I'd suggest reading the following.
Rixters Ramblings
Once you underatnd how this works, your on your way to understanding how property can be used as a vehicle to build wealth.
Cheers
Mick
How many Properties in your Portfolio?
- Thread starter Corey Batt
- Start date
I'd suggest reading the following.
Rixters Ramblings
Once you underatnd how this works, your on your way to understanding how property can be used as a vehicle to build wealth.
Cheers
Mick
And why do so many people focus on number of properties? I really don't get it. It happens in API, with the spruikers and on here all the time - how many is the main measure people use. Frankly, I couldn't care less how many properties people have. Having 25 $200k properties with a neutral post tax cashflow is nowhere near as impressive as one $5m concrete box with a 10% net yield for example. So my measures of success in this game are (in order of importance):
- Net (post interest and all expenses) income from the portfolio
- Net worth (Value - Debt) overall, including shares and other things for those of us who like to follow a hybrid share / property portfolio.
The order of importance is down to something that was recently pointed out to me by a fellow poster. It is net income that sets you free from your day job rather than net worth. This has become abundantly clear to me of late...
CJP - why stop buying up? One strategy is to just let inflation deal with the debt and focus on getting as big a snowball working for you as fast as possible. That debt won't look so big in twenty years time. Depends on your station in life though - this works well IMO if you have time on your side, choose the right properties (yield!) and have a strong income to fall back on.
- Net (post interest and all expenses) income from the portfolio
- Net worth (Value - Debt) overall, including shares and other things for those of us who like to follow a hybrid share / property portfolio.
The order of importance is down to something that was recently pointed out to me by a fellow poster. It is net income that sets you free from your day job rather than net worth. This has become abundantly clear to me of late...
CJP - why stop buying up? One strategy is to just let inflation deal with the debt and focus on getting as big a snowball working for you as fast as possible. That debt won't look so big in twenty years time. Depends on your station in life though - this works well IMO if you have time on your side, choose the right properties (yield!) and have a strong income to fall back on.
I've just signed for IP3, combined value of the three about $1m. I'd rather have three than one $1m property, since there will always be rent coming in from at least two, and if finances require it I can sell one. Once you get to 4-5 properties and want to grow your portfolio it may well be sensible to increase the price point you're operating at - if I had $3m I would probably aim for 5-6 around $400-800K each. Re your example, I think you'd be more likely to get the higher return on the low price properties, sacrificing some CG.
the total number of properties i own are decreasing, so that must mean i am becoming less successful.
Hi Tony
Congratulations.
You may have missed the key element in my example. Both portfolios are valued at $5m.
The box returns $500k per annum net. On a 70% leverage and a 8% interest rate that means $220k in income after typical debt servicing.
The houses on a "neutral cashflow" as specified in the example mean you are making nothing every year above interest and expenses.
For me, the extra $220k in income every year is far more impressive and valuable than the rather intangible benefit of diverse sources of income. YMMV of course.
I disagree. This rule of thumb may apply in some resi markets but the complete opposite applies in the world of CIPs. From what I have seen, the bigger the deal the better in that case - across the spectrum of risks including yield, location, creditworthiness of the tenant, bank guarantees, payment of outgoings, etc etc etc
Congratulations.
You may have missed the key element in my example. Both portfolios are valued at $5m.
The box returns $500k per annum net. On a 70% leverage and a 8% interest rate that means $220k in income after typical debt servicing.
The houses on a "neutral cashflow" as specified in the example mean you are making nothing every year above interest and expenses.
For me, the extra $220k in income every year is far more impressive and valuable than the rather intangible benefit of diverse sources of income. YMMV of course.
I disagree. This rule of thumb may apply in some resi markets but the complete opposite applies in the world of CIPs. From what I have seen, the bigger the deal the better in that case - across the spectrum of risks including yield, location, creditworthiness of the tenant, bank guarantees, payment of outgoings, etc etc etc
Aren't you confusing gross value and equity?
Mate. another good way of thinking through it is working backwards starting with
These numbers are very rubbery
1 How much you want in retirement in todays dollars to spend each week
2 Your PPOR paid off ?
3 How old are you now
4 When do you want to achieve this buy.
Now some numbers( yours might be different. These are random)
1 $1000 per week
2 Yes PPOR paid off
3 Im 20
4 Retire buy 40
With these numbers you could say that if you target regional city properties returning $250 per week rent. You would need 5 fully paid for properties.
