I have noticed that unless you start off with a large capital base in which to use as an investment, you generally need to borrow large amounts in order to secure several investment properties over time. Havng a current LVR for 3 investment properties and our home to be 60% with a loan of close to 1 million, I am getting more and more reluctant to invest in more property because of the fear of having a MASSIVE loan in the millions ( even though I will have property in the millions also). The only way around this I suppose is to save as much money as possible in order to use as a deposit, but that takes time ( sometimes too long).
Am I being overly cautious here or do people share the same fears.Cheers
Hey there Stingray,
I understand what your saying, But if you secure several investment properties over time, the value of the first properties secured will increase, while the loan decreases, depending on the structure of your loan.
You should also always have a “plan B”, mine is to sell off 1 or 2 properties should i ever get in a spot of bother and still walk away with a few properties left, but a debt that is easy to manage or beter still wiped out. perhaps this would apply to you if things start to not work out for you financially?
I cringe wen i see how much i owe the banks, but then smile [
] when i see what the remaining equity is worth! im still way out in front, compared to if i just sat on the money or left it in a bank “just in case” things didnt work out.Perhaps all the money ur saving could be used to pay off your house loan, and should u want to buy another IP, use equity from an existing Ip you have, i think this would be a more favourable way to use your money tax wise???
Hope this helps!
Jason
What happens when you want to get out(sell), the likely hood is that everyone will be in the same boat and the market will be flood? Hence a bust!
Jason
This might be the way to go NOW- as in, increasing equity means you can borrow more etc. What happens for those starting out now, though? where the CG’s might be much much slower?
Also, equity doesn’t necessarily increase serviceability. The only way to increase serviceability is to get a pay rise, increase rents etc. And rent increases aren’t infinite (nor should they be).
What advice can we give to newbies getting into the market right now who haven;t received the CG’s others might have? What about the sleep at night factor? [
]kay henry
Hey Kay,
Hmmmm Advice for Newbies?? perhaps start by using this site lol!! start off small, buy cf+ if possible, stay at home with mum and dad as long as possible, do your research, never over commit to anything, always have some cash in reserve for rainy days, watch where your money is going, surround yourself with people “in the know” ie solicitors, lenders and a good accountant.
cheers
Jason [^]
And for a large loan that is “interest only”, the only way to reduce the loan is wait for capital gains, which at present are low and getting lower in the current market
stingray,
If you have a loan of a million, but property worth millions, seems there isn’t much worry. You could sell some of the poor performers (re rental yield) and buy up some CF+ properties. Apparently, these don;t affect serviceability- you can borrow forever, so I’m told!
You may have to change your strategy if you want to keep borrowing. Depends on what you want. Millions worth of property might have to be good enough right now if you want the sleep at night factor [
]OOPS! just reread your post and am adding this, stingray. You said you WILL have millions of property IF you borrow millions! hehe- won’t we all
If you gear highly, stingray, make sure you factor in all kinds of possibilities- vacancies, job loss ect. Ya don’t wanna end up in too deep.Sorry- I’m a pretty conservative investor, I think. But many have lost in RE before, and some will again. If we can’t pay our debt back, we don’t get the benefits of CG- we lose it all to the bank.
kay henry
Hi Stingray,
i wouldnt be to concern, actually my partner, is in the middle of refinancing 3 million dollars worth of loans with one of her lenders, as due to poor service, but the LVR on these loans are 50/50, but honestly it really depends on the individual if they can still service and control their debts at the same time, then worriness, should be a lesser factor.
Cheers,
sisstingray,
Don’t forget that inflation will “reduce” an interest only loan too.
Cheers,
Steve.“Knowledge is Power”
Heya sis :o)
How does your partner service $3 mill of debt? Rents mostly, or a well-paid job? equity doesn’t mean anything if you can’t pay debts.
kay henry
Hi Kay,
How does your partner service $3 mill of debt? Rents mostly, or a well-paid job? equity doesn’t mean anything if you can’t pay debts.
this debt alone is completely +ve cashflow [:o)]
Cheers,
sis>>Am I being overly cautious here or do people share the same fears.<<
No of course you aren’t overly cautious by being concerned. Playing defense is the one and foremost tactic to use.
Over committing oneself, as I suspect many here are doing, by not having safeguards such as access to a line of credit in place so as to be able to weather the storm is the number one downfall for those who fall by the wayside.
What is that saying again ? “Better safe than sorry” ?
I guess the trick is that, in addition to one acquiring longer term hold properties, one ought to be involved in doing development deals as well so as to generate cash profits.
The only problem with all that is where would most people get the time from which is necessary to devote to the tasks of sourcing and completing an instant profit making project.
(‘Instant’ doesn’t of course mean buying today and selling tomorrow so much as buying a property which, within a period of six to twelve months, one can dramatically improve the value off.
Even a simple act of obtaining council approval for a development can immediately add considerable value virtually overnight.
Just one example is a Manly property which has cost the developer approx $ 2.7 M to acquire and which, after council development approval, has recently been valued at $ 5 M.
I understand that when he bought it (for $ 2.7 M) and a valuation done at the time actually placed a value of $ 1.5 M on it.
I am familiar with the owner and he purchased this property with virtually no money down.
I guess you can say ‘he had vision’.
Pisces
Hi Stingray
Just a matter of expanding your mindset and moving out of your comfort zone I guess.
The more knowledgable you become in property(sounds ike you’re already there) the more comfortable and confidant you will be with your selection of IP’s and thus not worry too much with how much you owe on them.
We must also clarify between tax-deductible and non tax deductible debt, if the majority of the debt is from an expensive PPOR then I would class that as ‘risky’. Especially if there are no mortgage reduction strategies being applied to your PPOR debt.
Saving hard and waiting for the next deposit is not exactly a wealth creator! At the same time, cashflow is king, so if the next IP you buy is going to strangle you, also too risky.
Gotta weigh it up, and have a plan to keep working on increasing your assets as well as your cashflow.
Brendon
Acute Mortgage Reductions
‘Better Finance for More Homes Sooner’What does PPOR stand for again?
PPOR = Principal place of residence (Home!)
I recall a story..
2 kids in the playground-
1st kid- “we’re so poor, my dad owes the bank $1000”
2nd kid- “we’re so rich, my dad owes the bank $1000 000”
It’s about gearing/leveraging and OPM, the faster way to ‘wealth’ or ‘ruin’
A $1000 000 debt would not be a problem to me, if, i had $4000 000 worth of assets, bringing in above and beyond the amount required to cover the debt..
I have IO loans, but am i worried at this stage about repaying some of the principle..no !
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Originally posted by realdeal:What happens when you want to get out(sell), the likely hood is that everyone will be in the same boat and the market will be flood? Hence a bust!
If you keep our eyes in the market then you will be the first to get out alive ie. sale when everyone planning to buy and buy when everyone is selling.
If you buy 1, 2, 3, 4, 5 hold it for grow say 5 to 7 years then sale 1, 2 and use the gain to pay off 3, 4, 5 then I believe it will be ok.
That’s just my thought and it could be wrong.
Kind regards
Chan Dollars
[Retire Young, Retire Rich]
] when i see what the remaining equity is worth! im still way out in front, compared to if i just sat on the money or left it in a bank “just in case” things didnt work out.
]
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