Firstly I apologies if this has been covered before I tried to search first but did not find anything.
I am new to IP and have been reading a book by Michael Yardney – How to Grow a multi million dollar property.
He mentions an investing technique where you for instance borrow an extra 50,000 when buying an IP so that you can meet the interest repayments on the property without being out of pocket. This sounds very attractive to me who doesn't have a lot of spare cash and would struggle to make the difference between the rental income and the loan repayment having my own mortgage already.Can any one advise if this is a viable technique/strategy and what could be the pitfalls
Thank you
If you cant buy cashflow positive with interest rates this low, you are looking at buying the wrong property. A bank wont lend more than a property is worth.
Questions like that scare me! what would you do after the $50k disappears? You will also be paying interest on the $50k you are using to pay the other interest.
generally you can only borrow 90% of the properties value these days
So what you are saying is that if you don't have the difference to make up the loan repayments, you cant start property investing.
But couldn't the 50K sit as a line of credit and only be drawn as required? and then hopefully after 5 years or so the rent is at the same level as the property loan repayment? (by the way the 50K would be coming out of the equity of for example my own home)I agree its a scary thought but it seems like it could work because the long term growth of the property would out way the short term hit
would anyone agree?
First of all you have to borrow the $50,000 over and above the bank valuation or against other assets.
If you have other assets why do you need to borrow the extra $50,000.00
These strategies do not work in a credit crisis or low interest rate market.
If the property is valued at 400k how do you borrow 450k when the banks are asking for 80/90% lends not 100% like 2 years ago when the market was hot and banks were giving money to any tom d..k or harry.
You mention you don't have a lot of spare cash so will the bank consider you a good risk … remember money is created not made.
Finally the property cycle has shifted the banks are nervous and credit is hard to obtain for individuals and developers alike – maybe you need to read a few more books on fiancial structuring before you attempt that risky one in this market … good luck … by the way how many properties do you own today, ??
P
I have my house with alot of equity avilable(this is where I would expect to get the cash flow from if required) I also have an IP with a partner 50/50. Now I am reading and trying to learn and understand more so I can purchase an IP on my own.
If I used the equity in my home not only to provide the 10% deposit on the IP but also use the line of credit to meet the difference between loan repayment and rental income for approx 5 years I would be hoping… if researched properlly that after 5 years the rental income = intrest repayment. I guess there are many pitfalls to this……..and I am only really thinking about it as well as all the other property invesment strategys out there. I guess I need to do the figures with an accountant.
Correct and you must also consider the tax credits associated to the investment as well …
If u buy a new property the first 5 years have the greatest tax benefits and then that diminishes down to 40 years …
If the property is second hand use Steves 11 second rule … search.
Borrowing extra money in yr circumstance is stupid in my view but if you had a business that is a different manor … get advise from licensed and qualified people … there are lots of books and lots of enticing strategies that lure people into a false seance of security … remember what caused the fall of Henry Kaye gone but never forgotten.
Stay away from people or companies who sell properties or the answers to yr dreams … there are millions of cheap opportunities on the internet and realestate.com.au do yr home work it is part of being a successful investor …
D
Lucigoosey,
100% + IP borrowings:
What Michael Yardney says in the book you are reading that as an IP investor when you buy your next IP, you use the equity in your existing properties that will then allow you to borrow 10% PP + purchase costs + legals + a little extra to cover any immediate repairs you may be required to undertake etc.For example: (using other IP equity) I recently purchased a unit doing what Michael suggests.
I borrowed :
PP – $292,000
Borrowing costs& legals- $13,000 (approx )
extra for contingencies- $15,000
Total borrowings = $320,000In 2001 using equity I bought a unit for $155,000 other than a $100 deposit I used NO cash of my own.
That unit is now valued at $420,000 a profit of $264,900 -minus 8 years of holding costs + CGT if I was to sell today, but still a great profit for my $100 investment.For LOC info:
-please read the blogs in the finance section of this site.I hope this helps or inspires………..
It amazes me how new members come in to defend a new thread … who are you …
If you read the opening statement he talks clearly about $50,000.00.
Aus M … give me the details of yr amazing property and I will pull the records and post it on this forum.
It is amazing how GOOSEY and MAVERICK joined around the same time or are these people two of the same trying to get free advertising ONCE AGAIN !!!
Some people have a real sickness that can never be healed … very shallow post with no substance …
READ the question and stick to the content Maverick u are way off track and I don't believe you.
This forum is vastly deterating in quatlty where is Steve McKnight … BRING BACK DAVE this pace is falling apart.
