All Topics / Help Needed! / Help needed for young investor

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  • Profile photo of tinabelltinabell
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    @tinabell
    Join Date: 2005
    Post Count: 3

    Hi Will
    Thanks for your reply and offer to help –
    My husband and I are 24 and have 5 rental properties plus our own home
    The problem is that we are not generating any positive ‘cash flow’ on our rentals and they are only just paying for themselves so they are actually classed as a ‘Liability’ not an ‘Asset’
    My question is;
    How do we generate positive cashflow?
    a) Increase rent and do up houses
    b) Do some house flips and pay off our mortgages
    c) Reduce our mortgage repayments to the bank by paying interest only (or another way that I don’t yet know of)
    If we do raise our rent we will only be profiting approx $13 per week per house!(based on paying ‘principle plus interest’)
    We are currently paying ‘principle plus interest’ and if we opt for ‘interest only’ this will only be allowed for a short time and then you end up paying more anyway – so I don’t see this as a very safe option and you would have to guarantee that your income is going to be a lot more when this happens.
    And to pay off our mortgages would take a lot of hard work and also a lot of house purchases and sales. This seems like a no brainer and profit from flips should be used to reinvest in more propert and shares, but I see this as the only option really.

    How are you supposed to make a decent income through real estate?

    Our aim is obviously to replace our income and ensure that we are making a steady and regular profit NOW from our properties and also draw from the equity to continue buying more properties – not just have the rentals pay the mortgage and see the profits when we reach 65

    The bank has also advised that we are at the peak of our lending ability from an income perspective. So we have to
    a) Reduce debt and sell some houses
    b) Increase our income
    What is the solution here – House flips???

    The other issue I have is if wise investors DON’T pay off their mortgages how do they sleep at night wandering if the unthinkable happens how they are going to meet their mortgage repayments – I can only suggest that they would have a set amount put aside to cover all the mortgage payments for at least 6 months – Is this correct? And if they pay interest only, what do they do when their time runs out after 5 years and have to pay principle plus interest (you wouldn’t be making a profit)

    Also – how do wise investors meet their personal property mortgage repayments?
    Currently this is our highest mortgage and repayments are coming from our own salary which is what we don’t want! How do we find $650 per fortnight elsewhere to cover this or are we best to pay off our own home?

    Sorry about all the questions! – I hope you can understand where I am coming from and can offer some good advice for us young frustrated ‘investors’.

    Kind regards

    Tina

    Profile photo of westanwestan
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    @westan
    Join Date: 2002
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    Hi Tina

    thats a tough challenge ahead for you. Without knowing your full story and on the small amount of info we are told this is what i’d do. (i should mention that my approach to investing is only buy cheaper homes that have cash flow for example i’m buying properties showing a yeild of over 20% at the moment).
    So i’d be inclined to reduce your exposure to the real estate market, it sound like you are very close to the edge, if something unseen happens it appears like you don’t have the cash reserves to see you through. I don’t mind being very heavily geared in property but it has to be at the right time in a market (ie when its rising). So 4 years ago in Oz i was maxed out with properties and then in 2003 in NZ i was again. I did this because the markets were either about to go up or already rising.
    This is 2005 and i can’t see us returning to 10-20% rise rises in the near future so you will not be making money for a long time.
    I’d be inclined to sell poor preforming properties and reduce debt (interest rates might rise- or lock in fixed rates). If you want to buy property then I’d also look at markets were you are really getting strong cash flow- this is not Australia at the moment.

    hope i’ve said something that can help, what do others think ?

    regards westan

    USA information evenings in Melb, Syd and Brisbane in early April, email me for more info. We find cash positive deals showing 15-25% Returns in the USA email me at [email protected] to join our database

    Profile photo of TorachanTorachan
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    @torachan
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    My husband and I are 24 and have 5 rental properties plus our own home.

    No – the bank owns them you manage them.

    A 20% price “correction” will make life very interesting for you. Keep us posted [biggrin]

    Profile photo of TerrywTerryw
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    You should look at paying IO on your investments while paying PI into your home loan. You should pay off non deductible debt first. Maybe keep paying the same amount overall, but just divert most of it to your home loan. It will save you interest and increase your deductions.

    Terryw
    Discover Home Loans
    Mortgage Broker
    North Sydney
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    Profile photo of basherbasher
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    Originally posted by Torachan:

    My husband and I are 24 and have 5 rental properties plus our own home.

    No – the bank owns them you manage them.

