All Topics / Help Needed! / How do I purchase my third IP?

Viewing 7 posts - 1 through 7 (of 7 total)
  • Profile photo of KeldynKeldyn
    Participant
    @keldyn
    Join Date: 2015
    Post Count: 3

    I’m currently looking at my figures and would like to buy a third IP but I would like to know your thoughts on the how.

    thoughts and restrictions
    1) After the first two IP’s have been negatively geared I think its time for a positive geared?
    2) Hitting my borrowing power already on a wage of $77 000 it makes it extremely hard to take out another loan, how do I get around this?

    Financial Situation
    IP 1) Value $430 000, Loan $324 000, Rent $350 pw
    IP 2) Value $380 000, Loan $329 000, Rent $350 pw

    Currently boarding $165 pw + minimal living expenses

    Kind Regards

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    Ok this is an easy one.

    You have reached your ceiling because your existing folio is totally dependant on growth and better rents before it takes off into a situation where your debts are outweighed by your potential to support them.

    Thats cool .. thats how longer term property deals hold together. Presumptively on the basis that the markets have to change .. and hopefully for the properties concerned .. thats up. And the overall market benefits because a property that is not on the market limits the supply available to the existing market .. hence driving the scarcity up for properties in the area.

    But for you it means a wait.

    And do you know something? I have a life to live .. I HATE WAITING.
    Whether its in the queues at McDonalds or for stamps at the post office .. i have no time for waiting.

    And my folio doesnt either. And your folio shouldnt either.

    There is no fun in waiting .. your current situation locks you in until your price/rental ratios double. And usually for most people thats between 8 to 12 years depending on when you got into the property cycle.

    This is one of the reasons that value adding deals make such a difference to the deal. You buy when either price or rents are under market and improve the capital value or rental potential. This of course changes the ratio of expendable funds too and lo and behold ! The banks will treat you like a man with spare cash to invest again !

    A property portfolio should be regularly assessed and re-assessed. I have had deals that were even positively geared but left little upside and the serious possibility of a downturn in rents. At that point I cut my losses .. and moved on.

    You see .. if you treat property like a gamble .. then .. like a horse race .. you back either a sure winner which may not pay a hefty return (and still may not come in), or a mid range value which possibly has the goods on paper at longer odds. Only one horse will win the race .. (and in this case provide the better returns). But from the sidelines .. can you guess with 100% certainty which that will be?

    From your folio .. you’ve started pushing ahead with cap gains over and above what you laid out. At this stage it would be just enough to cover the stamp duty you spent on purchasing the place .. plus a couple of thousand.

    You are running a relatively conservative portfolio .. and as such .. the returns are at a level where they may JUST cover the loans or require input from you to service them. Banks like to see a little flexibility in the deal when they lend .. and if they dont see it .. they’ll jam up until they see enough flex to bank another deal or two.

    That doesnt mean banks are your only source to finance a deal. Try vendor finance if you see one you can manage .. as the vendor plays bank on the deal .. hence the possibility of a little more flexibility. Outside of that there are non-conforming lenders who may like to value your existing portfolio differently.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    I very much doubt you are near your borrowing capacity. I’ve assisted in financing clients into multi-mil portfolios on similar income figures (and they have PPOR debts which eat much quicker into your borrowing capacity).

    Have a chat with a savvy investment based finance broker if you haven’t already, as your borrowing capacity issues may not be anywhere near realisation!

    With regards to whether its worth going CF+, generally a neutral portfolio allows clients to keep pushing their portfolios further as beyond the lenders calculations, they don’t have the same heavy impact on their personal expenses which keeps them moving forward. In saying that though, it largely comes down to your investment strategy and finding properties which will meet your goals.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of KeldynKeldyn
    Participant
    @keldyn
    Join Date: 2015
    Post Count: 3

    Thanks for the comments above,

    Drew I totally agree with you about my situation but as we know other options are out there.

    Corey your comments have made me reconsider my finances I will look at other options and talk to a savvy investment based finance broker and will also pursue the CF+ option.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Keldyn

    Firstly welcome to the forum and I hope you enjoy your time with us.

    Certainly you have the borrowing capacity and on the surface borrowable equity to restructure and go again.

    In fact i spent the afternoon with a Brisbane forum client in a similar position to your own looking at ways to increase his equity to enable him to purchase a couple more IP’S.

    There are several ways on improving your overall cash flow position and it often starts with a review of your existing facilities.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Keldyn

    I wouldn’t be surprised if you could purchase again.

    Depending on your tolerance to risk – you could extract equity in that first IP to cover the deposit/costs on a third.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Keldyn

    Out of interest do you have a savings pile that can be utilised for deposits and/or value-adds?

    My other question is how old are you? I have a couple of ideas in mind depending on the answers to those questions :)

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

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