Hi,
With interest rates trending down rent trending up and prices softening it looks like it wont be long before
some really good cash flow positive deals start to hit the market.
Ive been trying to think about the best way to take advanatge of this.Ideally I could purchase a CFP property within my means, a short time later persurade the bank that it has gained equity either by, my renovations, The suburb its in has capital gains or I have it revaluted to fair market price ( the person who I purchased it from was paniced and sold under market value).
I could then use this equity with no more cash in to purcahse another CFP property and repeat the process until I owned hundreds of them all paying me rent and I held millions in mortgages.
After dabling in property for the last four years and seeing all the barriers that come up im far less excited about this idea than four years ago.
Here are the practal constaints the spoil this plan.
– From my experience banks hate revaluing things quickly and its hard to get them to revalue to the current market price
you usually have to sell to actually realise that price and get hit by taxes and other hassels. Banks valuations are typically conservative and also very inconsistant.– Even if I somehow get away with a good revaluation and pick up say %20 equity, after the first couple of places the bank will say I dont earn enough to service any more debt and wont lend me.
I went to one of Steves seminars once and he explained his process of forming multipule trusts and going garantor against each new trust. Essentially this is a way legally tricking the bank into lending you much more than it wants to. Apparently business banking lenders are much more flexable ?
Im yet to try this out but I have a feeling it probably involves gaining the trust of the right indiviual in the right position of power and not everybody can just walk in off the street and get away with it.– Steves initial success was achived from buying cfp properties in an appreciating property market. The market kept going up so he could sell and refinance to keep expanding his holdings. It looks like the next few years will be a flat of depreciating market so it will be not way to get the deposit for the next purchase.
So while it might feel good to snap up a few bargains and pocket the excess rent it will sort of be a dead end.
Can anybody see a way to really exploit the cash flow positive conditions that are about to come up ?
Thanks,
Mark.
mark76g
Good point, well put on paper ( sort of paper).
I think many people have thought of your idea and come to the same conclusion.
We get a lot of experts telling us how they made millions by doing the obvious, but , as you say , they are always in a rising market. They just happen to be in the right place at the right time and be very brave in what they did, but its not a do this and it works pattern. If they tried it today, they would go broke.Really, the best way is the slow and steady method of one property at a time, pay some of it off, get lots of positive gearing and onto the next, etc.
Am thinking a unit I bought last year might soon be cashflow positive.
Purchased for $172k now rents for $280/wk, loan of $146k at 8.48%.
It takes a lot for a property to be cah flow positive when I factor in body corporate levies (fixed adn sinking fund) of $2800 p.a., council rates, landlord insurance, managing agetns commission. A still out of pocket by $2.5k pa.
I don't think buying then revaluing hoping for capital gain is the way to go.
Buying ahead of further interest rate cuts (and possible increases in rent) so that cashflow improves could be.
Here are some points to consider
Banks don't usually have a problem of revaluing a property after purchase as long as you can justify why it has increased in value – eg done a renovation. But the mortgage insurers may have problems – so you need to keep the LVR to less than 80%.
The bank's usually assign the valuation to a valuer – they don't do them themselves, some are more conversvative than others. Different banks use different valuation firms, so you would get some variation between them all.
If you have just purchased a property and get a revalue soon after, the valuation is likely to come in at or near what you paid for it. This is the true market value = what someone on the open market is willing to pay. If you have done work on the property since then, it may be more likely to get a higher figure.
Forming multiple trusts or companies will not help serviceability unless there are different people involved as personal guarantees will be required by trustees, directors etc. All existing loans and guaranteed loans will need to be taken into account.
Serviceability is not unlimited as banks assume you have living expenses (approx $16,000 pa) and they often only take a percentage of the rental income (eg 80%) and a percentage of your wage. Most also assess you at a higher rate and some assess you as a PI loan even if you are getting an IO loan. But, the more rent the further you will go. Different banks also have different ways of calculating serviceability so shopping around will help. Some banks take interest deductibility into account and depreciation which may make them good for investors.
If you can buy cashflow postive in an appreciating market you will go a long way.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
good read thanks
process of forming multipule trusts and going garantor against each new trust. Essentially this is a way legally tricking the bank into lending you much more than it wants to. Apparently business banking lenders are much more flexable ?
Just to re-iterate it does not work !!!!!!Richard Taylor | Australia's leading private lender
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