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Hi again,
I hear you, and yes, your questions make sense – Steve mentions two phases – accumulation, then consolidation. As I understand it, the accumulation phase is where you go “all out” to gain equity that you can then convert into Income down the track. Steve makes the point that Commercial Properties give a better yield (Income) than residential, so he talks of building your equity with residential properties first. Once you have the equity you need, use it to buy Commercial that then throws off extra cash so you can leave your job.
But beware, those few words are the nutshell – there is far more to it than just that, and of course, you might need to have a high income to be able to grow your equity. So, yes, you might need to buy 50 properties – or just 16 (see a story that comes from the topic called “The big picture” – about a young bloke who wanted to accumulate quickly) :-
One line from that link is this – “He created rental incomes of $200k in 2 to 3 years”. That was gross income, but hey, there was a lot left over for him (to buy more, or simply to live). He posted later to tell us where he is now…..
You’ll be able to access the whole “big picture” topic from there too. Or look for it in the Welcome PM you received. There are a host of other ideas in that link,
Benny
Hi Big Lachie,
From your words, I suspect you’ve got to page 100 or so, but perhaps not much more yet? I see where you read the part about “thirds” – it is between pages 92 and 100 – or thereabouts. Did you spend time on the other two “thirds” though, and what each of them does for you? ‘cos it is all about the whole picture. Steve used the “thirds” to good purpose – but perhaps it might be that things can work better (for you) by utilising ALL of the postive income in just one area rather than three? But to round out Steve’s idea of thirds, let’s take a bit longer look at them:-
One example of what the second third can do is told in later chapters – see p235 for Vendor finance and how that can lead to a lot more income over time, OR indeed a lump sum equity jump instead (depending on how things go for the purchaser). Either way, the investor (you) is covered – via income or equity. Note too though, that Steve’s earliest purchases used that system as it worked well with inexpensive properties. Even then it only worked in a small number of areas – Steve needed to change his focal point once that area (Ballarat) values grew too high to use that system.
Steve talks of “Multiplication by Division” too (see p49) – revisit those pages to see how he was able to recoup “lazy equity” by selling one to enable him to buy two more. That’s another way to increase BOTH your income and your equity (capital).
And then (on page 99) he talks of using shares for capital gains (as one can make money whether share values are rising or falling). In the end then, do you need 50 properties? Maybe – maybe not – it is all about “how you choose to structure your investing”. From what I can see, Steve’s way is a patient, sure way where you walk the path to financial freedom. Not a sprint, but more a marathon.
There is a lot to it, Lachie – do come back with more questions as you go – I hope the above helps in some way, :)
Benny
Hey thanks Terry – appreciated !!
Benny
Hi Amelie,
Sounds like you may have a DSR concern rather than an Equity one. i.e. that the Bank may not let you take on double the loan so you can pay out the other partner. I’d think the way to find if there is any chance is to speak with a reputable Mortgage Broker.
There are several who post on here (their signatures tell their tale), or you might want to talk with Steve’s own recommended broker – follow the bouncing ball to talk with Chris Berry about your situation >>> http://www.PropertyInvestingFinance.com
Benny
Bump – click here for the first post:-
In short, if you are an adviser with a signature, DO include in your sig the details of the cities you service, and log your details in here too so that other members wanting your services can find you (and where you work).
Benny
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This reply was modified 5 years, 2 months ago by
Benny.
Hi Alex,
That sounds like a healthy business you have there.
Owning a small bakery business in Vic. My weekly net profit $5000 pw for our whole family after all business and family expenses.
Since this produces so much active Income, what if you made it Passive by employing others to run it? I don’t know how many wages you’d need to pay, but I’m guessing it would still leave a very healthy passive income. And you can then spend your time creating other assets, knowing that (if necessary) you could always go back to the active role if things got tight (either personally, or economy-wise). Could that work for you?
It’s an interesting scenario – thanks for posting it. I’m interested to hear more….
Benny
It has been a while since last comments, but a chance comment on TV re Switzerland and its success with Covid19 has led me to share this info.
As the whole world waits with bated breath for a vaccine for Covid19, the Swiss seem to have stumbled onto something that is worth a second look, and maybe a third and fourth too. You likely all know the name – the link below shows how a Lancet article led to the Swiss STOPPING the use of this drug, only to have their Covid mortality rate increase by nearly 5 times the previous results. That rate then fell back again once HCQ use was re-commenced by the Swiss. QED? Sounds pretty good to me.
