Hey guys, I just finished reading Steve’s excellent book “0 to 130…) and have a few questions to help me get started on achieving financial freedom.
My goal is to achieve $50,000 annual passive income by my 30th birthday in Feb 2009. I’m 25 years old now, so this gives me just under 5 years to achieve my goal.
Ideally, my preference to achieve is to invest in positive cashflow “buy and hold” real estate as well as some “wraps” and other strategies in the right situation.
my challenge is I cannot see how it’ll be possible to finance even 3 or 4 of these properties, let alone the 20+ that I would most likely require to achieve my goal. I’m an excellent saver but just do not earn enough to use just my savings to invest…
Any advice on what options I have or what you’d do if you where me?
THANKS!
Good luck
Nothings impossible.
But a lot of people get disheartened when things are not happening as quick as they like.
My advice is to set realistic goals that you know you can achieve and then when you get there reset goals to a higher plateau
RussSo many +CF properties in Western Australia.Let me help you. And we can achieve a win win situation.Russ.0438 659 411
hiphop ;O)
Well, given that some of these CF+ properties provide an extra $10 a week net cash flow, which is $500 a year… then, lemme think.. where’s my abacus… you’ll need 100 houses to achieve your goal. you could probably do it if you bought 20 houses per year. No worries.
kay henry
Set a definite goal (50k in 5 years), write it down, including why you want to do it, what your life will be like if you dont do it, and then how your going to do it (eg save this much, buy this many houses per year etc) and then read this daily.
Regards,
si<<<<<<<<my challenge is I cannot see how it’ll be possible to finance even 3 or 4 of these properties, let alone the 20+ that I would most likely require to achieve my goal. I’m an excellent saver but just do not earn enough to use just my savings to invest…>>>>>>>>>
Welcome to the real world. Do you really think there is a simple answer to this. Property investing is a long term proposition. You need growth for momentum and this takes time and patience.
I agree with Yack. The solution is finding other ways to achieve what you want. That is why clarity of what you are seeking is so important, otherwise why do something hard if we have no clear reason? However if you focus on making x amount you will find a way. Anything with persistence, passion, and focus.
Regards,
SiOriginally posted by yack:<<<<<<<<my challenge is I cannot see how it’ll be possible to finance even 3 or 4 of these properties, let alone the 20+ that I would most likely require to achieve my goal. I’m an excellent saver but just do not earn enough to use just my savings to invest…>>>>>>>>>
Welcome to the real world. Do you really think there is a simple answer to this. Property investing is a long term proposition. You need growth for momentum and this takes time and patience.
I never said it would be easy and I’m not looking for a simple answer. There is definitely a way to achieve this and I’m trying to get some suggestions on how to make it happen from people who may have been or know of a sultion to my challenge…
anymore opinions/advice? Steve?
Hi hiphop. Good on you for making the decision to start. And it’s great that you are a good saver. I’m newish at this myself but I offer the following to you.
First of all, if I may ask, what is your situation now – How much savings do you have now?
what do you save each week?
Do you have a mortgage, rent, live at home?If you have enough savings now, there’s your first deposit! And if you haven’t bought a home before you have access to the FHOG. If you can, maybe borrow from friends/family? This will give you a great head start.
Maybe buy something that needs a little doing up, have it revalued so you can access the new equity(and if you can do the work yourself it’ll save a lot) – then voila, the deposit for the next place. (Although if claiming FHOG you may/will? need to live in the place while doing it up, then move out (back home?) when you rent if out). For your second and subsequent doer-upper-ers finance them at 100% if you really don’t have enough to put even a small deposit on them, and find a bank that will take into account 100% of rent as income. If you need the name of a good broker to help with finance my guy is great.
Maybe do a couple of wraps as well.
If you are after a passive income of 50K within 5 years you will need properties returning $50 each to your pocket every week (ie: $50 more than the loan interest payment – have interest only loans too btw). Unless you buy very well at the moment, that may be a difficult task to achieve. Although if you’re happy to rely on it, you can take into account what you might get back on depreciation, to go towards that $50 per week.
Perhaps set your goal date a few years longer so you have a chance of riding up the next boom. If you can wait that long, the value of your properties will have gone up – more equity, more deposits for more houses, and by then there may be much more of a chance of getting 50K income you desire. I know it means waiting til you are 33, but at 33 and having a property portfolio of possibly over 2 million you’d be doing pretty well!
You may end up starting out with -ve cashflow properties, but if you are happy to contribute an amount each week to make up the shortfall, and can wait for the next boom, you can then sell one or two of them and distribute the profits over the remaining properties making them cash +ve.
If you still set your goal at 50K income in 5 years time, you will need 20 properties to do this. That’s 4 per year – not unachievable. If you move the goal posts to about 8 years, that’s only 2.5 houses per year, really quite achievable.
Don’t despair, if you set your goals and work very hard at them you’ll get there. My very best of luck to you.
Another question I have for you is – what is your occupation? I am an accountant and my brother is a carpenter.
