How do I purchase my third IP?

Ok this is an easy one.

You have reached your ceiling because your existing folio is totally dependant on growth and better rents before it takes off into a situation where your debts are outweighed by your potential to support them.

Thats cool .. thats how longer term property deals hold together. Presumptively on the basis that the markets have to change .. and hopefully for the properties concerned .. thats up. And the overall market benefits because a property that is not on the market limits the supply available to the existing market .. hence driving the scarcity up for properties in the area.

But for you it means a wait.

And do you know something? I have a life to live .. I HATE WAITING.
Whether its in the queues at McDonalds or for stamps at the post office .. i have no time for waiting.

And my folio doesnt either. And your folio shouldnt either.

There is no fun in waiting .. your current situation locks you in until your price/rental ratios double. And usually for most people thats between 8 to 12 years depending on when you got into the property cycle.

This is one of the reasons that value adding deals make such a difference to the deal. You buy when either price or rents are under market and improve the capital value or rental potential. This of course changes the ratio of expendable funds too and lo and behold ! The banks will treat you like a man with spare cash to invest again !

A property portfolio should be regularly assessed and re-assessed. I have had deals that were even positively geared but left little upside and the serious possibility of a downturn in rents. At that point I cut my losses .. and moved on.

You see .. if you treat property like a gamble .. then .. like a horse race .. you back either a sure winner which may not pay a hefty return (and still may not come in), or a mid range value which possibly has the goods on paper at longer odds. Only one horse will win the race .. (and in this case provide the better returns). But from the sidelines .. can you guess with 100% certainty which that will be?

From your folio .. you’ve started pushing ahead with cap gains over and above what you laid out. At this stage it would be just enough to cover the stamp duty you spent on purchasing the place .. plus a couple of thousand.

You are running a relatively conservative portfolio .. and as such .. the returns are at a level where they may JUST cover the loans or require input from you to service them. Banks like to see a little flexibility in the deal when they lend .. and if they dont see it .. they’ll jam up until they see enough flex to bank another deal or two.

That doesnt mean banks are your only source to finance a deal. Try vendor finance if you see one you can manage .. as the vendor plays bank on the deal .. hence the possibility of a little more flexibility. Outside of that there are non-conforming lenders who may like to value your existing portfolio differently.

Hi Keldyn

I wouldn’t be surprised if you could purchase again.

Depending on your tolerance to risk – you could extract equity in that first IP to cover the deposit/costs on a third.

Cheers

Jamie