[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 6, 2007 - 7:59 am

Hi,

I subscribe to the Best Rent Report (buy 3 get 4), and did so after buying a single as a trial. I've found them valuable as a way to identify areas to research further, and also have had my confidence boosted when areas that I've researched turn up in the report!

The disclaimer in the front says:
"You are entitled to hold a single copy of this report having been given it by Residex Pty Ltd. You are not entitled to make copies of the report or extract data from this report and use it in reports you may produce. Please note that Residex will take legal action against any party who wrongly uses the data it provides"

The entire document is Copyright, and it's about 1cm thick, and made of paper, so it would be tricky to email .

I don't think it's a lot to pay for the information that it contains, and importantly the time that it saves me. I suspect the other reports are equally valuable. Buy one and see. It's deductible. If you don't think it's worth, then don't buy any more.

Daedalus.

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 5, 2007 - 1:40 am

foundation wrote:

But which one would have suit a high risk profile investor? Which option carries the highest risk? Sure, I've charted years, but it doesn't matter – the net position is always in favour of the P&I investor.

The only obvious way I can see for regular people with just a couple of IPs to benefit from IO loans is if they put all the savings generated by using IO into paying off their non-deductible debt first, then switching it back to P&I for the investments. That would require a fairly high degree of discipline. And it raises the question of whether they would be better paying off their non-deductible debt before buying negatively geared speculative investments…

Cheers, F. [cowboy2]

You appear to have assumed that I'm promoting IO over P&I. Not actually so. I'm suggesting that people explore the various impacts of how they allocate their capital.

BTW For clarity, my position is that IO is higher risk, because the IO investor is betting that they can get those significantly-better-than-8.5% returns. This would typically inolve further gearing, which increases the risk.

The question of paying off non-deductible debt is an interesting one. Haven't done analysis, but since property investment (from my perspective) is largely about reaping the benefits of compounding, time is required. The longer you leave it, the less time you have, so the less compounding etc. The hare and the tortoise come to mind.

Ironically enough, I had paid off all non-deductible debt before swinging into property investment. I wish I had started sooner. The real secret to success is time.

Daedalus.

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 5, 2007 - 1:17 am

More indeed. It pays to understate.

The 4% was not intended as an attractive alternative, but as an indication of the effect of that cash compounding in other investments. Of course, if you can't do (significantly) better than the 8.5% with the cash, you'd be nuts not to pay off the principal.

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 5, 2007 - 12:47 am

Nice graphs F,

Only a couple of points to add:

You can still pay off the principal if you have an IO loan. Your reasons not to do so may include:
1) your desire to deploy that cash into other investments, perhaps leveraged. If these investments are successful then the money will have worked harder for you. Also, there's a lot of accumulated cash flow between those two curves – at least $50/week. If you compound that quarterly at 4% over the 25 years you end up with $111,921 in cash. This should not be ignored.
2) affordability. i.e. you can afford the IO repayments but not the P&I repayments.

It comes down to your risk profile and your investment strategy. Note that the x-axis is in years, not months.

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 4, 2007 - 8:58 pm

Hi Rob,

You need to sack this property manager (because they are not really a property manager – are they?).

Is there a larger town nearby that has more property managers. If so, you may find an alternative there who will manage properties in your town.

Daedalus.

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 4, 2007 - 10:57 am

Welcome VI!

I would highly recommend reading some books on property investing over the next month or so. Things in the property market tend to get a bit quiet over xmas, so it won't set you back much time-wise or money-wise. The knowledge you gain will be more than worth it.

There's a good choice of books by Australian authors around. Read a few. This way, the opinions that you base your investment strategy on will be yours. Knowledge is power!

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 4, 2007 - 7:53 am

I agree with NorwegianBlue.

There is always a new reason why NOT to do anything. You are either moving forwards, or you are moving backwards. Procrastinating is moving backwards. Evaluate the risk, work out a forward move, then make the move.

I personally would look for an investment that doesn't require me to provide so much ongoing funding (i.e. CF+), but that's just the approach I use. That way, if it all turns to crap there's better odds of being able to afford to keep the IP – or at least you can pay more of the debt down while you're waiting for the next apocalyptic scenario to occur

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 3, 2007 - 9:39 pm

Hi p_mac,

You should definitely buy the book now.

WRT starting. Your first investment will be determined by:
1) Your level of income (assuming you need to borrow)
2) What funds you have to invest
3) Your level of knowledge.

Maybe the starting point is to ensure you have adequate capacity in those 3 areas? Maybe the starting point is to refine your strategy down to exactly what you will do in the next 3 months to progress yourself along your strategy.

Note that this might not actually require buying property in that timeframe – the first year of my plan involved research and reorganising income and finances so that I could begin to execute my plan.

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 3, 2007 - 8:53 pm

Hi p_mac.

I don't think it really matters what you're strategy is at this point, unless you already have a war chest to invest.