But don’t listen to me – take a look here:-
“According to the critics of hydroxychloroquine, these 15 days of prohibition should have had no impact on patient survival, but this is not the case”
http://www.francesoir.fr/societe-sante/covid-19-hydroxychloroquine-works-irrefutable-proof
So, what are we waiting for? Sounds like good news to me…..
Other words I have heard from various sources also add extra comments re HCQ:-
1. That it is most effective in the EARLY days of a person’s Covid positive testing, AND
2. That zinc is a further important ingredient that should be included along with HCQ. i.e. those tests that show HCQ is NOT effective often were testing at the wrong time of a person’s Covid disease, or without a sufficient addition of zinc along with the HCQ.
Yeah, I know – that bit’s hearsay – but look it up for yourself. Or reply with further knowledge if you can add more. If we are all in this together, then it is together that we will beat it. Feel free to do your bit too with a response. ;)
Benny
In answer to your question about “something bigger”, I guess that remains in the lap of the gods – any major world event will always impact on Aussie. But for me, I think the home situation (above) is far more relevant right now.
Well, another year has flown by, and what a year. And how’s the Covid19 pandemic for a “major world event”? Didn’t see that one coming, but now it’s here, and the whole world is staggering right now. Again, it is too soon for predictions about our housing market. On one hand, the current Govt stimulus is providing extra $$ while many businesses are forced to shut. For now though, many recipients are sitting on their hands and not spending the extra. With borders between States shut, the usual trading that happens inter-state is being hamstrung – not stopped completely, but certainly nowhere near as “free” as it was.
Thanks to Steve for his direction recently (see his webinar called “What’s your Pandemic Plan?” dated 8 Aug 2020). Sobering words in there, but also so much wisdom and even hope. Well worth a look for those who haven’t seen it (the Facebook page is here – https://www.facebook.com/pg/properinvesting/posts/ )
I don’t have much more to add right now. Could this pandemic thing be the catalyst that finally topples the housing market? I’m not so sure – yes, there are pricing falls here and there right now, but these are after huge gains in the last few years. With International borders pretty much closed, we aren’t inviting immigrants so no extra housing needed, meanwhile those building starts from the last 3 years are about to complete with a dearth of buyers. That HAS to have a negative impact on prices – but just how much? Too early to tell, and also with the pandemic, we’ve yet to see just how rampant it will be. Worldwide deaths are growing – as yet these are nowhere near the Spanish flu deaths from 100 years ago, but then this thing could go on for years. Who knows right now?
Not me. Borrowing words of hope though, “This too shall pass !!”
Hi Alan,
As Steve has shown there are many options – even too many to mention right here perhaps, but do spend some time familiarising yourself with this site, and some good books on the subject. Also did you check the link in the welcome message I sent you (the “Big Picture” one)? It shares a host of different thoughts on the “How to” and “What to watch out for” in property investing. Also on this forum website’s Home Page there is the Training Centre. Spend a month or two just looking and learning of the many options you have open to you.
Here’s an extra thought that I had on reading your first post:- Depending on your borrowing capability, is it worth considering financing some/all of these purchases? You see, if 5 houses can return you $400 each, what if you bought 10 instead using finance? That could work better in a higher capital growth area as you’d have twice the number of properties gaining equity even as the income pays down the mortgages. Of course, that decision would need to be tempered with your lack of knowledge – i.e. don’t jump too soon, but spend some time educating yourself to all possibilities, then go with the one that makes the most sense to you.
Welcome Alan – do come back with more questions if you wish,
Benny
Thanks Principal,
Good to hear that is an option that does work – appreciate you taking the time to let us know this,
Regards,
Hi Terry,
>>> Not sure how you get that idea from my posts.
Maybe this one confused somewhat? Worked for me…. :p
If I take the 800k and put in the redraw then take it out to buy a new property, will the full 800k be deductible?
= No
Hi Ben,
I would think timing might be of some importance…. By that, I mean it may be better to buy the IP and THEN go and buy the other investment with the remaining cash, rather than taking the cash out first, which might impact your borrowing for the IP. e.g. you wouldn’t want to spend $25k then find your deposit needed to be $80k. First things first, and you should be OK I would think….. ;)
Note – I’m not an adviser of any kind, so check with the right professionals re that.
Benny
Hi Norman,
Just a thought – have you found a new property manager as yet? If you have, is it possible they might be able to provide an easier path for you? e.g. like switching banks – don’t deal with the bank you are leaving, deal with the bank you want to go to (they want your business, so may well handle the “shift” in large part for you). Or not….
I haven’t tried this personally – I figure it was worth sharing the thought, and someone else might step in if they have tried this themselves…..
