Shortfalls? – How to have 10 properties and fund them all.

Wealthyjvd.

If you take the time to read the following report including spreadsheets, you might find a little enlightenment.

http://jonchown.topproducerwebsite.com/real-news.asp?p=52

You will however need to increase your combined income a bit.

The short fall comes from your wage. How do you afford to pay the short fall – this is the hard part. I would put the ability to pay all the loans down to time. As time goes by the first property increases in value and the rent will increase. If the rent increases as the value of the property grows you can pay more off the loan without your wage contribution. This is one of the problems with negative gearing in that it restricts how many properties you can own at the same time until the rental incomes increase over time.
Tax deductions help a little as well as building depreciation but it is hard when starting out.

If you intend using untapped equity to fund the shortfall (ie max out the borrowings) you will be increasing your risk exposure dramatically ie in the current (declining) market with little prospect of capital growth over the next 2-3 years you will soon have more debt than would be recoverable from any of the properties.

IO loans work well in rising markets as you can tap into the 'growth' conversely it fails spectacularly in a falling market (when PI loans tend to perform better) – hence hedging and using a cocktail of both pi & io loans (with fixed/variable rates) depending upon your crystal ball.

You may also find a book called unlimited cashflow by Craig Turnball an interesting read.

Wealthyjvd,

There is no easy or one answer to your question.
There are various methods that can help you achieve this goal from buying positive cash flow properties only to earning big bucks privately.  The important thing most of all is to read and then find the method that you feel comfortable with and try it.

I'm old school and prefer the buy and hold positive cash flow method using equity gained too secure more properties.  I might not get to financial freedom as quick as some others but I will eventually get there.

Hi wealthyivd,

Most of the views so far have covered it for you.  With good investments, "time in the market" will help you have the ability to build your property portfolio.  Alongside this there are two primary strategies:

1) Capital growth and then refinace – Chris Gray / Michael Yardley strategy

– Property goes up in value
– Property is refinanced
– Some of the increased captial growth is used for deposit, some to help service the increasing debt
– Over time you will need to get into low doc or no doc loans as the banks will be nervous of your serviceability
– As long as capital growth increase is faster than debt levels then you are okay, but there is risk

2) Positive Cashflow properties – Steve McNight / Hans Jacobi strategy

– Positive cashflows enable you to make money and save for deposits
– You can continue to get further loans as your serviceablility is still good
– In this strategy it is all about trying to find a good property that has positve cashflow without too much risk (watch out for short term wonders) and whilst still having reasonable capital growth (this is where most of the money is made in property)

Of course, many people combine both in their portfolio

In both 1) & 2) investors look for opportunities to fast track their ability to leap frog into more properties quicker e.g.

– renovation opportunities
– strata titling opportunities
– buying below market value
– buying at the bottom of the market
– property development opportunities etc.

As always with property, I recommend that you build up your property education and then work (or get help  to work out) an individual strategy that works for your own needs, goals and financial profile.

Cheers

Mark

Wealthyjvd,
                   Just a few comments.
Magazines like to cover stories that are spectacular – so don't think that is the norm.
Most people build their wealth over time, one property at a time, as duckster says – it 's time that matters, rents increase ( but so does costs of holding ) so you slowly build up extra cash, thus eventually your houses become positive cash flow.

Sometimes I read those property magazines and wonder how people do it so quickly, I think "what am I doing wrong/", but, you have to take your own circumstances into account – everyone is different.
Also the people with 50 properties don't work for the council or mow lawns, they are the doctors and solicitors.

So do lots of reading and have a plan that suits you and your salary and life expectations, that you will be happy with.

Wealthyjvd,

You seem genuinly interested in property investment.
My first tip for you : Do not invest in property now. It's crashing as we speak, and it's about to get a lot worse.
Houses 'worth' 500.000 will sell for 200.000 in 2 years. Don't invest now, don't tie yourself down and don't make yourself a slave of a mortgage, don't ruin your life. That's the first advice.

You might ask yourself , why is a house worth 500.000 now and only 200.000 in 2 years ? And you also wondered how people got 50 properties in 5 years. There are people who have 700 properties and they did it in 8 years, so there's nothing spectacular about the 50 properties.  You can even buy 50 properties in a year , and you can even do it without having a job ! Here's the 'secret'

Note : This does not work anymore since the financials crashed : These financials crashed BECAUSE of how it was abused, and it's the reason the houses aren't worth 500.000 anymore, but 200.000.

You buy a house for 200.000 AUD using a 105% mortgage ( you get more mortgage than the houseprice, the extra 5% is used for buying costs ). You now have a house worth 200.000 and a mortgage of 210.000. Then , the next day, you ask a valuation agent to come to your house and you give him 5000 dollars to value your house at 250.000 AUD. You now have a mortgage of 210.000 and a house worth 250.000. ( sounds like magic doesn't it ? ). You can now take out 40.000 'equity' money, which basically is imaginary money that doesn't exist ( you just created it miraculously by paying some guy 5000 dollars ).
You can now use the 40.000 to pay off the mortgage, but also you can use it to finance another house.
So , even if you're homeless, and you don't have tenants, you still can afford the house.
You can do this 50 times, 100 times or 700 times ( like a UK couple did ).

Now you understand why houseprices are so high, it's all the 'virtual' equity money that people used to buy all kinds of stuff, houses, boats, new clothes and holiday trips.
You also understand that the house still is worth 200.000, and not the 'virtual' 300.000

This is how USA and UK financial markets and housing markets crashed. This is also how Australia will crash.
Only difference is Australia's crash will be MUCH bigger than UK and USA crash put together.

Stay out of property… until you can buy for 200.000 instead of 500.000….

that was a nut that hit your head scamp not the sky