    A 20% price “correction” will make life very interesting for you. Keep us posted [biggrin]

    It seems you take great pleasure in others poor situations, as this reply isn’t helpful nor is the one you posted to my query. We are both new to this forum and are asking for some advice, not negative unconstructive feedback/critism.

    Sarah Melbourne

    Profile photo of TorachanTorachan
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    @torachan
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    Post Count: 68
    Originally posted by basher:

    Originally posted by Torachan:

    My husband and I are 24 and have 5 rental properties plus our own home.

    No – the bank owns them you manage them.

    A 20% price “correction” will make life very interesting for you. Keep us posted [biggrin]

    It seems you take great pleasure in others poor situations, as this reply isn’t helpful nor is the one you posted to my query. We are both new to this forum and are asking for some advice, not negative unconstructive feedback/critism.

    Sarah Melbourne

    if you ever bragged to anyone about how much money you have made then you have enjoyed

    great pleasure in others poor situations

    You have 6 houses. I would like to have one. Somehow that makes me bad?

    I will not put myself in a precarious financial position that you have. But hey I learnt off my grandparents to be careful with my money, if I learnt off my boomer parents i’d have a flash car, big tv an overpriced house and a mountain of debt.

    The bank owns you. You can get angry if you like but it doesn’t change a thing.

    Whilst working towards financial independance is a laudible goal methinks you have 6 giant millstones around your neck.

    Note that Steve Mc Knight advocated purchasing CF+ve. What would your rents need to be to make this happen?

    Houseflips? during a downturn? when IR are going up and wages staying flat? When affordability is worse now than when IR were 18%? When people have relised that prices are a joke?

    Did you do any research about booms and busts before you bought? “the bigger the boom the bigger the bust” is one mantra. Another one, often misquoted goes along the lines of “when the shoe shine boy gave me share tips I sold all my shares, the next day the stock market crashed” Did you buy when everyone else was buying? Did you buy based on the market from 1999 onwards? Are you aware that Japanese real estate prices have not recovered from their crash in the 80’s even though their interest rates are for all intents and purposes 0? As you are already lumped with CF-ve no doubt you will try to weather the storm. That’s the beauty of it. Very cruel financial position. Do I lose money now or later?

    I’d wish you good luck with your property but it would make a liar out of me.

    Torachan

    Property is a great investment. Sale on soon

    Profile photo of basherbasher
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    Torachan, you are venting at the wrong person. I was the one who wrote about you giving negative feedback because I was dissapointed that you did the same thing to my post as well as to this post. I’m sorry that you are so angry about all of this and I’m suprised to see a response like this as I have been studying this forum for some time and haven’t really read anything like this before. Good luck with your investing and I hope it makes you happier soon.

    Sarah Melbourne

    Profile photo of tinabelltinabell
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    @tinabell
    Join Date: 2005
    Post Count: 3

    Hi Torachan:
    Thanks for pointing that out to me – Sometimes we do need reminding that we are only “property managers” afterall and it is a good way to look at it.
    We do in fact have 8 houses including 1 freehold and are in the process of selling 3 to go Freehold on 3 of the 6 we will be managing.
    I guess I don’t like to get too close to the edge and don’t have a huge risk tolerance at this stage.
    I am still learning and am open to all ideas, strategies and helpful advice from other wise investors as I am keen and would rather fail trying that live without failing.
    Thanks and will take all your advice on board!
    Tina

    Profile photo of TorachanTorachan
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    @torachan
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    Post Count: 68

    Look I have to apologise. I just get really cranky about housing

    My reason is that I want one house to raise a family in on one paramedics wage.

    I lost it because you have 6 properties.

    I should not have and I apologise unreservadly. I have nothing against you or your fella personally.

    Put it down to me having had a really rotten shift

    Profile photo of foundationfoundation
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    @foundation
    Join Date: 2005
    Post Count: 1,153
    How are you supposed to make a decent income through real estate?

    The first step is to establish a strategy.
    This:

    Our aim is obviously to replace our income and ensure that we are making a steady and regular profit NOW from our properties and also draw from the equity to continue buying more properties – not just have the rentals pay the mortgage and see the profits when we reach 65.

    is not a strategy, it is a goal. Your current strategy of buying negative/neutrally-geared properties on maximum leverage is not going to achieve this goal in a stagnating/falling market. If this is the only strategy you are comfortable with, you might consider opting out of real-estate investment until the next boom or adjusting your goal.