4 to live off and 1 to cover outgoings of all 5. Easy
Now how to achieve in 20 years. Just as easy
Accumulate 10 homes ASAP ( say in the first 10 years)and allow there value to grow through a few property cycles to the point that selling 5 of them will allow you to use the gained equity to pay the other 5 off.
considering historically values have doubled every 7 to 10 years( may not continue to do so,this is the risk). allowing yourself 20 years to achieve this is entirely possible.
The secret to this method is start soon and build your portfolio quick. Now i did not mention property values. Its not that important as long as they gain in equity allowing you to redraw the the equity to purchase the next one.
many variables with this such as your personal income,age targets. Rents and your borrowing capacity and ability to purchase more. But this will give you an idea and this is why many keep it to themselves. They each have there own personal target and the smart ones have it mapped out how they are going to get there.
Please take this info on face value and get proffesional advice before jumping in. I am not an expert and have a long way to go also.
I see what you're saying Devo, in the case of redrawing, this would increase your weekly/fort/monthly payments though? Or does this system rely on the rental increases to make up for this?
I'm currently building a PPoR with my partner at 80% LVR and we're looking at how we are going to plan our future investments. IP's have always been an attractive option and so we thought we'd try to work out how we can enter the market when ready.
I'm currently building a PPoR with my partner at 80% LVR and we're looking at how we are going to plan our future investments. IP's have always been an attractive option and so we thought we'd try to work out how we can enter the market when ready.
Then I suggest you read a few books and learn the basics. You're just asking random questions at the moment, but because you don't have enough knowledge, the answers are just slipping through the cracks in your head.
It's not going to help you to speak to a person with 10 or 20 or 30 IPs or whatever. You don't have the knowledge and experience to understand what they're saying.
I don't mind answering the OP's question.
Now I am counting my chickens before they hatch here, but when our IP actually gets built and we settle (ROFLMAO ), we will have 1 IP and 1 PPOR. Approximately worth $900k in total (maybe more by the time we settle in sept-ish). Both FHB territory - 3bed, double garage - PPOR single bathroom, IP with ensuite.
Now I am counting my chickens before they hatch here, but when our IP actually gets built and we settle (ROFLMAO
), we will have 1 IP and 1 PPOR. Approximately worth $900k in total (maybe more by the time we settle in sept-ish). Both FHB territory - 3bed, double garage - PPOR single bathroom, IP with ensuite.I have said it before and will say it again-Im constantly amused at the whole 'mine is bigger than yours' attitude people seem to have. Shows me they will never make it as truely wealthy investors
Do you think the most sucessful people have been focused on getting a 'number' of houses so that they can brag to their freinds and internet nobodies, or do you think they focused on the financial viability and likleyhood of financial gains??
Who is better off-someone who has 'ten' $100,000 properties in Melton, or someone who has 'two' $500,000 properties in Brighton?
Well the answer would surely be who is going to be in front after say ten years....?
Do you think the most sucessful people have been focused on getting a 'number' of houses so that they can brag to their freinds and internet nobodies, or do you think they focused on the financial viability and likleyhood of financial gains??
Who is better off-someone who has 'ten' $100,000 properties in Melton, or someone who has 'two' $500,000 properties in Brighton?
Well the answer would surely be who is going to be in front after say ten years....?
These are some of the variables.
Yes if you redraw the interest bill gets larger and it affects your cashflow. If you have a high income you may be able to carry it plus tax will help a bit. But eventually if you keep buying properties that have more outgoing than the rent covers( negative geared). You will hit a wall with servicing and the banks will not lend or you will struggle with payments. This is where you have to think about your methods. At this point you could buy properties that are neautrally geared so they cost nothing to hold .Basically there is no end to the amount of these properties you could hold. Plus over time if you bought well even your negative geared properties should start to head this way.Also some on here draw out there equity to pay for the shortfall. As long as there value rises quicker than you draw it out you will be ok but you would reall need to get advice in this area and im not the one too give it.
So in a nut shell to keep accumulating you buy neautrally/positively geared properties ( Possibly lower capital gain but you can buy more).
Or negatively geared properties. ( should show better capital gain but may prove hard to service debt.
But as many will say you can find combinations of high yielding and high capital growth. We are all after these ones so you have to learn to find them.
Examples are dual incomes like house with granny flat. Easy renos to raise rent or just plain old undervalued properties.
Cheers.
I think you have to give the new guys a chance to find there feet. To many this is very new so the questions reflect this. Some jump on them because they dont know the ins and outs of forum etticate but that comes with time. Sometimes they need a bit of a overall picture so they can get the pieces in the right place and then learn further from there. I know i slipped through a long way before some of the so called basics became known to me. Numbers may seem important at first because to most more houses mean more wealth. Only hanging around and learning more will clear that thought process up . So i completely understand these questions and why they are asked.
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