My personal favourite strategy is to have both  by manufacturing growth and increasing rental return after purchase. True, it's not easy, but if you look at enough properties and if you even find one per year, you'll be on the road to wealth. I do believe the commercial arena provides more opportunities for using this strategy, and you don't necessarily need big bucks.

Just this month I've negotiated to purchase a property with the following numbers: purchase price $600K, vendor finance $150K (25%, 9% interest payable monthly, balloon payment at 1 year), yield at settlement 9.5%. The yield is high because the property is specialist and commercial properties usually get more rent in their specialist capacity than they would as a general property (ie a space usable for a variety of uses). So the logic in pricing it was that if properties in the area yield 7.5% (it is a regional area), then this one (being specialist) was capitalised using a higher yield because of its specialisation, and that's how the vendor and agent came up with the asking price.

The really fabulous twist, from my perspective, was that the selling agent and/or vendor didn't know enough about other commercial rents in the area. My research revealed that if the specialist fittings were ripped out (which can be done quite easily), I'd actually get more rent as a warehouse than in its current specialist use – ie the current rent is significantly under market.

So the real market value of the property is actually about $800K. I took all the figures to my lender, who will only lend on purchase price at settlement, but agreed that in a year's time, when my vendor finance becomes due, they'll lend against the value as a warehouse – which should mean I can pay out the vendor finance without having to put in any cash.

Therefore in 1 years' time, I'll have a 100% financed property, still slightly cashflow positive, and becoming more cashflow positive each year. I believe that it will have some good capital growth because of some development in the area, but even if it has no capital growth – I've put in no money, it's not impacted my servicability one iota, it pays for itself, and in time the positive cashflow will be significant.

Now, off to find some more of those deals….

Richard, I'll say the same thing but a little more diplomatically, perhaps

Others certainly have thought of this principle and have been implementing it for many years. You can do the same thing with a line of credit from almost any lender in the country. I recommend that you go through a mortgage broker to find the particular product with conditions that are best for your situation.

I got my first LOC through a dubious "financial management" company that also charged me about $7K for the privilege of doing this, about a decade ago. I look at it as an expensive education  and a great story to tell about what level I used to be at as an investor. Thankfully that property turned out OK and I still made a gain before ultimately selling when I realised I'd been a sucker (another mistake – I should have refinanced instead of selling). I'm now far more educated and would never fall for something like this again. But I did, so I get it…

I would check what price they intended. Don't say what you thought the agreed price was, perhaps; go back and say that you thought you'd agreed on a different price and see what they come back with, just to make sure that you didn't make a mistake yourself. If they come back immediately and say "oh yes, we intended xxxx" (the figure that's $20K more), then I think that morally you should honour what you'd agreed to.

If someone was buying your aging parents' PPR, and had agreed to pay $600,000, but a clerical error at the real estate agent meant that $60,000 was inserted by mistake, and your parents didn't notice and signed the contract – how would you feel if the buyer held them to it?

I don't think the fact that a) the magnitude of the error is smaller, b) the developer may be making a profit anyway, or c) the developer's much wealthier than you, make any difference to the morality of the situation.

I get frequent phone calls from India trying to sell me some kind of finance product, I would say I've had 10 or 15 over the last 6 months. They all want to know if I "qualify" for a meeting with their [some fancy title – finance specialist or something], which seems to involve having a mortgage, being under 50 and employed (maybe breathing, too).

They then offer an appointment to talk about "reducing your taxes", "save on interest", etc, but nobody will give any details of what it is they want to talk to me about. I suspect they're proposing some kind of negative gearing using a line of credit. I've repeatedly told them that if they give me some idea what they want to talk about, I'll consider it, but nobody will give me even a hint, so I just say "no thanks". (Yes, my husband constantly teases me about how polite I am and the fact that I give them this much of my time . I've gotten better, though – I now politely but firmly say no thanks and hang up on the "we're giving you a free mobile phone" callers.)

Out of interest, does anybody know what these calls are all about? Is anybody else getting them?

In a sense, yes. Wasn't wanting to complicate things ; )

Yes, some of them will. You really need a mortgage broker to optimally navigate this territory, and preferably one who's familiar with high LVR products. trentc on this forum fits into that category.

i'm speaking mostly from extensive discussions on another forum, Somersoft, which I perceive has a greater proportion of advanced/established investors than this forum, and is generally much more active (ie much higher volume of posts). I've gotten to know the styles of various investors over there, and it's generally those who have limited holdings that are a bit jittery and talking of selling, plus the odd seasoned investor who's predicting property prices Armageddon and is cashing up to take advantage of the great buying conditions they're anticipating.

Of the investors who I think speak the most common sense, and who already have substantial portfolios and have been around for a while, the vast majority have long-term views and are planning to ride it out. One of the problems they cite is that if you get out, it can be very difficult to time your re-entry precisely enough to compensate for the transation costs. Few to none of the investors in this class are predicting large price drops; possibly fairly long periods of limited price growth, if anything. They see that as just part of the property investing landscape when you're in for the long term. Most people with substantial portfolios also have fairly low LVRS, too, so they are cashflow neutral to positive and/or have sufficient equity reserves to ride it out.

Of course you may have to think differently if you have a very high LVR, can't afford negative cashflow, and were relying on increasing equity to fund negative cashflow.

Likewise, if you think the long-term outlook for a particular area has changed, then you may want to re-assess.

But if the fundamentals of your investment were sound – in an area with solid demand, access to transport, jobs available etc – then the current "jitters" are just a hiccup.

What do you think the majority of the very successful investors are doing?

(Hint: it aint selling.)

Sorry, Trance – LVR = Loan to Valuation Ratio – the percentage of the purchase price that you borrow.

OK, so given that you borrowed nearly all of it, then unless the market's moving very quickly, you're unable to get out more equity for another deposit. If you'd bought for $200K and it was already worth $220K, you could access a good portion of the additional $20K in equity by refinancing; which is like "resetting" the loan as if you're buying it again today at the increased price – but the extra $20K you can get in cash and use to fund other purchases. Since that's unlikely, you either have to make it more valuable – eg if you can spend $10K on improvements (garage? new kitchen? etc) that increase the value of the property by $20K, then you could borrow another $10K for deposits on other properties.

If that's not really an option either – which it's probably not as I'm guessing you don't have the $10K to spend on improvements anyway! – then if you really feel that the market in which you wish to invest is moving quickly, then you may want to consider taking out a 100% or even up to 106% loan. These have higher interest rates, but if you feel that values are going up very quickly, then you may still be better off paying these high interest rates if it means that you can buy another property now rather than having to wait a year or two.

Yes, that's what I meant, Trance. What LVR did you borrow? If you put in 6%, that would mean you borrowed 94% to buy the first property.

I wouldn't say it's impossible, and there are certainly people that do it. It really depends on how you value your time and what a satisfactory ROI is for you.

Let's say you buy a place for $300K, spend a month and $20K renovating it, and sell it again for $360K (which I would think would be optimistic).

Your costs would be:
stamp duty $9K
REA commission $8K
CGT $3K
Holding costs (3 months) $6K
Profit = 360 – 300 – 20 – 9 – 8 – 3 – 6 = $14K

Whilst that may seem like good money for a month's work, your price doesn't have to drop too much below the estimate of $360K before you make nothing, and you also couldn't do one every month unless you have enough money to hold several simultaneously. Too much risk and hard work for too little reward, to my way of thinking. If you hold it and refinance to move on to more properties, it may make for a great long-term investment strategy, but flipping isn't my idea of a fun job. (And flipping is a job, not investing.)