I reckon we can both do well in property but via different ways. As I have a steady income I have access to more money to borrow. As a carpenter, he can add more sweat equity, do renovations, build bungalows in the backyard etc.
So if your a carpenter or in the building trade and can source funds then you got a good chance of achieving your aim.
I am hoping to do a development with my brother – I finance project – pay half interest each, he gets paid an hrly rate and we split profits. Hopefully thats another way to speed the wealth creation process.
hhhmmm…sorry guys but I tend to disagree with some. I think its quite easy to be honest.
Kay – you mentioned that $10 a week positive cashflow – hhmmm. Is the market really getting that hard now. I’ve found a few properties returning $50 and above in positive cashflow.
I don’t think you’ll need 100 properties to get $50k+ in Net cashflow. Steve has 130 properties and is making around $350k in positive cashflow.
The way to do it is thus:
As long as you have a deposit for your desired property, the bank will finance the rest. Look for cheap properties in the country where the deposit you’ll need will only be a few thousand dollars – increasing your ability to get more properties. To get deposits for 20 properties in the next 5 years is very easily achievable.If you get 20 properties in the next 5 years each returning $50 a week – BINGO – you’re now making $50k in positive cashflow at your 30th Birthday. – Also don’t forget that as the years come along, you’ll slowly be paying off your loan and thus increasing your positive cashflow return. All the best with your endeavours. remember to AIM HIGH!!!
Kind Regards,
George.“If You never never ask, you’ll never never know”
geo
I may be wrong in my estimate of 10 bucks a week (happy to admit if I am wrong
I was thinking about the following scenario- and I’m not good on numbers, so bear with me. (sorry Bear!)
Say a 50k property with $120 rent. With interest, some repairs, landlord protection insurance, rates, and all the costs associated with borrowing (including valuation), QS report, property management costs, that would be around $10 profit a week- net.
There are a lot of examples on this board where people have done the sums to check out the net return. Some of them say an amount like $3.72 or something. I am thinking of all the costs it takes to maintain a property- and they are substantial.
Of course, people earn greater returns- some do, some don’t.
kay henry
Originally posted by elbowgrease:Hi hiphop….If you are after a passive income of 50K within 5 years you will need properties returning $50 each to your pocket every week (ie: $50 more than the loan interest payment – have interest only loans too btw).
… Perhaps set your goal date a few years longer so you have a chance of riding up the next boom. If you can wait that long, the value of your properties will have gone up – more equity, more deposits for more housesAm I missing something here?
If you are only paying interest on the loan and not paying off the principal then do you still accumulate equity? Can you borrow against equity if you are not paying off the principal?
Is it not better to pay P&I and then at some point in the future you will actually own the property outright and thus will end up with more cash in pocket from rental returns?
My apologies, I’m a newbie and am still trying to understand everything.
Regards, Michelle.
Michaelle,
Yes you do still accumulate equity and can borrow against the additional equity in the property even if paying an IO (Interest Only) loan.
The type of loan (IO or P&I) doesn’t affect your ownership of the property. If the property increases in value that CG is yours free & clear!
P&I loans cost more than IO…remember that a dollar saved today is worth quite a few dollars in the future – particularly if it lets you buy another investment.
However there are some property investors who do pay P&I and are quite happy with that approach. They tend to buy low CG/high cashflow properties & generate their own equity by paying down the loan.
Of course with the boom over the last five years even a low CG property can have an impressive increase in value….however in the longer term this may not be the case.
Cheers,
Aceyducey
Hi Michelle_G. The equity would come from the revaluation after improvements were done to the property. The other mention of equity was referring to that which was created after an increase in prices due to a property boom.
No you wouldn’t get direct equity increases from only paying interest on a loan. That suggestion was so that minimal costs could be paid in the beginning, thus enabling hiphop to get the required number of ip’s to reach his/her goal.
Whether you pay P&I or IO is up to each person depending on their own situation. yes P&I will pay off the loan sooner, but why not use the $ you would use as P payments, towards purchasing other ip’s. If you can afford, and are happy to pay principal as well, why not, but if you can’t, and/or don’t have to, why would you! And while paying IO may mean larger loans, remember, interest paid on ip’s is deductible.
Hope that helps…[biggrin]
in the Forum, i see many newbies want to buy the +ve Ip as many as possible in a lmited time, it’s seemly that Steven’s book is a manual which teach them how to copy a millionaire .
Do you think the world is so simple? may be to somebody lucy man, just as lotto, 1%of million?
Cheers
Julian [worried]
THERE IS ALWAYS A BETTER WAY!
Originally posted by elbowgrease:Hi hiphop. Good on you for making the decision to start. And it’s great that you are a good saver. I’m newish at this myself but I offer the following to you.
First of all, if I may ask, what is your situation now – How much savings do you have now?
what do you save each week?
Do you have a mortgage, rent, live at home?If you have enough savings now, there’s your first deposit! And if you haven’t bought a home before you have access to the FHOG. If you can, maybe borrow from friends/family? This will give you a great head start.
