Hi all,
I’ve just started subscribing to API (best investment ever – had money mag b4, useless for property invesments IMO).
Anyway I skimmed read about this guy who got interviewed – he came from overseas as student, went broke (with 80k loan), then went and bought 11 properties in 2 yrs. I have a few question about his method:1. If he’s broke and own the bank 80k loan for studies, how would he get the first home loan in the 1st place?
2. After his 1st IP (300k), how did he buy his 2nd-3rd 1-2 yr later? Is it via refinance and take equity out of the 1st and use that as deposit for 2nd/3rd etc and repeat?
3. Just to confirm the idea of buy X properties in Y years, is it simply the following and just repeated over and over again?
a. Buy 1st home
b. If 1st home value increased, refinance with bank, take out part of that $$$
c. Buy 1st IP with that $$$ from refinancing 1st home.
d. when 1st IP values increased, buy 2nd IP from refinance 1st IP etc….and repeat
e. What I dont understand is how come the guy from API can buy like 3-4 IP’s in 1 yr?Many thanks for your help
Hi all,
I've just started subscribing to API (best investment ever – had money mag b4, useless for property invesments IMO).
Anyway I skimmed read about this guy who got interviewed – he came from overseas as student, went broke (with 80k loan), then went and bought 11 properties in 2 yrs. I have a few question about his method:1. If he's broke and own the bank 80k loan for studies, how would he get the first home loan in the 1st place?
2. After his 1st IP (300k), how did he buy his 2nd-3rd 1-2 yr later? Is it via refinance and take equity out of the 1st and use that as deposit for 2nd/3rd etc and repeat?
3. Just to confirm the idea of buy X properties in Y years, is it simply the following and just repeated over and over again?
a. Buy 1st home
b. If 1st home value increased, refinance with bank, take out part of that $$$
c. Buy 1st IP with that $$$ from refinancing 1st home.
d. when 1st IP values increased, buy 2nd IP from refinance 1st IP etc….and repeat
e. What I dont understand is how come the guy from API can buy like 3-4 IP's in 1 yr?Many thanks for your help
All good questions, homersyd, and after reading the article I was also left wondering how the claims he has made in the article could possibly be true.
I noted that except for his PPOR, all his other properties show a LVR of 95%. Although it is possible to purchase a property with this LVR, my mortgage broker has told me that I can not refinance any of my properties with an LVR higher than 90%. So, even if we take the great leap of faith and assume that his properties ALL increased in value enough in such a short space of time to cover deposits, loan mortgage insurance, stamp duty and legal fees for additional purchases, I don't believe the banks would have loaned him 95% of the value of his original properties.
The article neglects to outline how these subsequent purchase were financed. If he obtained loans from family or friends for all his additional purchases, the article should have provided this information, otherwise it is misleading.
I read every issue of this magazine, and generally find the information in it useful and informative, however some of the stories about "young guns" and other "entrepenuers" who strike it rich in a few years after making blind uneducated purchases seem to stretch the truth to it's limits, and frequently leave out such important details as how in the hell did they obtain finance? I found this particular story especially dificult to swallow, and like you I would appreciate any enlightening information that others might be able to provide to clear up the mystery of this "young gun's" success.glad to know i’m not the only one…
Must admit i havent read the article but API did an article on me and our portfolio last year (I can email you a copy if you want to read it)
I was lucky arriving from the UK some 18 years ago when the GBP pound was strong and managed to purchase our First PPOR (now IP) and another IP for cash straight up and then gear from there. 40 properties later the rest is history.
Big difference is we wanted to and were able to pay down debt like it was going out fashion and next year will have paid off ever loan we have leaving us with all properties totally unencumbered. Might have to start buying again then.
Whilst 95% lvr refinance is available the costs of doing so would not be worthwhile so patience, refurbing coupled with equity release and a couple of other strategies are about what you are limited to. I was fortunate enough to also be engaged in a large Vendor Finance business here in Qld and that puts cash flow right in your pocket from day 1. This helped us pay down the negative gearing properties.
Dont let anyone tell you it cant be done as it all boils done to structure and the initial set up.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I also know some people in the city who ownes mutiple places, but they do the unethical thing by overloading the apartments to make it a postive geared property.
Its somewhat a matter between getting finance .. and owning property. The banks will put a natural limiter on what you can borrow .. so you can try getting your money from other sources.
Believe it or not .. there are lots of people quite happy to be getting 8% or 9% secured by property from a guy who pays his bills on time. If you can prove that with ready documentation you'll find you can approach non-bank lenders to get your finance resolved. And since they arent banks .. their lending criteria is a lot more flexible. Five or six months later you turn to the banks to get the whole deal refinanced. And you end up with a reduced rate .. a happy lender .. a set of loans with the banks .. and an increased portfolio.
