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Viewing 20 posts - 41 through 60 (of 66 total)
  • CharlieX
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    @charliex
    Join Date: 2015
    Post Count: 98

    I wanted to throw another aspect to Coogee’s opinion on +VE cashflow property. I have sold property with a 33% increase in capital based on a buying price vs my end selling price within 15 months(ownership) due to cashflow not due solely to capital growth. There is a strong demand in market for properties that yield high so if you can build in the yield from creative ideas you can unlock capital due to the demand for +VE cashflow properties. I have done this and I use rental yields to determine the value of my properties and the market demand for my properties. I think this is a strong way (not the only way) to build capital if you are willing to sell because I know that in this current market you can sell 7% rental yield properties all day long almost with complete disregard to the quality of the property.

    If you can build value into a property to create a 8-9% yield you will be able to cash in on the value difference between a 6.5-7% and 8-9% yielding property upon sale in market. Valuers will never accept this formula for identifying bank valuations but market values seem to support the sale of a 6.5-7% rental yield on the basis the property is in a low risk area ie; cities and surrounding suburbs.

    everyone may have their goal for rental yield, so what is the average that you aim for?
    and when you have a high yield rental property, is it wise to sell it which you would be selling the goose laying golden eggs?

    Profile photo of DeanCollinsDeanCollins
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    @deancollins
    Join Date: 2015
    Post Count: 376

    My thoughts exactly Charlie……if you have an 8-9% yielding apartment (do they even get that high in Sydney these days…..or are you calculating it pre any type of expenses……) then why on earth would you sell it.

    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    My thoughts exactly Charlie……if you have an 8-9% yielding apartment (do they even get that high in Sydney these days…..or are you calculating it pre any type of expenses……) then why on earth would you sell it.

    without seeing how someone calculates yield, it’s hard to compare. I’ve seen some that has yield as what percentage is above the mortgage payment, while some has yield as after all expenses related to the property. everyone’s got to be on the same page, to be talking about the same thing.

    we have few properties, and we’re trying to get good rental yield for each of them but quiet difficult to do so. it appeared that yield is very relative to location where the property is. very hard to get your property occupy at $500 per week when the average in that property’s location is $250 per week.

    I still think it’s wise to ride your profit and cut your loss, in anything you do in life if the objective is to be ahead of the wave.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    <div class=”d4p-bbt-quote-title”>Richard Taylor wrote:</div>
    Regretfully ‘solely relying on information provided by the client’ is insufficient in the eyes of ASIC when it involves Mortgage Broking.

    You cannot merely say oh the client never told me so I didn’t ask questions.

    Cheers

    Yours in Finance

    I thought there are sets of questions to ask during the assessment stage?
    if it sounds too good to be true, then it probably is?

    You must make reasonable enquiries – see the NCCP and regulations.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Clint
    Participant
    @clint-harris1
    Join Date: 2015
    Post Count: 2

    My thoughts exactly Charlie……if you have an 8-9% yielding apartment (do they even get that high in Sydney these days…..or are you calculating it pre any type of expenses……) then why on earth would you sell it.

    I haven’t been able to find cookie cut ready to go 8-9% yielding properties but I have created them from obtaining new DAs, new development ie; villas and granny flat constructions previous to most of the market trying to also do Granny Flats which admittedly has slowed down the Granny Flat strategy for me. I haven’t found apartments to achieve this.

    everyone may have their goal for rental yield, so what is the average that you aim for?
    and when you have a high yield rental property, is it wise to sell it which you would be selling the goose laying golden eggs?
    [/quote]

    Using a metaphor for the Golden Goose is ok but I think it simplifies the situation a bit too much. What I like to do when managing my portfolio is run a “Cash on Cash” return analysis along with “Available Capital on Cash” return analysis. This allows me to assess whether a “Golden Goose” is worth selling. Although the property is yielding just on 9% at the moment ie; $500 rent PW on a purchase price of $290,000 in an area with access to train line and the city I can take the capital that someone would pay for that property and turn that rent into $1400 PW by purchasing two new properties that are yielding 8%+.

    I know these numbers might sound high balled but they are not. They are banked numbers.

