How do you keep purchasing properties?

A

Alex1

Hi all,

I'm after some explanations/your experiances/outside the square thinking...

How do investors on PAYG salaries continue to purchase Investment properties?

Specifically, If a couple on a combined income of $150k wanted to save 10% deposits and purchase (over time) a portfolio of properties, can anyone predict the number they could achieve?

How would purchasing positive cash flow properties vs purchasing "blue chip" but negative cash flow properties affect the outcome? Positive cash flow properties would (hypothetically) allow an infinite number of purchases, where the negative cash flow strategy would result in a higher portfolio value with compounding growth, but unless income rose the amount of properties would be dictated by the ability to meet repayments.

Another fundamental I don't quite understand that is often the 'answer' to the property mags "how to purchase 10 properties in 3 years" articles is -

If our couple purchased property A, gave it a Reno then used the equity to purchase property B, which also had a Reno to release equity for property C, every new purchase is going to require a higher repayment each time equity is released. Every new purchase would leave our couple with less cash at the end of the week. How do people continue with this strategy without selling???


Im trying to plan ahead!!
Thanks
 
Alex1 said:
Hi all,

I'm after some explanations/your experiances/outside the square thinking...

How do investors on PAYG salaries continue to purchase Investment properties?


Thanks
Click to expand...

I think you'll find the investors who manage to invest in multiple residential properties have a number of factors at play. Not in any particular order of importance:

1) Timing the market
2) Good savings/money habits
3) Years where they may have a high income which increases borrowing capacity and their ability to add to the portfolio.
4) Purchase properties that support themselves from the outset, either through cosmetic renovations or buying well.
5) Patience and being willing to hold through tougher times.
6) Persistence.
7) Using equity to invest in higher yielding asset classes
8) Forever learning from other investors and reading
9) Taking action
10) May have a plan (may not).
11) Willing to tweak their portfolio if necessary to reach their goal more quickly
12) Lending strategy - may have a broker to help with this.
13) Implement strategies such as debt recycling which may help them upgrade their PPOR and perhaps turn their old PPOR into another IP.
14) Use tax returns to invest further.
15) Keep an eye on interest rates and fix where appropriate
16) Manage risks by keeping buffers (LOC's and cash).
17) May develop properties - build 4, sell 3, keep one etc.
 
Comes down to 2 fundamentals.

1. Having a set investment strategy in place, knowing what each property/buy will do for YOU and your OVERALL plan.

Ie For me personally i love capital growth properties as that's where the big money is + depoist which is crticial .... i will buy 1 Capital growth property and in it's place and to support his CG; i will buy 2 subsequent Rental yield property to support the "lost" so that my overall portfolio is balanced.

CG= for future deposit ( short term, normally 1-2 years i should be able to get 10% back out min)

RY= a bit for income servicing and also long term CG ( normally 3-4 years time i should be able to get 10% back, in this current Sydney market it has been a lot shorter than expected)

So each buy has a purpose....

2. Getting the finance and structure right. Once the bank says " No" your screwed lol as each purchase requires the banks support and finance.

So knowing;

- When to use a 80% loan? ( normally for renovation type property and one with quick capital growth- created or natural)
- when to use a 90-95% loan? - Normally for rental yield property with low capital growth potential
- Using the right lender for quick capital growth type property and for cash out.
- Using the right lender for serviceability ( order of lenders)
- When to fix a loan?
- Understanding your future borrowing capacity not just your current so you can PLAN ahead....if the bank told you this was your last purchase,im pretty sure your purchase style/property type would be a lot different.
 
I'm single and on less than median wage, so therefore have a lot less income coming into the household than you do, yet i have a few places now. Still many more to come I hope ;)

Priority #1. Get onto a broker that you trust who understands not only your current situation but where you're trying to get to as well. I use and recommend Corey Batt (CJay from these forums).

Heres my tips:

1) Minimise the non deductible debt you have (no credit cards, car loans, personal loans). Recycle PPOR loan when ya can. This all increases serviceability.

2) Don't blow your (limited?) serviceability on purchases that don't have much return, as they will prevent you from buying the next. Always think about where your next deposit is going to come from. I'm forever considering the subsequent purchase and whether the proposed purchase in front of me will bring me closer to next deposit or make me pause.

3) Use high LVR, this allows you equity/deposits to go further

4) Always look for capital growth, either naturally via suburb growth or man-made via reno, development, under market buying. If you have the equity, another purchase will always find a way.
 
In summary deposit is king....serviceability can always be tweaked and worked around.

Deposit = Equity = Cash = Capital growth :cool::p:p:p
 
Alex1 said:
Hi all,

I'm after some explanations/your experiances/outside the square thinking...

How do investors on PAYG salaries continue to purchase Investment properties?

