Quite true.
If you are an above average income earner, this whole caper becomes a doddle, and not much relevance to the average Joe and Joette with no assets, no savings, lots of consumer debt, but a desire to not end up on the pension.
Why Do Most Investors Stop Purchasing After Two Properties??
- Thread starter Rixter
- Start date
If you are an above average income earner, this whole caper becomes a doddle, and not much relevance to the average Joe and Joette with no assets, no savings, lots of consumer debt, but a desire to not end up on the pension.
la, la-la, la, la-le la, la, la....................
I'm sure I've got a slide rule with those numbers on it around here somewhere...where did I leave it?
I'll give you one tip; it's safer to own 4 IP's worth $200 each than one worth $800 - if you are worried about vacancies and loss of cashflow.
But why would you - you earn plenty from the PAYE (or whatever it is you earn it from) - it wouldn't matter a jot.
Werent most of us average Joe till we realized "we need to invest, and to do that we need more capital".
I did the same degree as 10,000 other people plenty with the same basic financial knowledge base. Some make half my income others double.
Generally if you want to get started, you will find a way and make it happen. Some people just wake up earlier than others. Granted a little harder when you wake up at 50.
Maybe I didn't explain it very well...
My post was in response to another post which was portraying a very neg geared property as no big deal; which for the average punter is a big deal....it was a bit "throw-away" and a bit glib; like it's the same for everyone, when it definitely isn't, as we know...
So why say it that way? Just one of my little irks....like the agents who throw out "Oh; the 5% yield is pretty good!" - It's cr@p. Let's see how many 5% yielders you can hang on to, buddy. They drive me mad.
It is waaaay less of a big deal to hold a neg geared anything if you are earning plenty to begin with - irrespective of what age you are contemplating the investing journey, because you (should) have a stack of disposable income to throw at the neg geared IP's without the lifestyle taking a hit..
What I have learnt from this forum is that substantially negatively geared property is not really the way to go for anyone. Generally, it is best to make a profit from day one.
This is sorta correct.
However, let's look at the average person who is on say the average wage, and say they are able to put aside about $50-$100 per week in savings in a Bank.
They put the $100 in the high interest account Bank, and continue to save, reinvest the interest, until they were able to get a deposit together for even the cheapest, well positioned etc property in an area that has some indicators that there will be some ongoing cap growth. It doesn't have to be anything really flash; just in decent condition to be rentable.
They then buy the property which turns out to cost them just shy of $100 per week - say; $75 p/w out of their own pocket after all the expenses and loan are considered.
The $100 is still put into the loan rather than the Bank.
All tax returns are re-invested back into the IP loan to further speed up the debt reduction process and increase the equity faster.
It is fair to assume that a well positioned property (this is where the DD selection process is important) would continue to increase in value over the longer term at 5% per year.
After 5 years of this strategy, the combination of debt reduction and cap growth would see a fair chunk of equity sitting there.
The investor may now be in a position to repeat this process, and may even be able to find another deal which is cashflow neutral or pos.
But the important thing is they are now on the ladder, they now have their foot in the door, and that first deal may even be cashflow neutral after 5 years, which means they are still able to invest their $100 per week and accelerate everything much, much faster..
This is where cashflow negative can actually be a good thing; it's the mindset which has changed. The average person in the street would not consider putting $100 per week into a property, but would always put it into the Bank, or on the nags, or into a slot machine.
Now, someone on an above average income to add some zero's to this equation and be much more negatively geared.
I personally think this is a bit unnecessary, because they have the ability to smash a small IP loan in no time, then go again, and without really affecting their lifestyle.
I guess the argument there is that they have the ability to start much further up the ladder in terms of purchase price, and therefore may be able to accelerate the wealth from cap growth much more.
For example; average Joe buys an IP worth $300k, and high-incomer earner buys a townhouse worth $700k.
Both properties double in value over 10 years. At year 10, the townhouse is now worth $1.4mill, while the average IP is worth only $600k.
The thing to remember is the average Joe could never save $300k in 10 years, and there is a very good chance he bought another IP in year 5 and therefore his wealth base may be a few hundred thousand more.
The argument I know which will now come from you is; "Yes, but; what if there is a vacancy".
This is covered in your DD about the demographic of the renters in that area, and the type of property you own.
Properties in decent condition and in decent locations ALWAYS rent, and quickly.
And if they don't, you drop the rent a bit and they then rent. It's as easy as falling off a log, and you should be able to rent an IP within a few weeks at most.
Great post BV and I like the last bit the best.
The only bit I don't like is that it takes ten years for this to work and the fundamental keypoint is that you must have 5% p.a. capital growth EVERY year. If one was to get off the train at year 4, there would be problems.
Capital gains don't occur in a linear fashion. You have a few years of no gains, a couple of small declines, and a few of speculatory high gains.
But doesnt property double every 7-10 years, guaranteed? And in the interim the tax man pays for it?
Again another gross generalisation. As I said, it depends what you use the property for and where the future growth direction is.
in Good quality property in well located areas of high demand.
Nothing is guaranteed.
The tenant, the tax man & possibly you depending upon how well you purchased.
5% is an average.
And may not be accurate - it may be more...it can be less too.
That is all part of investing, I'm afraid.
I don't like it too. Because some things I buy get 30-40% cap growth in a month so 5% pa is a bit slow at times. Again, just has to do with DD and understanding your market.
true, but you are not Joe average on their first IP.
Everyone has to start somewhere, and even the most humble of IP's can start most folk on a terrific path
Yes I agree.
I guess I was trying to say that there're 30-40%s out there, so the next time thingo uses cap growth being too low at 5% as an excuse, he shouldn't.
Also, 5% is still good, especially when leveraged. It means you are making 20%-25% ROE assuming you're cashflow neutral.
I guess I was trying to say that there're 30-40%s out there, so the next time thingo uses cap growth being too low at 5% as an excuse, he shouldn't.
Also, 5% is still good, especially when leveraged. It means you are making 20%-25% ROE assuming you're cashflow neutral.
What I illustrated was a very basic, probably very conservative scenario which anyone can do.
Call it IP's 101.
The opportunity is there for anyone with a better set of circumstances, better knowledge, better application etc to do waaay better, and thus speeding up the end result.
So how do investors build multi $million property portfolio's on average and below incomes
If they can do it why cant others ?
One person puts a little more thought and effort into it.
Much more reason you put more ingredients in start beefing it up
Although having a good summer garden helps ie fresh & sun dried tomatoes
Corn peas carrots all the good stuf
Have a fool proof way of drying tomatoes if any one interested
So it may not be as expensive s I think