Hi all,
I have just been reading Steve’s latest offering The Fundamental of Investing Success.
Steve says that you should not let the momentum of investing become stagnant because of lack of funds or leverage. I aggree but I am at a loss to know what to do to correct the situation.
I have a wife at home and 3 kids in private schooling. 1 at home. We live in our PPOR and own 2 IP’s.
One house is positive cashflow all the way and the other is a little negative but after Tax may be positive.
I have found many houses I’d like to invest in but most are not positive cashflow and so require a little money from our pockets.
Collectivly the houses are costing me everything I have.
PPOR – Value approx $175 000 Owe $130 000
IP1 – Value approx $100000 – $120000 Owe $19900
IP2 – Value approx $140 000 Owe $118 000
LOC – $68 000 owe $68 000 against IP1I have basically run out of leverage. I am sure I can squeeze more deposits out of some equity but I don’t believe I could service any more debt even if houses were fully rented.
I am on $52000 p/y befor tax. The only solution I can come up with is for my wife to start work again. But I realise that sooner or later we will just run out of leverage again after two or more houses.
I do not want someone to take me by the hand and tell me what I should do but if anyone could offer some advise I would be happy to listen.
My prime motive for investing is like most people I am sick of working a regular job.
Thanks
You will always miss 100% of the shots you don’t take!
Ronulas,
A good topic for the forum. I’m in a very similar situation to you, where the properties i own haven’t really gone anywhere, value-wise over the last few months. I suspect that this is the case more broadley as well (maybe except for Perth).
Not sure what youre cashflow situation is like, but with any spare cash i have I’m currently retiring debt as quickly as possible, particularly of the non-deductible variety. This is certainly one way of increasing ones leverage. The experts will ofcourse tell you that this is not the most desirable way of increasing leverage. Obviously a far cheaper way is by accessing increases in equity as a result of capital growth.
Anyhoo, i also would love to hear what others are doing to increase their portfolio’s when things are right up to the limit already.
Cheers Eric
Well Neo,
I have some equity from the properties, as I paid less than valuation ect but cashflow wise I have buggerall left. I’m flat out paying down my current bad debts as it is.
Thanks for your reply.
You will always miss 100% of the shots you don’t take!
Hiya Ronulas,
Well it’s all very well to stand up and say that in a seminar isn’t it ?? If you challenge them at a seminar, after a while you’re told to sit down and shut up…or “That’s a great question, I’ll address that later in my seminar”…and sure as eggs it’s never covered.
But as you’ve found out when you come back after the ra-ra session and you crunch the numbers you find the “normal” limit has been reached. What’s your definition of normal ?? What’s your definition of limit ??
By “normal”….I mean normal risk levels for normal investors loaning normal amounts of money off normal banks at normal rates over a normal time frame.
Throw in renos, flips, dips, splits, wraps, packs, wacks, mezzanine, lease backs, butchers, barbers, rich uncles, Japanese banks, the guy around the corner, guarantors, loan sharks…and a myriad of other ‘possible’ options and the world is your oyster my friend.
Really, it all boils down to what are you prepared to risk ?? For me, I draw the line whenever my kneecaps are put up as collateral….but it’s all possible….as the seminar presenters all love to point out.
Think outside ‘the square’ by all means, but try and sift out through what’s possible and what’s reality for you. I mean, it’s possible to fly to the moon…but you ain’t likely to be doing it any time next week.
What now you ask ?? How about sit back and enjoy family life for a while, all the while paying down some or all of your NTDD and letting time build up the equity.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Agree with the above sometimes you have to let the magic of *time* work for you..unless you sell IP 1, realise a profit and move on and hopefully upwards ;o)
Are your loans ‘crossed’ ?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorSpot on folks – I like your direct style advice Dazzling –
The only way to go faster and better is to start taking more risks i.e. put yourself in the position to make more $$$.
Looks like you need to sell an IP first perhaps.
It is a pity for all of us that we can’t make more money from a lower risk strategy.
