Hi SS'ers,
Do you think it's possible to constantly accumulate property, say by buying an IP every year? Can the process be continued indefinitely?
I was thinking about this because I'm formulating a long term plan for buying IPs. I had a vague goal of buying about $300k-$500k of IP's every 1 - 1.5 years.
I didn't actually know whether I'd be able to achieve that, however. So I made a spreadsheet to see if I could fund my next few IP purchases. Say I wanted to buy a $300k IP every year for the next few years. At 80% LVR I would need $60k for a deposit every year.
Assumptions:
- PPOR worth $600k at 80% LVR (bought 1 year ago)
- a cf neutral IP worth $600k at 80% LVR (recently bought)
- capital growth of 4% pa
- save $2k per month ($24k per year).
- all future properties bought at 80% LVR.
You could easily modify these assumptions for your own situation to see if you come up with the same result.
Based on the assumptions:
* next year (let's call this year 1) we could buy a cf neutral IP using our savings
* the following year (year 2) we could buy another one using the equity from the PPOR (which we'd have owned for 3 years by now)
* the following year (year 3) we could buy another one using the equity from IP1 (which we'd also have owned for 3 years by now).
(I've assumed that in 3 years, a $600k property will appreciate to $675k (4% pa compounded). At 80% LVR the loan could be extended from $480k to $540k with a $60k release of equity)
Then the cycle repeats all over again...
year 4 - buy an IP using our savings
year 5 - buy an IP using equity from PPOR
year 6 - buy an IP using equity from IP1
Repeat ad infinitum!
Not to mention that the process speeds up the more properties one has.
Sooo, my question is, what am I missing here?
Obviously I need to factor in the buying power of $300k over the next decade (eg. if property doubles every 10 years then $300k can buy less and less each time).
However, wages also increase over time so I would be able to save more. Similarly equity would grow faster in dollar value, due to the effect of compound growth over time.
Also, the properties need to be CF neutral for this to work - higher yield properties generally tend to have lower growth (??)
Also, the banks will probably stop lending after a while.
So how does one continue to extract money from the bank and keep buying IPs indefinitely??
Is anyone here in the process of constantly accumulating?
Do you think it's possible to constantly accumulate property, say by buying an IP every year? Can the process be continued indefinitely?
I was thinking about this because I'm formulating a long term plan for buying IPs. I had a vague goal of buying about $300k-$500k of IP's every 1 - 1.5 years.
I didn't actually know whether I'd be able to achieve that, however. So I made a spreadsheet to see if I could fund my next few IP purchases. Say I wanted to buy a $300k IP every year for the next few years. At 80% LVR I would need $60k for a deposit every year.
Assumptions:
- PPOR worth $600k at 80% LVR (bought 1 year ago)
- a cf neutral IP worth $600k at 80% LVR (recently bought)
- capital growth of 4% pa
- save $2k per month ($24k per year).
- all future properties bought at 80% LVR.
You could easily modify these assumptions for your own situation to see if you come up with the same result.
Based on the assumptions:
* next year (let's call this year 1) we could buy a cf neutral IP using our savings
* the following year (year 2) we could buy another one using the equity from the PPOR (which we'd have owned for 3 years by now)
* the following year (year 3) we could buy another one using the equity from IP1 (which we'd also have owned for 3 years by now).
(I've assumed that in 3 years, a $600k property will appreciate to $675k (4% pa compounded). At 80% LVR the loan could be extended from $480k to $540k with a $60k release of equity)
Then the cycle repeats all over again...
year 4 - buy an IP using our savings
year 5 - buy an IP using equity from PPOR
year 6 - buy an IP using equity from IP1
Repeat ad infinitum!
Not to mention that the process speeds up the more properties one has.
Sooo, my question is, what am I missing here?
Obviously I need to factor in the buying power of $300k over the next decade (eg. if property doubles every 10 years then $300k can buy less and less each time).
However, wages also increase over time so I would be able to save more. Similarly equity would grow faster in dollar value, due to the effect of compound growth over time.
Also, the properties need to be CF neutral for this to work - higher yield properties generally tend to have lower growth (??)
Also, the banks will probably stop lending after a while.
So how does one continue to extract money from the bank and keep buying IPs indefinitely??
Is anyone here in the process of constantly accumulating?