We have 6 IPs bought over the last few years, minimum yield 8% up to 10% +. All are PI mortgages, 3 are paid for and I’m hoping to finish paying for number 4 this year. The properties are modest, most expensive is $200 but the rest around $130k. The 3 paid for return a net of approx. $2800 pm. We have around $760k equity in the IPs and debt of approx. $430k.
My short term goal is to have a monthly net income from property of $3-4k pm. The current properties not paid for are on 20-30yr mortgages and are long term holds. If possible I hope to get them all down to at least 20yrs. At the moment we live in employer provided rental accommodation but eventually one of the above paid for properties would become our PPOR.
I’m considering another IP which would need to yield min 9% but just wondering if there is anything else I should be considering to increase cash flow, or just in general terms? We have an accountant and choosing not to use any trusts etc at the moment. We’re comfortable with structuring like this at the moment. I considered an IO loan for the next property to increase our cash flow immediately but I’m not sure there is a significant difference in IO payments to warrant not paying down the loan. I think the properties have a reasonable chance of some future capital growth but I’m prioritising cash flow to reduce my working hours.
I’m possibly just looking for some reassurance from those with multiple properties that I am on the right track! Do you notice an improvement in cash flow as you get into 7 or more CF+ properties?
thanks for reading:)
not that I know a heap , but I would be thinking with 6 properties and moving to 7 that a trust or buying in company would be vey important for asset protection and tax benifets.. but you would really need a property savvy accountant
I really cant going giving advise as your portfolio is much more bigger then mine . may I ask what state / regional you are targeting ?We have 6 IPs bought over the last few years, minimum yield 8% up to 10% +. All are PI mortgages, 3 are paid for and I’m hoping to finish paying for number 4 this year. The properties are modest, most expensive is $200 but the rest around $130k. The 3 paid for return a net of approx. $2800 pm. We have around $760k equity in the IPs and debt of approx. $430k.
These figures are confusing to me.
You said your properties are less than $200K mark and that you are netting $2800 a month from 3. That’s CLEARING $933 per property. Is that correct? $218 a week clear, after rates, insurance, property management etc? That’s a pretty impressive yield.Are they all in the one state? What is your plan regarding land tax?
I am surprised you are paying them off. I know you say it’s not much difference but it limits your possibilities in the future.
Do you own a PPOR. If you want to buy on or upgrade in the future you will have a non deductable debt.
If you put excess funds in an offset (which results in the same interest as paying it down) then you can withdraw thet extra money at any time and still have all your debt as deductable debt. When you pay doen a loan the money now belongs to the bank. If you want more you have to ask. By having it in offsets you have cash available any time you want it without being at the mercy of the banks.What is your ext strategy?
Hi
Thanks for your replies. Sorry the figures are confusing and I wasn’t clear. I was confusing myself with some properties paid, some not, and currency conversion. Possibly not that much detail is needed. One of the properties is a UK one bought years ago, that we couldn’t sell due to GFC. Its worth about $370k. The system there has been kind to landlords and tenants pay the rates. Its was a new build and has not needed any maintenance. That one returns $1200pm after all costs and some contingency (agent and insurance). The other two are regional, they return $1360 pm after rates and insurance (only one of them needs an agent). Of course there is then income tax too. So sorry, not as great as I first said but I’m planning to wipe out the agent costs by managing the local ones myself next year.The other 3 are long term holds the moment returning 8-10%.
We’re in employer provided rental at the moment but will either rent in the future or move into one of the IPs.
I didn’t really plan to buy so many properties but my interest has developed as things have gone well. I think 9 or 10 would be my max but just on the edge of doing it all over again with number 7. I’m paying the taxes and trying to pay down debt to keep it all on a secure base. I understand the argument a little about using income to buy more, rather than pay off debt but there is a balance and that’s where I am at the moment I think. Basically we’ve been fortunate to have some income to pay off a lot of debt but this won’t be the case in the future so I want to maintain some caution.
thanks again I really appreciate the comments. Daniel, I’m not specifically targeting anywhere, just properties that fit.
Hi eljay
First welcome to the forum and hope you enjoy your time with is.
Congratulations on achieving what you have to date.
Trust me buying property is addictive. I intended to stop at 10 but then 34 more i am still buying, trading and flipping properties and love every minute of it.
I like you made a conscious decision to pay down all of my investment debt (thanks again to a strong English Pound when I moved to Oz) which I will do in August of this year and therefore the annual rental income is more than enough to live off comfortably for the rest of my years.
I am surprised at a 9% yield and the position you are in your Accountant suggested not to go with an acquisition in Trust but i guess he must have had reasons for doing so.
Everyone to their own but for me P & I when you have no other non deductible debt is the way to go.
No need to tell you to ensure you structure the lending correctly and avoid cross collateralising the securities.
Personally I think I would split the loan to fixed rate interest only and then maybe fixed principal & interest with 100% offset account. Course you would have 2 separate loans anyway as you would not be cross the securities and that would give you the best of both worlds.
You could focus on paying down the principal on one of the splits whilst having the majority of the loan on interest only.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hey Richard
Thanks so much for your motivational comments. I need them as have no one else to talk IP with, and I love it as much as you.
I have a problem with numbers which isn’t great for an investor (:/) but I pay my accountant a lot of money so hopefully have that covered and he does have his reasons for current structuring. I’ve used ANZ for all my loans so far, which had positives and perhaps a negative that you referred to. I’ll go with a broker for future ones. I’m really interested in the concept of splitting IO and PI on the mortage and know others who have done this, but it sounds complex for someone with a brain that doesn’t grasp figures. I’m trying to work out the whole IO vs PI vs a split at the moment, being old fashioned and only ever having gone PI. I saw an example on a $200k loan where the IO loan was about $260pm cheaper than PI. This doesn’t seem a lot of money for me, when the loan isn’t being paid off. However, perhaps if you had a few properties on IO then the $260pm per property would add up? I guess if you’re recommending to split the loan then it must free up some cash flow in real terms. I’ll try to find an example for dummies of how this can make money.
Thanks again, would love to hear more about your story one day :)Hi again Eljay
Yes hate to say Anz are not the investor lenders friend when you are looking to expand your portfolio.
We do a lot of P & I / IO splits for forum clients who are looking to protect their portfolio but also pay down their debt.
Nothing magic just a matter of working the structure correctly.Some investors like to have fixed and offset combinations which works well.
Drop me an email and be happy to send you the API interview i did on my portfolio.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Thanks I’ll take you up on that.Hi Eljay,
….and welcome. You’ve come to a good place !! Congratulations on setting yourself up so well, but, as others have been alluding, there may be other things worth considering even before you settle on the next one. Richard (I think) mentioned Offset Accounts, and he would be able to give you chapter and verse on them, for sure….
But if you are interested in catching up with some important and useful reading, do take a look here :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/That link points to a thread that catches up with some really good “early knowledge” – including Offset Accounts. Have a read – I hope it is fruitful for you,
Benny
Thanks Benny, I’ll have a look.
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