I believe more exposure to risk means potentially more exposure to money in the bank.
Sounds pretty obvious I guess, but worth thinking about.Giddo
http://www.standrewsplace.com.auKNOWLEDGE IS POWER
Thanks for comments guys,
Yes selling IP1 did cross my mind. However because the LOC is set up against this property there would not be much left to re-invest and I would be losing the cashflow from this positive property.
After saying that however, I have decided to sell when the climate warms up a bit and the gardens/lawns start to bloom. Gives the place a nicer feel and perhaps loosens the prospective buyers wallet [biggrin]
IP1 has been a great investment for me. Only cost $32500 and has been rented constantly for years with very little expence. Current tennant has been there for nearly 4 yrs.
Sometimes you have to divide to multiply though.[cap]
While this property has been a great cashcow, with the monthly repayments/rates/insurance and now the LOC interest repayments its starting to drag me down. That one good investment has helped me buy two other places though.
Redwing: No my loans are not crossed, except as I mentioned, the LOC against IP1. If I sell, then Loan and LOC will be paid out with a little to spare. You are right about letting time do its work. It’s just frustrating seeing some good deals go by simply because I don’t have the money. [comp] Guess everybody has that problem though.
You will always miss 100% of the shots you don’t take!
I would sit and wait. Look at it this way. IP1 has allowed you to buy IP2 and IP3. If you pay down some loans on IP2 and IP 3 and let time take its course, then you could probably multiple again. ie IP2 allows you to buy IP4 and IP5 and IP3 allows you to buy IP6 and IP7.
How soon you buy IP4-7 depends on your risk profile. I am conservative and don’t want to risk loosing it all one day.
I still don’t understand why you need to sell a good performing property investment. You got to have some patience.
Hi Yack,
Yes time can do the work I suppose. But how do the people who feature in API do it. They buy several properties in a couple of months and some of them are not on huge incomes? Where do they come up with the money for the repayments? I know the rent covers alot of it but in most cases not all of it.
As for why sell a good performing property? To free up some cashflow. Sure over the whole year it actually makes about $2000 after expences but because we are living off the rent when the costs come up it kills us. Especially when you multiply that by 3 properties. Perhaps we don’t have it structured right, or perhaps we have overextended ourselves, I’m not sure but some weeks I am not sure of we can cover all the payments ect. Also because the house is profitable then I lose money from Familly Assistance and get taxed on my income as I do not have the property in a structure.
You will always miss 100% of the shots you don’t take!
This leads me to ask you guy’s another question.
Who here sinks the rent from properties back into the same property or puts the money into an account for emergency/repairs?
We personally live of the income from our houses and when the bills come along just pay them as we can.
You will always miss 100% of the shots you don’t take!
Hi Ronulas,
You’ve done very well considering your income and the private schooling for the kids.
You mentioned: your wife could work, have some bad debt, seen some good prop buys.
When we started out investing in property the wife and I worked, worked and worked some more. We had 7 days a week employment, no social life, no time to spend and saved heaps in less that two years. Could doing more paid work help the situation?
Suggestion: Sell the PPOR and rent. Tissy it up for spring and pocket say $40K or more and no CGT. LVRs would still be similar; just under 80%. You may be able to clear some bad debt too and have a deposit for a low cost IP.
Another: Revalue the properties if you think that they have gone up to improve the LVR.
Good luck.
hrm
Thanks Hmackay for your encouragement,
Sometimes you get so focused on what you have not achieved yet you forget what you have achieved already.
Feels good to know we are not the only ones making sacrifices for a better future. Sometimes when your dead broke but have $400 000 dollers worth of property you wonder what the hell you are doing.[blink]
As for selling/renting the PPOR….. The decision to buy our house was my wifes. I wanted to buy two more cheap IP’s…. she wanted a house of her own. Guess who won!!!
I have mentioned we might be better of renting and selling/renting our PPOR but she has fallen in love with the place and I think its out of the question.[blush2]
We may be able to draw down some equity as we paid a fairly large chunk off initially but we don’t have enough income to service the debt. Thus the idea of wife going back to work.
