What if you controlled 1.4m of IP being only 4 houses, 1 in sydney and 3 in brisbane all less than 3 years old.
What if your total IP loans was 825k and your cash shortfall was $275 per week or $14300 and your PPOR is unencumbered (no mortgage).
Would it be correct to assume an inflation rate of say 3% PA could increase the 1.4m to 1.442m or equity growth of 42k in fisrt year and compound thereafter.
If so is this considered to be an almost 200% return on money invested in first year.
What would happen when we achieve 7 – 10% growth, the return would be say 600% – 900% PA.
I know this is predominatly a +cf site so how many of you would agree to the above strategy.
What would you do in this situation ?
Would you consider selling to eliminate 275pw shortfall?
Would you now look for +cf deals to eliminate shortfall, but, to totally eliminate -cf one would need to aquire at least 14 low cost homes assuming 1000 net each PA. this could equate to around 1m in purchases/borrowings.
Would you sit out for a while.
Would you do speculatve investing for quick profits to fund shortfall.
Tell me, What would you do.
I am in the exactly same position as you except I have a little owing on the PPOR.
I have an income to support the shortfall and am satisfied that I have capital growth properties.
There is one property that I have that is a drain on cash flow and if I got rid of that my portfolio would be neutral. But this Unit is in the best street of a beachside surburb of melbourne about 18-20 kms from city.
In the long term it will be a great investment. I have had it 2 yrs with the same renter. Sure there may be some short term pain but I dont really want to sell and look for rural property that may be cash flow positive and incur all the hassles. Its the capital gains I want.
When I am closer to taking it easy or semi retiring, then I may adjust my portfolio for cash flow positive properties.
I hope this helps.
freedom finder, I would organise a LOC on my PPOR immediately.
I could then use this to cover the $275 per week. As you said, even with a low growth rate of 3%, you still come out in front at the end of the year. Meanwhile, teh most that your loan will increase is $15K (factoring in interest on the whole lot – which won’t happen as it’s not all drawn down from day one).
This then creates some ‘breathing space’, and enables you to spend time finding some good cashflow deals, or enables you to wait it out a bit until rents increase etc.
I would probably definitely look for some positive cashflow deals – possibly even commercial – to ‘ease’ the ‘burden’ though. But at the same time, I would pay some salary into the LOC (as much as I have spare). I would also look at getting the S15-15 return in to the ATO, so that my tax was reduced weekly – then this extra $$ would also go into that LOC to cover the shortfall.
Cheers
Mel
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