Good luck,
Benny
As we start to explore the “Millionaire Next Door” along with its comments on frugality, this topic came back to me. This describes just how expenses can also compound to cruel one’s efforts at gaining wealth. Start back at the first post and test your guesses against the reality of compounding growth – less compounding expenses !!!! It shocked me when I went through it.
Of course, in that example we used a simple “doubling every year” of income to show its compounding benefits – but also look at how a defined percentage of expenses plays havoc with those compounding income figures. Shows that frugality is every bit as important as is growing your income.
Steve, perhaps you could provide a simple Excel example where differing values can be tested? And of course, even as we take a simple doubling of income, it might be that we can more than double it each year, with (say) a 20% uplift offsetting many expenses to prevent the decimation of the growing wealth.
I’m sure there are many other new thoughts that can be derived from this example – greater minds than my own will no doubt add much more value around this fascinating subject. With the Millionaire Next Door being studied, I’d like to see what added value might appear right here !!! Please…. ;)
Go for it !!!
Benny
Just a reminder for those wanting to meet up with others in Brisbane…. someone was asking on the webinar…..
A recent foray into Steve’s book “Millionaire” led me to a brilliant discovery. I’d written “Gold!” in the margin of the book (it’s on page170) right by the lesson in the last two paragraphs. Steve had said, ask for a discount if you can leave a 50% deposit when purchasing. The beauty of such a large deposit is that finance is pretty much assured at any bank, thus giving the contract a much more solid grounding. So,ask the vendor or RE agent “If I left a 50% deposit, what discount could I get on the purchase price?” and he went on to explain that doing so would be a much better ROI than having a heap of lazy cash in a term deposit at 3%. Steve then showed how well a 10% discount plays out (see below).
You might be thinking “Why would a vendor willingly provide a further discount on a sale?” The answer lies in what their situation is. Steve suggested “They might have already had two failed contracts, they NEED to quit this property, and they want assurance that this one won’t fail.” By providing a 50% deposit, you’re showing a healthy ability to go ahead from the finance side of things – any lender would bend over backward to finance you if you’ve already covered 50% of the value in cash. The simpler finance (no LMI, and an LVR at 40% or less) should speed things up immensely. This allows quicker settlement times. Maybe the vendor would relish a 30 day contract, and will discount the price even more to make that happen instead of waiting on a 60 or 90 day settlement.
As an example, I then expanded on Steve’s thoughts by considering the purchase of a property for $400k. Assume a 10% discount if we put down 50% deposit on contract. So, we put in $200k cash on a $360k purchase – and it immediately returns $40k (the discount) on that $200k – that’s a 20% return on paper. Nice !!
But wait, what if we refinance later on:-
We take out an 80% loan on a $360k value – $72k is the 20% deposit, so $288k comes back to us as cash – this repays our original $200k, giving us $88k profit, and our tenant then pays for the new mortgage via the rent they pay us.So, didn’t we just make a 44% return on our $200k in a matter of months? Isn’t that GOLD? Thanks Steve – an awesome thought that became a catalyst for more thoughts.
But wait – there’s more….
OK, what if you can only get 5% discount? It is still way better than 3% in a Term Deposit, but there is so much more too. Like, the above example didn’t entertain the idea that:-
1. We bought the place to renovate then rent, so the VALUE jumps way above the $360k we’ve paid.
2. We were expecting $400/week rent, but were able to get $500/week after renos.
Doing it again then, we buy a place for $400k, but then we get 5% discount for a 50% deposit – so paying $380k with a $200k deposit. We also spend $60k to renovate, lifting its value and renting for more. The fact that we bought a discount gives us a $20k profit on our initial $200k (or 10% return on paper). The renovation also adds $100k value to a $400k house, so now valued at $500k. (Our spend of $60k generated $100k more in equity on paper).
So a few months later, with the house now renovated, we refinance at 80% LVR with a lender. This gives us back $400k to reimburse our initial $260k spent. So, $140k profit on a $260k spend is over 50% return – perhaps in just 3 or 4 months. Is that better than 3%? Are there other costs in there? Sure, but there’s quite a bit of cream too, right?
What if we did 2 or 3 of these per year? ;) Good hunting.
Benny
Hi Harley,
On a quick revisit of your post, I noted a bunch of things that told me you really need to chart your course before setting off on it. You have some of the “basics” there, which is great, but missing the overall “big picture”. This is where Steve’s offer could work so well. Real Estate investing is a B-R-O-A-D subject – one can get some quick ideas by asking around, but you can’t beat applying some diligence in educating yourself. Reading books is good too, but you can’t ask it questions. Meeting up with other investors has its place too, and we can learn from each other. Webinars can add depth to any book learning, as can seminars – but even these aren’t enough, if only doing the odd one here and there, to build real knowledge – that comes from experience.
