.

 

[Ridin-High]

Wow!...I have seem some agressive investors ....you would have to be up there at the top of the heap.

I have seen this numerous times....I hate to say it but you have beem too agressive....to much debt too soon with little equity. If you are intending to buy more property you could be locked out for a couple of years due to your low serviceability.

You have about 1.15m in debts ....I have a similar debt level but have about 15-20 times your next equity (including your shares).

The balance between CF and CG is very important. It is important to get properties which have the potential to get 10% return in properties within 2-5 years. When you buy initially it is preferable to a return around 6-7%...plenty of these properties around the capital cities via a 5k reno. The other side of the coin is to renovate to increase equity which also increases rents in under rented properties.

At this stage you may need to sell one of you properties, make a small profit and buy into proporties with higher CF which is fundamental to growing your portfolio.

This one of the reaons why most people don't get past 3-5 properties....they don't understand the CF. If you intend to get over 10 properties.

On the previous page i mentioned i've sold my share portfolio

property LVR approx 80% (825k debt 1.02m val)

Yield on propertys

1.) 6.75%
2.) 7.26%
3.) 6.37%

i think the way i set out the initial post maybe confused people abit thinking the properties i have bought haven't grown in value and low rental yield

looking @ buying some more properties in south west syd

Regards,

RH

 

[sash]

That looks a lot better!

I am presuming that you have got your money in offsets. If that is the case...then you are in a much better position.

If you are looking at expand further...then I would make sure that you had about 1 years salary in an offset as a GSF (Get Stuffed Fund). This will enable you to ride out any unexpected events. I would also get some income protection if you get seriously ill as you are quite young you should land on your feet on the job front.

The other thing I would do is to be really selective about the properties you buy from now. My golden rule these days are:

1. Yield of 6-7% from the beginning

2. Something with reno potential where if you spend 5-7k you could increase the value of the property about 30-50k minimum

3. Look for properties under 300k..this is where I think the potenital is greatest.

4. If all yours in NSW ....look at South Australia for some diversification. The market there is dismal but rentals are very strong. Qld offers good value also but the rental potential is not as good.

5. Becareful of NSW land tax with 3 properties under your belt..if they are all houses you are going to get hit with land tax at some point. Say for example you have 600k worth of property....you will pay something like $3500 in land tax!

On the previous page i mentioned i've sold my share portfolio

property LVR approx 80% (825k debt 1.02m val)

Yield on propertys

1.) 6.75%
2.) 7.26%
3.) 6.37%

i think the way i set out the initial post maybe confused people abit thinking the properties i have bought haven't grown in value and low rental yield

looking @ buying some more properties in south west syd

Regards,

RH

 

[Welcome]

I have seen this numerous times....I hate to say it but you have beem too agressive....to much debt too soon with little equity. If you are intending to buy more property you could be locked out for a couple of years due to your low serviceability.

You have about 1.15m in debts ....I have a similar debt level but have about 15-20 times your next equity (including your shares).

And some might also say that is an ultra-conservative strategy!

I think more along the lines of use up all the equity for deposits for more purchases and funding any shortfalls. I save every cent of cash and whack it in an offset account for a rainy day.

Why?

When trying to grow a portfolio, I don't think much point having equity if not using it, eg planning to realise a gain or leveraging from it. Also very hard to get "cash out" from refi's nowdays. Also no point funding shortfalls from cash as that is essentially after tax money, where are equity is pretax money. Also maximises deductible debt, and keep you more cash available should you need it, eg GFC, interest rate rises, u nexpected repairs etc...

Just my thoughts.

 

[Ridin-High]

Yeah thanks for the thoughts fellas.

Sash, at the moment i'm paying around $2,700 p.a in land tax for NSW. At the moment in south west syd with relativly small effort you can purchase for 265-275k and rent 350pw so ranges from 6.86% - 6.61%.

But if i purchase another one similar to what i've purchased in land value, my landtax jumps up to around $5000+ running the numbers i might be possibly better off getting one more in NSW tho in SW Syd because of the following:

- Drops management rates on 2nd/3rd/4th properties to 5.5% (instead of 2 and 3 being 6.6%)

- Removes statement/sundry fees all together

I did the calcs land tax drops the rent per week by approx $20 so brings the yield from 6.81% to 6.47%.


