How do you multiple your IP's?
- Thread starter lisport
- Start date
Lisport
Start with the end in mind. By that I mean get an idea of what you want to achieve (you said 10 IP's in another post) THEN start to work out HOW you can afford them.
There are many different strategies to use, My personal fave is to buy well, and add value by means of renovation, have the property revalued, top up the mortgage to anywhere between 70-80% LVI, then take that cash and buy the next place.
You might want to buy/reno/sell. to get funds, You may buy and develop the land, keep a couple and sell a couple... there are numerous ways to fund the investments you want, you just need to have a clear picture in your mind.
I personally am on an average wage, but have had no real problem to date getting mortgages as my props are either +ve or neutral, having a high income would be lovely
but I cant see that happening for me in the future.
Lisport, knowledge is power, so read, read, read, ask questions and formulate your own path. Its quite a ride, so hang on, you'll luvvit
regards
Luvvit.
Start with the end in mind. By that I mean get an idea of what you want to achieve (you said 10 IP's in another post) THEN start to work out HOW you can afford them.
There are many different strategies to use, My personal fave is to buy well, and add value by means of renovation, have the property revalued, top up the mortgage to anywhere between 70-80% LVI, then take that cash and buy the next place.
You might want to buy/reno/sell. to get funds, You may buy and develop the land, keep a couple and sell a couple... there are numerous ways to fund the investments you want, you just need to have a clear picture in your mind.
I personally am on an average wage, but have had no real problem to date getting mortgages as my props are either +ve or neutral, having a high income would be lovely
but I cant see that happening for me in the future.Lisport, knowledge is power, so read, read, read, ask questions and formulate your own path. Its quite a ride, so hang on, you'll luvvit
regards
Luvvit.
Whats wrong with Tuna ?
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rolf
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It can be the above plus changes in conditions like rising rents, falling interest rates, capital growth on existing properties, growth or decline in areas you wish to buy, and relaxed credit policies.
But generally speaking it's done by making sure each purchase does not unduly restrict the ability to buy the next within a reasonable time (say 1-4 years).
Buying ability generally depends on obtainable credit.
Ability to obtain credit depends on serviceability and LVR/equity.
Serviceability is looked after through rental yield. Ideally this should be neutral or positive cashflow on purchase. Or if not at least able to be made neutral within a few years so it doesn't drain cashflow. It may be possible to increase rental income by putting up the rent (if under-rented), making improvements or waiting for time to do its thing (if there's tenant demand).
LVR is improved if there is capital gain. People try to achieve above average results by buying well, making improvements and/or researching areas of increasing appeal likely to appreciate. If the value of a property increases by (say) 25%, then that may be enough to use the increased equity as a deposit for another place, with no cash from you. Even if a particular area grows by 15% in a 'good' year, 25% might still be possible if you payed 5% less than real value, or made improvements that added value by 5%.
If a property has risen greatly in value, but its yield is poor, you could sell it and use to repay debt on the other properties. This might bring the portfolio cashflow back to neutral and lower LVR. This might permit you to purchase another property.
However due to transaction costs (eg stamp duty and agents fees), selling and then repurchasing might not do very much unless the property you're buying has better yield and growth prospects than the one being sold.
The biggest contributor is time, and particularly inflation.
You would be hoping that your rental income would be increasing by inflation. As would your management costs. But the biggest cost, interest payments varies for other reasons and not inflation. So a property that starts of being negative geared (ie costing money to hold) will eventually become neutral over time, provided holding costs aren't too high and its yield was OK to start with. Just by doing nothing improves serviceability each year.
Then there's more! Each year with inflation of 3% erodes the real value of your debt by 3% (faster if paying principal as well on the loan). And you'd hope your property has a anverage increase in its value of at least CPI. With the amount owing falling and the value rising, the gap between the two rises exponentially. This is your equity and can be used to fund deposits for future properties. So just by doing nothing improves LVR each year (assuming there's inflation - the central banks try very hard to avoid deflation).
Time will slowly make it easier to buy more properties, but it's slow and uneven. Doing some of the above like renovating, buying well, researcing areas or buying sound sroperties that are near positive cashflow are all things that can speed the ability to accumulate more.
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usually they are cashed up or have heaps of equity in a PPOR to play with..
plus you need a decent income to keep on buying CF- IP's,
some people buy CF+ IP's, but these lack CG, so in my opinion are a wast of time buying.. your better off having 1 good IP with great capital growth potential, rather than 5 CF+ IP's with limited CG potential.
Some people just buy high yielding properties that are nicely cashflow positive and then watch them double in value in a few years...
I must learn from these people!
and they must show us where they buy IP's CF+ and have this type of capital growth at the same time!
If you have a high income it's easy; just live like a normal wage earner of around $50k or so and save the difference like mad. By end of one year you have a considerable cash deposit.
