Deltaberry said:
I have no qualms with gearing, but gearing on negative cashflow means the only thing you rely on is capital growth. If all minds thought like you, we'd be in genuine bubble territory.
- Have you factored in downside from losing your job as a result of double dip US recession?
- Have you factored in stagflation resulting from lack of growth in the city you're in (eg Sydney/Melb) while cost of debt (ie interest rates) are driven up due to inflation in mining cities?
- Have you considered both scenarios occuring with a simultaneous crunch on liquidity resulting in the recall of your loan or further securitisation?
- Have you worked out how much annual cpt growth you'd need post stamp duty, land tax, council rates etc to get an IRR of >5% over a 10 year holding period? Probably a fairly high one to be honest...
As I said, I have no qualms with gearing. But if you are eating 1/4 of your salary (and I'm assuming you're talking about your gross salary), that's too excessive.
Funny you mention young bever. You might just be older than me...
Hi Delta,
- To be honest i haven't given much consideration to how a double dip recession in the US would impact my job. I work for the NSW govt in a fairly fundamental security type role.
- Yeah i've considered prices staying on the side lines for abit, i think after a yr of pretty good results its to be expected (total return on property portfolio in the last yr has been 13-15%). But i'm in it for the long haul as they say. I sappose if it doesn't work out in 10yrs people can throw eggs and pies at me and laugh.
- For the Margin loan on the shares yes this is concern. With residential property i can't forsee this happening in the short term and if it is happening now i presume its in select cases. I've never missed a payment on anything, my credit rating is of the gods. But yeah with any type of investing their is a risk, i sappose it's if you can handle that risk.
- I have worked it on post All holding costs (land tax, council fees, water, accounting fee's, property management fee's, 2 weeks vacantcy per property per year, $750 per property for maintance p.a etc etc) But i did not include stamp Duty and i should because that is a real/large cost.
Post tax benefits (NOT including depreciation, not considering tax rebates on LMI premiums which are large, done over a 5yr period) on my total property portfolio i'm CF- $14,000 P.A
I require
1.34% capital growth per annum to cover my short fall.
If you consider 2011 Tax depreciation benefits and LMI charge tax deductions that amount drops to
1.00%
If you throw my share portfolio in the mix i require
0.76% P.A Cap growth across entire portfolio to break even
Those numbers include everything, except stamp duty, they include brokerage costs etc. So i feel i can sit out awhile if growth is flat or slightly negative.
- Im talking 1/4 of my net salary after tax, CF neg 580 per pay, take home 2300 per pay. Not including depreciation/LMI rebates.
- I might be older, im 23... People in the future/past will do it quicker, bigger, better then myself so gotta learn to control those feelings of envy and just focus on improving my own game
Lofty said:
I'm of the opinion you've got too much negative gearing and it's stopping you from building your portfolio. If it were me, I'd sell one of your three properties with vendor finance. This would turn this property into a positive cash flow asset as against it's current status, i.e. a negative cash flow liability.
Howdy lofty,
My Neg CF- isn't as bad as you think. To give you the 411 on purchases and rentals on my propertys
Property 1. Purchase 335k, Renting $420 (Fixed increase @ 6 months $435)
Property 2. Purchase 250k, Renting $340
Property 3. Purchased 318.5k, Renting $400
Shares portfolio is Neg CF- $500 p.a (note i have heavy weighting on BHP Billiton and Woolworths 1/3 of share portfolio)
Dazz said:
To help you RH, we need to know what / when and where exactly this castle looks like.
Most investors - especially young ones - when you ask them specifically what they want out of the process they usually answer "Yeah, well y'know, I want what everyone else wants, to be loaded and never have to work again."
When you actually get down to tin tacks, they actually don't know exactly what they want, and cannot articulate it clearly for their advisers to help them. It's a bit like spraying a shotgun around hoping to hit something, rather than taking a high powered rifle and bullseyeing a known target.
Trouble is of course, as you are young, the target or goalposts keep moving....mine certainly did as I grew as an investor. There were many many things I didn't know I didn't know. That area has decreased of course, but there are things out there that I should be pursuing that I don't even know of as yet.
Maybe spend some time writing down exactly where you want to be in a certain time frame. Small chunks are best at first. Those 3 houses you have look and sound like shotgun blasts to me....lots of noise and bang, but it sounds like you pointed up into the air hoping to score a prize teal, but missed everything.
If you have a slant towards CIP and shares, it sounds like you enjoy the passiveness of the investing, cos in my experience there isn't alot to do in both fields of endeavour.
Anyway, give it a go, write it down and come back with what you are really after. Cheers.
Heya Dazz,
Yeah the ""Yeah, well y'know, I want what everyone else wants, to be loaded and never have to work again." sounds pretty good
I have written it down a few times, but your right the version keeps changing, the goal posts get pushed abit further back in the chase of a larger deposible income and the vehicle changes abit, firstly it was resi property, then it was CIP, now its shares.
Values on the houses have done alrite. Just some of the debt is being used for shares.
Property 1. Purchased May 08 335k, 2.5k renovation - Val 400k
Property 2. Purchased Jan 09 250k, 4k Reno - Val 280k
Property 3. Purchased Nov 09 318.5k, 8k reno - Val 360k
Val's have been done by bank, Property 2 Value i personally think is higher, but that means nothing i can't burrow against what i personally think.
Cap growth on shares is only 6.3% (only been involved for 2-3months) and that changes all the time. CG on property has been higher, but has been held for longer.
But thanks i will write my goals down again for retirement. I'm the type of person when i write a goal down i just hammer it until i get their
IV said:
my opinion, you are 'turbo charged' enough with those debt levels.
Therefore i would be looking at creating extra income to pay down debt levels to
(a) increase the stability of the portfolio
(b) have something spare so you can take advantage of future currently unknown opportunities.
Hence i would be looking for either/and a pay raise/second job.
Yeah the extra income would help, i do like to try maintain sort of a life/work balance. I find if i hammer away to hard @ work i start becoming to emo. I've been @ my job for 3yrs now and never considered applying for the promotions that have become available. I might be able to get secondary employment, but i have to apply @ my main job to be allowed to do it.
What i really like is point (b) with having the funds to grab @ a opportunity when it comes along and that requires discipline which is something im sorta lacking.