the fundamentals of understanding how money can work for you.

[simonjulie]

tho I suspect alot may not have understood what you were getting at, particularly on a forum that is predominantly buy and hold. Resi IPs tend to be take cash rather than return it. So you need to either value add or LOE in order to retrieve your upfront equity.

Equity and cash are really the same animal, but the cash is liquid while equity holds the potential to become so. We just have to look at developing financial strategies to convert it.
For example when I use equity to grow my asset base I don't have a requirement for cash because I am borrowing out of my asset growth.
Maybe I should have asked the question. "When do I get my equity back?"
The funny thing about the whole LOE debate is that with my property strategy, I actually live off the rents and my increasing equity pays for the growth and maintenance of my asset base. The balancing of that strategy is critical to its success. The thing that a lot of folks who are only a little way down this track find tricky to understand is: the fact that our lifestyle costs X, and when our asset's equity growth is four or five times that X figure then it is a whole lot easier to keep the machine turning, than when I was back in the "I work for money" mode.
I need cash to keep the machine running but that cash is there as equity in the leverage farm and the crop matures as the ecomonic seasons allow.
Cheers
Simon

 

[sue78]

Do you think the ROI should only be calculated by how much money you are putting in yourself? what about the effort in finding the purchase/build/reno?

You are spot on though. That's the key to how I invest. I try to put as little of my own money into the project for the maximum return.

When I started (and I still do it), I put in $1k of my own money and got $149k ROI within 1 yr and now $200k ROI over 3 years on 1 property.

I always do deals that I know I will get my money back hence why I build.

Repayments for the land are capitalised.

But if you buy an existing property then isn't it more difficult to measue when you will get your equity back?

With building, I already have a rough guide when I buy the land and then I have that 9 mths until completion for the prices to increase further but at least I know minimum ROI.

Building has allowed me to continue doing deals because of the instant equity. There's never a lag (though the work is getting a bit tiring and boring). That's why I may start doing it for others because if they do well, maybe it will be a dif kind of rewarding feeling.
Buying an exiting house is scary because I don't know when I will be able to buy again.

 

[simonjulie]

But if you buy an existing property then isn't it more difficult to measue when you will get your equity back?

Buying an exiting house is scary because I don't know when I will be able to buy again.

If you are tracking your investment it is easy to see the flow of money which will enable you to measure the costs with the equity increase.
I will attach a simple ready reckoner Spread sheet that may help with your projections. remember though, the information out is only reliable if the information in is sound. I might also note that the SS is based on the assumption that the investment is neutrally geared. If it is not, just increase the costs % to balance your outgoings.
Have fun
Simon

 

[markp]

I need cash to keep the machine running but that cash is there as equity in the leverage farm and the crop matures as the ecomonic seasons allow.
Cheers
Simon

Hi Simon
Are we farmers or orchardists? I prefer orchardist as the trees are permanently planted and we merely pick the fruit unlike the farmer who has to replant his crop everytime he reaps it.

Mark

 

[bort]

I must be talking to the hand
100 reads and no responses. That must be some kind of a record for this forum.
Simon

i suspect it may be because its not that easy to read, and if you targeted it at someone new they'd have to read it quite a few times to get it - maybe you'd need to put in examples.

in point 2 you even mention 'wealth creation strategy' - is someone new to the forum going to even know what a wealth creation strategy is?

you might also want to add in risk considerations if you are targeting advice at newbies?

 

[simonjulie]

i suspect it may be because its not that easy to read, and if you targeted it at someone new they'd have to read it quite a few times to get it - maybe you'd need to put in examples.

in point 2 you even mention 'wealth creation strategy' - is someone new to the forum going to even know what a wealth creation strategy is?

you might also want to add in risk considerations if you are targeting advice at newbies?

Hard to read?
What's hard about knowing what you are getting yourself into? And what's hard about asking the question. "When do I get my money back?" and what's hard about developing ways to track your investments.
I did say clues not qualifications.
Ask me a question and I will give you an answer and offer examples .
Cheers.
Simon

 

[simonjulie]

Hi Simon
Are we farmers or orchardists? I prefer orchardist as the trees are permanently planted and we merely pick the fruit unlike the farmer who has to replant his crop everytime he reaps it.

Mark

I think you can call us whatever you like Mark. I'm an equity farmer.
It's all green stuff.$$$$$$$$$ at least the hundreds are, but most of the $$$$ I deal with are on a computer screen or a bank statement. It is not real unless we run out of it.

 

[fernfurn]

Simon & Julie, you have reinspired me. I live off rent and fully own two houses (live in one) I dont want to go back to work (I am near retirement age anyway) but would love to have another go at property.(I have built two townhouses, sold one, live in one)
If I get my act together and do something I have a few options for this, one would be to buy a large house and make it suitable for students, I have $30 cash for this, but it would leave me with no buffer) Or build a new house on a small block I have found in inner suburbs, rent out my existing house and live in the new one for a year, then sell and move back into my home,
or there is a property in disgusting condition, I could buy, renovate, rent out and then build a new townhouse in the backyard. All this would have to be funded out of an existing LOC I have but dont use, and the aforementioned cash. Interest rate rises worry me. I know the "feel the fear and do it anyway" scenario, I suppose worst case scenario I could gear up my business again. Chat with me please?

 

[simonjulie]

Hi Celica
Good to hear you are inspired. That's what I like to do for people.
I am sure you will work out a way to get back into the swing of things.
I am not a developer , I buy well located ugly ducklings and dress them up a bit. It is the land under them that really excites me. Gives me a great lifestyle.
Cheers
Simon

 

[fernfurn]

Obviously you dont sell as I wouldnt think you would make enough money out of selling by the time you pay stamp duty.etc. My problem is I cant afford not to sell.
I guess my problem with any of the above scenarios is that if anything goes wrong, and with each different scenario there are different things that can go wrong, I would have to give up my beaut lifestyle and go back to working. Does it all get Back to feel the fear and do it anyway?

 

[simonjulie]

Does it all get Back to feel the fear and do it anyway?

Fear and excitment are the same energy we get to choose how we filter the energy.
It helps if we know and appreciate what has worked for us in the past. We can always build onto the things we appreciate.
I love my property portfolio and It is going to grow because of that emotion of appreciation.
Celica, you have already done extremely well, so trust in your preferences and do whatever makes you feel the best.
Simon

 

[markp]

Hi Celica
Good to hear you are inspired. That's what I like to do for people.

Cheers
Simon

And you do it very well