I am not an experienced property investor since most of my time has been spent in the share market.
I was at an investment seminar some years ago where Dolf De Roos presented. I always remember a comment he made along the lines, "with $100k you can control $1 million worth of property" The comment was meant to indicate you can leverage more than you can with shares (not strictly true since you can use derivatives to gain huge leverage, more than property in fact, but this is a side issue).
With my net worth I could leverage into property to give me a portfolio in the millions. The problem is all that debt has to be serviced. Does that mean you must keep working to do it? From what I can gather, initially you have to until you obtain a number of properties to make it self-sustaining, which I'm guessing have to include +ve cashflow properties.
I don't want to continue working, but invest on a full-time basis. In all the case studies I read, I don't get the detail as to how you continue buying properties if you don't work to service the debt. Obviously if all/most properties are +ve cashflow, fair enough you have net income.
Would someone please give me an idea of a pathway to accumulate property without working a paid job to service debt. I'm talking a buy-and-hold strategy.
A lot of the property gurus talk about never working and being able to buy property, and I often wonder how they manage to keep getting finance form banks with no income (other than rent). I think a few details are conveniently left out, unless they have been extremely creative with finance.
Personally, I think rental income can be more reliable than earned income as you can get fired or laid-off from your earned income job, but banks don't seem to see it that way.
I think the ideal situation is to accumulate investments (properties or other) that produce a positive income, and also continue to grow in value.
Eventually you will get to a point where the combination of the rental/dividend/business profit and cap growth allows you to easily service the debt, and you can live off the increasing rent/dividends/profits as well as the equity in the investment portfolio.
If property increases at an historical level of 7% per year average, you would need a net worth of around $1mill and a pos cashflow portfolio in order to live off the equity and rent to have a decent lifestyle of around $50k per year spending money. At around $1k per week income after investment outgoings, you should be able to live a nice life without being too extravagant.
This would allow you to use some of the equity, and still have the portfolio increase in value at more than you are spending.
So the trick, I guess, is to buy properties that come with a combination of good cashflow and growth.
This is something I have wondered about myself also. All well and good to say that you can keep buying properties and funding the shortfall with increasing equity, but what sort of loans are we talking here? From my limited experience with banks, even with a high salary, they won't lend you much more than 600-700k total because of serviceability. So if you are a talking about ga portfolio of property in the millions I must assume that apart from the first couple of loans, most of them are asset lends (eg no docs) with 30% deposit roughly. Can anyone confirm/deny this?
Assume that no-one on this site has actually achieved this.
Dear WezWaz,
1. I have been a full-time property investor since Jan 2003. I have also been living-off-equity (LOE) to a certain extent since then.
2. I have helped one of my own overseas investors to acquire and control some A$1.14 million worth of properties, with an initial investment capital of only A$20,000.
3. However, I am no "guru".
4. I am still learning how to invest profitably and in a safe manner, for myself, as part of my own life-long self-learning process, as a full time property investor.
5. For your kind update and further comments/discussion, please.
6. Thank you.
regards,
Kenneth KOH.hi there
I have been a full time investor for nearly two years now. I pulled out the equity in my house to purchase IPs. As previously mentioned I have tried to combine CF+ with high growth areas. All loans are low doc.I now have over 2m in property so if properties increase by 5% in the year, I refiance to pick up the shortfall in mortgage repayments and for living expenses. 100k is more than enough for me and I have to keep some aside for low growth years or saving for a new property.
The problem I am going to be facing sometime in the future is that my PPOR has by far the biggest mortgage which of course is not tax deductable. The sensible thing would be to go rent but my kids wont hear of it. I really need another investor in my area to swap houses with me so our PPOR then become IPs.
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Dear Milly,1. My email is [email protected]. My TEL/FAX is 08-95925108 and my Australia mobile is 0418758123.
2. Please contact me to further discuss your present situation. We might be able to work out some options of mutual interests to ourselves in due course.
3. Thank you.
regards,
Kenneth KOHI also want to quit my job (been there too long and tired of it) and do investing although not fulltime. I want to start my own business in photography and do investing to supplement my income. I own my PPOR with no debt and with cash/managed funds have about 725K in assets so I can just quit and go travelling or take time off and start learning about investing in ernest and still live as I am now for a few years.
I'd like to revisit my post and see if anyone else can further enlighten me.
Let's say I have $200k to put down. Therefore, according to the gurus, I can control $2 million worth of property. Now, to the minor detail:
Who will advance me $1.8 million and how do I service it? If you have the experience, please give the rest of us the nuts and bolts, if you are kind enough and willing to share. Thanks.
Unless you have a high income, you'll need to buy cashflow positive, or at least "not too negative". And yes, they are hard to find and you'll have to be creative.
I think the best strategy is to find a commercial property earning at least 8%, negotiate vendor finance (eg 30% for 5 years), then the bank pays the vendor 30% at settlement, and your 10% ($200K) is used to cover purchase costs and help with any possible negative cashflow. After 5 years, you should have obtained sufficient growth to refinance and continue.
It is also important to understand that accumulating properties is just one aspect of full time investing, however like any other successful business you need to sell something. This is what full time investors do, I do. You have the properties that you hold for your long term wealth/goals and you sell some others via wraps/lease options/renos/developments, etc. For those of you that are thinking tax, this is just another cost of operating your business. I am sure Apple pays tax for selling Ipods…Most people don’t need to become full time investors, a handful of good performing properties can set you up for life, you just need the discipline to pay off debt and enjoy the passive income coming in. Investing full time is like any other business, it is hard work, some people go full time for the wrong reasons (i.e. I hate my job, I hate my boss, I hate the commuting, etc) and do not have a strong enough WHY and hit a wall very quickly.
