How can u afford more than 1 IP in 1 year? don't understand

Hi, another silly question but I want to get my head around this: if someone earns $70k wage. After tax saving of the year is $30k. IP approx. $300k, don't you need to spend deposit $30k + stamp duty and fees etc so pretty much the whole year savings gone! Then save up another deposit for 2nd IP and so on i.e. 1 IP per year not 10?
How can someone achieve buying so many IP in a short period of time? Do you need a nearly paid off PPOR worths certain amount with solid equity? If this is true, does that mean most investors are at the age of 50s?? Or they have no children? Or running a multi-mil dollar business?
Why do you get all the loans approved?
Love to hear your stories solid examples would really help.
Many many thanks!
 
Either you start off with equity or extra cash, or it will take time to build up to being able to do so would be the short answer.

I don't know the long answer.
 
Using equity for deposits is the most common way from my reading. Once you get the ball rolling there is no stopping it.
example (very simplified, assuming you buy well @10% growth pa)

Year 1:
purchase IP1 @ $300,000 loan $270,000

Year 2:
IP1 val $330,000 loan $270,000
purchase IP2 @ $300,000

Year 3
IP1 val $363,000 loan $270,000
IP2 val $330,000 loan $270,000
purchase IP3 @ $300,000

Year 4
IP1 val $400,000 loan $270,000 - available equity @80% around $50k
IP2 val $363,000 loan $270,000 - available equity @80% around $20k
IP3 val $330,000 loan $270,000
purchase IP4 @ $300,000

Now you can also purchase IP5 & IP6 this year using equity in IP1 and IP2. and every year gets better and better!
This is obviously very simplified and doesn't take into account taxes, servicing and growth is rarely so linear etc etc etc. But I hope writing it out gives you the idea
 
Hi, another silly question but I want to get my head around this: if someone earns $70k wage. After tax saving of the year is $30k. IP approx. $300k, don't you need to spend deposit $30k + stamp duty and fees etc so pretty much the whole year savings gone! Then save up another deposit for 2nd IP and so on i.e. 1 IP per year not 10?
How can someone achieve buying so many IP in a short period of time? Do you need a nearly paid off PPOR worths certain amount with solid equity? If this is true, does that mean most investors are at the age of 50s?? Or they have no children? Or running a multi-mil dollar business?
Why do you get all the loans approved?
Love to hear your stories solid examples would really help.
Many many thanks!

It really helps if you own your PPOR,therefore no rent and all "good" debt from there on.
If you then take out LOC, interest only on your PPOR,you have no regular payments except keeping on top of the interest.
If you lose your job,it isnt realy an issue as long as you have some LOC left.
It is realy quite simple.

However if you are paying off your PPOR and have car finances,credit cards ,smoke and drink,I dont believe you will be able to do it for quite a few years.:(
 
We "saved up" for 2~3 years (in the sharemarket).
Both working 2 jobs each.

By the end of those years, we could "splurge" and buy 2~3 properties a year until our serviceability stopped us.

Keep in mind Olive that you might only get one $300k IP a year, but you could get 2 x $150k IP per year right? It depends on the storyteller - quantity or quality?

Cheers,

The Y-man
 
Olive,

You should be able to do 1 property a year if you select well with a balance of CF and CG.

I started with 1 property per year and last year I bought 3 properties. Most of the stuff I buy is between 150k-250k...mostly in the 5 major capital cities.

Recently I started looking at regionals as they look attractive.

My criteria is to buy with a yield of 6-7% with a view to turning this CF+ within 2-3 years with a yield of 8-9%. I also target a growth rate of at least 7%. These days I tend to buy properties with a twist which allow me to gain about between 10-30% in equity after a quick reno.
 
Hi,
We both are working fulltime. We bought our PPOR in Feb 2008 with 20% deposit $83K. We done some minor reno on PPOR and got valuation after one year, we could borrow 20% deposit from equity for IP-1. It was March 2009. We requested valuation in Nov 09 for both of the properties, and borrowed $56K to buy IP-2, this time we paid a small LMI. It was Nov 09. We got a tax refund about 20K and we had saving plus we borrowed from friends for short term and bought IP-3 in Dec 09. Settlement was on 31st Dec 09. So our plan is to get valuation in Oct -Nov 2010, withdraw equity and buy more IP.
PPOR $415K Deposit $83K (ANZ)
IP-1 $445K+expencies Deposit $105K (borrowed from PPOR equity) (ANZ)
IP-2 $390K + expences Deposit $56K (borrowed from IP-1 and PPOR equity) paid LMI $6785 to RAMS
IP-3 $290+expences Deposit 20K from tax office, 21K saving+borrowed from friends) paid LMI $3330 to RAMS
I do not know, it is a good idea to withdraw all equity or not but I did it and I will do it this year. Thanks
 
Hi Olive,

I have purchased 2 IP's in the past 8 years and they are both IO loans on median price homes getting good rent.

