Finance

[WebBoard]

From: Mike .


How do I buy multiple IP's in a year?
From: Owen
Date: 26 Oct 2000
Time: 10:27:21

I have read many times of investors buying multiple properties at a time or buying 43 IP's in 15 months (SMc) or 180 in 20 months (HK) etc. I would like to do the same to rapidly build my portfolio.

My question is how do you get a bank to lend that much money and to keep on lending it?

The biggest problem I had when borrowing for my second IP was the bank looked at it as if I had to cover the loan and my income didn't do it - and I have absolutely zero personal debt. It took a lot of convincing and a lot of real numbers to prove it was OK. I tried to get them to offset the rental income against the interest payments so the IP was proven to be self-maintaining but they just kept adding the rent to my income so my DSR was too high. My partner and I are living off our smaller wage (and still saving money) leaving the greater wage 100% for investment. This doesn't seem to matter to the banks who have their conservative calculations to follow.

Is the solution just to find a bank that will calculate this way and will understand what I am trying to achieve? If so can I have the name of one please? What about if I want to buy 3 IP's at once? What if I buy 10 in a year? Should they be bought through a company name? Would that qualify me for business loans?

Capital growth cannot account for all those deposits in such a short time even with really good re-valuations. I know the answer is to buy positively geared, no money down IP's wholesale off the plan every time but this is not going to happen every time. I'm finding it a little hard to do creative financing on a nice old Art Deco apartment block in need of renovation for $1.2m and then be able to buy another one 2 months later. Am I missing something obvious?

I guess this is aimed at the gurus who have already made it to this level. How about a few hints for those trying to get up there with you. Help me speed up the process.

 

[WebBoard]

DuncanM

Reply: 1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: DuncanM
Date: 26 Oct 2000
Time: 11:36:10

Owen, know how you feel, its getting harder and harder for us as well.. We bought 6 in under a 12month period thanks to a lot of equity in our own home that we've secured the properties against (pretty unspectacular compared to others mentioned) and are now very close to running smack up against the LVR of 80% I think we can go 1-2 more 3BR homes thanks to some reasonable CG in that time on both the purchases and our home but I'm sick of paying retail and competing with FH Buyers with a fistful of taxpayer dollars to cover their closing costs. I dont want to blow the equity we have left on more retail-price properties.

I want to be more creative but am struggling to find the way forward. If we could find a lender who lent 80% of valuation I'd be happy, I think I'd just visit 3-4 agents and make offers on everything in their stock list at about 60% of what they had it listed at Still leave some closing costs, I'd happily put those on a personal loan or credit card.

http://www.creonline.com has given me some food for thought. Especially articles by Joe Kaiser on flushing out the "Dont Wanters" and being a "Motivated Buyer" I think it was Joe Kaiser who said "Write it up now and sort it out later".. Maybe I should take that advice, I just hate the thought of failing to get finance and looking like a complete pratt to the Agent/Vendor. I'm also sick of playing the game on the Real Estate Agents/Vendors terms.

Perhaps its time to learn a hell of a lot more about raising money thru lenders other than banks and approaching the whole game with less of a focus on the "Buy, Hold and Rent" style strategy and more of a focus on generating much much bigger cashflows that could fund a really large portfolio.

NAB allow us to use 100% of rental income to fund repayments so for us DSR is not a problem. They just insist on lending against the lesser of their valuation and the purchase price.

Yours in frustration.. DuncanM

Residential Property Record Keeping Software.
http://www.otter-software.com.au

 

[WebBoard]

NigelW

Reply: 1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: NigelW
Date: 26 Oct 2000
Time: 12:33:14

Duncan I join that club!

My situation is; however, a bit different in that being young I don't have a lot of equity in my IP and I rent (cheaply) close to the CBD because of my long hours etc. I've got a good cashflow and am saving away madly but there must be a quicker way!

Geoff Doidge and a fellow named Paul ?Eslick? are creating massive cap gain by buying well, renovating to CHEAPLY add another room for example and then either flicking the property on or just soaking up the cap gain to borrow more on their LOC.

My trouble is that I'm not a builder and I don't yet know what to look for (maybe I need to do Geoff's renovation workshop when he gets into gear and runs another!)

Another option I'm looking at is buying and subdividing whilst keeping the existing house. BUT those blocks anywhere close to the city are becoming fought over by the spec builders who can pay a bit of a premium because of their quick turnover!

A third option I've heard about is the Wrap concept. Not sure I understand it yet but I'd welcome peoples' views about how to make it work in Australia.

Cheers Nigel.