    My strategy is simple – timing the market. I believe the old saying “a long term investment is simply a short term investment gone wrong” is pretty appropriate to people who are holding multiple highly-leveraged properties at this point in the market cycle and hoping for capital gain sometime in the future.
    Many here, however, disagree.

    I would not think of buying a property for rental unless it was returning well in excess of 10% pa, and only speculate on future capital gains with money I can afford to lose & gearing levels likely to prevent loss. I think an exit strategy and weighting / balancing is also important.

    Meanwhile, Torachan – your frustration is entirely understandable. Fortunately for you, house prices have a tendency to revert to historic means* (or below!) after boom periods, and there is no fundamental reason for this to now change. While waiting may be painful, you will be in a far better financial situation than those in your (our?) generation who have stretched their finances to buy overpriced houses once this correction has played out.

    Cheers, F.[cowboy2]

    *in relation to wages, rental return, replacement cost etc.

    Profile photo of MelcMelc
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    @melc
    Join Date: 2004
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    Good on you for taking the brave step!

    Have you thought about moving out of your house (expensive mortgage) into one of the worse returning properties, or a property that needs renovation? If you move into a property that needs renovation at least you are on site to improve it, remembering that it is an investment and don’t spend too much money on it or ‘tinker’ The interest on your ‘owner’ property will become tax deductible because it would turn into an investment property; I would imagine you would get a reasonable amount of rent for the property? That should then free up some of your cash flow?

    Just a suggestion!

    Melinda

    Profile photo of Brisbane 04Brisbane 04
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    @brisbane-04
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    Post Count: 215

    Hi Tina,
    Congradulations having 5 properties at the age of 24, magnificent. My wife and I started investing at about that age and we certainly didnt have that many houses. One question I must ask you is how much equity have you got? Did you purchase all of the properties over 1 year or over several years? Where are the properties located? What is your ratio of equity to debt? Do you both work?Do you have children etc. The reason I am asking is that all these factors must be considered to decide what you want to do.My wife and I have owned a number of properties. we have sold some and have placed all of them on interest only to free up cash, sure the debt doesnt go down but have you seen how much it goes down wth P and I payments in the first 5 or 6 years not much. As for interest only for a short period of time my bank offers it for 5 years and then reviews it, thus you can negotiate it again.Go ask your bank, as to what rates and repayments will be if you do decide to go interest only.Another thing I hope you are getting a discounted interest rate due to your borrowings.All the things you have suggested can be utilised to reduce debt and increase income,so do a bit off all. Sell a property that isnt performing and reduce debt, refinance to an interest only mortgages, reassess your rents to see if you can increase,continue too look for bargains that would provide cash flow as well as capital growth, this may mean looking in other states or countries. Very important keep improving your knowledge and do due dilagence.There is always risk involved when investing but I believe it is more risky not doing anything.Another important lesson is to recognise that there are people out there including people on this forum that have a reason not to do things and will be negative, while they may have valid points they certainly dont talk about the positives of property investing.There are plenty of people out there that will give you helpful advice dont listen to a scaremonger.I’m married with 2 young children we have been on a single wage for 7 years I’m 36 and a nurse. Without property investing there is no way I could say I own my own house and own outright 2 rental properties,on my wage.Poor Torachan sounds very bitter.If you disagree please read his other threads.Martin

    Martin

    Profile photo of 1Winner1Winner
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    @1winner
    Join Date: 2004
    Post Count: 478

    Tinabell, congratulations on two accounts.
    First for getting into the RE market so early in life.
    Second for a very balanced response to an undeserved attack. If you are not familiar with the anti-value “rich is bad poor is good”, you had a taste of it, but you handled it well.

    My advice is to pay as much as you can into your own home, (non deductible).
    Scrutinise your properties for ways to better them with little expense in order to command a higher rent.
    Find out if you are at the top of the rent market, many times your RE agent lets you down and you are behind without knowing it.
    Hold on to them for as much as you can. When the market picks up it is better to be in it with 5 properties going up, than with 4 or 3.

    _________________________________________
    “What you want in your life occasionally shows up…
    what you must have… always does.”
    – Doug Firebaugh

    May God Prosper you.[biggrin]
    Marc
    http://www.chosen4u.com/?ace

    Profile photo of 1Winner1Winner
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    Post Count: 478
    …..house prices have a tendency to revert to historic means* (or below!) after boom periods, and there is no fundamental reason for this to now change. While waiting may be painful, you will be in a far better financial situation than those in your (our?) generation who have stretched their finances to buy overpriced houses once this correction has played out.
    *in relation to wages, rental return, replacement cost etc.