I must admit that I budget hard to do this and I cannot work out how people just keep buying. I always hear everybody say equity, equity, equity but I have 400k equity....I require cashflow. and thats where I come undone on a single income.

I also ask..how do you people service the loans to keep purchasing???

cheers
 
I also ask..how do you people service the loans to keep purchasing???

cheers

Hi voodoo,

In our case it has been from both my wife and I working full time which has aided our servicability and given us the ability to keep borrowing to buy more IP's.

Other methods could be to seek more cash flow positive investments, invest in the share market to provide deposits, renovate, develop etc. Some people do this very successfully. We obtained one of our deposits from selling some shares at the start of 2007. In hindsight it's ashame I didn't sell the whole portfolio then and buy back in after the correction! Oh well!!!

After we bought that IP in 2007 using the share deposit, luckily prices increased dramatically and we were able to draw out equity from the IP to buy again in the second half of 2007. Sometimes all the stars line up - many times they don't!!


Regards Jason.
 
Thank you all,

What does that mean by revalue? What is the difference between refinance and revalue? Do you pay stamp duty when refinance?
If the IO loan is lock in for 3 years with the same lender does that mean it can't be revalued or refinanced? What sort of fee involved in revaluation?

Do you need all IPs under the same lender in order to do a LOC?

Also when the PPOR is revalued, use vsdabhi's case an an example:

"PPOR $415K Deposit $83K (ANZ)
IP-1 $445K+expencies Deposit $105K (borrowed from PPOR equity) (ANZ)"

Sorry I am a bit slow... so you were paying P/I mortgage on $415k-$83k=$332k, then borrowed equity from this PPOR $105k, does that mean your mortgage on the PPOR became $332k+$105k=$437k? Did the lender check your affordability of funding the extra $105k? Or not really?

I can't understand how the bank let you borrow more and more? what do you do when you reach the max. borrowing capacity and can't buy anymore?

Thanks heaps!
 
HiOlive,

You are understnding it just fine actually and your questions are valid.

Revluing is when you get the bank to reappraise how much the house is worth..
sy you bought for $300k... 10 years later, your mortgge is $150k. You ask the bnk to vlue your house nd they come bak with $600k. YOu owe 25% of the house value. Bnak may let you borrow up to 80% ($480k in total). So you could borrow another $130k. The most commonly spoke about way of doing this seems to be Line of Credit, which is what I have used.

So say you did this and now have a mortgage of $150k, an a Line of Credit you can use of $130k.

You find a $300k property you love as an IP proposition.

So you see nother lender and say, I've got the depsosit, it shodl rent for this much (they may change this figure a bit, and will count only 80% of what eer figure they usee), your income and your current loans, inlcuding the Line of Credit (they will ask for it's max value). They will add all that up as if the Line of Credit is fully drawn and see if you meet their lending criteria.
 
Olive,

You should be able to do 1 property a year if you select well with a balance of CF and CG.

I started with 1 property per year and last year I bought 3 properties. Most of the stuff I buy is between 150k-250k...mostly in the 5 major capital cities.

Recently I started looking at regionals as they look attractive.

My criteria is to buy with a yield of 6-7% with a view to turning this CF+ within 2-3 years with a yield of 8-9%. I also target a growth rate of at least 7%. These days I tend to buy properties with a twist which allow me to gain about between 10-30% in equity after a quick reno.

Hi Sash
Interested in your criteria, does the 6-7% include pm fees, rates, insurance etc.

I am currently looking at a property in QLD with a yield around 7.8% however when I take all operating expenses into account I am down a around $3,000.

Cheers, MTR
 
MTR...yes all cost are included except depreciation which I do not view as a real cost. Just a nice bonus...but only if you earn a reasonable income.

