Forum Replies Created
I’m disappointed in you Tails. Up until now you have provided the stimulus for some interesting debate about differing investment strategies. Steve has taken many of your criticisms of his strategy on the chin, accepting that different people believe different things work.
So I’m disappointed by this sudden, unprovoked attack on Steve.
I don’t know Steve well enough to know his “ulterior” motive for anything he does, but having met him a couple of times, he’s a nice, friendly, helpful sort of bloke, one I’d be happy to count as a friend. Yes, he’s a businessman, but quite frankly despite the money to be made, I don’t think he’d do half the stuff he does unless he also had a passion to share his strategy for success with others to help them achieve success too.Keep smiling
Felicity
Great feedback so far, keep it coming!!
Matt, there will always be a limit, although I’m moving into trust structures (still waiting for Steve’s latest offering!) so that may help. Right now, I’m out of money for deposits, and I’m trying to find a way to keep moving on anyway. Using private investors is one option I’ve been exploring, and may well be the better one long term, but so far I haven’t made much progress in that direction.
I’m also aware that I won’t be able to add my usual margin to the wrap price if I pay more for the property initially, but short term it may be worth it on a few properties.
Also, the point about taking too much out of my spread – well, quite frankly, if I’m paying investors up to 15% to fund my 20% deposits, I’m losing a chunk out of my spread anyway. In the end there’s not a lot of difference.
And David, thanks for the balloon payment concept – hadn’t even considered that one!!
That’s what I love about this forum, I always learn something new.
More suggestions eagerly awaited!! Hope some of what I’ve posted here clarifies my thinking and why I’m looking at this.Keep smiling
FelicityWell, I’ve already stated my viewpoint on this discussion, but as nobody else has answered the questions posed by Tails, I’ll give it a go.
I should make it clear that I’m answering about properties that I have wrapped, not properties that are purely cashflow positive.Quote:1/How would a 2% increase in interest rates efect a property.wouldn’t have any effect at all. My buyers are all variable rates, my rate goes up, their rate goes up. If they wanted fixed, mine would be fixed, same scenario. If they could no longer afford the payments, either we come to some arrangement to make it easier for them (and make sure their payments are still higher than mine!) or else I get the house back and do it again with someone who can afford it.
2/ A tenent can not be found for a property for say 3 months.
I factor this in as part of my “sleep at night” contingency funds. I’ve had one house that for various reasons has taken nearly 4 months to wrap, and initially I paid the mortgage from contingency funds, now the income from other wraps I’ve done recently covers it. This is different to Steve’s strategy, which is to find the people first, I find the house.
3/ The banks want more security when times get tough (investment doesnt come up to valuation).
Well, it’s pretty rare that a bank does a margin call on you. And right now I have heaps of untouched equity that is just sitting about if I need to prove that I’m still viable. Even better, I have cashflow details that show that more money comes in each week than goes out. Banks love that.
I hope this has answered your questions, at least from the point of view of a wrapper. Perhaps someone with cashflow positive properties can give their perspective?
Keep smiling
FelicityOne of the things I’ve learnt over the last few years is that there are a multitude of ways to get rich with property.
In the end, you have to find a method that suits you both mentally and financially, and then pursue it with a passion.
In some ways, I find the hardest thing is choosing which way to make money and sticking with it!!! []Keep smiling
FelicityHi Hamster
This is why it’s usually recommended that you have access to a LOC or have some money in an easily accessible investment, such as shares, as a contingency.
Also, once you have a few cashflow positive properties on the go, your overall risk is lower, because you can cover a couple of non performing properties with the surplus from the others.
I’ve already found this – my 4th wrap property is only just settling, and yet last month payments from the other 3 covered the costs of all 4. That was nice! This situation should only improve with more houses.Keep smiling
FelicityHi Betsy8
You may want to take a look at http://www.navra.com.au and maybe attend one of Steve Navra’s courses.
He specialises in dealing with people who are asset rich but cashflow poor.Keep smiling
FelicityHarryson
This may well vary from state to state, but in Victoria you must settle the property before you can wrap it.
