Shortfalls? – How to have 10 properties and fund them all.

Wealthyjvd :

Positive gearing = more income in rents + tax benefits than you pay on mortgage and serviceability
Cash-Flow gearing = more income in rents than mortgage repayments and serviceability ( repairs etc etc )
Negative gearing = less incomg in rents than mortgage repayments (ie : you need fraud to service the mortgage)

Negative gearing is what will cause Australia to crash.
As a reminder :
– There are more and more rentals available on the market. Some units just won't rent out for over a year already.
– Credit isn't available to any fool anymore. ie : people on 40.000 wages won't be able to buy a 500.000 house anymore. This will be the main reason for a crash by the way
– Interest rates are still around 10% , even though you see '7.99%' everywhere, it's like saying "up to 50% firesales" where you have only 1 item with 50% firesale. The rest is normal priced.

WealthyJvd : Just think about it logically :
Let's assume the average wages are 50.000 gross. Average houseprices are 500.000.
You'd need 550.000 mortage  ( costs of buying the house ) that's 55.000 mortgage interest repayments + repayments on the mortgage itself let's say 20.000 per year. That's 75.000 mortgage repayments PER YEAR for an average house.

How the hell can someone on a 50.000 GROSS wages ( 35.000 net ) pay back 75.000 mortgage ?
The simple truth : They can't. They use credit cards, they use family loans, they work 18 hours per day 7 days a week.

Is that what you want to become ?
If not, then stay away from property and invest your 'extra' in banks. Get 10% on your investments per year and you'll live like a king and make more money than with properties.

Remember : In Japan houseprices have been DROPPING 70% total value over 10 years.
That's what is about to happen in Australia : Houseprices dropping EACH year for 10 years long.
You really, REALLY don't want a mortgage of 550.000 AUD for a house worth 100.000 when you could have made 500.000 AUD by investing it in other things ( like banks , after they crashed ).

Be smart, stay out of property.

Hi wealthjvd, I asked exactly the same question of my mortgage advisor and he confirmed said that people who own 10 properties have been 'in the game' for awhile and own at least 3 or 4 of them outright. Also, the lady who owns 50 properties probably bought cheap rural properties for $25K a piece, like Steve McKnight did – nobody can do that anymore.

I have two IPs – my first has an offset account attached which helps lower the mortgage faster, therefore increasing equity faster. I bought in June 07 for 180K and I will have it paid off by 2012 based on today's interest rate (although I earn $70K so I can put a bit more toward it than you and your partner can). The second property (bought July 08) is funded with an interest only loan to improve my cashflow so I can put more toward the first property.  

Cheers
Laura

Scamp raises a valid point. Dont buy a $550,000 house if you have a single $50,000 wage. Simple stuff really. But there are plenty of properties well under this figure. Buy one of them. Reduce the debt over time and with some equity gain in the future. You will be on your way.

As for $500,000 properties selling for $100,000. Could you imagine how positively geared many properties would become and this alone would mean the values would rocket back up with consumer confidense.

SCAMP,

I think you need to use another example rather than Japan and can you validate the source of your figures as they appear to be highly over exaggerated.   If you can quote the source I can notify them and get them to correct their information.

Remember : In Japan house prices have been DROPPING 70% total value over 10 years.
That's what is about to happen in Australia : House prices dropping EACH year for 10 years long.
You really, REALLY don't want a mortgage of 550.000 AUD for a house worth 100.000 when you could have made 500.000 AUD by investing it in other things ( like banks , after they crashed ).

Just to clear up your reference to Japan.  Japan had a bubble bust that affected their economy.  This had nothing to do with real estate borrowings but on how Japanese financial institutions lend money to each other and their company groups.  If a company belong to the same group as the bank goes belly up the debt is just written off.  Most banks allow up to 4X the companies worth before any talks take place.

