I have never rented a place.

I am trying to understand why someone would rent so I can begin to understand what type of property would command better rent.

Understanding this will mitigate the risk on the cashflow which allows me to keep control of the property in the first place.

I am guessing their are different types of renters with different types of priorities.

Has anyone seen a diagram or read an article which explores these factors. Or, is it as simplel as saying: Close to transport, close to shopping centers, close to schools and your set?

PJ  

So if if I want to have an offset account working away to reduce interest payments on an IP and I have 20 IP's that equals 20 offset accounts.

Which is what I said in the beginning.

In any case, I would have thought if I had that much cash to spread around it would be better working for one or two IP's only. Or, as security to bolster your LOC to buy more property.

PJ

Hi Richard,

If I had twenty different IP loans with a range of banks and a range of values all linked to one offset account, how is the offset account attributed to each IP?

If the offset accunt has 100K in it does this get divided up to service the 20 IPs or does each IP benefit from the 100K as if it was the only loan being offset?

Please excuse the ignorance.

PJ

Thanks for the replies.

I am obviously in the early days of sorting out my overall game plan.  The property game lke mnay other games we play (shares etc) is all about managing the downside.

For me, in my current situation (limited disposable income with ample equity) its seems the biggest and first risk I need to mitagate is the cashflow needed to feed debt. Getting the finance is relatively easy but without the cashflow to service this debt, the game is over.

In the long term, quality, value add,  B&H properties are the way to go however, these will almost always be -CF properties.  So, how do I go about getting these while protecting my cashflow that will feed them?

(Thinking out allowed)

I am guessing I have enough equity and current serviceability to purchase about 3 properties.

Game plan 1.

Buy 1 or 2 Vendor Financed properties to feed 1 quality B&H property.  This technique will feed the B&H and eventually manufacture  +ve CF once profit margins are poured into the B&H when the VF properties close-out.

PROS
– You have created cashflow form your equity to service a quality B&H taking pressure of myself to work harder to make more money.
– You potentially have better quality people involved with your portfolio buying the VF properties from you. The 'people factor' is decreased.
– You know what the end game is with the VF prperties. That is, you know your repayments are covered plus some and  you know what your profit will be from the beginning.

CONS
– Getting a credit licence is difficult
– Banks will make it difficult for you and your VF buyers
– May be stuck with a property you can't work with

Game Plan 2

Buy 3 Reno properties. Add the value, sell 12 months later. Buy a quality B&H. Pour the profits made from renos into the B&H and manufacture a +ve CF scenario by reducing your debt level on the B&H. Use your original equity to do it again.

PROS
– Take tenants right out of the picture whe you are doing the renos.
– Your reliance on tenants with the B&H is greatly reduced due to the reduced debt levels
– Because of reduced debt levels on the B&H vacancy periods are less of a burden on my personal income.
– Manufacture equity.

CONS
– Time consuming.
– Stress levels are higher. Cowboy tradies and the like.
– Sale price and time to sell is a loose end.
– Personal cashflow is under strain during the reno / sell period.

Game plan 3

Use lease Options. Same as game plan 1 just a different instrument.

PROS
– Less regulatory challenges
– Banks do not see it as a threat.
– You know your exit numbers

CONS
– Lower quality people involved with your portfolio. The 'People Factor' is increased.
– Left with a property you can't work with.

These are some of the game plans I have been thinking through with the aim of ensuring my cashflow is protected and not relient on my personal limited income. With cashflow sorted you can build your quality B&H properties. Equity will come and basically feed and compound itself in time. Once I feel I have enough B&H properties I will go back and leverage their parcels by developing them into units. Sell 80% keep 20% with aim of making the 20% debt free.

Once I know my game plan, this will focus and streamline my research efforts. Looknig only at properties that fit my plan.

Thanks all for allowing me to think out allowed. I know these types of questions are asked time and time again.

The act of writing the post goes along way to clarifying my thoughts and understanding my goals and how to get there.

PJ

Hi Richard,

Yes, that is so true.

Over the last few years I been focusing on increasing my cashflow with the knowledge I will be servicing debt. The only trouble is the ventures I have pursued to create more cashflow, have all ended up going south and giving me bad debt. I have gone backwards instead of forwards.

My goal is to generate a passive income of about 150K /yr via my family trust in 15 years time. I believe this is still achievable. Just need to find the right combination of techniques to achieve this.

PJ

Richard,

Haven't crossed that bridge yet.

I am still not convinced wrapping is a technique I can use to address the cashflow needed to feed the hungry mouths of my B&H properties.

I do not have an excessive income problem. I have enough disposable income but I am trying to completely avoid negative gearing if I can. I do not have a tax challenge.

My goal is to gain control of quality B&H properties that can be developed down the track. Sell two thirds of it and keep a positive geared portion for my family trust. Do it again and again until I feel my wife and two daughters are safe. 

I am trying to find a 'game plan' which allows me to buy these properties without placing enormous negative gearing stress on myself and my family while I am collecting and developing my B&H properties.

At the moment I am focusing on wrapping to form the front end of the game plan. Although the wrapping theory looks great, it seems the application is a completely different challenge.

Next I will focus on Lease options as a cashflow mechanism to feed my B&H purchases.

Renos of course are another cashflow method however, I feel the risks are greater in comparison and time consuming.

I am very keen to learn about other techniques others have used to gain control of positive geared B&H properties.

PJ

Paul,

Just to clarify,

Your best client will have:

– Steady employment (no brainer. Somone who hase held a job consitantly)
– Serviceability (Income to Debt levels shows they can service he VF repayments. I presume you work on the 30% rule of thumb)
– Visit them (This suggests they are close to where you live. Probably visiting them after hours)

This one threw me a bit. Perhaps you could explain a little more.
"……We may reduce the deposit requirement and accept some small "paid" defaults "

What about age? Does this factor into your selection?
What about family unit? Do you look for young families? Empty nesters?

I appreciate your time and patience.

PJ

–

Paul,

Thanks for confirming my thoughts.

I am guessing your strategy for operating under any market condition is to take the stance you are not playing the VF game for capital gain and your VF clients are only interested in setting up a credit history.

The knowledge your interest payments for your prime B&H properties are covered and when the VF deal closes out a lump sum to drive your LVL on your prime B&H down is all you are focused on. This gives you a good spring board into setting up more VF deals to service another quality B&H or value add to your original B&H.

Cheers
PJ

HA Ha! I have been biting my tongue also!

Hi Paul,

Thanks for verifiying my assumption. This is what I was guessing.

My initial goal is to limit or remove negative gearing as much as possible on my B&H properties while I have control.

Do you still have a negative gearing factor on your B&H once the VF properties are in play? OR do you ensure the B&H is at least neautral?

Also, do you know anyone in Perth who might be condusive to setting up JV's / Mentor arrangement using  wraps?

PJ