Sash could you flick me some suburbs in S.A to research which fit your fundamental + rental criteria?

I've got a B.A for QLD yields still seem very low and excess rental stock

 

[Deltaberry]

Ahhh you know what? When you have a massive mortgage out (say 90% LVR) and you throw money into equities, you're as good as playing with margin lending, except that this time the banks won't force-sell you, exposing you to even more danger.

 

[Ridin-High]

Ahhh you know what? When you have a massive mortgage out (say 90% LVR) and you throw money into equities, you're as good as playing with margin lending, except that this time the banks won't force-sell you, exposing you to even more danger.

Parts of that statement i agree with and parts i don't.

Your talking about a margin call like a stop loss. You can put these risk mitigation tools in place yourself and not let the bank have as much control.

On a personal note, i'm getting my finance in place to purchase another property and got a quote from conveyancer abit cheaper this time around the block

Funny story i was in campbelltown NSW yesterday having a look around and had a walk down queen street which is like a shopping strip, i saw three teens outside a 2 dollar shop they looked upto no good... i walked about 10m past then heard some shouting, i went back and saw one of the kids pushing the asian shop keeper. that got me going lol... i walked straight past his 2 friends, turned him around and dragged him out the shop and told him to f off and not come back. He got scared hard, i didnt think he was expecting the public to help the shop keeper.

But queen street is a buzz, alot less vacant property.

 

[sash]

RH

Try Paralowie, Parafield Gardens, Salisbury (North, East, Heights, etc.), and Elizabeth (Downs, North, South, East, Vale).

If you look hard enough....few gems where you could get 8% after a quick reno.

Rentals are strong....but lots of stock on the market which is causing prices to stabilise.

Yeah thanks for the thoughts fellas.

Sash, at the moment i'm paying around $2,700 p.a in land tax for NSW. At the moment in south west syd with relativly small effort you can purchase for 265-275k and rent 350pw so ranges from 6.86% - 6.61%.

But if i purchase another one similar to what i've purchased in land value, my landtax jumps up to around $5000+ running the numbers i might be possibly better off getting one more in NSW tho in SW Syd because of the following:

- Drops management rates on 2nd/3rd/4th properties to 5.5% (instead of 2 and 3 being 6.6%)

- Removes statement/sundry fees all together

I did the calcs land tax drops the rent per week by approx $20 so brings the yield from 6.81% to 6.47%.


Sash could you flick me some suburbs in S.A to research which fit your fundamental + rental criteria?

I've got a B.A for QLD yields still seem very low and excess rental stock

 

[sash]

Yep all valid....the issue I have is that cash is building up at about 100k+ per annum due to my job and excess CF from my rents. Do you know a way around this other than to spend whily nilly on anything???

Just bought a bigger luxury second hand (at lease better than my small Getz)car with 25,000 klms as a reward.

And some might also say that is an ultra-conservative strategy!

I think more along the lines of use up all the equity for deposits for more purchases and funding any shortfalls. I save every cent of cash and whack it in an offset account for a rainy day.

Why?

When trying to grow a portfolio, I don't think much point having equity if not using it, eg planning to realise a gain or leveraging from it. Also very hard to get "cash out" from refi's nowdays. Also no point funding shortfalls from cash as that is essentially after tax money, where are equity is pretax money. Also maximises deductible debt, and keep you more cash available should you need it, eg GFC, interest rate rises, u nexpected repairs etc...

Just my thoughts.

 

[redwing]

On the previous page i mentioned i've sold my share portfolio

property LVR approx 80% (825k debt 1.02m val)

Yield on propertys

1.) 6.75%
2.) 7.26%
3.) 6.37%

i think the way i set out the initial post maybe confused people abit thinking the properties i have bought haven't grown in value and low rental yield

looking @ buying some more properties in south west syd

Regards,

RH

Is that rental yield on initial purchase price or current valuations..can get confusing reading when you don't know where the goal posts are set