So, how should you go? To me, a “starting out webinar” (or a series of webinars) sounds like a smart move – if you only learn enough to stay away from the “cliff edges” that can have you fall over, then you can commence investing in relative safety. You’ve started in the right way (by asking how) but the subject is so great that it will take time. That tells me you are already aware that “cliff edges” exist. Steve’s offer sounds terrific – but for mine, I’d be happy to pay for such info if 100 or so others aren’t ready right now. You too? One of my favourite quotes is this – “If you think education is expensive, try ignorance!” :)
Steve wasn’t doing webinars when I started out – he hadn’t even written his first book. But back then, I spent nearly a year of reading, researching, meeting investors, seminars, etc before I bought my first IP. You could short-cut that time with something like Steve’s proposing – better some instruction at the top of the cliff, than an ambulance at the bottom…. :)
Meantime, try the Training Centre for some useful reading – go to the Home Page and look around…. and check out for investor Meetings in Mel and Bne that seem to occur regularly.
Benny
Hi Vyaw,
Well, it looks like the 2.5% (add GST to that, so 2.75%) IS still the norm in Qld eh? So that would save you $10k if you run with an agent who isn’t wanting to stiff you for 3.5% like the one you first tried.
Benny
Hi Vyaw,
Back in the day (pre-GST days – circa 1990’s) the word in Brisbane was “Add $18k to the Sale Price then take 2.5% of that total”. The wording went something like “That is the maximum amount an RE agent can charge for a property sale”. Naturally enough, the maximum became the norm over time. Even though the word was “you may negotiate” we didn’t find many RE agents that would.
I thought at 2.5% they should be happy, as, with any/every lift in values they would get a pay increase (nice work if you can get it). Back when we started buying, the house prices were around $100k, so 2.5% wasn’t too onerous at all ($2500 commission). The year 2000 saw GST introduced so (naturally) the 2.5% became 2.75%. From the 1990’s through to 2010 though median values in Brisbane hiked up several times – from $100k to around $450k so they were being well paid still at their 2.5% (with the extra 0.25% as the GST going to the Govt).
Even in those times I’d thought that those selling higher priced houses should/could negotiate a better deal as it takes almost as much for an agent to sell a $500k house as a $1500k one, surely. Why should an agent get 3 times as much for fractionally more work?
And now, you say they want 3.5%? Some of that will be GST but even their 3.18% slice is a huge lift on 2.5% – let’s see, that’s a 27% increase on “the old norm” AND they have that “higher value sale” advantage too. So, I’m with you – I can’t see how they deserve such a large slice. And aren’t their costs today lower than ever, with the Internet advertising and all? They want it all – did they boost their percentage to make up for recent falls in value? If not, WHAT is their justification?
And what do the REIQ say about it – ask them “what happened to that maximum percentage rate?” Has the law been changed? Or do the Agents know you’ll likely need to wear a 10% drop in asking price, and they want their commission to be more plumped up to avoid taking the hit along with you????? Cheeky blighters…. whichever excuse they come up with.
It may be worth ringing around – like, check with Gecko – do they still do a “flat rate to sell”? It’s worth spending a bit of time to gather facts to offer to any agent who is pushing a 3.5% rate !! Like with Bunnings – have them match any “lower rate you find”. :) Good luck,
Benny
Another thing that tends to be overlooked/ignored by reporting media is the relevance of the Covid death rates. Aussie’s death rate is WAY low compared to other nations – thus we should be able to get back to business sooner.
Instead, let’s look at a nation who is currently seeing a really high death rate – the USA. From what I’ve learned, their death rate is like 3% of all those who get Covid – quite high compared to most. Their current total deaths from Covid are said to be 85,000 in about 3 months. On the other hand, their yearly death rate in 2018 (latest “numbers” available) was 2.8 million people, or about 240,000 per month. Covid is less than 30,000 a month on average. OK, that’s an extra 12% – or IS IT? Do we even know it is “extra”? Couldn’t it be that these were folk who were likely to pass away anyway due to other health issues, or age?
Did the 30,000/month die OF Covid, or WITH Covid? Is anyone looking at that? Should our economies continue to be shut down over what could be “just another flu” in reality? What about Aussie’s case?
The deaths from Covid in Aussie are still below 100 in total (say 30 per month). The Australian death rate per year (also 2018 for consistency) is seen to be 165,000 or 13,750 per month.
Say wha’ ? We have stalled our economy for 30 deaths (extra? Who says?) on a total of 13,750 ????
Back to work folks. State Govts – are you listening?
Benny
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