I have $100,000. I am confused as to weather is is best to buy say 1 positive cash flow property up to $100,000 and own it outright or say buy 5 positive cashflow properties all with a mortgage, because as far as my returns go it works out about the same, its just that one way I own 1 property, and the other I will have more?
URGENT URGENT
Look at your CG upside.
Is there any?
How much will you make +CF anyway.
If it is $10 per week for one and then $50 per week for 5 props; I would look carefully as to whether there is an upside in CG as there is not much cashflow coming in.Think of it this way – if CG gain outlook is poor; would you borrow say 500,000 in order to make $50 per week – I wouldn’t.
A little blunt but trying to assist[biggrin]
Giddo
http://www.standrewsplace.com.au“I am not a religious man; but if you are out there somewhere Superman, save me now! -Homer Simpson
Hi
This is a rather strange question; I think you have to decide what you want to do. Do you want to be an investor or just live the Australian dream buy a house and kick back until retirement?
When you say CF+ then I assume you know that this means ALL your costs for the year are taken care of. So if you have 5 places and they are all making you money then I will guarantee you that you make more from 5 than 1 unless you are renting the one place out to ants and you can get a heap of them in there all on separate contracts. For a 100 000 dollar house I don’t think you will get a huge rental return.
If you bought just the one out right it would give you borrowing power because you have the equity straight away but you have cash and cash is king.
Anyway this is my opinion and I would buy 5 with the amount you are talking but I am not saying in all situations quantity is better than quality.
Maybe you should buy 1 or 2 and then see how you feel.
I am sure people will disagree with me on this one but hey [headphone]
Or why not buy one decent IP for 500K and attempt to attract a better class of tenant….
Or 200 @ $500 deposit
There’s a nice little building going up in Brisvegas you could secure all or most of the apartments in that…
“ask and you shall recieve”
Sincerely, Jarrah
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“be ye angels?”,
“nay we are but MEN!”Originally posted by jglover2010:I have $100,000. I am confused as to weather is is best to buy say 1 positive cash flow property up to $100,000 and own it outright or say buy 5 positive cashflow properties all with a mortgage, because as far as my returns go it works out about the same, its just that one way I own 1 property, and the other I will have more?
Leverage the $100K into $1m and buy growth properties and you’ll be a long way ahead at the end of time even allowing for interest costs.
For example (unashamedly these are figures from Michael Yardney’s book)
Assume 10% growth and 4% yield and 7% interes rates.
At 90% LVR
After one year $1m grows by $100K and provides $40K in rent – interest on the borrowed $900K is $63K means you are in front at the end of the first year by $77K.At 80% LVR
After one year your $500K grows by $50K and provides $20K in rent – interest on the borrowed $400K is $28K means you are in front at the end of the first year by $42KAt no LVR (no additional borrowings)
After one year your $100K has grown by $10K and provided $4K in rent – less no interest as there were no additional borrowings means you are in front at the end of the frst year by $14K.Keep compounding these figures and you’ll see the benefits of a leveraged approach.
Obviously there needs to be consideration of your DSR and some allowance for purchasing costs but the numbers clearly demonstrate the benefits of considered leveraging.
Derek
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Skype – derekjones2113Leverage the $100K into $1m and buy growth properties and you’ll be a long way ahead at the end of time even allowing for interest costs.
Hi there,
Please explain the how leverage works
RaeI inclined to agree with brad44’s.
Start small. Buy 1-2 properties around $200k at different areas. Borrow only 80%. As you have got more experince, and have gained more equity, go for more higher deals.
To me it’s better buy 2x$250k rather than 1x$500k. Apart from spreading the risk. It’s also easier to get tenant with cheaper property. Only my thought.Cheers,
Buy one under valued property for cash. Do it up a bit. after a few weeks mortgage this ppty, and repeat.
eg. $80,000 ppty. clean it up, values at $100K. get a loan of $80,000 and you still have all you money that you started with – less costs etc.
But i would be inclined, myself, to get a good high growth property.
Terryw
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Hello Derek
I saw that this is not your example of leveraging but don’t you think it’s a little incorrect /incomplete?
Ignoring the obvious that you don’t get to keep all your rent as you need to pay all expenses first. (PM fees, repairs, rates, water, land tax, insurance etc. ) you still need to point out that the shortfall between your rental income and your main expense, which is interest, needs to be covered from other income eg. your salary.
Anyway, the point I am trying to make is that in this example at 90%LVR your not in front by $77K but by $54K (77K – 23K interest paid from else where)
At 80%LVR your not in front by $42K but by $34 ($42k – $8k interest paid from elsewhere, which may be easier to handle)
However, of cause I agree that the leveraged approach is the best way to go.
I was just concerned that any new investors reading this example out of context of the book may think that they have found a money tree.
Cheers Elka
Hey There,
Here is my 10 quid worth– Weight up your risk
– What return are you going to get
– Factor in the what ifs
– When do you get your return?
– Spread our risk as much as possible.This will give you a spot check on what your deal is like if you consider all of the above…
AS fas as risk goes … ther is no point buying a 100K place in the battle zones where you are going to have lots of problems with destroyed property and vacancies etc…. howevr I agree with the others that have mentioned spread your risk and buy a few… leaving some cash for emergencies and then get comfortable with your situation and then plan to go again!
Cheers
Kiwi
[baaa]
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