How to build a 10 property portfolio in 3 – 5 years realistically on $50,000pa.

[Angel]

We want to start buying CF+ but we have already jumped into the investing journey with a lot less education than we have now (thanks Nathan). I didnt really believe that CF+ properties actually existed outside of Steve McKnight's bookstore post 2004.

We have hit the servicability limit with two neg-geared properties. Any ideas on how to get servicability for future purchases. Do we just turn up at the bank with a spreadsheet that proves we can service new loans for all the new aquisitions?

Both properties are in locations that would make no difference whether they are reno'd or not. As far as I can tell, they are in very good condition already, you wont get any higher rents or values.

 

[BV]

angel

Serviceability criteria are not the same with all lenders.
Have you tried another lender or broker?

Some people balance their portfolio with cashflow +ve properties but to start with you need to have equity.
Do you have any equity?
Which suburbs are your properties in?

 

[Angel]

HI BV

We have plenty of equity in our PPOR so we can use that for the deposits and stamp duties etc. The places we bought last year are both in the area just north of Brisbane, neither of which have had any CG since then. This is Qld, our values have decreased.

There is plenty of CG potential, for example the townhouse is less than 200 metres from the beach at Scarborough. The tenants who came with the family home at NorthLakes want to stay forever and they and their pets pay above-average rent for the suburb. We are about 60% LVR over all three properties and they are not cross-collateralised. Our PPOR is a 3/1/2 in Eatons Hill 4037 which was completely paid out a few years ago but now has a LOC against it for the deposits. The IPs would be close to CF neutral except for the LOC which is like a giant personal credit card (in my dreams)

We finalised our tax returns last week and i figured no-one would lend to us on our new official incomes, so I guess it is off to find some creative brokers and lenders?

 

[BV]

HI BV
We finalised our tax returns last week and i figured no-one would lend to us on our new official incomes, so I guess it is off to find some creative brokers and lenders?

Yes it looks like that, although if you're currently neutral and you have no serviceability your taxable income must be small.
Are you a business owner?

One day I was discussing my taxable income with my accountant and I commented on how much tax I pay and he said that visible income is a good thing because it allows me to borrow.
Some of his other customers want to hide their income but yet they want to be able to borrow. You can't do both. Not easily anyway.

 

[Angel]

No, not business owners, just on two very low incomes compared to what the average "investor" is supposed to be earning. The $50K income in the title of this thread appealed to us, we dont actually want any tax deductions. Hubby and I are looking for better paying day-jobs.

 

[kao7ik]

Great post, gets us novice guys thinking of how to tackle things

 

[BMan]

yeah good post like a few others serviceability is what will stop me if i could buy these great deals listed here i would still hit the servicing wall or be too rent reliant after 1 IP.. and my current PPOR isnt over 200k... earning basically what "Sarah" is
i dont see how i can get anymore

i think i need to manufacture equity in my PPOR by doing renos to create more equity (i already have decent equity)

 

[Aaron_C]

Being too 'rent reliant' is usually only a problem if LMI is involved. Banks generally don't care too much about that.

 

[Peter 14.7]

Hi All

I would like to add, as many have said, when the market is right, you can do this and more in three years. And when it is slow, or flat, you cannot. If market is bad, you can lose the lot.

I would urge an Newbie's to also consider the bleeding obvious risk side not often mentioned.

• what if you lose you job (self employed but say risk)
• what if you tenant refuses to pay or trashes the property (there at the moment and no, insurance does not cover it all)
• what if values go down (not there)
• what if rates go up, a lot (who knows?)

All of these are effectively out of your control and never mentioned.

I strongly endorse property as wealth creation better than anything else but also say, some time you win and times you lose.

This is not a comment on Nathan. I don't even know the guy. But other have come and gone. Steve Navra promoted property with "Rental Reality" and I think he just declared bankrupt? The trick is to not get "overstretched".

If we all had a crystal ball and could see that 2012 to 2015 will be like 2000 to 2004, we would all be buying everything we could right now. But what if it is more like 2004 to 2006 in the eastern states?

I may repeating others but my $0.02 worth.

Regards

Peter 14.7

 

[SamSiam]

Sorry,

To clarify further, the property is valued in this example by the bank at a $40,000 increase and then 90% of this or $36,000 is redrawn so the investor gets their capital back to use for the purchase of the next property.