That means you can always settle a property in the morning and have your wrap buyer settle in the afternoon, but you still need the money available to settle in the first place. In flips you usually pass the deal on before settlement so you don’t need the funds to settle.Keep smiling
FelicityUmmm do you mean A Current Affair? They had something on Monday night…
Keep smiling
FelicityHi P&E
One thing you may need to watch (this may only be the case in Victoria) is that once you have a mortgage on a wrap property, you cannot alter it – ie no refinancing etc. I’m not sure how this would work if you had a LOC against a wrap property, but you’d need to be very careful.
The LOC is usually separate to your wrap loans, for example a LOC against your PPOR, and funds are drawn down from the LOC to fund deposits, then you borrow the 80-90% required for the wrap house.
That’s how I work it (well, basically!!)Keep smiling
FelicityWell, I’ve seen the opposite side of landlords insurance – despite having good managers and good quality tenants, I’ve had 3 claims all due to unforseen circumstances. These include someone losing a job, a couple splitting up, someone needing to move back to the country for an ill parent.
I don’t think any property manager could have prevented any of these by better choice of tenants!! Okay, each time I was only a couple of thousand out of pocket by the time you added in some back rent and lost rental while the places were cleaned up and then rented again. If we’d had some warning we probably could have got tenants in quicker, but it took a few weeks each time.
Personally, when I look at how much money I’ve received back in payouts compared to the $250 a year per property, I’m so far ahead it isn’t funny.
Mind you, my main concern is to make sure that the building is covered, and I have excellent pubilc liability insurance. They’re the sorts of payouts that would need a very deep bank account to cover. Gaps in rental income should only ever be small and can be prepared for, but those bigger claims like Public Liability can cause massive financial pain, particularly when you’re starting out.Keep smiling
FelicityEdited by – [email protected] on 31/01/2003 09:25:07 AM
Hi Dave
Welcome! I’m surprised you couldn’t find any comparisons on this forum, it has come up a number of times.
Anyway, either product is worth the money! Rick’s is probably a bit more hands on, step by step guide, Steve’s goes a lot more into the details of legals and finance etc, so they actually tie in well together.
Their strategies have some differences – Steve wraps in regional areas where the repayments are equal to or lower than rent, and usually wraps for the long term cashflow (ie 25 years). Rick wraps anywhere, and wraps for the shorter term because he wants the backend profit, not so much the ongoing cashflow.
But with both packs there’s one thing that makes it worth the money – the mentoring. I’ve had a lot of contact with both Rick and Steve for a while now in various forums and in person, and the amount I’ve learnt from both of them is priceless. They’re both extremely knowlegeable about wraps.
Hope that helps!Keep smiling
FelicityHi P&E
Different investors set their deals up in different ways. Some arrange for their investors to actually take out the mortgage etc in their names, to help avoid serviceability problems with the bank. This probably wouldn’t help you, as you’re still OS.
In my situation, my plan is for the investor to provide either 10% or 20% deposit in cash. We have a legal agreement setting out the conditions of the loan, an unregistered second mortgage and a caveat on the property. I haven’t actually done one of these yet, so don’t take this as gospel – it may change once I get talking to my solicitor to set up my first one!!
Again, others may do things differently. Some investors put their funds in for the life of the loan (which in a wrap could be anywhere from 0-25 years) others take out an annual agreement, and a set period before the agreement is up they make the choice whether to roll over the funds for another period, or withdraw their cash.
In the end, there are probably hundreds if not thousands of different ways these sorts of things can be set up, it all depends on the individual wrapper and investor. I’ve only floated a few ideas here, hopefully others can add some more.Also, Steve may need to clarify, but an etrade account may well be similar to the online account I’ve mentioned in idea 1), or alternatively if you open a cash management account with a share broker, you can often get quite good interest rates.
Hope all that helps, I know venturing into the area of private investor finance is certainly making my head spin. [
]Keep smiling
FelicityHi Elta
There are various options out there.
1) Bank account – well, don’t waste your time with an ordinary bank account. If you’re going to go down this path, at least find out about some of the online accounts such as ING Savings Maximiser, which are paying in the realms of 4.75%.