I can see why you are short by 3k in QLD....as rates (I am assuming it is a house) there are high - water and council in NSW is about 1350 pa vs 2200 in Qld (varies but am using rates in Moreton Bay).

So if you are short by 3k not factoring in IR....it will take you about 2 years to be neutrally geared. As 3k is about $60pw....if you put rents up by $30 pa you have covered your short fall in 2 years. You will also need to factor in rising interest rates allow about 1% for this. So if you own a 300k property that is another 3k you need to increase rents another $30pw.....to bring it to a neutral state within 2 years.

I am looking at buying in some regional areas as I am finding 9-10% is easy with a quick reno plus about 20-30k in equity gain pretty much straight away. Low risk in my eyes. Pro and Cons are

Pros
1. Money in your pocket from day one
2. Instant equity
3. Capital gains is slower than major cities but still there (I plan on aobut 5% pa)

Cons
1. Need to buy properties with a twist - i,e. needs renovation, areas close to town which is transitioning from Housing Commission to private, new infrastructure, etc.
2. Not all regional areas are good - need populations of more than 60,000 (greater town area) and diverse industries. University towns are good.
3. Some of these towns are costly to get to by air and driving distances can be far.

Will be interesting to see what happens to people who over leveraged in the last 6-12 months and who have not fixed.

Hi Sash
Interested in your criteria, does the 6-7% include pm fees, rates, insurance etc.

I am currently looking at a property in QLD with a yield around 7.8% however when I take all operating expenses into account I am down a around $3,000.

Cheers, MTR
 
Hi Olive,

I have purchased 2 IP's in the past 8 years and they are both IO loans on median price homes getting good rent.

I must admit that I budget hard to do this and I cannot work out how people just keep buying. I always hear everybody say equity, equity, equity but I have 400k equity....I require cashflow. and thats where I come undone on a single income.

I also ask..how do you people service the loans to keep purchasing???

cheers

I have changed lanes from negative gearing to cash-flow +++. The extra few '000 each month will go towards paying down loans to buy more growth assets in a few years.
 
Did the lender check your affordability of funding the extra $105k? Or not really?

I can't understand how the bank let you borrow more and more? what do you do when you reach the max. borrowing capacity and can't buy anymore?

Thanks heaps!

Yes they do.

And yes, they stop lending to you when you "max out" (called the serviceability limit)

At this point, life becomes interesting - the challenge is to increase income.

Some way syou can do this is by:
1. uplifiting employment income (promotion, change job, second job etc)
2. convert some of your capital into cashflow instruments (eg a business, commercial property, income generating funds)
3. wait for rents to go up

Hope this gives you some ideas.

Cheers,

The Y-man
 
MTR...yes all cost are included except depreciation which I do not view as a real cost. Just a nice bonus...but only if you earn a reasonable income.

I can see why you are short by 3k in QLD....as rates (I am assuming it is a house) there are high - water and council in NSW is about 1350 pa vs 2200 in Qld (varies but am using rates in Moreton Bay).

So if you are short by 3k not factoring in IR....it will take you about 2 years to be neutrally geared. As 3k is about $60pw....if you put rents up by $30 pa you have covered your short fall in 2 years. You will also need to factor in rising interest rates allow about 1% for this. So if you own a 300k property that is another 3k you need to increase rents another $30pw.....to bring it to a neutral state within 2 years.

I am looking at buying in some regional areas as I am finding 9-10% is easy with a quick reno plus about 20-30k in equity gain pretty much straight away. Low risk in my eyes. Pro and Cons are

Pros
1. Money in your pocket from day one
2. Instant equity
3. Capital gains is slower than major cities but still there (I plan on aobut 5% pa)

Cons
1. Need to buy properties with a twist - i,e. needs renovation, areas close to town which is transitioning from Housing Commission to private, new infrastructure, etc.
2. Not all regional areas are good - need populations of more than 60,000 (greater town area) and diverse industries. University towns are good.
3. Some of these towns are costly to get to by air and driving distances can be far.

Will be interesting to see what happens to people who over leveraged in the last 6-12 months and who have not fixed.

Can't go wrong Sash, your strategy is low risk. As far as the reno goes, do you do this yourself or farm the work out?

Thanks for the info on rent increases.
I have just placed an offer on this property, in SE QLD, is a high set house and currently provides dual income. One advantage will be when I increase the rents as 2 leases in place this will work wonders for my cashflow.