    I disagree.
    In a changing environment the worst strategy is doing nothing.

    Reminds me of the dot com boom-bust. At the time there were two camps, the one that talked for years about the imminent bust, and how all those nasty speculators that bought overpriced stock would go belly up….and the one that made money galore until the ride lasted. Yes many people lost money too at the end, but many more made a mint.

    Meantime the onlookers that were chanting “bust, bust, bust” in chorus did not lose nor gain, because they where not in it.
    Conceded they did have a consolation price. After a longish wait they could finaly say “I told you so” with some satisfaction.

    May God Prosper you.[biggrin]
    Marc
    http://www.chosen4u.com/?ace

    Profile photo of Brisbane 04Brisbane 04
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    @brisbane-04
    Join Date: 2004
    Post Count: 215

    Hi,
    Back again,agree with Marc 100%. My father used to tell me that there were 3 types of people in this world :1.People who made things happen.
    2.People who watched things happen.
    3.People who wondered what happened.
    Good Luck. Martin[biggrin]

    Martin

    Profile photo of MiniMogulMiniMogul
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    @minimogul
    Join Date: 2002
    Post Count: 1,414

    Torachan,

    email me if you would like to be the proud owner of your first CF+ve property within three months. No charge, just because. I like a challenge. I see you trying to do something but you are self-combusting to the point where it hurts too much – both you and others here.

    God Bless our parents and grandparents but they are not necessarily the best teachers of investing.

    “The bank owns you.”

    This is an unusual paradigm, a kind of mis-percieved reality warp!

    Ok, I think you are confusing YOU with ‘the security’. The bank own a portion of an ASSET which you control. They don’t own YOU.

    You, as a sovereign human being, a living breathing soul, a creative force, a saver of lives and family and community member, are not “the BRICKS and STICKS sitting at 14a pleasant st, sometown” (the security).

    “methinks you have 6 giant millstones around your neck. “

    If negatively geared properties that may go down in value, perhaps! But there are other sorts of investments. look once you get to 6 properties basically you’ve got it, and anything that happens just isn’t going to wipe you out, those people are fine.

    So yeah fear of debt and loss of control perhaps. If you don’t use any leverage (banks, loans or joint ventures) then yes the asset is your own, but you will need to save up 100 percent to purchase. how long will this take you?

    However you may be able to buy an income-producing asset for 5 or ten percent down.

    Or, if NZ, 20 percent down, but the entry prices are much lower, and the yields are much higher, so it will break even for you with a surplus.

    Anyway let’s say you have 10k and you buy 100k and it goes up 10 percent you just made your 10k back. 100 percent return. But if you bought in cash you only made a ten percent return. So therefore all other things being equal (and that is just a simple example) you can go ten times faster if you apply leverage.

    This is what the person with 6 properties knows and the person who has zero properties does not know. Unless the person with zero properties can get their head around it being OK to be in debt then they will stay there at zero properties, until they can save 100 percent, which might be never. Read rich dad poor dad as it explains ‘good debt’ and ‘bad debt’ and why what our parents and grandparents did worked for them but will not work for us.

    cheer-
    Mini

    Profile photo of MiniMogulMiniMogul
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    for tinabell. torachan please see my previous post on the page before!

    hi Tinabell

    > How do we generate positive cashflow?
    You have described a negatively geared portfolio which is now ‘maxing you out’.

    > a) Increase rent and do up houses
    yes – this is a perfect way to increase equity and income. however in the short term it is
    worse because of course you can’t do up while it is tenanted, you have to fund the renovations somehow,
    and so on.

    > b) Do some house flips and pay off our mortgages
    yes, you could sell one, and perhaps re-buy a cheaper one you can do up, if none of your
    properties have room to improve.
    This might actually buy you time/repayments/cash to do a renovation. Also I don’t mean ‘do’ the renovation
    yourself unless you have a lot of time spare and are keen to DIY, I mean, get more in value back than what you spend on
    tradies doing the work.

    > c) Reduce our mortgage repayments to the bank by paying interest only (or
    > another way that I don’t yet know of)

    I am interest only for the first year and then P and I after that. best of both worlds perhaps

    > If we do raise our rent we will only be profiting approx $13 per week per
    > house!(based on paying ‘principle plus interest’)

    well, at least that’s a start

    > How are you supposed to make a decent income through real estate?
    By using leverage and different techniques to add value (particularly when the market is flat. of course in
    a boom you can twiddle your thumbs and the property will go up in value.)

