Forum Replies Created
Well Paul, I must say I’m with the others that want to learn of your success formula.I suspect hedgie may be right when he suggests you had a winfall in 1977 ? Now be honest, did you get to where you are by “true grit” or did you get a “leg up” old boy. Do you have some wisdom for us or are you the ” Great Aussie Knocker “. I suspect you may be able to enlighten us ?
MJK
Peter,
The points you make are good ones. I think its reasonably safe to say that rents will rise to some extent over the next say 5-10 years. I remember in the early nineties I was paying about $150 pw in North Melbourne for 3 bedrooms which I seriously doubt I could get now.When we bought our Newport Property eight years ago, We paid $120,000, the rent was 160 pw ( previous occupants were renters. ), now the property has been bank valued at $450,000, rent would be around 300 to 350 pw. Rents have copped a battering in Melbourne but I think they will get sucked up when the new dwelling building cools a bit ( that is if and when iterest rates rise a bit ).Many say with capital Gain type property you should never sell but I think at some stage selling part of a portfolio to reinvest in high yield property is fair, That way you could invest cash rather than debt which will make the returns really good. I think a cap gain portfolio needs to be converted into pos flow at some stage either by natural growth, debt reduction , selling or developement. What do you think ? By the way I personally like cap gain property that is close to neutral gearing without the reliance on large tax write offs.
MJK
Dan,
There are many different aproaches and they all are valid. My personal feeling re interest only and P/I is that it is relatively futile to try to pay of a large loan in small chunks. For example to pay off a 100,000 loan with principle payments of 2,000 a year would take 50 years ( not taking into account the compounding effect ), but you see my point even if it took 20 years its still a looong time. If buying Capital growth focused property the idea often is to end up with a 200,000 property and still have a loan of 100,000, so you have equity gain of 100,000.The less principle you pay the better your short term cash flow But the more principle you pay the better your future cash flow.So if your cash flow can afford it it is good to pay of principle. Having said all that I do pay of principle as I can afford it buy having some loans interest only and one main one P/I. If at any time I decide, I can reduce the payment level. With positive cash flow focused property paying of principle is not essential but it does saveguard you against intrest rate rises and improve your long term cash flow prospects.Every positive cash flow property adds to your income regardless of wether or not its paid off, but paid off is better than not paid off. Its often a matter of paying off vs expansion.Trying to pay of a loan $ by $ is not using leverage whereas epanding you portfolio is.
Re the buyer advocate. We all have trusted people we deal with but buying site unseen to me is a massive risk. Especially if your relationship with the buyer is purely business and is the first time you;ve used them. You can use people to find property for you but you need to evauate it yourself.
MJK
Why are you so desperate to buy the second unit?
Are these units for capital gain focus or positive cash flow focus? What state are they in?
Why not how ? 10% deposit is usually the minimum either in cash or equity.MJK
Accounting issues are taken care of by the use of sub accounts within the portfolio loan. One loan / multiple sub accounts. Each sub account gets its own monthly statement if you,ve got the right product that is.Each sub account can be P/I or interest only and rates can be fixed or variable within each sub account.
MJK
Susie,
I have a couple of properties tied up with my own home in a portfolio loan and another couple stand alone. My prefered option from here on is to set up stand alone using the undrawn funds from the portfolio as deposits. Reason being that if you purchase a new property and try to add it into the portfolio “all” portfolio properties have to be revalued. Now having your properties revalued is not such a bad thing but every time you add or subtract a property from the portfolio it affects the balance of the equity., thus making transactions more difficult. Also using a portfolio keeps all the risk against my owm home. My morgage broker said to me that even if I set up stand alone with the same bank they will hord all the security to protect themselves any way, that is the nature of a bank.My preference is stand alone with a different financial institution.
MJKChris,
By way of qualification, I have several older style properties in Qld. I think 300k sounds alot to pay, maybe these areas have already taken off. My money would be on the cheaper properties in Brighton.I’d aim for minimum 6%return if capital gains is your motive.
MJK
Just another thing to be wary of. I have discovered that council rates in Tassie are astronomical. Can be as high as 2%.So take 6% interest rate and add 2% for rates and the +ve gearing can sometimes look a little shaky.
Has anyone else noticed this?MJK
Thanks Hilary for your reply. I wasn’t aware of the limits on the borrowing. The risk of a property being empty seems higher to me and if borrowing 100% using a deposit from a line of credit it would be riskier. Maybe comercial is for the cashed up people of this world.
MJK
One thing you can be sure about is that if rates go up rents will follow because buying your own home to live in won’t be as attractive or achievable, (in my opinion).Rising rents wouldn’t match rising interest costs though, so there would be a lot of people locking there loans in around 7-8% for a number of years hoping that rates don’t plumit again leaving them high and dry! Its a bit like punting isn’t it ?
Very interesting. By the way, in percentage terms what would be the minimum or optimal nett positive return on a property that meets the 11 sec rule. Assuming it is dead on 11 sec rather than heaps better. Is a 1 – 2 percent return acceptable or will this be demolished by maintenance costs. Assuming 100% plus costs (10%) financing.Does PI.com advocate 110% borrowing ?
MJK
Thanks Bruce I,
Whats your thinking on doing all this with the same institution or do you favour your deposits from one inst’n and stand alones with another?
MJK
Thanks RC,
To my way of thinking” variety is the spice of life” A mixture of;
New -ve geared with high depreciaton benifits.( capital gainers )
Old -ve geared but large enough land to subdivide later. Will become +ve after subdivision and have great depreciation benifits and equity added )
+ve geared to cover short term expenses and create real passive income when capital gains are realised on other propertys.( capital gains can be redirected into paying down loans on +ve properties )
Note that a property that is new has far superior tax benifits and if it is converted to +ve in the long term will mean that some of the passive income will be be sheltered from tax.( on paper tax deductions )
Not trying to be smart, its just these ideas swim around in my head all day and its great to hear other peoples ideas. What are other peoples strategies.
The hard thing about all this is not having any lump cash to pay of the first so it can pay of the second.Large amounts of borrowing definitly reduce the income from a property don’t they?
MJK
Ally & Liegh K
Thanks for your candid responses it is daunting but I suppose possible. I do believe many have done it before us. I was wondering if a mix of capital growth oriented properties that are mildly negative and some positive cash flow propperties could offset each other.Thus allowing us not to over extend ourselves with regards to our repayments. Of course (it is my personal opinion ) the paradox is that cash flow positive rarely offer capital growth ( especially in this climate and Capital growth properties rarely are neutral or positive, but a mixture of both may offset each other.
MJK[
]Ally,
Thanks for your reply. You have got my meaning.I suppose I could look at using the same institution. I did wonder if anyone else had a veiw on cross collateralisation ( if thats a word !)
MJK[^]
111111,
I would like to know the vacancy ate in Logan.[?]
MJKMJK
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