Dont get caught with loan sharks. They also advertise through regular means in the money columns and the internet. They just ramp up the interest when it suits them too. Which can leave your kneecaps in danger.
Gearing high works in a near neutral or close to positive market because your borrowings are high .. your movement is postive and upwards and your gearing means the input from yourself remains small. However the risks remain LARGE. If you find yourself in a slowing or downturn market .. the margin of ownership can revolve into a margin call .. as the banks now own more of the property than you do. They'll send you a pleasant letter stating that you now owe them money .. could you please pay up. That can be anything up to 20%-30% of the properties value depending on the losses incurred due to a price drop. So your 20k invest with potential on a 400k property can turn into a 80k liability to the bank.
Doesnt mean you cant do good calls. I started off my folio on positively geared country properties with upside. And once i had a couple the banks were prepared to lend on (NOTE THIS – banks are doubly shaky on some country areas for lending against them), I drew against my equity and income .. to purchase more central capital city properties with potential. I always considered my country properties long term buys and cash cows – higher risk. But they had to meet my strict criteria for workability. The real investments were always my city properties. With the excess cash i got from my country properties i was able to neg gear some of the city properties to offset the existing income. Worked fine for everyone.
After a certain size and value of the portfolio .. land tax and the purchasing relationship should be reviewed by you. Thats a longer term strategy and you should do that when you are ready for it. For the moment .. utilize the tax advantages of personal ownership and negative gearing to get the best out of your properties.
Hey all,
homersyd – thank for sharing the article story, as well as asking those questions, which I also had.
Homersyd has said:
"3. Just to confirm the idea of buy X properties in Y years, is it simply the following and just repeated over and over again?
a. Buy 1st home
b. If 1st home value increased, refinance with bank, take out part of that $$$
c. Buy 1st IP with that $$$ from refinancing 1st home.
d. when 1st IP values increased, buy 2nd IP from refinance 1st IP etc….and repeat
e. What I dont understand is how come the guy from API can buy like 3-4 IP's in 1 yr?"OK. so perhaps buying 3-4 IPs in 1 year may be stretching it. BUT how many IPs in your opinion would be reasonable in 1 year?
You mean Zaki in this months API?
I don't know about the debt but he used a buyers agent to buy under valued properties and reno them. He did a LOT of the work himself so saved lots of money there.
He revalled properties and withdrew the equity to buy the next one. Because they were neutrally geared (or just over or under) he could continue to borrow as serviceability was not a problem.
He's bought 13 properties now.
Hi,
I am pretty sure this guy did some JV's, which makes a difference.
And it is true, I have been a subscriber to API for over 5 years and some of the stories are a bit stretched, especially when it comes to the approx vals of the properties, bit of overstating there I think888Genie wrote:Hi,I am pretty sure this guy did some JV's, which makes a difference.
And it is true, I have been a subscriber to API for over 5 years and some of the stories are a bit stretched, especially when it comes to the approx vals of the properties, bit of overstating there I thinkHis first was vendor finance which was how he could do it with debt.
Regarding the stories I actually feel a lot of them are pretty ordinary. There are a couples that bought 4 properties over 5 years. Big deal. Some are also VERY ordinary with sales figures. They buy properties AT market value. Why would you do that? Then do you wait for CG? Unless there is development opportunities or something I can't see.
They really scrape the bottom of the barrel sometimes.
I have a few friends that have been in it. And others who have been asked but are not interested.Its all a creative mix of flipping .. financing .. revaluing .. relending.
Depending on how competant and real your values are .. there isnt any reason why you cant exchange half a dozen properties within 6 months of the initial purchase. Outside of how the banks deal with you.
The competency lies in RECOGNISING the value.
Then .. accurately CALCULATING all expenses.
Next .. a good NEGOTIATION may again save you a couple of thousand off your pricing.
You must also be able to observe the TRENDING happening in the area.
RENOVATION works if you bring the costs in-house and do as much as possible yourself. Its a great way to save money on the right stuff.
Know your costs and know whats a bargain and whats a liability. I just bought a whole garage of Fuschia tiles 10cm x 10cm at a ridiculous $5 per sqm (previous retail was $60). Why? because I know i can re-use them on various jobs. The other colors offered at the place were sub-standard. But the fuschia colored ones end up looking quite satisfactory and modern. I'll combine them with glass tiles in the middle .. and no-one will notice. They'll end up looking quite modern. Italian tiles .. from Como, Italy.
Work out where the DEAL lies. Be creative in both your financing and marketing and you'll be able to work a deal easily.
