在澳大利亚 I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo
I have a question which I can not find an answer.
After I read API magazine, I can see lot of people can own multiple IPs within
very short period of time. I don't get it.
below is my situation, I wandering if I am able to do it.
couple income from wage after tax approx 78000 pa.
own one PROP worth 300k with 150k equity. loan 150k
own one IP after 1 year of purchased PROP, worth 411k with loan 411k
(using equity of PROP to made the purchase).
IP just rented for 380pw
According to our bank, we can only borrow around 600k due to limited income
Now is the question, I understand equity can grow with time when IP/PROP grow in value. eg: two years later, assume two houses worth 1 M up from 711k, I then decide to go with my second IP, I should be able to use 300k equity to make the purchase however my income is still the same of 78000pa plus a bit of rental income. I am still unable to get those equity as my borrowing power is still limited to around 600k.(only very small saving in two years)
How can I purchase second IP/access my equity with limited income???
Buy cashflow positive property perhaps?
fzxbeetle said: ↑
How can I purchase second IP/access my equity with limited income???Click to expand...Increase your income.
brendio said: ↑
Increase your income.Click to expand...I believe personal income will always limited, so as your borrowing power. If you have unlimited income, you don't need to worry about investing anyway.
fzxbeetle said: ↑
I understand equity can grow with time when IP/PROP grow in value. eg: two years later, assume two houses worth 1 M up from 711kClick to expand...That's a pretty big assumption. That's like 19% annualised growth, and coming off a boom. Better to look at other strategies than hoping for growth.
As luckyone has posted, yield becomes important when you have problems with serviceability.
fzxbeetle said: ↑
I believe personal income will always limited, so as your borrowing power. If you have unlimited income, you don't need to worry about investing anyway.Click to expand...Remember, rent is income too!
luckyone said: ↑
Buy cashflow positive property perhaps?Click to expand...This should works but It is very difficult to find those properties in capital City
brendio said: ↑
That's a pretty big assumption. That's like 19% annualised growth, and coming off a boom. Better to look at other strategies than hoping for growth.The assumption I made is only used to make a point that is even you have big equity available, without income, you still can not service the debt therefore can not access that big equity. I want to know if our only choice is to buy high yield property??
As luckyone has posted, yield becomes important when you have problems with serviceability.Click to expand...
Your bank may be very well right.
but before chucking in the towel...............what is your personal affordability like ?
By that I mean how much can u pay toward your portfolio from your current nett cashflow
If there is something available, then you may just need a restructure of how you do your lending to make the next deal possible
You can also artificially increase the yield by value adding, for example, through renovation, subdivision and the like. But I think you are right that you will be limited by income as to how many lower yielding, high growth properties you can own. Each has to develop their own strategy to suit their situation and remember to look at the total yield on investment, which is the combination of net rent and capital growth. You know, if property is increasing at 18% p.a., I would care too much if it were low yielding.
Rolf Latham said: ↑
If there is something available, then you may just need a restructure of how you do your lending to make the next deal possibleClick to expand...In what ways?
Or, you could buy cheaper IP's if the number of IP's is important to you.
luckyone said: ↑
Buy cashflow positive property perhaps?Click to expand...A perfect example of the bipolar mindset on SS. 90% of properties on the market today would be CF-ve. But on another thread where I suggested that ten years of zero growth would be unsustainable, I was contradicted by the "CF+ve crowd".
You can be cash flow positive or you can garner three IPs on an average wage. You can't do both. That's absurd.
There is a vocal anti-Keen group here, but really they are countered by a less vocal group who concede that capital gains are going to be hard to find.
Without assured capital gains, why do you want to go there?
I agree that CG will be harder to find in the short to medium term so what ever you do you have to be sure you can manage the downside risk( cashflow).
I use my example because i feel its what i can give reasonable feedback on.
My first IP was neg geared after tax by about 100 pw when i bought it. With our family income this was very affordable. The low PPOR loan helped a lot.
But even in this situation i would feel very uncomfortable taken on to many of these and infact im sure the bank would feel the same.
IP two was purchased a year ago using the last of my IP available funds. Luckily it was slightly pos geared. This will be subdivided and will allow me to immediately purchase again if i want while not affecting my cashflow .
Basically while ip 1 was a drain on cashflow ip 2 had no effect. I actively chase these now.I am also toying with the idea of adding value to IP1 to raise yield.
When CG becomes more sure i will take more of a risk with neg geared property but not now. I think for this reason people that are pushing the limits of serviceability or people who want to concentrate on building a portfolio. They should try hard to find higher yielding properties. Not easy i know but most areas have little gems to find.