Cheers, MTR
 
MTR...yes all cost are included except depreciation which I do not view as a real cost. Just a nice bonus...but only if you earn a reasonable income.

I can see why you are short by 3k in QLD....as rates (I am assuming it is a house) there are high - water and council in NSW is about 1350 pa vs 2200 in Qld (varies but am using rates in Moreton Bay).

So if you are short by 3k not factoring in IR....it will take you about 2 years to be neutrally geared. As 3k is about $60pw....if you put rents up by $30 pa you have covered your short fall in 2 years. You will also need to factor in rising interest rates allow about 1% for this. So if you own a 300k property that is another 3k you need to increase rents another $30pw.....to bring it to a neutral state within 2 years.

I am looking at buying in some regional areas as I am finding 9-10% is easy with a quick reno plus about 20-30k in equity gain pretty much straight away. Low risk in my eyes. Pro and Cons are

Pros
1. Money in your pocket from day one
2. Instant equity
3. Capital gains is slower than major cities but still there (I plan on aobut 5% pa)

Cons
1. Need to buy properties with a twist - i,e. needs renovation, areas close to town which is transitioning from Housing Commission to private, new infrastructure, etc.
2. Not all regional areas are good - need populations of more than 60,000 (greater town area) and diverse industries. University towns are good.
3. Some of these towns are costly to get to by air and driving distances can be far.

Will be interesting to see what happens to people who over leveraged in the last 6-12 months and who have not fixed.


Sash, Your logic is good and I like your ideas.

Not so sure on Regionals myself in regards to repair. It could be that those old pipes need fixing one year and then the roof the next. There goes your rental increase.

Still, if the cashflow is there, sometimes this is as important as Capital Growth in a large portfolio.
 
MTR...yeah it is low risk. Are you able to PM he location in Qld?

Can't go wrong Sash, your strategy is low risk. As far as the reno goes, do you do this yourself or farm the work out?

Thanks for the info on rent increases.
I have just placed an offer on this property, in SE QLD, is a high set house and currently provides dual income. One advantage will be when I increase the rents as 2 leases in place this will work wonders for my cashflow.

Cheers, MTR


The CF+ helps with any repairs but it could happen to any house even in the the five major cities. I minimise the risk by buying 70s and 80s style brick veneer houses in the regionals.

No point worrying about CG if you can't hold in good and bad times. Only CF allows this. I have seen plenty of people sink like a lead balloon and sell their prized bluechips for a song as they could not afford the negative CF during bad times.
Sash, Your logic is good and I like your ideas.

Not so sure on Regionals myself in regards to repair. It could be that those old pipes need fixing one year and then the roof the next. There goes your rental increase.

Still, if the cashflow is there, sometimes this is as important as Capital Growth in a large portfolio.
 
MTR...yes all cost are included except depreciation which I do not view as a real cost. Just a nice bonus...but only if you earn a reasonable income.

I can see why you are short by 3k in QLD....as rates (I am assuming it is a house) there are high - water and council in NSW is about 1350 pa vs 2200 in Qld (varies but am using rates in Moreton Bay).

So if you are short by 3k not factoring in IR....it will take you about 2 years to be neutrally geared. As 3k is about $60pw....if you put rents up by $30 pa you have covered your short fall in 2 years. You will also need to factor in rising interest rates allow about 1% for this. So if you own a 300k property that is another 3k you need to increase rents another $30pw.....to bring it to a neutral state within 2 years.

I am looking at buying in some regional areas as I am finding 9-10% is easy with a quick reno plus about 20-30k in equity gain pretty much straight away. Low risk in my eyes. Pro and Cons are

Pros
1. Money in your pocket from day one
2. Instant equity
3. Capital gains is slower than major cities but still there (I plan on aobut 5% pa)

Cons
1. Need to buy properties with a twist - i,e. needs renovation, areas close to town which is transitioning from Housing Commission to private, new infrastructure, etc.
2. Not all regional areas are good - need populations of more than 60,000 (greater town area) and diverse industries. University towns are good.
3. Some of these towns are costly to get to by air and driving distances can be far.

Will be interesting to see what happens to people who over leveraged in the last 6-12 months and who have not fixed.

Sash, would you like to share which regional areas you are looking at? Heard that some of Mt. Druit housing commission is converting to private ownership. Would this be considered as a twist?
 
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