Plan out where you expect the market to be when its finished. Usually you'll be wrong. But if you've observed trends one way or the other .. plan for it. Dont be caught napping.
Finally, work out with creative measure your margins on the deal for feasibility. Too many times people look for a single figure when they might only come close to that figure. Work out best outcome .. worst outcome. And a clean exit from the deal should it be necessary. DONT GET BURNT.
Oh yes .. whatever you do .. DO YOUR BLOODY RESEARCH ON THE AREA.
API had a wonderful article about a prospective investor who invested in Moree 'because the figures were great'.
As anyone will tell you in recent days .. Moree just recently spent 3 days underwater thanks to intense flooding.
She'll be praying her insurance covers flood protection .. and she might be able to rebuild and renovate. Losses .. lack of tenancy and expense … all because it looked like a deal AND SHE DIDNT DO HER HOMEWORK.HINT : The locals will often open their mouths a lot better than the Sales Agents will.
I'm always wary of stories about people who seem to amass huge fortunes in a short space of time. There are a couple of things to keep in mind:
1. some of the "bright stars" that are featured in articles like this took incredible risks that happened to pay off. They're not employing conservative strategies and they often buy in unlikely areas that happen to inexplicably boom. They were the lucky ones. Are you willing to take these risks?
2. someone with a $4m portfolio may own very little of it (especially if they have a 95%LVR; a 95% LVR for a $4m portfolio would mean the investor has a net worth of only $200,000. Not bad for a couple of years but hardly remarkable!).
I've managed to build a $4m portfolio (and no, I don't have a 95% LVR!) on a below-average income in ten years. I can't imagine how I would have done it faster considering my income and the fact that I don't take many risks.
I started in 2000 when the market was growing strongly. Now, in a climate where property values are generally moving sideways more than upwards, it'd take me longer. Granted, I didn't do much renovation and I've done no flipping, development or unconventional finance arrangements – I've just tried to buy as wisely as I can and build a portfolio slowly. I bought my first property in 2000, my second in 2002 and my third in 2006 – that's how long it took to build enough equity (and save enough) to grow the portfolio. After then I was able to buy at least one property each year. It builds momentum, but you've got to be patient (or risky and very lucky!).
I hope this helps. It's just my opinion but I thought it was worth speaking up.
Good luck with your investing!
Hmmm…An interesting topic prompting some interesting responses. One other reason I found Zaki's story hard to work out was that he actually said he bought 11 of his properties in a 24 month period-all in one state, N.S.W., so of course he'll also have land tax bills to add to his list of expenses. He also says "some of my properties have required renovations, though I'm yet to lift a paintbrush and believe in leaving that to the experts". Tradesmen were presumably an additional expense. He has done well to pay all his bills on time and continue to impress lenders.
Xdrew, when you say " you can approach non bank lenders to get your finance resolved" who are you refering to?
Catalyst wrote:You mean Zaki in this months API?I don't know about the debt but he used a buyers agent to buy under valued properties and reno them. He did a LOT of the work himself so saved lots of money there.
He revalled properties and withdrew the equity to buy the next one. Because they were neutrally geared (or just over or under) he could continue to borrow as serviceability was not a problem.
He's bought 13 properties now.
Hey @catalyst,
You seem to know Zaki from API this month, but as @moxi10 pointed out above, Zaki actually said he never done any renos…mmm…doesnt quite add up (no offense). I’m just trying to find out how he achieved such a remarkable portfolio in 24 months…not trying to ditch anybody.
Hi guys I read that article to,
he had high LVRs all 95% bar 1 which was 90% he has used LMI as a leveraging tool to amass properties quickly I would say .
In reference to what some of you guys have said about the risks he took, risk is individual no 2 peole have the same risk profile, i think good on him for having ago,
Im an avid reader of API YIP SPI every month, what surprises me is the amount of immigrants who have come to Australia and amassed decent port folios within 10 years or less, I guess they can see the oppertunities most Australians cant see right in front of themxdrew wrote:Its somewhat a matter between getting finance .. and owning property. The banks will put a natural limiter on what you can borrow .. so you can try getting your money from other sources.Believe it or not .. there are lots of people quite happy to be getting 8% or 9% secured by property from a guy who pays his bills on time. If you can prove that with ready documentation you'll find you can approach non-bank lenders to get your finance resolved. And since they arent banks .. their lending criteria is a lot more flexible. Five or six months later you turn to the banks to get the whole deal refinanced. And you end up with a reduced rate .. a happy lender .. a set of loans with the banks .. and an increased portfolio.
Dont get caught with loan sharks. They also advertise through regular means in the money columns and the internet. They just ramp up the interest when it suits them too. Which can leave your kneecaps in danger.