There's a valuabele thread located here "Explain how one can keep accumulating property"
Not sure of the location or even type of property, but what was the reason that you purchased this particular Investment Property (What was/is your strategy)?
Not sure if you looked at the below but...
The Gross Yield on your IP above is 4.80%
The Nett Yield is a different beast and needs to take all operating costs into account such as rates, Insurance, Maintenance assumptions, Property Manager Fee's, Body Corp fee's if applicable, this will lower the above
Your Current Loan To Valuation ratio as per above is appx 78.9% which is getting close to the much touted 80%
Are you paying Principle and Interest on the $150k?
Are you paying Principle and Interest or Interest Only on the $411k?
There are also other ways to increase your cashflow and reduce your non-deductible debt on the forum
fzxbeetle said: ↑
I believe personal income will always limited, so as your borrowing power. If you have unlimited income, you don't need to worry about investing anyway.Click to expand...I don't agree with this. Personal exertion income stops when you stop "personally exerting" - so you need to build up for the future.
Why the focus on number?
We are on property #3 and started on < $40k a year. We had a very very cheap place with equity, got another very cheap place and value added so it is worth 4x purchase price now, and the idea is to sell both of those sometime in the next two years (one has already been for sale for over a year, if its not sold in 3 years ... hmmm) and build something new, sell that, repeat. I think there's quite a few other people with the strategy of build two (or get a splitter block, renovate the old house and build at the back), sell one, keep one and this is just a variation of the same strategy.
The goal of the exercise being to have a PPoR owned outright, two local IPs owned outright, one city unit owned outright, and this doesn't seem like much of a stretch, should be doable leisurely between now and when I want a city IP for the eldest kidlet to leave home and move into. Its a very waffly 5-10 year plan where the main point is MINIMISE DEBT.
fzxbeetle said: ↑
I wandering if I am able to do it.Click to expand...Yes you can. But it takes effort.
Your situation and figures are pretty much what we were experiencing. We got to 5 IP's (most in inner melbounre) per working person as follows:
1. increasing salary (higher paying positions / job change)
2. second job
3. no PPOR (to maximise tax benefits)
While the road may look rough and tough (and by geez it is on some parts of it!) after 7 years we got our PPOR, and 10 years later we're a few years from seriously making working an option (could have already been there except for some boo boos I made on the way).
Well, for me it has been a strong sense of motivation "within" to acquire appreciating assets. To become financially independent. Then I started to research how best to do this. Property seemed good, seemed fun, and if I kept buying as well as I could, almost regardless of income, (I think I started around an income of $31,000 give or take). I am still going strong, only limited/restricted? by the deals I make/create.
Did/does not the investing magazine articles explain how the investors achieved/were achieving? their goals?
For me it is ensuring the figures stack up, buying well for my circumstances, which are unique to me. Getting the best possible return I can on the property that I do purchase.
I so far, have invested in regional areas, that does not mean I compromise growth over return, I'm a greedy girl, I like my cake and eat it too. But, BUT, when I do buy, buying well is paramount, (thankyou my Mortgage Broker).
My investing is not necessarily limited by my income, or perceived, lack thereof, why compared to the rest of the world, "relatively" I am wealthier than many, less wealthy than some...
More importantly it is what motivates me, what drives my engine, my mindset, my desire to [----insert---- goal-----].
Compared to some other property investors I still have someways to go, compared to others I'm cruising. What of course, really matters is how I perceive I'm travelling/achieving, and it's satisfactory so far.
Income, j-o-b, all that stuff is okay, but for me, the "Inner Why" has been vital.
I don't think this has been mentioned yet but I believe the key is to buy well... ie. an undervalued property.
The instant equity gain coupled with increasing equity over the next few years often provides enough for one or two IP deposits.
Do the same again with each IP and the process accumulates.
This is what we have done so far. We bought our PPOR at the end of 2008 when the Sydney market was in the doldrums and we believe it was 10% undervalued at the time. Property has since risen about 15-20% in the area since then, our place is now worth about 25% more than what we paid for it. We can pull out the equity and use it for future IPs.
The IPs were bought under market value too and it's only a matter of time before we can pull the equity out too. Both IPs were bought using savings, so right now I could fund the deposits for IP3 and IP4 using the equity from our PPOR (except I'm choosing not to because I'll have to take time off work for the baby)
Basically I feel there are a few basic tenets:
1. buy undervalued
2. increase your savings by increasing your income
3. add value through reno etc... the added value of renovations is that you can get each IP to CF neutral stage asap, thus lessening the holding cost of each IP.