Then repeat for about 5 years or so.
Or, if you actually are a normal wage earner, you need to live like someone on a $20k wage, eat tuna, buy clothes from Savers, drive a $5k car etc. At the end of year one you won't have enough cash deposit most likely, so save for 2 years, or take on a 95% LVR loan or higher if you can. This will get you on the ladder faster, but is riskier.
Do this until you can pay down some debt and/or save some more for a cash deposit or another equity deposit.
The other factor in these quick multiple purchases you hear about is the cost of the property you buy.
If you stick to very cheap places in regional areas, with rent returns the same as or higher than your loan, and live like a pauper as well, you will build up equity very quickly and can repeat the purchases sooner.
In our case, we started with a debt free PPoR and used equity for deposits and purchase costs, so it was easier to keep buying. Mind you; you have to get to the debt free PPoR stage first, which took several years.
We could have started off with 5 IP's of around $200k each using all our equity for deposits and 80% loans.
But, being risk averse, we started slower and commenced debt reduction from day one to build up the equity and cashflow again, and stay safe.
The trick with this is to MAXIMISE ALL THE FACTORS.
1. high yield
2. good growth potential
3. good position
4. good depreciation
5. debt reduction
6. living frugally in the early years (allow 5 years).
No. 5 and 6 are the tough ones; people don't want to sacrifice their lifestyle for the longer term result - DELAYED GRATIFICATION.
Bayview has probably mentioned most of the key factors. But everyone's situation and lifestyle/circumstances are so different that they all influence these factors to varying degrees in certain times in your life. There will be many ways to skin this cat.
To put it into context, I am single (no dependents) in my 30's so my path would be very different to say a married/defacto couple with or without kids.
For me the key things for me was to initially purchase (what was at the time) a PPOR with 20% deposit. Then when I decided to start down the IP path, was able re-finance and start purchasing.
My loans aside from the first and latest purchase (Sep08) was with loans in excess of 80%, paying LMI as required.
All were negatively geared from the start and I was lucky that in my career, not so much when I started in 2002/3, I have been able to build a solid PAYG income which has more than enabled me to service the shortfall and add to my portfolio.
In the last 6-7 years, the properties that I have purchased have also increased in value, so have used the equity in those to purchase the next IP.
I have had no car loans or other personal loans to pay-off. Minimal credit card debt.
Have I lived frugally? That is subjective. I have rented in inner city Melbourne, had a pretty good lifestyle I think, probably pretty typical of a 30 something. But I was always mindful of getting the next property, so I never was over indulgent in my spending. There is always a trade-off. But I don't think I am typical in my obsession in property relative to my peers/colleagues and friends of the same age.
I have never bought with yield in mind (nor depreciation). I have decided on location (ie suburbs) and the right property type in that location. If the holding costs were excessive, inevitably the asking price was too high, and moved onto another.
Going forward, because I am coming up to serviceability barriers, I would now not look at buy and hold properties to purchase. Buying to add value and then onselling for profit is the only resi property I would look at ATM. This will allow me a larger deposit for additional purchases, probably in the commercial sector.
To put it into context, I am single (no dependents) in my 30's so my path would be very different to say a married/defacto couple with or without kids.
For me the key things for me was to initially purchase (what was at the time) a PPOR with 20% deposit. Then when I decided to start down the IP path, was able re-finance and start purchasing.
My loans aside from the first and latest purchase (Sep08) was with loans in excess of 80%, paying LMI as required.
All were negatively geared from the start and I was lucky that in my career, not so much when I started in 2002/3, I have been able to build a solid PAYG income which has more than enabled me to service the shortfall and add to my portfolio.
In the last 6-7 years, the properties that I have purchased have also increased in value, so have used the equity in those to purchase the next IP.
I have had no car loans or other personal loans to pay-off. Minimal credit card debt.
Have I lived frugally? That is subjective. I have rented in inner city Melbourne, had a pretty good lifestyle I think, probably pretty typical of a 30 something. But I was always mindful of getting the next property, so I never was over indulgent in my spending. There is always a trade-off. But I don't think I am typical in my obsession in property relative to my peers/colleagues and friends of the same age.
I have never bought with yield in mind (nor depreciation). I have decided on location (ie suburbs) and the right property type in that location. If the holding costs were excessive, inevitably the asking price was too high, and moved onto another.
Going forward, because I am coming up to serviceability barriers, I would now not look at buy and hold properties to purchase. Buying to add value and then onselling for profit is the only resi property I would look at ATM. This will allow me a larger deposit for additional purchases, probably in the commercial sector.
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Oi! My Daughter eats tuna and lives in Gippsland! But she has only the one investment property (bought when she was 18) so perhaps I should encourage her to eat more tuna!
lisport, there is no one rule for buying investment property and certainly no rule for how people 'keep on' buying.
