I just turned 21 and the settlement for my 2nd investment is just a few days away. I want to retire by 35 and live of the cashflow from my properties. I've used up all my borrowing power so to achieve my goal of having positive cashflow should i just work on paying of the principal of the loans quickly and then buying another property and doing the same or should i just start tryign to get equity by doing renovations etc to increase the property values and getting as many as i can on interest only loans. Any help would be greatly appreciated???
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
The main thing is can you pay off the principal quickly? Rather a better scheme is to pay enough off them to get them cash flow neutral. So they do not cost you any money out of your pocket to hold them with a tenant in them.
It is hard when you first start. It takes time for property values to increase and rents to increase and most of the repayment is interest.
The other method of doing renovations will put you into debt to afford the renovation however depreciation can be claimed on fittings. But you probably will only get an LVR of 80% so it relies on capital growth if you do not achieve growth you end up with a big debt or not being able to borrow more.
another strategy could be to get the LVR down through repayment and increase in capital so that house number three will not strain the LVR too much.
It depends on what has caused the borrowing limit is it LVR or capacity to repay loans?
.Hi, why not do both? DIY renos are cheap. I did a paint job & materials including tools cost under 10% of what I was quoted for it.
Curtains cost under $200 and look quite good too. I paid my manager to install clotheslines & did the landscaping myself. Materials cost under $300 per house. I'd preplanted about 400 plants in the year it took for the houses to be built. Very low cost. Grasses [SeaBreeze is fantastic] were divided into about 8-10 clumps and I made holes in plastic bags, filled them with soil & potting mix & put the plants into the plastic bags. In this way, the plants cost about 50 cents, those bought. Many [agapanthus, geranium, some climbers] I just picked on the roadside. Daisies and agave and some succulents grow almost with no effort.
Good luck,
KYI would pay down your debt as much as possible then wait and see what property prices do over the next year or two.
Ahhh, I remember when I was planning on retiring by 35…. at that time I was 25 and making around 50 grand a year and living quite comfortably on it.
These days I'm 32 and flat out living on $250 000! lol. So step one, make sure your tastes don't increase as fast as your means do! My recommendation – don't get married!! (Trina, if you're reading this – I'm joking!!)
But back to your issue….
I have three cash flow positive properties that are making me around $600 per week, and they're all cash flow positive because I sold them using vendor finance – however that strategy isn't for everyone. Find me on facebook if you want to know more about that. http://profile.to/andrewbuyshouses/
If you want to do things "mainstream" then which of the options you've mentioned really depends on how good you are at renovating. If you're good, it is quite possible to spend $10 000, do the work yourself, and increase the value of the place by up to $50 grand. Voila! Instant equity. If you do it that way, you may not even need any money up front, and be able to put it all on a credit card and pay off the card with the refinance monies. However, renovations are a VERY specialist area in my opinion (read "Andrew has no idea how to do them profitably") and it's also very easy to spend 10 grand, have your property empty for a couple of months, get a valuer on a bad day, and not get any more equity at all.
So if you think you're up to it, you just want a challenge, or you want to get some big lessons early in your investment life, then do the renos. The "safer" option is just to pay down capital, but talk to your mortgage broker about restrictions on equity unlocks and other such fun things that are starting to bob up in this current credit climate.
Good work so far, and good luck with the rest of it!
Andrew
Tony great ambition mate and it can be done.
I was lucky enough to retire for the first time at 39 and live of my property income (After nearly a year off decided i couldnt do nothing all day and now run a boutique mortgage brokerage and financial planning firm) from a mixture of wrap and rent income so it can be done but in the current climate you need to think of ways to increase the cash flow faster to enable you to keep moving.
Read up on selling properties thru instalment contracts as whilst it is not for everyone we made a business of it and can be very very profitable especially outside Qld where the payment of the First Home Owners Grant deters cash flow.
Good luck you have started on the right track.
Richard Taylor | Australia's leading private lender
I would suggest you never pay down any of the loans. Keep saving into a 100% offset account – if you don't have one, you need at least one.
Keep saving like mad, work on ways to improve rent and to improve your income from work and be patient. Write out a plan and stick to it. Don't get sidetracked into other areas you don't understand, just focus and go slow and you will get there.
Good work so far.
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
Hi again
I'm happy to retract my "pay down the loan" idea and agree with Terry on the offset account. It's always the better option to ensure your access to the money in future.
I've gotta stop posting after midnight – my brain turns into a pumpkin!
Andrew
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