2) Term deposits – depending on the amount you have available, these may be another option, although you will have set exit dates which may not suit you. But if you have until 2005, that’s probably not a problem.
3) Managed funds – I know of at least one person who has successfully used managed funds to build up their funds for property investing. But that was prior to the last year or two of awful returns!
4) Become a private investor – plenty of property investors and wrappers reach a point where they run out of funds for deposits (I know I have!!) and so take on board private investors to supply some or all of the deposits for their properties. Returns are usually around 10-15% pa, and you can negotiate the term to suit yourself (eg 2 years). These are secured by real estate, and so if you pick a wrapper/investor with some track record (ie has done more than one property) you can get a good return on your money relatively safely.
These are just a few options, I’m sure some others will have other great suggestions!Keep smiling
FelicityHi The Bruce
Thanks for the info, I’ve never thought about it quite like this before.
One question – would this concept still hold when using lodoc finance through a non conforming lender? Usually for these you only need to sign a stat dec saying you can afford the repayments.Keep smiling
FelicityHi Steve
Rereading my post, I realise it could be taken two ways. So I’ll clarify it!
I wasn’t looking for investors on this forum at all. I was trying to find out from people on this forum who have used investors, how they went about finding them and good/bad experiences or suggestions they could make.
Sorry everyone, the perils of using this type of communication!!Keep smiling
FelicityHaving taken a good look at both methods, I’ll give it a whirl! I also think that there’s lots of opportunity for crossovers between them.
Steve aims to wrap a property at a price that’s the same as or lower than rents in the area. This means he needs to buy houses in cheaper areas, basically where the 11 second solution works – hence regional towns. Generally he’s aiming to wrap long term.
Rick wraps at whatever price he needs to, but his aim is to encourage people to refinance as soon as possible, so his goal is to cash out his profit rather than have long term cashflow. This means that the price of the house doesn’t matter, but it helps to buy the property at a discount.
The other main difference is that Steve generally clears the people to go and find their own property within certain price boundaries, whereas Rick usually buys the house first and then finds a buyer.
Hope that helps! And feel free to contradict me Steve!!Keep smiling
FelicityEdited by – [email protected] on 22/01/2003 1:00:19 PM
Law is such an inexact science!
My solicitor says GST isn’t payable!!
My contracts do have a clause stating that if at any time in the future it is shown that GST should be payable, it will become payable by the purchaser. I explain to all my purchasers (as instructed by my solicitor) that they can either leave that clause in there, or they can choose to pay the expected GST amount up front and get it refunded at the end if it turns out not to be payable. Nobody has taken me up on that offer, they all prefer to leave it and worry about it “one day” if it is found to apply.Keep smiling
FelicityI’m sure one of the accountants (or ex accountants!) on here will be able to give you a much better answer than me, but as I’ve just set up all this trust stuff, I can give you two reasons why I’ve done it:
1. ASSET PROTECTION!! Now if someone sues me, we don’t lose the lot, only anything held in our personal names. Or, alternatively, if someone sues the trust, they only get what’s in there. This way we don’t lose everything in one hit. Unlikely, but never say never.
2. INCOME FLUIDITY!! We can take the trust income and distribute it according to our other incomes, and so split it in the most tax effective way.
Hope that helps. There’s a great book by N.E. Renton about Family Trusts (can’t remember the exact name) – definitely good reading.Keep smiling
FelicitySorry, Steve, perhaps recommend was too strong a word to use. I should have said that you have mentioned many times that you used the product for quite a long time, and certainly other people have also told me the same thing. Perhaps that’s not specifically a recommendation, but it certainly gives the impression that the product is worth using.
Keep smiling
FelicityEdited by – [email protected] on 08/01/2003 8:57:47 PM
Hi Darren
Thanks for your feedback, I actually have Rick’s spreadsheet too, but I was wanting something that would only print out the transactions made on the loan, rather than having a line for every single day, which is a bit cumbersome.
I know that Steve and others recommend HLA Deluxe, that’s why I bought it. I’ll be really ticked off if it’s $55 down the drain.
Keep smiling
Felicity
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