G’day All,
I have recently gotten into reading more on investment material and I came across an article which told Jan Somer’s story. In this article a particular sentence stood out and grabbed me:Jan discovered that their investments had created a situation where money was no longer an issue.
After reading this statement I am left wondering exactly how money became no longer was an issue?
I have a few investment properties so far, and my partner and I defiantly still need to go to work to ensure we have the funds to top up the rental income to make sure we have enough for the mortgage payments. So I was wondering… how do people get their investment portfolios in such a shape as money is no longer an issue –
Some ideas I had (althoguht they may be way off the mark!!) were:
Do you have enough positively geared properties such that you earn a wage through the rental income or
Do you negative gear the properties such that the tax benefits provided a wage?And then how do people continue to purchase properties – don’t you reach your borrowing capacity at some point?
Any thoughts/comments welcomed !!!!
CHeers
jxfA lot of people live on equity and even use equity to pay for interest expenses. As long as the property keeps growing it is possible.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It will be hard for you to see how this can happen as the property market is not booming.
You can also use positive cash flow strategies like lease options to offset some of the more negatively geared properties and keep your portfolio balanced!
Thanks everyone for your throughts, much appreciated.. jsut one comment:
duckster.. you said it would be hard to see how this would work since the property market is not booming, can you explain the senario how it works when the market is booming.cheers
jxfJXF,
As TerryW suggested, this occurs where the income from your collected rent on your investment properties exceed you expenses on that property. Try reading Steve McKnight's books, he essentially buys cheaper properties in regional areas where the rent covers the costs of owning the property (mortgage, rates etc) as soon as he buys the property. these can be hard to come buy or create (through developing properties) so a lot of investers pick up a number of negatively geared properties and simply wait until the rent increases over time so that it covers all your costs, and what's left over is yours! Alternatively, you could sell half your portfolio after a ten years (for example) and use the money to pay down the loans on the remaining half of your portfolia, in which case the rental income would comfortably cover your cost and put even more money in your pocket…..potentially enough to replace your day job.
actually what Terry is referring to describes what I am doing at the moment. I have say a half doz houses, not necessarily positively geared (some are, some not) . Basically, I live off the capital growth. If I have properties worth 2m, despite mortgages of 1.5m, but if the capital growth is 10%/yr, that gives me $200,000 to cream off the top to live on and,, pick up the shortfall on mortgages.
Of course it is a gamble because you're certainly not going to get 10% growth each year so you have to be able to sleep at night. But I do improvements to the properties to increase their value.
When the market was booming 2001 – 2004 , I witnessed growth rates between 70% to 100% over a very short time like 2 to 4 years.
So if you want to read about this sort of scenario purchase the magazine Australian Property Investor at the newsagents
and read some of the investor profiles each month .The risk with this negative gearing approach is knowing when a boom is going to occur, will the area grow at all , will the government still allow negative gearing in the future and will you be able to afford to make a loss every year.
I recommend you read Steve Mcknights books
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