Linear … Help
wealth4life,
lucigoosey posted 24 OCT 2009.
"I am new to IP and have been reading a book by Michael Yardney – How to Grow a multi million dollar property.
He mentions an investing technique where you for instance borrow an extra 50,000 when buying an IP so that you can meet the interest repayments on the property without being out of pocket. This sounds very attractive to me who doesn't have a lot of spare cash and would struggle to make the difference between the rental income and the loan repayment having my own mortgage already.Can any one advise if this is a viable technique/strategy and what could be the pitfalls"
`~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~In answer to your thread on this post you submitted 28 OCT 09.
1. I am a retired Marine Engineer & Project Director, I live in Darwin & I may be new to this site however I purchased my first investment property in Cairns in 1975.
2. Yes my borrowings above purchase price was only $28 & not $50 however I believe it was a good EXAMPLE in answer to the question.
3. If the moderator of this forum would like to email or phone me (they have my contact details) I will be happy to discuss the purchase details of my latest property a 2 br unit in Bakewell N.T.
4.The coincidence that I joined tis forum on the 18/10/09 & lucigoosey on the 23/10/09 is just that a coincidence, there is no conspiracy I have never met or spoken to either lucigoosey or Michael Yardney & I certainly don't know their personal address also I don't believe a successful man like Michael Yardney needs any free advertising hype from me!
5. You may consider my post shallow, however I made the effort to contribute honestly to this forum, my intention was to briefly & simply use one of my recent IP purchase examples to encourage a potential property investor & in doing so try to answer their question.
6. I believe all who post on this site should be able to be a little critical of what they read ,but I also believe that they have a responsibility to respond in a polite manner.Thankyou for your time in reading my reply
Well I still don't believe you but I will answer your question –
You are retired engineer with little cash … you said you don't have a lot of spare cash and would struggle to make the difference … aaahhhhh
AND YOU think that borrowing (if u can get the money from the bank in this economy) an extra 50,000.00 which is a stupid high risk strategy in this market would even warrant a sensible comment.
In a hot rising market "possibly" depending on yr financial position !!!!!!!!! -0 see a financial adviser – stop reading books for a while, you have the time.
Are you a sophisticated or unsophisticated person (over 2.5 million in cash)
Did you follow the stragies of Henry Kaye – really really nice young bloke and very smart – but ah where is he today.
Finally – There is a major difference between "theory and practical" you are an engineer work it out.
aaaaaaaahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Like the line major difference between theory and practical. I am not so experienced in real estate business. Trying to get some knowledge from here. Your post looks so interesting.
wealth4life.com you are out of control, you are responding to Maverick as if I and he are the same person……. what would be the reason for us/me to do this.
I intially posed a question and Maverick explained that Michael did not state borrow an extra 50,000 but a little more to cover some expenses. He provided some clarification and advice which is more than i can say for you
Lucy the GOOSE wrote;
He mentions an investing technique where you for instance borrow an extra 50,000 when buying an IP so that you can meet the interest repayments on the property without being out of pocket. This sounds very attractive to me who doesn't have a lot of spare cash and would struggle to make the difference between the rental income and the loan repayment having my own mortgage already.
I rest my case … I am in control and I said as a warning to all — this is a high risk stupid strategy — it is dangerous to borrow (if u can) addition money IF your financial position is tight.
The GOOSE wrote:
This sounds very attractive to me who doesn't have a lot of spare cash and would struggle to make the difference between the rental income and the loan repayment having my own mortgage already.
aaahhhhh
I am saying:
If any intelligent person is reading this there is no short cut to getting rich in property unless you are an expert with years of experience – step one see a financial adviser or accountant to access your current financial position !!!!!!!!! know where you are before you can plan for where you want to be.
Henry Kaye is a nice bloke who sent many people broke because he got them into a frenzy of getting rich … his concepts and ideas were fantastic BUT BUT BUT — there is a major difference between "theory and practice" — what many people do not explain in these great theories is that you need to be in a certain financial position to actually do it.
Lucy darling I can be sweet to you or I can tell you the truth — the rest is up to u — and as a famous actor once said, quite frankly I really don't give a dam.
And Maverick the engineer — the correct saying goes like this and was said by non other than Einstein
you cannot expect to get a different result in life if you apply the same thinking that got you into trouble in the first place.Ever investor must read:
The science of getting rich (20 times)
The richest man in Babylon (20 times)
Think and grow rich (20 times)
Rich dad poor dad (20 times)Finally my ADVISE
do not invest in real estate to make money – make money then invest in real estate !!
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