    > Our aim is obviously to replace our income and ensure that we are making a
    > steady and regular profit NOW from our properties and also draw from the
    > equity to continue buying more properties – not just have the rentals pay the
    > mortgage and see the profits when we reach 65

    Yes exactly, but patience, a few years, and all will be revealed!!!!!!!!!!!!!!

    > a) Reduce debt and sell some houses
    just selling one, it’s not a bad thing, I just did that, in order to carry on and buy more properties, actually,
    not to go backwards

    > b) Increase our income
    > What is the solution here – House flips???

    Flips are a specialist thing and if that’s your thing then sure, study it in depth and know the downside (no buyer, and you have to
    settle the property)

    > The other issue I have is if wise investors DON’T pay off their mortgages how
    > do they sleep at night wandering if the unthinkable happens how they are going
    > to meet their mortgage repayments –

    My portfolio is very much CF+ve, the last property I bought every time I have to pay $340 in mortgage repayments I get
    $720 in rents. So I have only ever bought this sort of property (high yield).
    I think everyone that negative gears and is maxed out and on the edge is basically singing the same song as you right now.

    cheers-
    Mini

    Profile photo of Don NicolussiDon Nicolussi
    Participant
    @don
    Join Date: 2005
    Post Count: 1,086

    Hi Tina,

    Well done for having a go at 24 years of age. First thing would be to try and stay positive about your current situation.
    .
    As you are experiencing having multiple properties is not always easy and you will need to have a well developed plan to be able to stay on top of things.
    .
    You will probably get this advice over and over but you need a plan. You will also need a well developed plan B as part of your plan.
    .
    If you wish to continue to invest in IP’s you may have to embrace debt or a least get comfortable with having debt. Try to keep focused on what the debt is for and the time frame in which you want to pay the loans back.
    .
    I personally don’t have a problem with IO loans but I am not a IO zealot. There is a big argument for debt reductions. There are IO loans around that are fixed, let you redraw and make as many extra repayments as you like. If you find this sort of product it may help your current situtation.
    .
    It may be that you have to reduce the size of your portfolio. There is much more to investing in IP’s than buying and holding forever.
    .

    You could look into moving out of your PROR and renting it out. Downsize to a smaller rental property to live in. You may find that the saving are well worth it.The int on that loan would also be a deductible expense.
    .
    Your idea about adding value to the current properties is a good one. Try to keep your costs down to a minimum and make sure each addition is something that a tenant would be willing to pay extra for. You need to try and make your properties the best in their rental market.

    The other issue I have is if wise investors DON’T pay off their mortgages how do they sleep at night wandering if the unthinkable happens how they are going to meet their mortgage repayments – I can only suggest that they would have a set amount put aside to cover all the mortgage payments for at least 6 months – Is this correct?

    .
    Exactly! some people feel comfortable with 3 months.

    Our aim is obviously to replace our income and ensure that we are making a steady and regular profit NOW from our properties and also draw from the equity to continue buying more properties – not just have the rentals pay the mortgage and see the profits when we reach 65

    It’s great to be ambitious but you might have to slow down and be a little patient. Eventually all your hard work will pay off. However, over the coming years you will have to develope a plan and get some skills if you wish to continue building your portfolio. There are many many things you can do. Keep your chin up and your eyes open to opportunities and ideas.
    .
    Good Luck.

    Don Nicolussi | Mortgage Broker - Home Loan Warehouse
    http://homeloanwarehouse.com.au
    Email Me | Phone Me

    "I think of finance as a technology, a way of getting things done." Robert Shiller

    Profile photo of Brisbane 04Brisbane 04
    Participant
    @brisbane-04
    Join Date: 2004
    Post Count: 215

    Hi Tina,
    Hope you are still reading this thread,the last 2 entries are from people who know and have been in the game (Mini and Don and Liz)they wont sugar coat it they will tell you how it is, these are the type of people you will benefit from.As you continue to be part of the forum you will recognise the people who have something to offer and those that dont.Love your response Mini.[biggrin]

    Martin

    Profile photo of 1Winner1Winner
    Participant
    @1winner
    Join Date: 2004
    Post Count: 478

    Mini, you have what it takes, may I suggest to change you name to Maxi ? [biggrin]

    _________________________________________
    “What you want in your life occasionally shows up…
    what you must have… always does.”
    – Doug Firebaugh

    May God Prosper you.[biggrin]
    Marc
    http://www.chosen4u.com/?ace

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