All Topics / Help Needed! / Shortfalls? – How to have 10 properties and fund them all.

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  • Profile photo of JonJon
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    @wealthyjvd
    Join Date: 2008
    Post Count: 175

    Im new to all this property forums stuff, however ive been into property for a couple of years,

    only 18 though and will be buying a house (inv. next year)

    just wondering for long term, in regards to

    "How do people finance so many investment properties and service the shortfall of the loans? Example if a person has 10 properties even with the rental income you would need to service the shortfall for 10 properties."

    got the question from property update.com but she only explains for the first two years, THEN WHAT

    lets say i earn combined 40k (net)
    buying a 230k investment next year and wait 3 years, and pump over 40k over 3 years into it
    so with the 50k deposit, 40k principal and 60k av. appreciation, i have 150k clear in three years,
    but we want to keep the house and buy another worth around 600k, how could o keep 3 loans going.

    haha..

    thanks

    Profile photo of Jon ChownJon Chown
    Member
    @jon-chown
    Join Date: 2007
    Post Count: 254

    Wealthyjvd.

    If you take the time to read the following report including spreadsheets, you might find a little enlightenment.

    http://jonchown.topproducerwebsite.com/real-news.asp?p=52

    You will however need to increase your combined income a bit.

    Profile photo of JonJon
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    @wealthyjvd
    Join Date: 2008
    Post Count: 175

    just read it,

    how does it relate to shortfalls and so on….

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    The short fall comes from your wage. How do you afford to pay the short fall – this is the hard part. I would put the ability to pay all the loans down to time. As time goes by the first property increases in value and the rent will increase. If the rent increases as the value of the property grows you can pay more off the loan without your wage contribution. This is one of the problems with negative gearing in that it restricts how many properties you can own at the same time until the rental incomes increase over time.
    Tax deductions help a little as well as building depreciation but it is hard when starting out.

    Profile photo of JonJon
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    @wealthyjvd
    Join Date: 2008
    Post Count: 175

    thanks,

    i just read something about a lady who had only 1 house at the age of 35 and now owns over 50, and shes nearly 40.

    how, with all teh debt… i wanted to know more about equity to fund these shortfalls.

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    If you intend using untapped equity to fund the shortfall (ie max out the borrowings) you will be increasing your risk exposure dramatically ie in the current (declining) market with little prospect of capital growth over the next 2-3 years you will soon have more debt than would be recoverable from any of the properties.

    IO loans work well in rising markets as you can tap into the 'growth' conversely it fails spectacularly in a falling market (when PI loans tend to perform better) – hence hedging and using a cocktail of both pi & io loans (with fixed/variable rates) depending upon your crystal ball.

    Profile photo of Jase and FlicJase and Flic
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    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    Hi wealthyivd

    If you want to go down the buy-and-hold, negative geared path, then I don't really have any answers for you, apart from get a job that pays about $100k more than your current one.

    But if you haven't read Steve McKnights 0-260 properties book yet, then I suggest you go and get it, because he explains quite a bit about the difficulties of negative gearing, and also talks about other property strategies that might work better for you.

    My thought is that negative gearing works best for people on a high income, so if you have a lower income you should really think about what you want to achieve and what is the best strategy to get there.

    Cheers

    Jason

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    You may also find a book called unlimited cashflow by Craig Turnball an interesting read.

    Profile photo of JonJon
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    @wealthyjvd
    Join Date: 2008
    Post Count: 175

    thanks for the help, hhaha im hoping to get a job that pays that much, only at first year uni….

    and its not a declining market in Melbourne, Australia, far from it actually…

    so buying and holding is hard, unless you go down the positively geared path?

    basically?

    Profile photo of C2C2
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    @c2
    Join Date: 2002
    Post Count: 518

    Wealthyjvd,

    There is no easy or one answer to your question.
    There are various methods that can help you achieve this goal from buying positive cash flow properties only to earning big bucks privately.  The important thing most of all is to read and then find the method that you feel comfortable with and try it.

    I'm old school and prefer the buy and hold positive cash flow method using equity gained too secure more properties.  I might not get to financial freedom as quick as some others but I will eventually get there.

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488
    wealthyjvd wrote:
    thanks,

    i just read something about a lady who had only 1 house at the age of 35 and now owns over 50, and shes nearly 40.

    how, with all teh debt… i wanted to know more about equity to fund these shortfalls.

