Hi all. I'm new to this forum, and all the research I've done on property investing is months old (lost all my money in a high risk venture last year, and have been licking my wounds). So this question may be really dumb, but I thought I'd ask here…please be nice
I have been interested in purchasing properties that are only positive cashflow. If I got an IO loan, and the rent covered the interest, that would still be considered cash positive, right? In which case it wouldn't be so hard to find a cashflow positive property. However, from what I've read here, it's not easy finding a cashflow positive property, so what's wrong with my equation?Also, I've noticed people are very against cross collateralisation (is that what you call it?)…why is this?Thanks,sdemHi Sdem,
Sometimes when we make a loss mate evn though its tough at the time,later we realise it was a blessing in disguise as we learn from it so when we deal in bigger numbers down the track we dont make the same mistakes again. I have learned alot about people too through deals i have made losses on.
Anyway as far as a positive cashflow property formula is concerned ,this is when 100% of the interest(on full price value ) and all the expenses are covered in the returns (ie rent ,tax return etc)
People are against cross collaterisation as it locks you in to one lender often ,and also if you get into trouble paying one of the mortgages the bank can sell up any of yr other properties involved within that loan as collateral.
Luke Taylor | Hope Property Investing
http://hopepropertyinvesting.com
Email MeProperty Support,Strategist and Buyers Agent
Hi Sdem,
I reckon most members of this forum would agree there's no such thing as a dumb question as we're all at different stages of experience in different areas of property investing. In fact, if there was such a thing, a dumb question is cheaper than a dumb mistake! So keep 'em coming.
Count up all the ongoing costs of an investment: loan interest, rates, body corporate, maintenance, landlord insurance, property management, and anything else you can think of; and then add up all your cash coming in: rent, tax refunds… and that's about it! If your cash coming in is greater than your cash going out, you're cash positive (in my opinion). Some punters only count loan interest, but the definition is not as important as knowing what you're really putting in your pocket or paying out each (average) week.
Cross collateralisation or cross securitisation is where all your properties are security for all your mortgages. I don't think it's the end of the world to do so, especially if you have a long term view to your holdings. Properties can be discharged individually as long as the remaining properties are acceptable security for your remaining debts under the lender's policies. The bank selling everything up from under you is likely to only happen if you fall asleep at the wheel. If things aren't going well, it's better to pre-emptively refinance or partially sell off so you can stay in control. That way your sales aren't "mortgagee fire-sales", and you have less pressure and can get a better price.
It's also less suitable if you're already planning on selling one or more in the next few years. It's easy enough as an alternative to borrow up to 80 or 90% against each property and allocate the funds to new or different investments.
As to being locked in to one lender, if the lender's got great products, rates and service, is that really a problem?
World Changer's absolutely right about get backing up on the horse. The greatest risk is doing nothing. Get great advice. So best of luck, and don't forget to research each decision well, but not so well that your head spins and you get information overload and end up doing something out of impatience.Exellent advice !
Hey, guys. Thanks for responding. I did read the replies as they were posted, but have been too busy to reply myself.
After using a mortgage repayments calculator on re.com.au, I realised how small the difference between an IO loan and PI loan repayments. Hmm…lots of interest to be paid!Thanks for clearing up the loan structure thing…some people on this forum speak of it as if its the devil. I guess I should research it more.sdem
World Changer's absolutely right about get backing up on the horse. The greatest risk is doing nothing. Get great advice. So best of luck, and don't forget to research each decision well, but not so well that your head spins and you get information overload and end up doing something out of impatience.
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