Our net worth is 1.2m. I haven't worked for 9 years (since I was 25) but hubby is working. We have neg cashflow of about $2k per year. 2 of our properties are development sites. My husband can stop working once we develop them. We should be able to keep about 8 units and sell 6 units to pay off developing costs. The Zoning changes have been held up on one property for 3 years as the council wants strict building conditions and planning commission wants them more relaxed. Thankfully rents are rising faster than interest payments as we have very low mortgages on most of our properties. It's a bit of a waiting game at the moment, I'm hoping developments will be completed in next ten years. I hope this helps. Linda
kenkoh2000 wrote:Dear Milly,
1. My email is [email protected]. My TEL/FAX is 08-95925108 and my Australia mobile is 0418758123.
2. Please contact me to further discuss your present situation. We might be able to work out some options of mutual interests to ourselves in due course.
3. Thank you. regards, Kenneth KOH1. Why
2. Do you
3. Write
4. Like
5. This???
6.lolThanks for all your input. I appreciate you telling me about your situation as an example, Linda (millions).
Jon
I won't say I hate my job. However, that's all it is – a job that makes me money for investment. Career aspirations went out the door some years ago. What I don't want to do is continue working until I'm 75 like we have been "encouraged" to do by governments. At 46, I definitely want to be out of it by 55 at latest, and have made fair inroads towards my goal.
When it comes to career aspirations in a job, I don't have any. The only thing I have aspirations for is investing money. That's why I want to be a full-time investor. But to me that basically entails both the share market and property for diversity, whereas most seem to be full tilt one way or the other.
You could say I have a passion for investing, something I can't get from a paid job.
JONCHU wrote:It is also important to understand that accumulating properties is just one aspect of full time investing, however like any other successful business you need to sell something. This is what full time investors do, I do.There's absolutely no reason that I can think of why you can't have a successful investing business holding everything, renting it out and refinancing to access increasing equity. I do think that if you have a poor performer, you should sell, and tax shouldn't put you off doing so, but I'd like to know on what basis you can say that one "needs" to sell anything.
Hi Wezwaz
This exact issue is a continual problem for me – how to increase wealth without having an "income" as such. I have found that getting finance for deals is the single biggest impediment to me increasing my net worth.
My husband and I started out 4 years ago buying cashflow positive properties in Darwin. We then set up a company so that we could do developments. All our buy and holds are in our family trust and all our short term projects are in the company. We have both quit our jobs. The company pays us an income, the most we can be paid and still stay in the 30% tax bracket. We have over 5 mill in property and a net worth of about 1.5 mill. But the banks still knock us back on the servicibility issue.
We could sell everything and retire (in fact my husband wants me to sell everything and retire!) but the banks don't seem to care. They are not interested that our portfolio could, returning 5%pa, give us an annual increase in equity of $250,000. They just want to know how we are going to service the debt.
I know that some banks won't take into account as income, capital gains. Even with cashflow positive properties most banks only take into account a certain percentage (70 – 80%) of the rent so a portfolio would have to be substantially positive to lend using rental income only for servicibility.
I know that there are many organisations to subscribe to the theory of living off your equity but I have yet to come across a bank who will facilitate that for me. Whenever I say this I get inundated with offers from mortgage brokers who assure me that they can help me out but, as I have just said, no bank has ever said to me that they will do it.
I think that the only way to do it is to have such a huge net worth (in the several millions) and relatively little debt as well as income from somewhere, whether that be rentals, developments etc.
But me, I have a headache from just banging my head against that servicibility brick wall.
Cheers
K
I have found getting finance the single biggest impediment to
Thanks for relating your experience, K.
Banks tend to be very rigid in their thinking. To take an extreme example:
You could show the bank you have $20 million in net assets (shares say) with no income because it is all reinvested. OK, it is income, but it doesn't go in the bank as cash. Now, if you say to them you want a loan, they'll say you can't service it because you've got no income! Never mind the fact you could turn shares into cash in 5 minutes. It just doesn't gel with them.
I am currently going through the process of obtaining a loan. When they were taking details about my income, I said, "what about my other assets?" They indicated that wasn't particularly relevant.
Anyhow, as I'm still a learner in the area of property, I guess I'll eventually work out some solutions by reading books and through experience.
Linar wrote:I know that there are many organisations to subscribe to the theory of living off your equity but I have yet to come across a bank who will facilitate that for me. Whenever I say this I get inundated with offers from mortgage brokers who assure me that they can help me out but, as I have just said, no bank has ever said to me that they will do it.Um, I'm totally baffled: why don't you go with one of those mortgage brokers? They're absolutely right; it can be done. Navigating this territory directly with a lender is very difficult, though. I'm not a mortgage broker, but I wouldn't be without one.
Hi trakka
I guess that comment was a bit more subtle than it was meant to be. What I meant by that was that I have gone with these mortgage brokers who, when it comes to the crunch, all say, sorry we can't help you out. There is ALWAYS a "technical hitch" somewhere along the way or "something peculiar about my situation" which means that I can't get the finance.
Cheers
K
OK, gotcha… yes I missed that
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