    She's probably bought a few blocks of cheap flats, and counts every flat as one property.

    Otherwise, I'd seriously doubt the story.

    50 properties in 5 years? Yeah, right.

    Profile photo of KeysToSuccessClubKeysToSuccessClub
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    @keystosuccessclub
    Join Date: 2008
    Post Count: 29

    Hi wealthyivd,

    Most of the views so far have covered it for you.  With good investments, "time in the market" will help you have the ability to build your property portfolio.  Alongside this there are two primary strategies:

    1) Capital growth and then refinace – Chris Gray / Michael Yardley strategy

    – Property goes up in value
    – Property is refinanced
    – Some of the increased captial growth is used for deposit, some to help service the increasing debt
    – Over time you will need to get into low doc or no doc loans as the banks will be nervous of your serviceability
    – As long as capital growth increase is faster than debt levels then you are okay, but there is risk

    2) Positive Cashflow properties – Steve McNight / Hans Jacobi strategy

    – Positive cashflows enable you to make money and save for deposits
    – You can continue to get further loans as your serviceablility is still good
    – In this strategy it is all about trying to find a good property that has positve cashflow without too much risk (watch out for short term wonders) and whilst still having reasonable capital growth (this is where most of the money is made in property)

    Of course, many people combine both in their portfolio

    In both 1) & 2) investors look for opportunities to fast track their ability to leap frog into more properties quicker e.g.

    – renovation opportunities
    – strata titling opportunities
    – buying below market value
    – buying at the bottom of the market
    – property development opportunities etc.

    As always with property, I recommend that you build up your property education and then work (or get help  to work out) an individual strategy that works for your own needs, goals and financial profile.

    Cheers

    Mark

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    You will need high rents or other cash to service. Some get the other cash from borrowing equity – so they are paying loans with other loans and hoping the growth will be faster that the interest accumulation.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of WJ HookerWJ Hooker
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    @wj-hooker
    Join Date: 2007
    Post Count: 272

    Wealthyjvd,
     Just a few comments.
    Magazines like to cover stories that are spectacular – so don't think that is the norm.
    Most people build their wealth over time, one property at a time, as duckster says – it 's time that matters, rents increase ( but so does costs of holding ) so you slowly build up extra cash, thus eventually your houses become positive cash flow.

    Sometimes I read those property magazines and wonder how people do it so quickly, I think "what am I doing wrong/", but, you have to take your own circumstances into account – everyone is different.
    Also the people with 50 properties don't work for the council or mow lawns, they are the doctors and solicitors.

    So do lots of reading and have a plan that suits you and your salary and life expectations, that you will be happy with.

    Profile photo of jasandlivjasandliv
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    @jasandliv
    Join Date: 2008
    Post Count: 39
    L.A Aussie wrote:
    wealthyjvd wrote:
    thanks,

    i just read something about a lady who had only 1 house at the age of 35 and now owns over 50, and shes nearly 40.

    how, with all teh debt… i wanted to know more about equity to fund these shortfalls.

    She's probably bought a few blocks of cheap flats, and counts every flat as one property.

    Otherwise, I'd seriously doubt the story.

    50 properties in 5 years? Yeah, right.

    Those days seem to be over. Port augusta properties for 30K?? Its not a game. Its about servicing debt and investing wisely. It takes time, many, many days learning and just as long sifting through 'guru's' advice. See an accountant who knows property, find out what works for YOU and be prepared to sit back and say "i shoulda bought there 1/3/5 years ago. Don't rush in and expect to make a quick buck. Be careful who you take advice from and do your own work/due dilligence. Don't rely on articles in magazines make sure you have an exit strategy before you throw 600k into something neg geared thats going to give you 5% pa.
    Patience is a virtue

    Profile photo of ScampScamp
    Member
    @scamp
    Join Date: 2008
    Post Count: 297

    Wealthyjvd,

    You seem genuinly interested in property investment.
    My first tip for you : Do not invest in property now. It's crashing as we speak, and it's about to get a lot worse.
    Houses 'worth' 500.000 will sell for 200.000 in 2 years. Don't invest now, don't tie yourself down and don't make yourself a slave of a mortgage, don't ruin your life. That's the first advice.