Whatever strategy you come up with now will probably have changed within a few short years. My 2 recommendations for you at this point in your life are:
1) Make sure you do something i.e. make sure you actually start on some kind of plan right now.
2) Make sure that you don't do something fatally stupid. This would be quite hard to do investment-wise at the age of 20 (after all, how much have you got to lose really?). Don't fear making a small mistakes, that's how you learn. So back to point (1).

Time in on your side p_mac, just make sure you actually get some plan under way now, be prepared to learn as you go, and you will do well.

I recommend that you buy this book: http://www.amazon.com/Slight-Edge-Jeff-Olson/dp/0967285550/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1196714897&sr=1-1

All the best,

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 2, 2007 - 8:55 pm

Hi JL,

I'm pretty new to the forum too, and it takes a bit of reading between the lines to pick up some of the terminology. However, here's a link to a glossary with a lot of property stuff in it: http://www.somersoft.com/forums/showthread.php?t=9382.

Some abbreviations are Internety ones, such as WRT (with respect to), IMHO (in my humble opinion) etc. More can be found here: http://www.gaarde.org/acronyms/

You sound like you're doing pretty well, congratulations!

Daedalus.

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 2, 2007 - 5:28 am

Hi Richard,

"but often it is for only 10% of the purchase price"

Could you elaborate on this please? Won't the serviceability over the other 90% still be a problem? I can understand if the no/lo-doc is over the whole purchase…

Cheers

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 2, 2007 - 3:46 am

Hi all,

It seems that this approach is well suited to IP's where the yield is high and CG is high, but the expenses are minimal. While you only pay 15% on the upside, you can only claim 15% on the expenses too. Since many CF+ IP's at personal tax rates are only CF+ because of the depreciation, many of these will no longer be CF+ on a tax rate of 15%. It's pretty tough to find such an IP unless you don't have to borrow, which negates the whole discussion.

I think that the main point of using a strategy such as this is to leverage your super funds, not as a form of tax minimisation. Accessing super might be a quicker way to kick start a property investment portfolio than saving up a deposit or paying down personal debt to get some equity.

The other advantage might be to get your super funds out of the hands of some bozo funds manager. [My personal quest is to reduce the number of idiots between myself and my investments to just one idiot – me!]

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 2, 2007 - 3:22 am

Cheers CM,

I think that the servicability rules are developed for the masses. Fair enough. They should have another set of rules though for people who are putting effort into their financial future….

I found out that WRT servcicability, your Credit Card credit limits are used to calculate serviceability, not the balances. So even if you pay them down every month, it doesn't matter. However, I'm told that if you can provide 3 months' worth of statements showing that you pay them down, some lenders will increase your servicability. The other option of course, is to get rid of them or reduce the credit limits – which I've already done once.

There must be some other sources of finance out there to cover this kind of situation. The limitation might be that we are looking to home loan products for our financing, and they bring with them these servicability rules. Perhaps another type of finance would look at servicability a different way…

Daedalus

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 2, 2007 - 1:44 am

Hi,

I'm really interested in the answer to this question, and put together my investment plan a year ago hoping it would be the case. I did expect that the growth rate would be limited by the amount of equity though. All the banks I've ever used always needed me to kick in something, eg a 10%-20% deposit. So I could only expect to add new properties as my deposit equity grew.
So I figured that (since I have a fair bit of starting equity) I could go on a CF+ shopping spree, buy a number of properties to consume the equity I have, then wait. After a year, I would get the properties revalued, which should create some more equity. This new equity could then be used as deposits on new property etc and on it goes. So, I expected that I would be limited by the rate at which the underlying equity grew.

We are now several properties into this plan, and I'm starting to get noises from my lenders that serviceability is becoming problem. To me this is ridiculous, as our properties are CF+ (or neutral), we have no other debt (not on PPoR, not on cars, not on CC's), and have surplus income each month to reduce the IP loans by a few grand. It looks like I've got capacity to make maybe 1-2 more investments, but that's it. (My plan was for about another 6 at this point).

When the lenders look at what you can afford to borrow, they don't allow for ALL the rental income (maybe 70-80% only). This means that as far as they are concerned, you have a collection of negatively geared properties, and you can only afford so many of them.

So these are 2 of the limiting factors on your (and my) world domination plans . When I find a way around the servicability limitation, I'll get back to working on the equity limitation….

Rgds,
Daedalus.

[DaedalusMember@daedalusJoin Date: 2007Post Count: 140]

December 1, 2007 - 10:14 pm

Hi,

There's a reasonably good discussion of this in one of Margaret Lomas' books (can't remember which one). However, need to ask them how many staff they have, and how many properties. Then you do some division to work out how much time that leaves to give your property the attention that it needs.

I find that whoever I select, I need to spend the first couple of months giving them the message that I expect them to actually do something for their money. I do this by communicating with them frequently, and ALWAYS following up conversations with an email that records what they said they would do.

This lets them know that you are a serious investor, and your properties will get more of their attention. They will manage the properties, but you need to manage them

Daedalus.