I find this hard to believe...she either bought the property very very very cheap....or the banks are over valuing it.....which they never do.

The property would have to be worth realistically closer to $300k for a bank to write it up at 240k surely....and if she bought it for 200k and its worth 300k....would she not be better to sell it and use the 100k to reinvest into 4 more properties immediately ??

Maybe I am missing something here.

 

[majest3]

Definitely the perfect scenario with no hurdles.

Banks are being very conservative with the valuations at present, which would likely make the refinancing difficult . I expect it may get worse as banks find funding more difficult because of what is happening in other parts of the world.

I may of missed it but l cannot recall seeing any mention of rising interest rates and what effect that would have on future affordability.

 

[jaycee]

I think people have to consider holding costs and the amount of money required in reserve of "weekly chipping in"

A lot of time i get th feeling all that is taken in to account is interest payments.

But htere are also council rates/ water rates / building insurance (or strata) & landlord's insurance as pretty much necessary costs

Costs which add up - $3 - $4k is not unreasonable... And not to mention, quite significant when talking about a $200 - $300k property where the interest is $14-$21k.

I know you get to claim depreciation, especially when one has undertaken renovations.

But, as the OP was talking about people earning $50k incomes, not high incomes on high tax rates, depreciation would not return 48.5% of $9k claimed, more like 20%......

BUT, it shows the most important thing.. options available in resi property investing that one can explore.......

 

[Steve Navra]

Dear Members,

Please do not get discouraged about the strength of property as a growth asset, or about the use of structure to create cash flow and serviceabilty for acquiring property.

My personal circumstances have come about as a result of investing in plantations and vinelots with Great Southern.

I personally purchased $5.5 million of agri products and now with the collapse of the Grape Southern Group and these assets being worth zero, I ended up owing over $7 million dollars including the interest - which I just could not pay. (Many lessons learnt here - another sad story for another time.)

The only point I wish to make with this post is that the use of structure to create serviceabilty to be able to acquire property remains sound and has not in any way been the reason for my financial demise.

Keep investing in properety!

Regards,
Steve Navra

 

[SamSiam]

Thats a lotta vino down the drain.

 

[Steve Navra]

And not a drop to drink

 

[Peter 14.7]

The only point I wish to make with this post is that the use of structure to create serviceabilty to be able to acquire property remains sound and has not in any way been the reason for my financial demise.

Keep investing in property!

Regards,
Steve Navra

Thanks for the update Steve. It takes a strong person to admit errors.

FYI my post was not to claim you had failed but to identify it is the "pinch point" which brings us undone. Get overstretched and it can all go bad.

Also the lesson is have Control. If you don't control your investment, then you are trusting another person expertise, integrity, and business ability.

Good Luck on the climb back.

Peter

 

[Token Funder]

Thanks for the update Steve. It takes a strong person to admit errors.

FYI my post was not to claim you had failed but to identify it is the "pinch point" which brings us undone. Get overstretched and it can all go bad.

Also the lesson is have Control. If you don't control your investment, then you are trusting another person expertise, integrity, and business ability.

Good Luck on the climb back.

Peter

Also, any investment sold largely on the basis of its tax benefit isn't a good one.

 

[Shaneelastic]

Dear Members,



The only point I wish to make with this post is that the use of structure to create serviceabilty to be able to acquire property remains sound and has not in any way been the reason for my financial demise.

Keep investing in properety!

Regards,
Steve Navra

this is a verygood concept

 

[Aaron_C]

Also, any investment sold largely on the basis of its tax benefit isn't a good one.

I would say with Great Southern, Timbercorp et al the tax benefit was good but you'd expect the big payoff to occur when the crops/trees come to maturity, so you're basically bringing forward all those deductions today so you have big pay day in 10 years or whenever you harvest. Not a bad concept except that they went belly-up...hard to predict these things without a crystal ball.

 

[Peter 14.7]

Also, any investment sold largely on the basis of its tax benefit isn't a good one.

Yes, the old, if it is too good to true, it probably is.

I remember a friend going hard in to the Tree Investments and I thought it makes no sense? Perhaps it was the country boy in me.

Peter