    You might ask yourself , why is a house worth 500.000 now and only 200.000 in 2 years ? And you also wondered how people got 50 properties in 5 years. There are people who have 700 properties and they did it in 8 years, so there's nothing spectacular about the 50 properties.  You can even buy 50 properties in a year , and you can even do it without having a job ! Here's the 'secret'

    Note : This does not work anymore since the financials crashed : These financials crashed BECAUSE of how it was abused, and it's the reason the houses aren't worth 500.000 anymore, but 200.000.

    You buy a house for 200.000 AUD using a 105% mortgage ( you get more mortgage than the houseprice, the extra 5% is used for buying costs ). You now have a house worth 200.000 and a mortgage of 210.000. Then , the next day, you ask a valuation agent to come to your house and you give him 5000 dollars to value your house at 250.000 AUD. You now have a mortgage of 210.000 and a house worth 250.000. ( sounds like magic doesn't it ? ). You can now take out 40.000 'equity' money, which basically is imaginary money that doesn't exist ( you just created it miraculously by paying some guy 5000 dollars ).
    You can now use the 40.000 to pay off the mortgage, but also you can use it to finance another house.
    So , even if you're homeless, and you don't have tenants, you still can afford the house.
    You can do this 50 times, 100 times or 700 times ( like a UK couple did ).

    Now you understand why houseprices are so high, it's all the 'virtual' equity money that people used to buy all kinds of stuff, houses, boats, new clothes and holiday trips.
    You also understand that the house still is worth 200.000, and not the 'virtual' 300.000

    This is how USA and UK financial markets and housing markets crashed. This is also how Australia will crash.
    Only difference is Australia's crash will be MUCH bigger than UK and USA crash put together.

    Stay out of property… until you can buy for 200.000 instead of 500.000….

    Profile photo of devo76devo76
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    @devo76
    Join Date: 2007
    Post Count: 542

    Good info there. Can you also tell me what next weeks lotto numbers are??

    All crap aside. Listen to scamps advice as well as the over optimistic people out there. Then and this is most important. Listen to All the available information between these  possible outcomes and work out  for yourself which direction you want to go. I myself am waiting for 6 months to see what happens. I fully expect to see big losses in some areas but i also expect others to be resiliant and these areas will be positioned well for the next upturn. Not every part of Australia will halve in value to such a precise amount as some believe.

    Profile photo of JonJon
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    @wealthyjvd
    Join Date: 2008
    Post Count: 175

    SCAMP. WOW!

    THATS ALL I HAVE TO SAY….

    HOW MANY HOUSES DO YOU OWN?

    I HAVE NONE ATM, BUT PLAN TO BUY INVESTMENT UNIT NEXT YEAR,.

    BUT THATS LUDACRIS,, WE WILL CRASH… I CANT BELIEVE THAT…its WOW.

    I WOULDNT BORROW 105%, ONLY 80%.. OF A 200000 UNIT

    ,… so whats your investment strategy?

    Profile photo of coalstarcoalstar
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    @coalstar
    Join Date: 2007
    Post Count: 122
    Scamp wrote:
    Wealthyjvd,

    This is how USA and UK financial markets and housing markets crashed. This is also how Australia will crash.
    Only difference is Australia's crash will be MUCH bigger than UK and USA crash put together.

    Stay out of property… until you can buy for 200.000 instead of 500.000….

    I think thats very unrealistic, I don't know anyone in Australia, in the past few years that was offered a 'honeymoon' interest rate of 3% for 3-5 years. Sure interest rates have been rising lately but that was needed to lower demand and stabilise prices in the medium term.
    In the next few of years interest rates will drop, developers will start building new dwellings to try keep up with massive housing demand, 200K migrants a year will be coming to Australia and average house prices will nearly double as rental yields rise.

    answering your question, well IMO buy 2 properties yielding around 9% and one around 5%. That is two CF+ and offset the return into a high growth property. Keep renovating, increasing rents and drawing out your equity and in ten years you willl have more than 10 properties.
    I dont know anyone who got wealthy through real estate by negatively gearing all the way. There is a problem called serviceability as well!!

    Only my opinion though.

    Profile photo of adldadld
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    @adld
    Join Date: 2008
    Post Count: 20

    that was a nut that hit your head scamp not the sky

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