Property values:  The reason property values have gone down in Japan and continue to do so is because of the JONES EFFECT.  Basically the Japanese prefer items that are new.  Properties (Land 100K + House 300K) that are 400K when new are approx 300K 10 years later and 200K 20 years later down to around 150K 30 years later.  What actually gets devalued is the house and not the land.  the land still has roughly the same 100K value give or take a 1%.  the house on the other hand has items 30 years old and the Japanese would prefer something new.  What they do next is knock down the house and build another 300K house.  The average house costs for building 10 years ago and today are still the same.  The same JONES EFFECT can be applied to anything of material value in Japan such as cars, TV's, DVD's etc.  Cars that are 10 years old are anywhere between 5-15% of their original value.

Finally, Japan has no regulated financial laws and lenders can charge rates of up to 100% interest.  Nearly 12% of the population owe money to non bank lenders which have ties to crime groups.  Japan although having the highest saving rate per person also has the highest debt rate per person. 

WEALTHYJVD,

Maybe better to start off small and work your way upwards  Set your various goals and time frames and aim towards those.  I originally wanted to have just a second holiday home and worked towards that but over the years have added a few more.  I turned a 2K borrowing back in the mid 80's to just over 2 million in properties and approximately 65-70% equity.  If the market was to crash and values dropped 50% I'm still sitting safe.  The best advice is not to be too greedy and set your self reasonable achievable goals.  It took 20 years to get where I am and it hasn't always been easy but life is what you make of it.  Forget all the hype of buying X amount in so many years that you read in papers etc as those times and rates were different to now, so the style of investing also needs to change to meet the current market.

SCAMP,

For what it is worth be careful quoting Wikipedia as a source of information unless it has been verified elsewhere as a lot of misinformation is on the site.  In regards to Japan I have had to update numerous articles on Wikipedia as the information provided has been far from the truth.  In regards to your example it doesn't support what you say but more what  I mentioned about houses depreciating from just over 200K to about 125K.  What it doesn't show is that for the last 15 years the price of a new house to be built on a vacant piece of land has been 300K.  That rents have been the same for nearly 15 years.  The graph shows property going from about 200K to 180K only a drop of 10% between 1990-92 but this was really a 60% drop in asset prices across the board and real estate was one of the least affected compared to others such as stocks, shares and commodities.  During the years of all this turmoil and from as early as 1974 Japans inflation rate was a whopping 2% and astounded many economic observers.  The down fall of Japans economy was from borrowing for shares, stocks, commodities and overseas expansion of banking operations, not from real estate borrowings.  Real estate was over valued but not through investors of real estate but by banks lending money to people to buy shares etc against the value of their properties which the banks themselves had valued.

You appear to be very good at trying to twist what you read. 

Everything I wrote was in reference to Japan as you cited Japan.
I made no references to goods or markets in other countries so why bring that up when talking about Japan.

Japans real estate market is driven by entirely different forces to Australia so your comment about Sydney prices and sea side doesn't apply.  If you lived here and invested in realestate here you would know this. A large percentage of Japanese will tell you not to buy a place near the beach as the salt destroys the houses or the property may be destroyed by a tsunami, but a small dingy apartment with no parking but within 2 minutes of a train station is the way to go and worth more.  There are exceptions to this rule but very far and few between.

Remember you were the one that made comments and quoted Japan as the an example.  All I have done is explained the differences between Japan and OZ and why your comments about Japan are totally irrelevant to Australia.  My comments about cars and TV's was to indicate to you the example of Jones Effect in Japan not a specific 10 year time frame.  It is a phenomenon that far exceeds the normal time frame of products in other countries.

The Jones Effect when applied to TV's etc occurs after 12-18 months not 10 years as you have mentioned in other countries.  You have tried to apply the 10 years right across the board to all material items as an example which indicates you haven't got a clue how Japan as an economy works.  

I never said the Jones Effect applies in OZ so need for you to try and bring that up. 

I fully understand the differences between OZ and Japan and how ridiculous it is to try and connect the two as you have done.

My understanding of basic economist must be very poor to turn 2K into 2 million of assets over 20 years although the equity is only around the 1.3 million.  2K to 1.3 for someone with no understanding of basic economics.

What have you done to make you such an expert on OZ or Japan economies apart from reading Wikipedia?