Specifically, If a couple on a combined income of $150k wanted to save 10% deposits and purchase (over time) a portfolio of properties, can anyone predict the number they could achieve?

How would purchasing positive cash flow properties vs purchasing "blue chip" but negative cash flow properties affect the outcome? Positive cash flow properties would (hypothetically) allow an infinite number of purchases, where the negative cash flow strategy would result in a higher portfolio value with compounding growth, but unless income rose the amount of properties would be dictated by the ability to meet repayments.

Another fundamental I don't quite understand that is often the 'answer' to the property mags "how to purchase 10 properties in 3 years" articles is -

If our couple purchased property A, gave it a Reno then used the equity to purchase property B, which also had a Reno to release equity for property C, every new purchase is going to require a higher repayment each time equity is released. Every new purchase would leave our couple with less cash at the end of the week. How do people continue with this strategy without selling???


Im trying to plan ahead!!
Thanks
Click to expand...

The reality is that most people CANNOT keep purchasing properties. It all sounds good in theory, but in practice there will be man restrictions in place.

The most that I have seen anyone own/control trusts that own is about 30 (cheaper)
 
All great advice, thanks.


I like to look at each potential property purchase and how it will compliment the overall portfolio (to be created overtime). Ideally, I'd like to end up with a couple of rose bay properties being funded by my renovated housing commission properties with a granny flat in the back, and turn the oldest or worst performing properties over to keep the portfolio young with lower maintenance. Spread the eggs around the country in different markets. Good theory?

DT, thanks for the broker tip. Just to be clear, the couple in my scenario isn't me, it's where I hope to be one day and I hear the median wage is now pushing $75k so combined income of $150k is probably relevant to others reading...

2) Don't blow your (limited?) serviceability on purchases that don't have much return, as they will prevent you from buying the next. Always think about where your next deposit is going to come from. I'm forever considering the subsequent purchase and whether the proposed purchase in front of me will bring me closer to next deposit or make me pause.

I think this sums it up perfectly, a lot of advice is to buy for CG as priority, but unless serviceability increases (even a $100 a week increase in rent is only 5000 a year so is mostly dependent on wage rise) then the repayments will be the the barrier to purchasing more.

Alex
 
Alex1 said:
I think this sums it up perfectly, a lot of advice is to buy for CG as priority, but unless serviceability increases (even a $100 a week increase in rent is only 5000 a year so is mostly dependent on wage rise) then the repayments will be the the barrier to purchasing more.

Alex
Click to expand...

Yes, but what will give you a better result over the long term? 1 CG IP valued at around $800,000 growing at 8% p/a or 4 $200,000 IP's growing at 5% p/a?

Regardless of the answer, people probably buy what they can afford to at the time of purchase and build their portfolio this way.
 
jingo said:
Yes, but what will give you a better result over the long term? 1 CG IP valued at around $800,000 growing at 8% p/a or 4 $200,000 IP's growing at 5% p/a?

Regardless of the answer, people probably buy what they can afford to at the time of purchase and build their portfolio this way.
Click to expand...


I understand your point, compounding increases win. But genuine question -

If you could only afford 800k of property-
would you purchase something for 800k with interest of $800 per week returning $600pw with growth of 8%

Or

4x $200k properties interest of $800pw returning $1100pw with growth of 4%?

If your other incomes were unchanged, what would put you in a better financial position 10 years later??
 
Hi

Hi every one has a different way in doing things.
I see so many people today that just work to service properties.

It's not the quantity it's about what property is going to do for you.
I have a PPOR paid off at 30 another ip with 40% lvr and I'm netting 1k month clear after cost.

I'm in the process of starting a multi townhouse site in melbourne. Where looking at keeping one and selling one.

I had two other ip which I sold 1.5 years ago at a top notch price. Had I kept the properties would of been the same.
 
My secrets have been:

- Education + taking action
- A kick *** mortgage broker

The debt wall is a reality for most, and when this happens its time to get creative.
 
1. Purchase in single names - don't do the whole 99/1 thing because it BS
2. Go IO on loans
3. Use the right lenders at the right time in your portfolio
4. Unsecured debt hurts a lot so avoid this
5. Reduce unnecessary credit limits
6. Supplementary income such as bonuses, add backs, etc can be used - different lenders will have different policies
7. Don't have kids
 
I have over 20 properties now......the key things from my perspective is:

1. Buy a property which balances capital growth with return. My strategy is more geared to capital growth

2. Diversify your lenders and NEVER cross collateralize.

3. A good income helps.

4. Change your stategy as the market and lending environment changes.

My target is 30 properties in the next 5 years.

The jouurney requires persistence.....I started with a PPOR and a unit in 1999.
 
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