Maybe buy something that needs a little doing up, have it revalued so you can access the new equity(and if you can do the work yourself it’ll save a lot) – then voila, the deposit for the next place. (Although if claiming FHOG you may/will? need to live in the place while doing it up, then move out (back home?) when you rent if out). For your second and subsequent doer-upper-ers finance them at 100% if you really don’t have enough to put even a small deposit on them, and find a bank that will take into account 100% of rent as income. If you need the name of a good broker to help with finance my guy is great.
Maybe do a couple of wraps as well.
If you are after a passive income of 50K within 5 years you will need properties returning $50 each to your pocket every week (ie: $50 more than the loan interest payment – have interest only loans too btw). Unless you buy very well at the moment, that may be a difficult task to achieve. Although if you’re happy to rely on it, you can take into account what you might get back on depreciation, to go towards that $50 per week.
Perhaps set your goal date a few years longer so you have a chance of riding up the next boom. If you can wait that long, the value of your properties will have gone up – more equity, more deposits for more houses, and by then there may be much more of a chance of getting 50K income you desire. I know it means waiting til you are 33, but at 33 and having a property portfolio of possibly over 2 million you’d be doing pretty well!
You may end up starting out with -ve cashflow properties, but if you are happy to contribute an amount each week to make up the shortfall, and can wait for the next boom, you can then sell one or two of them and distribute the profits over the remaining properties making them cash +ve.
If you still set your goal at 50K income in 5 years time, you will need 20 properties to do this. That’s 4 per year – not unachievable. If you move the goal posts to about 8 years, that’s only 2.5 houses per year, really quite achievable.
Don’t despair, if you set your goals and work very hard at them you’ll get there. My very best of luck to you.
wow, excellent advice here. I appreciate it greatly.
As far as my self I have about $7000 saved and am saving about $150 per week although this will increase to $250 (or even more) in a couple of months time once I hopefully overcome a health challenge that is costing me a bit at the moment (but is important). At the moment I’m living with my mother and we share all the expenses. My rent and living expenses are relatively low.
I guess I almost have enough for a deposit now but I plan on saving and researching for another 3 months or so and then once my health is fine and I’m confident in the investment knowledge I have – I’ll jump in and get my first investment property (after finding the best possible investment property with in my price limits of course).
I haven’t used the FHOG but probably wounldn’t use it unless I do something like you suggested as far as move in and do up the property although at this stage I would prefer my first investment property to not require too much work (if any).
Interesting advice about “interest only” loans. If possible, I’d prefer to do “p & i” loans so that I own the asset after the 25 years HOWEVER, there are times when interest only loans may be the only way to still get positive cashflow, so I’ll definitely use this method to my advantage. I wonder what the best exit strategy is with “interest only” loans? Is it to realise capital gans and sell the property once it increases significantly? Or would it be better to just keep borrowing to invest from the equity as the value of the property increases?
I will consider 100% financing where necessary (maybe with my 2nd or 3rd properties) however I feel that once I have built up some decent investments and have an excellent understanding of the property game I should be able to go back to paying a deposit etc. I’d greatly appreciate the details of your finance guy. Please email it to me at; [email protected]
I agree that my current goal is quite challenging however I do find it motivating. I am realistic though, and even if it takes twice as long to achieve, as long as I know I gave it my best shot, I’ll be happy.
Thanks again and I wish you all the best as well!
Adam
Originally posted by geo:hhhmmm…sorry guys but I tend to disagree with some. I think its quite easy to be honest.
Kay – you mentioned that $10 a week positive cashflow – hhmmm. Is the market really getting that hard now. I’ve found a few properties returning $50 and above in positive cashflow.
I don’t think you’ll need 100 properties to get $50k+ in Net cashflow. Steve has 130 properties and is making around $350k in positive cashflow.
The way to do it is thus:
As long as you have a deposit for your desired property, the bank will finance the rest. Look for cheap properties in the country where the deposit you’ll need will only be a few thousand dollars – increasing your ability to get more properties. To get deposits for 20 properties in the next 5 years is very easily achievable.If you get 20 properties in the next 5 years each returning $50 a week – BINGO – you’re now making $50k in positive cashflow at your 30th Birthday. – Also don’t forget that as the years come along, you’ll slowly be paying off your loan and thus increasing your positive cashflow return. All the best with your endeavours. remember to AIM HIGH!!!
Kind Regards,
George.“If You never never ask, you’ll never never know”
great advice. thanks greatly! [cap]
“Say a 50k property with $120 rent. With interest, some repairs, landlord protection insurance, rates, and all the costs associated with borrowing (including valuation), QS report, property management costs, that would be around $10 profit a week- net.”
You sure??? You can also get I.O. loans, givng you some extra cash, this should come up to at least $35p/w profit as a bear minimum, , if you need repairs, get it revauled pull out equity and repair it (and still collect your $35- p/w…)..
Rgds.
Lucifer_au
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