I’ve just read most of Steve’s book (skipped sections on wraps and flips), and I am confused about one thing that the general public or perhaps Steve himself can clarify. It is all fine and good for me to say “I want to buy 10 properties in the next 3 months” or whatever, but how on earth will a bank lend someone money who has only enough for one reasonable deposit to his name and no feasible assets? The book preaches the beauty of positive cashflow properties and dismisses the value and assistance of capital gains, but if anyone can honestly say that the rapid rise of property values in the past five years has not contributed to a snow-balling effect of borrowing power (equity) and therefore property acquisition, I would like to hear from you.
Like many young Australians, I am on a 20-something’s salary in the 30-40k range, and to a lender surely it would be foolish to continue authorizing loan after loan, sending someone millions in debt for property which is appreciating very slowly. Is it safe to say that until I have secondary or even tertiary incomes, borrowing on this scale is out of the question in a slow property market?
Weswomack, might be an idea to go and read those sections on Wraps and Flips, as Steve explains how he got the deposits to keep buying the properties……
Cheers
MelYou earn $30-$40K right???
Can you come up with 10% for the purchase of a house? ell the get a 97% loan (the 97% pays your mortgage insurance), and the rest of the money is spent on closing costs. It’s not that difficult to buy alot of properties if their relativly inexpensive (so on a $60K property, $6K for deposit and closing).
Rgds.
Lucifer_auHi
I’ve just read Steve’s book for the second time, without skipping any of it. The whole wraps & flips thing leaves me gobsmacked! I understand the words written on the page, but not the concept.
I have been researching property investing for a few months, have nearly bought a property on a couple of occasions only to back out at the last second because I could see no way it would “generate passive income from day one“. In the last couple of months I have only come across one property that came anywhere near the 11 second rule. It was very good if I could have raised a large enough deposit. I’ve been researching hard, looking at regional centres & even some small towns in the hopes of getting a start.
We have about $20k in our redraw facility (owe $80k less redraw on PPOR) to utilise. What I’m concerned about is the several posts saying its a bad time to start investing and also what happens when interest rates start to rise (thus turning a marginally CF+ into a neutral, or worse CF-). I’m in my 30’s with a wife & 2 small kids so don’t wish to cause any major hiccups in the finances. My current pre-tax income is about $60k.
I know all my concerns sound really negative, but I’m told that pessimists are much happier people because they’re less likely to be dissappointed!!!
I would welcome anyones opinions as to what we should do.
[fez]Regards
Patrick
The dumbest question is the one you don’t ask.
weswomack,
When Steve and Dave bought some of their places- the wrap ones, it is the buyer who came up with the deposit- and that might have come from their first home owner’s grant. So it meant that the wrapper didn’t have to really have their own money- the wrappee puts it up. With this method, you won’t own the house- the wrappee does. They are paying the house off, so you become a defacto lender. A premium is added to the house price, and there is a markup in interest paid, so that’s where the wrapper makes their money.
On simple buy and holds, it’s a bit more difficult, and even risky. Banks will look at your serviceability, and that will include the rental income provided. But you’d need to think about contingencies- like if your tenants moved out. I always think about my financial situation and if I had no tenants- would I still be able to pay my IP’s off? In my situation, I can, but can you?
Flips can work if you buyt an undervalued property, and onsell it before settlement, but in this market, can you onsell? Was the property really undervalued?
Desposit bonds were a method people used to buy multiple properties- and often for off-the-plan units. This was risky, because the buyer thought they could onsell for a profit, but then when the aprtments were built, they did not necessarily realise a profit, and in some cases, were worth less than when they were bought pre-plan.
Buying 10 properties at once in July 2004… well, it may be possible on a lower income.. but I would suggest great caution- you could either make a fortune quickly… or not. For me, I’d prefer to buy one property, know the implications of that, wait a while, then reassess, and then buy again.
Whilst Steve didn’t buy for CG, he bought in a flatter market, and CG occurred. That definitely has an influence on buying power. Without doing wraps, an individual buyer can buy fewer properties, in my opinion.
kay henry
Patrick
If you want to minimise the potential for a hiccough in your finances you need to look at your risk management.
Your risks on the property are centred on expenses and income. (As an aside have you insured your income. If not that might be worth considering as it is probably your largest asset)
a. expenses. Fixed interest rates and an interest only loan will help on the expense side. But what are you going to do if you have an unexpected major expenditure for repairs. You need to keep some money available to cover these or so you can meet the mortgage payment if there are vacancies or a delay in the agent transferring the rent to you.
b. income. Do some what if scenarios eg what if the house is vacant for varying lengths of time. Unless the property is being sold with a tenant and you have seen the lease don’t take the selling agent’s word for the rent potential. I was looking at a place last year. Selling agent reckoned would rent at $180 pw. I asked my managing agent (different firm) to have a look – they reckoned $140.
You may want to pay some more off your PPOR and have a bigger cushion in your redraw facility.
Flips will normally only work in a rising market or where you have purchased something well below market value. You’ve got to take into account that your costs of buying and selling are likely to be at least 5% each way with stamp duty and agent’s commissions so you’re going to need a minimum of 10% profit just to break even.
I know many people on this site are strong proponents of wraps. However, I would suggest that in that case you’re actually running a business which is going to be more time consuming at least initially than a simple purchase with the intent to rent out.
Just think each extra dollar you pay off your PPOR is less interest payable giving you an after tax return of whatver your mortgage interest rate is, so probably around the equivalent of 10% per annum pre-tax.crj
crj,
Thanks for the info. I’ll digest that & go from there.
[thumbsupanim][thumbsupanim][thumbsupanim]Regards
Patrick
The dumbest question is the one you don’t ask.
Thank you everyone for your responses. I am thinking these strategies will be most valuable overseas, where areas haven’t recently had record-breaking property rises, reality TV shows about renovations, bookstores teeming with books about how people made their millions in real estate, and similar to the Silicon Valley tech boom, there aren’t handfuls of disillusioned people who have quit their full time work in the sincere belief that their real estate ventures are headed for eternal prosperity.
I have spent 2 months reseaching this, and I can sincerely say I learned two things:
1. Creativity, research, and intelligence remain the only way to continue to grow your financial position. Timing is, at best, a catalyst. Innovating new and useful ways to respond to your unique position cannot be taught in a book or seminar; it comes from the set of genes you were born with. There is no easy money, and you get out what you put in.
2. Herd mentality forgets this.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
