Hey guys, new here and this is my first post
I have previously invested my money in the Foreign Exchange markets but by some stroke of luck i ended up getting a rich dad, poor dad audio book off my friend and had a listen to it at work last week, one of the modules talks about the advantages of real estate investment (albeit american advantages, im australian)
I've been doing some research and come up with a few examples, for instance
If i saved up $20,000 with the aim to buy a $200,000 IP, applied for $180,000 loan and was accepted
To pay off the principle and interest i would need to pay $1080~ a month (at 6% interest, hoping it doesnt go up),
Say i could rent that property out for $300 p/w (if i was lucky), that leaves (on a 4 rent paid week month) a total of $120 leftover, over 12 months thats $1440
I doubt that is enough to cover various costs of the property (maintenence, council rates).
The audio book goes on to then say you use the equity generated in that home after a few years of payments and improvements as the deposit for your next loan.
One question here, say you use $20,000 equity to obtain a loan, if i wanted a $200,000 IP, does that equity allow me to borrow the full $200,000k for the IP or do you use your equity as $20,000 cash (i assume its the former, when someone sells their house to you the dont want $180,000 cash from a bank loan and $20,000 equity in your house)
So how do you make it work, how do people get ridiculous amounts of properties. Judging by this it looks like i will have to add my income to maintain the first investment property, and slowly add more of my personal income as i gain more properties, eventually i have to hit a wall where i cant afford to keep buying, yet ive heard of people owning 30+ investment properties.
What is the trick that i am not understanding? haha.
Do you pay the interest only on loans?
Do you wait a few years and refinance your IPs so you have to borrow less and less making the repayments smaller (each time renewing the loan to 30 years)
Thanks for any advice or direction you can offer!
The tricks that tend to get re-stated in forum are:
1. ONLY pay INTEREST, not PRINCIPAL.
2. I would suppose that after a few rent increases, even $5 per year, you would take a property from neutral to positive fairly quickly.
3. I seen my bank has a three year fixed rate at 4.99% now. I fixed mine at 5.32!!! I hate when things like this happen
4. You would also need closing costs for your purchase, not just deposit. I imagine the advice others will offer is, 5% deposit (10k) then the other 10k for stamp duty and legals, so your loan would be 190k, not 180k.
Others in forum far more knowledgable, but that will get the ball rolling I'd imagine
Depends on the strategy – I have a mix of cashflow properties and properties that I have built reasonable equity (but they were heavily negatively geared properties).
Ultimately, people hit either the servicing or deposit/equity wall. I usually deal with people who hit the later. So building good equity is very important.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Blue Toffee
You need to factor in another 5% to cover purchase costs – these are generally stamp duty, legal fees, building/pest inspection and a few the minor expenses at settlement.
In terms of releasing equity – some lenders will allow you to borrow up to 90% against the properties value.
So if you purchased a $200k property using a 10% deposit ($180k loan), carried out some renovations, had it revalued at $250k – then you could borrow up to 90% of this new value which is $225k. So you take the $225k and subtract the initial loan of $180k and that leaves you with a $45k equity release to cover the deposit/costs on your next purchase.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you all for the comments!!!
90% is alot, really makes me wonder why the people i know who own properties havent done this? (parents etc), i keep on reading that property investment rewards the knowledgeable so that must be true haha. Thanks guys!
BlueToffee wrote:90% is alot, really makes me wonder why the people i know who own properties havent done this? (parents etc)
Because there is security in keeping your Loan to value ration LVR lower , so you dont have to risk what you have earnt saved made or created if the market place went south.
You might begin at LVRS of 90 -95% To get you foot in the door. But that is not a place you would want to end up.
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