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For loan 2, I generally like to use Home Equity Lines of Credit (HELOC) which acts as a separate loan, and whihc you can use for deposits for your next IPs.
Yeah if it’s a regional town and a multi-unit property, >8% is not too unusual because of the lack of demand both from city-dwellers/city-based investors as well as locals in the town.
I bought a multi-unit property in a NSW country town – very CF+ and very profitable – that had a gross rental return of 15%! Still have it today. Always great to find gems that most other people don’t want but can be very profitable for yourself.
You have got the main gist of positive cashflow investing, and your question revolves around what JacM called ‘natural equity growth’ – which is a good description.
One of your assumptions was this: ‘So now my equity is down to 30k and for this example let’s say there is no capital growth for 10 years so that figure does not change.’
However, if you have been paying principal and interest for both your PPOR and your IP, then in 10 years, you would have paid down a fair amount of the loan for your principal for the PPOR and IP. As you pay down your principal, this also actually increases your equity in both the properties (even if the properties did NOT achieve capital growth at all in 10 years).
Another way that you increase equity (without lavish renovations), is to gradually increase your rents – even by just $5 per week per year – or at least in line with the market. In 10 years, the rent is very much likely to go up, just by virtue of inflation. As your rents go up due to inflation, then the value of your property also goes up due to the income-method of valuing a property. As the income of a property goes up, then the value of a property goes up and your equity goes up – and so inflation has helped you within that 10 year period to increase your capital growth.
So as you can see, there are 2 factors that you didn’t consider that will actually help increase your equity over time (even if you don’t do proactive renovations OR the capital growth in the area is lousy): 1) Paying down the principal of your properties over time; and 2) inflation and the gradual raising of rents.
I saw some a few months ago in Western Sydney for around 290 just past the blacktown area.. but they get snatched up very very quickly, and the demand has been driving up prices so that there really isn’t much anymore.
You could wait for the market in Western Sydney to slow or burst and then get into it when prices dip a little – but you may have to be patient.
Otherwise, you could check out other areas outside of Sydney, or check out other capital cities in Australia.
Yeah it was a bit hard to read your original post.
Anyway, here are some feedback from some of your comments.
If you’re planning to buy without viewing, be sure to still at least get building inspections and pest inspections done on the property and have the reports sent to you before you settle on the property. That’s what I have done when I’ve bought site unseen.
Also, you asked about SMSFs. I was looking at them recently as well, and I was reading around before that it was suggested that you needed at least $200,000 in your SMSF to make it worth your while, but recently I found out about ESUPERFUND which helps you set up a SMSF even if you have below than $200,000 in your super.. Read this for more info: http://esuperfund.com.au/articles/the-200000-smsf-myth.html (I am in no way related or affiliated with esuperfund, I just have been reading up on SMSFs as I have been looking into them like you have).
Also, you could add “Subject to” clauses regarding the acceptability of the building inspection results and pest inspection results.
I always put them in my offers.
Agree with TheNewGuy…. If you want Positive Cashflow properties, they generally aren’t achieved through building brand new. That’s from my experience. Look at the numbers yourself.
You’re better off finding existing properties in low-socio economic areas that deliver a high % ROI from the current achievable rents.
The strategies mentioned above are sound. You can use a home equity line of credit (HELOC) in order to borrow against your existing PPOR or first IP.
My suggestion to to focus on the first property and make sure that is good. Take is step by step, and the first step would be to get your first IP. From there, it gets easier to get more propertie ssince you’ve already done it the first time.
Personally I use the SQM Reseach for vacancy rates. It’s free to use their vacancy rate platform as well, which is very useful.
Other than that I prefer to physically check out the suburb and get a feel for the vacancy, by driving around and talking to RE agents and other investors who have invested in the area.
I’ve been using terri scheer for my properties. So I’m familiar with them. A clearer question from you would be good so we could help.
I don’t have a car because I choose not to – mainly because I’d rather purchase properties or put money into my businesses, but also because I work from home mainly, or am travelling. I think it would hurt me more to own a car and have it sit there not being used.
I bought my first property with my fiance when she was my only my girlfriend (de facto partner). We shared the mortgage to make it easier, and we talked at length about the commitment to buy a property together.
I think a big factor in it is the trust you have in your girlfriend and the relationship. We had a solicitor help us out with the contract between us, and I think if you're worried it would be best to have them involved so that you can put things in writing and have clarity about the potential issues from a more legal perspective.
I strongly suggest you have the property in both your names. If it's just in your friends name, and something goes wrong, you may not be able to property exercise your rights to the property.
I think you should write up an agreement in advance about termination, and you could talk it amongst yourselves and get a lawyer to help you fine tune it.
If you're worried about the hidden surprises, you could do due diligence and inspect it yourself, as well as get pest inspection and building inspection done.
For gang issues, you could visit the property and get a feel of the surrrounding neghbourhood. Also talk to some locals in the area to figure out the good and bad areas.
When looking at BH properties, don't forget to check out the costs of holding property there. I think from my previous research, the council rates were generally higher than other places and also the property management fees are higher too. I think the reason being the distance away from other major towns bumps up the rates and fees. As long as you dig into the numbers, and it still works out, then you should be able to find some good CF+ properties in BH. I often see properties in BH that still have good numbers at face value.
I've been renovating one of my block of flats, and while I've been here, one of the tenants went on a drunk rampage against another tenant. I was there while it happened, and had to call the police. Very frustrating stuff!
It is a little awkward to kick him out while I'm here doing renos, but when I leave in the next few days, I'm going to make efforts to end his lease, and get my property manager to sort it out to remove him.
So I can sympathise with you, the awkwardness and frustration.
Great story! Read through it all, even though it was a little long – it certainly was detailed and very inspirational.
I'm just getting into NZ properties now, and agree with you about the benefits. I already have 5 units in Australia, but the benefits of NZ cashflow positive properties are very alluring, and my next properties will be there.
Hey Benny, I like how you have found some real gems in the forum. It's often hard to trawl through so many of the forum's posts to get to the ones wit hthe great insights… Keep it up!! I think it will really be useful for the newbies (And even the more seasoned) investors out there
Personally, I'd go for a longer term rental. I'd rather have the consistency, and it will be much easier to get finance – and since it's less of a hassle, it could mean more time for you to focus on growing your portfolio.
I also make my my offers subject to finance and subject to inspection results that are satisfactory. I'd also put an expiry date on the offer, perhaps 7 days after your offer, so that it gives them a sense of urgency