The mysteries of finance - Pls explain

From: Nigel W


Okay, the latest API mag has a great article from Doidgy including a case study of a couple who've gone from 0 to $1M in under 2 years using the reno, revalue, buy again using equity approach.

Even though I've done the reno & revalue thing now myself, I'm still mystified about how this "couple on $45K/year with 2 kids" can buy 8 houses in such a short timeframe, even given the massive jump in equity at each step.

What about servicability? Particularly in light of the fact that some lenders will only take 70-80% of the rent into account.

Can Rolf or anyone else for that matter answer this question?
 
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Reply: 2
From: Rolf Latham


Hi Nigel

Tis perplexing isnt it.

Comes down to not needing LMI, limiting non income producing debt and being flexible on loan product and cost.

Havent read the article yet so cant make specific comment.

Typically a 2 kiddy couple of 45 k @ can do 800 k on average Investment lend reasonably straightforward, if no other debt

Ta

Rolf
 
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Reply: 2.1
From: J Parker


Nigel,
I wondered that myself when I read it but did you miss the part about his father "helping out" a lot, financially? Me thinks his dad either lent them money or helped with access to equity. Perhaps they also had no or very little mortgage on their own place of residence.
Just my thoughts....
cheers, Jacque :)
 
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Reply: 2.2
From: Nigel W


Rolf

I assume that an $800K lend presupposes 20% deposit/equity plus costs. So our typical couple would need $160K in cash/equity plus costs. Is that right?

Not a lot in the scheme of things but quite a lot for a couple on 45K/yr! that's probably 5-6 times their nett income!

I suspect Jaq is right that their parents "lent" them "equity" to get started.

Lends a whole new meaning to the phrase "Dad, can I borrow the keys?!" ;^)
 
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Reply: 2.2.1
From: Rolf Latham


Hi Nigel

You are right on the 20 % down bit

Probably 10 % of my business involves some form of gift from relatives.

Ta

Rolf
 
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Reply: 2.2.1.1
From: Les .



G'day all,

With 80% lend on $1m worth of IP's, the deposit is $200k - but if they own 8 properties, then they are each only $125k. Now, what's the equity/cash required to buy #1?

Of course, allow a bit more for costs and cosmetic reno and you might be pushing $35 - 40k. Now THIS is feasible for an average family (equity in their family home and a bit of cash?).

THEN, they buy #1, do the reno, boost the value, tenant it, re-value, and are able to "redraw" the best part of a deposit for #2. Then do it all again - an average of one every 3 months ...

They really didn't NEED $200k up front; they CREATED most of it !!!

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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