i keep reading here how people can accquire big numbers of properties, like the late SIS who i read had 20 plus IPs…i assume those IPs are relatively cheap compared to the median house price…is it better to have a large amount of cheaper IPs then a smaller number of more expensive properties? I earn about 73k/year and have an IP worth $410k, about to buy second but can only get finance if mum comes in with me…we’re looking at another $410k family home…is this the right path to go? or should we look at 2 properties worth $200k?…i just don’t see how people can get enough finance to buy so many?! I worked out if the bank would lend me the $$$ i can afford 5 or 6 IPs providing i have tenants in them all year round…but no bank’s gonna lend me that much! So how do people do it?
Hi Peter
When i get they rest of the information back from you I will show you how you can finance numerous investment properties.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
People with multiple properties can only do that two ways generally – loads of expendable income that they can use to cover shortfall on neg geared properties, or pos cashflow/pos geared properties.
With residential I.P’s; generally the cheaper the properties are, the better returns you get. Quite often 4 x $100k properties will have a better rent return than 1 x $400k property, and the problem of vacancies is far less as it is unlikely to have all 4 vacant at the same time. To me, this is maximising my return and safety for my investment dollars. It may not be the best strategy for cap growth, but a well researched area and careful property selection can maximise this also.
If you have neg geared props that cost you say, $50 p/w each then there are only so many you can afford (not many).
If every property you own has a positive cashflow, then technically there is no limit to how many you can buy.
Having said that, there are sevicability issues that need to be factored in. Most lenders only allow about 70-80% of the rent to be used towards your serviceability (as well as you income), and they usually only allow up to about 85% LVR (Loan to Value Ratio) without Loan Mortgage Insurance.
Interestingly, banks never factor in tax returns towards servicability. If you buy your I.P’s carefully, the refunds can result in several thousand dollars coming back to you each year, thus improving your cashflow/serviceability towards more properties.
The rule here though is that you MUST re-invest the refunds back into the properties (loans). Most people blow refunds on plasmas and other ‘doodads’.
The trick is to maximise every facet of each I.P purchase –
purchase price
rent return
value adding
tax benefits
cap growth prospects.
All these things when combined together will accelerate your ability to invest again sooner.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Picklesam,
Because Steve McKnight has used the number of properties he purchased as a selling point, there are a lot of people on here who want to do the same. In my opinion, and I’m sure many people will disagree with me, buying a large number of residential properties is not a great goal. The only particularly wealthy people I know who own a large number of residential properties are either property investment guru’s (the number is a good selling point for them) or they own their own property management business (the time taken to manage their portfolios is therefore minimised and it adds value to their business).
Residential property is a great way to build wealth initially, but my experience is that the vast majority of independently wealthy property investors are involved in development and/or commercial property. If you build skill in there areas of the market your property portfolio will self fund far more easily.
Regards
AlistairGreat points raised here. Keeping it simple (without mortgage insurance):
1. Bank only lends 80% of the property value (70% for commercial)
2. Your income must be able to service the loan
3. These parameters vary a little from lender to lenderThey are the only 2 levers you have. But you have many options on how you work each one and these are covered in the creative investing forums, etc.
Its how you work these levers that makes every investor in this forum unqiue.
And leading on from this you are right its not how many properties you own. Its:
1. How much equity you own
2. How much net income you deriveMat
Mathew
http://www.arrttt.com
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