Thanks again
You will always miss 100% of the shots you don’t take!
We may be able to draw down some equity as we paid a fairly large chunk off initially but we don’t have enough income to service the debt. Thus the idea of wife going back to work.Hi Ronulas.
I believe Dazzling has said it best when he said basically you have to be patient.
By getting to your equity now and buying another I/P you will still have to come up with the shortfall in loan repayments, putting you further behind.
If you sell one of your I/P’s, you have to consider CGT and sell costs, then new purchase costs when you buy another I/P, which will probably put you back in the position you are already in.
Be patient and let time work for you.
The more you have the better the options and the less a sale hurts the overall portfolio.
Not knowing your total costs for the kids and missus and your other expenses(car costs etc) it is really hard to forcast your future accurately. However I would get into a reno on the neg geared property.
Some down lights, a garage or carport, covered entertainment area, air con. All are reasonably cheap each and give your property the $10/wk potential each if not more. They seem to rent well so make them the cream of the crop and always do maintainance promptly.
Then jack the rent up. Chrissy send them movie tickets and say thanks for being good tenants. All these nudge up rents to assist your neg properties get closer to paying for themselves. Its amazing how cosmetic changes affect your perspective when looking to rent.
Consolidate loans, go IO instead of P&I. All are valid options to clear the bad taste from the dogs with no cash. Buy when you can but be more selective and if you do get a $100k with $110/wk rent(5.5% return) do a reno for 7k and get $165/wk then 7.5% and a breath of fresh air lands on your cashflow crisis. Still not 100% positive but at least after tax you arent going backwards.
Failing all this, sell the kids!!!!!
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!Thanks DD,
IP1 only has $19,000 owing so not worth going IO.
IP2 is already IO and cost $122500.
Rent is already $170pw which is as much as you’ll get in the area, no matter what reno you do short of 4th br which is not practicle.
Has dishwasher,aircon, double shed, entertainment area ect.
Sell the kids… Tried that but could not get a good enough return on investment[guilty]
We do have 1 car to many but we got that at a bargain and will never get a car like it for same price. It’s a Tarago. We own the other outright.
You know, the more I talk to you guy’s about it the more I realise we are not doing too bad. We are broke most of the time, but boy have we achieved alot in just a couple of years. On a single income (average) , 4 kids ect.
I think some of the previous ideas were right. We must be patient….. and let the mirical of capital gains do its work. Wait a few years, sell up and re-invest into better houses.
You will always miss 100% of the shots you don’t take!
http://www.somersoft.com/forums/showpost.php?p=165336&postcount=11
Remember, reducing your outstanding mortgages is also an ‘investment’
It can give you a return of 13%
In the short term it sounds like the only way forward is a cf+ or +geared property -increase your income after expenses. I would’nt sell anything in the short/medium term. Prop 1 & 2 may be your golden goose over time. I am certainly not an adviser, but would get rid of bad/non income producing debt first if not already.
Steve BWith the greatest of respect to whomever gave you investment advice in the first place, the concept of property investment is to get ahead using other peoples money.
My way of thinking is this. P&I on the PPOR only and IO on any IP. This worked in conjunction with a LOC will have you flying within a short space of time.Is all you salary and rents from your properties going into the LOC?
RegardsProperty Acquisitions for developers and investor from; Kevin
Kevin,
The question was how to extract more leverage to buy more properties, not how to do it!
Sure, the way you’ve described how to do it should `have you flying’ in no time but there is a limit.
The topic I think has been satisfactorily answered. As investors, TIME is what matters.
Eric
Hi elysean,
Thanks for your comments although you have me at a bit of a loss. What are you refering to?
My PPOR is P&I
My IP1 is P&I only because we only owe $19000
My IP2 is IOYes all my wages and rents ect go into the LOC.
What point are you trying to make.
You will always miss 100% of the shots you don’t take!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