Gearing high works in a near neutral or close to positive market because your borrowings are high .. your movement is postive and upwards and your gearing means the input from yourself remains small. However the risks remain LARGE. If you find yourself in a slowing or downturn market .. the margin of ownership can revolve into a margin call .. as the banks now own more of the property than you do. They'll send you a pleasant letter stating that you now owe them money .. could you please pay up. That can be anything up to 20%-30% of the properties value depending on the losses incurred due to a price drop. So your 20k invest with potential on a 400k property can turn into a 80k liability to the bank.
Doesnt mean you cant do good calls. I started off my folio on positively geared country properties with upside. And once i had a couple the banks were prepared to lend on (NOTE THIS – banks are doubly shaky on some country areas for lending against them), I drew against my equity and income .. to purchase more central capital city properties with potential. I always considered my country properties long term buys and cash cows – higher risk. But they had to meet my strict criteria for workability. The real investments were always my city properties. With the excess cash i got from my country properties i was able to neg gear some of the city properties to offset the existing income. Worked fine for everyone.
After a certain size and value of the portfolio .. land tax and the purchasing relationship should be reviewed by you. Thats a longer term strategy and you should do that when you are ready for it. For the moment .. utilize the tax advantages of personal ownership and negative gearing to get the best out of your properties.
Hi xdrew
I phrased my question in my previous post poorly. It was late when I wrote it. I'm hoping you might elaborate on the non bank lenders you mention in the above post. You caution against getting caught out by loan sharks, but advise that there are lenders willing to loan in situations such as Zaki's. Can you suggest how one might go about sourcing such a lender, or suggest some potential contacts? I'm interested in expanding my portfolio rapidly, and have only explored banks for finance so far. I'm curious about other options. Thanks in advance, and for your comments so far.homersyd wrote:Catalyst wrote:You mean Zaki in this months API?I don't know about the debt but he used a buyers agent to buy under valued properties and reno them. He did a LOT of the work himself so saved lots of money there.
He revalled properties and withdrew the equity to buy the next one. Because they were neutrally geared (or just over or under) he could continue to borrow as serviceability was not a problem.
He's bought 13 properties now.
Hey @catalyst, You seem to know Zaki from API this month, but as @moxi10 pointed out above, Zaki actually said he never done any renos…mmm…doesnt quite add up (no offense). I'm just trying to find out how he achieved such a remarkable portfolio in 24 months…not trying to ditch anybody.
Yeah I have met him a few times but don't really "know" him. I must have been mistaken on the doing the reno's himself. There are 2 young guys and I must have confused him with the other.
He goes to meetings I attend. The group have assisted him in acquiring properties through their buyers agency. They typically find under valued bread and butter (read low entry) properties that (sometimes) require a reno. They recommend tradespeople if you wish to use them. By following this strategy you have instant equity and with a quick cosmetic reno the property is CF+.
THAT'S how he does it.Yes Ten-Burner there are many new immagrants who do well as they see this as the land of opporunity and take advantage of that opportunity (I mean that in a good way). Most Australians (that were born here) take it for granted.
One young guy I met there 3 years ago had a dream of buying a property a year and maybe addiong a granny flat.
THEN he met Nathan Birch http://www.nathanbirch.com.au/ who is just amazing. Well with Nathan's guidance he bought 4 properties in a month and now has a portfolio of over 20 properties. If you don't know of Nathan take the time to look at his stuff. Look him up on Utube. He bought his first property at 18 (with no help from family etc) and made his first million by the time he was 21. He's 26 now and no longer works for anyone else. Amazing young guy and the nicest, honest guy you'd hope to meet.
I know it often sounds like some pie in the sky story but this happens. You just need to network with the right people. If someone 3 years ago told mne where I'd be today I never would have believed them. AND I feel like the beginner in my group.
Hey ten_burner… I agree with your comments on risk factor. My own tolerence for risk is a constantly evolving equation based on my income, job, assets, local, national and international developments and probably whether I got enough sleep last night. And I also agree- good on Zaki for having a go, and at the rate he's going he will probably exceed his dreams.
And thank you catalyst for shedding some light on how Zaki has achieved what he has so rapidly. Again, on the subject of risk, it is apparent that with his high LVRs he has taken what would be perceived by many people to be high risk, but with proper research and careful selection, most financial risk can be moderated, offset and compensated. Achieving good rental yield is obviously one of the forms of compensation, and with the properties he has purchased, it is extremely unlikely those yields will diminish.
In light of the information you have provided regarding Zaki's progress,it is apparent my comments about purchasing blindly and without first obtaining an education about the property market do not apply to him!
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