In fact, sometimes the best tactic is to not keep on buying, but to devote some time to redeveloping the existing properties
Some of the wealthiest people I have met over the years have not had high incomes and simply buy what they can when they can. Buy Houses, Make Money is simple and effective.
Property investing is not rocket science. However, you have to be into doing it. There is no reason why it should be considered particularly risky, either, provided that you are sensible about what you are doing
There will always be unexpected hiccups - that's life! - for example we had four end of lease vacancies earlier this year, and by the time reletting fees were paid and one of the incoming commercial tenants wanting a rent free period, we were down six months rent!
But hey! It's now (nearly) September and the Red Sea has washed back over the rift in finances and onwards we go.
Just start, put one foot in front of the either, don't bite off too much too soon but bite off enough which requires you to chew steadily, and as that situation becomes manageable look around for something else.
Property Investing is a lot more simple than it looks.
Cheers
Kristine
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Thanks so much for the replies. Much appriciated.
And I do not mind tuna or gippsland, jus trying to make a point.
I can see how if someone is always renting the property, it wouldn't be hard to buy more and more properties, and to get a loan. But doesnt anyone worry that people will not rent, or may take a while to rent out their properties? Has anyone ever had the problem of not having people rent out their homes, for a fair period of time? What could you do?
And when buying properties that are to be subdivided, would you pay someone to do it, such as a builder, or do it yourself? Because I'd like to buy a place, and knockit down or build a unit, but after doing some research, it doesnt make sense to do it that way. Am I wrong?
Thanks again
And I do not mind tuna or gippsland, jus trying to make a point.
I can see how if someone is always renting the property, it wouldn't be hard to buy more and more properties, and to get a loan. But doesnt anyone worry that people will not rent, or may take a while to rent out their properties? Has anyone ever had the problem of not having people rent out their homes, for a fair period of time? What could you do?
And when buying properties that are to be subdivided, would you pay someone to do it, such as a builder, or do it yourself? Because I'd like to buy a place, and knockit down or build a unit, but after doing some research, it doesnt make sense to do it that way. Am I wrong?
Thanks again
Nothing Rolf...tastes the same as flipper
Flipper is a mammal.....
Cheers,
The Y-man
For us, not necessarily high income, but increasing income - eg
pay rise = more property
or
second job = more property
Cheers,
The Y-man
Or as a buyer researching and learning how to identify value areas, and having the courage to purchase against conventional wisdom (usually spouted by those with little knowledge of the area).
While people turn their noses up at places like Broadmeadows, Doveton, Heidelberg West or Laverton, those who bought well have made money and received higher than average yields in the interim.
Lisport
I think you'll find that many property investors have a "buffer" ie, ready access to funds for emergencies. It might be some easily disposable shares or a high earning interest bank account with nice wad of cash in it.
Either way, if your property is vacant for a bit, then you can draw down some of the money, if the property needs a new hot water system or is trashed, then you have the means to pay for it and not have to eat tuna for weeks, (just stick to days!!!)
If you've bought well, then rental vacancies shouldnt be a huge problem, sure they will be vacant from time to time, and maybe even for a couple of weeks at a time, and sure stuff will happen, but if you have a buffer, it wont really affect your day to day living.....
In the end, you need to organise a SANF factor into your investing. (sleep at night factor), you cant hope and pray that nothing happens to your properties, it will. You cant hope that interest rates stay at record lows, they wont. Its how you organise yourself from the get-go that seperates the long lived from the fly by nighters.....
Luvvit.
I think you'll find that many property investors have a "buffer" ie, ready access to funds for emergencies. It might be some easily disposable shares or a high earning interest bank account with nice wad of cash in it.
Either way, if your property is vacant for a bit, then you can draw down some of the money, if the property needs a new hot water system or is trashed, then you have the means to pay for it and not have to eat tuna for weeks, (just stick to days!!!)
If you've bought well, then rental vacancies shouldnt be a huge problem, sure they will be vacant from time to time, and maybe even for a couple of weeks at a time, and sure stuff will happen, but if you have a buffer, it wont really affect your day to day living.....
In the end, you need to organise a SANF factor into your investing. (sleep at night factor), you cant hope and pray that nothing happens to your properties, it will. You cant hope that interest rates stay at record lows, they wont. Its how you organise yourself from the get-go that seperates the long lived from the fly by nighters.....
Luvvit.
Nice
Great piece of advice Kristine. I'm on to my second one atm..cooling off period expires tomorrow. I do wake up at night and think.."I'm I going to fast?'
(Second one within six months) but cant find a good enough reason to not go ahead with this one.
Great piece of advice Kristine. I'm on to my second one atm..cooling off period expires tomorrow. I do wake up at night and think.."I'm I going to fast?'
(Second one within six months) but cant find a good enough reason to not go ahead with this one.