 

[WebBoard]

The Wife

Reply: 1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: The Wife
Date: 26 Oct 2000
Time: 12:24:49

I'm sure ive asked this question before, but, what state are you in? was it Sydney?... Yes buying wholesale is the go. I like to stick to the bigger banks, you just have to find a halfway decent creative bank manager, who is interested in IP's himself, once you find them, a GREAT technique for getting them onside, is to explain everything that you want to do, tell him about the great deal you found. ...(find a couple of houses and negotiate great prices)...and then tell him you wish to purchase both, but feel one would be enough right now.

Pass the other one onto him, telling him that theres more were that came from, because your a great negotiator, and you can really find the deals, making you both very rich together. Bankers are TERRIBLE negotiators, as you can tell, they can only say yes or no to your business, theres no in-between. Form a good strong bond with your banker where you can both benefit.

Make sure you don't let him get away from you, and insist (nicely) that he come with you to view this great deal, get him to salivate a little. This is all just SELL SELL SELL SELL SELLING....but it works.

 

[WebBoard]

DuncanM

Reply: 1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: DuncanM
Date: 26 Oct 2000
Time: 14:03:20

Hi TW,

Thanks for the advice. I will act upon it. I am determined to stop buying retail and need to start developing some strategies to buy at a price that gives me some equity on the day I buy it.. The Joe Kaiser articles have given me a few ideas.

I am in Adelaide.

Cheers, Duncan.

Residential Property Record Keeping Software.
http://www.otter-software.com.au

 

[WebBoard]

Owen

Reply: 1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: Owen
Date: 26 Oct 2000
Time: 13:42:12

Yes, I am in Sydney and that's where I am currently buying too. Makes it a little hard to get the right rental return to make the numbers work properly but they are out there.

Duncan, good to hear the NAB is giving you 100% of your rent. As you know I'm with them too so a precedent is always nice to know. I'm also gathering together past rental statements etc to show that the vacancy rates are not 20% like they calculate but more like 1%. Also some full financial statements with a bit of history to attach to the application form. Like The Wife said - SELL SELL SELL!!!

My relationship with my lender is getting better and I think she realises I do know a bit. The next time I go for a loan will be the telling time though. I'm lucky too, as equity is not a problem (about 50% LVR over 3 properties) but it's the cashflow that's killing me. Guess I have to prove my case better.

Thanks for your help and encouragement.

 

[WebBoard]

DuncanM

Reply: 1.1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: DuncanM
Date: 26 Oct 2000
Time: 14:09:09

Its suprising that an organisation like NAB can apply different policies in differents parts of the country.

If I could buy at 15-20% below FMV the next purchase is already in the bag as far as the banks LVR calculations are concerned.. I just need to find a strategy to do it..

Perhaps the 'Metal Storm' version of offers is about to be born..

Goal setting is very powerful..

"This weekend I _WILL_ sign 10 offers! I will worry about the finance later!"



Regards, Duncan.

 

[WebBoard]

Geoff W

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: Geoff W
Date: 26 Oct 2000
Time: 19:10:22

Duncan,

NAB are not only different in different parts of the country, they can differ hugely in one office.

My personal banker had been quite good. He went on leave, and was replaced. The substitute was on duty when I needed a loan. She told me that she would only take 30% of rental income when looking at servicibility (a DHA property with 100% occupation guranteed for another 7 years). I was refused that loan and went elsewhere. When my personal banker returned, he couldn't believe. It appears that the substitute was following standard bank manager practices; my banker had been following much more realsitic practices.

Geoff W

 

[WebBoard]

David P

Reply: 1.1.1.1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: David P
Date: 26 Oct 2000
Time: 15:09:12

I agree, cashflow is a problem. The banks want to see if you can pay off the loan whether you have a deposit or equity to use. I don't see how these other people buy 6-7 and more in a year. They must be earning $150k salaries.

David P

 

[WebBoard]

DuncanM

Reply: 1.1.1.1.1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: DuncanM
Date: 26 Oct 2000
Time: 15:14:35

We've done it because 100% of our Rental Income was used in the Debt Service Ratio.

If the property is cashflow positive, AND the Bank factors 100% (or even 70-80) of Rental Income into the Serviceability calculation then you can do it..

I certainly dont earn $150K.

Dunc.

 

[WebBoard]

David P

Reply: 1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: How do I buy multiple IP's in a year?
From: David P
Date: 27 Oct 2000
Time: 07:35:01

thanks, i'll keep that in mind when looking for loans. Maybe people could list the banks etc that do that.

My loans are with the ANZ, i had a broker setup it up. The ANZ was good because they only required a 5% deposit. Not sure how much of the rent they used though.

David