    The point that I raise with these numbers is that this thread has focused very much on Capital vs Cashflow but I believe that capital follows cashflow and if you can get your cashflow sorted on property than you will be able to raise the capital either through bank valuations and drawing down on the equity or through the sale of a property if that bank valuation has a large discrepancy between the market value and valuer’s analysis.

    Great to get feedback on that thinking though and whether investors agree or disagree. I know that there are many other factors that influence capital growth but I believe there is a stronger correlation between capital and cashflow than sometimes is acknowledged.

    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    I would agreed that capital growth is long term and cashflow is short term.
    valuation is merely a value at a specific point in time, and influence by those properties in the surrounding of your property.

    at the end of the day, how much a buyer is willing to pay is the value of the property to that buyer. it becomes a subjective variable.

    personally, I would keep good cashflow properties.

    Profile photo of D.T.D.T.
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    @dtraeger
    Join Date: 2014
    Post Count: 128

    I would agreed that capital growth is long term and cashflow is short term.
    valuation is merely a value at a specific point in time, and influence by those properties in the surrounding of your property.

    at the end of the day, how much a buyer is willing to pay is the value of the property to that buyer. it becomes a subjective variable.

    personally, I would keep good cashflow properties.

    I quite like this way of thinking. Capital growth is definitely where the wealth comes from.

    Cashflow to keep the whole train on the rails though. This is why outer suburbs of Brisbane and Adelaide are handy atm, because they have both :)

    D.T. | DT Property Management
    http://www.dtproperty.com.au
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    Adelaide Property Management - whole Adelaide metro

    Profile photo of Coogee126Coogee126
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    @coogee126
    Join Date: 2009
    Post Count: 51

    Arent we a bunch of rare animals ? you have to be smart, dynamic and hard working to be successful . there is just no way around it. It feels good to be surrounded with people want to get ahead and making more money.

    Re: CF and CG, you absolutely need both to succeed. go out and buy CG IPs, utilise the tax benifit/ neg gear/ depro etc to minimise your outlay. go out buy CF IPs , put under a trust and distributed income to the lower marginal person, then subsidise the CG ones.. accumulating is the key ! and time will do the trick. if not, just waited out a bit longer using your buffer. The theory is easy, action takes a lot of guts and is the hardest part.

    @clint : yes, your thinking of valuation based on Cashflow is well received in pricing business and commerical real estate. but it’s not a convention (as yet) in residential real estate market. I have two questions on that : one is the same as others : why you kill a chicken that lay egg , after all, isnt that what Postive cashflowed IP is all about ? It’s fine you want to get the gain now, but consider the cost of selling and losing of the future cashflow. you are getting a reduced gain in exchange of a long term lost future cashflow ( how much you put a price on the forever lost cashflow from now onwards) ? this is a million dollar question in valuing a business. a popular way people do is to use the Discounted method to discount the future cash flow back to the present value. what is your method of pricing such IP ? do you add the component of the present value of the future lost cashflow on top of the yield?

    two is : the Cashflow dynamic can be changed , taking the examples of lots of mining town used to be ultra high yield now it goes blood shed. that bring us back to the location location location classics. the location gives you assurance that is not going to change for centuries.. that is why i would much rather stick to cap cities for it’s security it provides. Occasion regional hub for cash in pocket is fine, and nothing wrong with that.

    yes, i agree with the granny flat strategy. it’s a very smart way of pumping up CF while holding a piece of real estate that has a ‘ land’ component. I have to say, some of the conventional wisdom does not always stack up. its true that land goes up , while building goes down, but it is only certain areas of land goes up ( here we go , location again) . the land is the middle of no where certainly does not go up. I would buy a unit/aparment inner mid ring to CBD (with the train line) every single time.

    Profile photo of superAndrewsuperAndrew
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    @superandrew
    Join Date: 2014
    Post Count: 188

    Net Yield + Capital Growth = Return. Both are important but not equally probable.

    You could get a 10% return in either of the following scenarios:

    1. Yield: 5% and Cap: 5%
    2. Yield: 6% and Cap: 4%
    3. Yield: 4% and Cap: 6%
    4. Yield: 8% and Cap: 2%
    5. Yield: 2% and Cap: 8%
    6. Yield: 10% and Cap: 0%
    7. Yield: 0% and Cap: 10%

    One thing we know for sure from day one is the Net Yield of the property (not exactly but close enough).

    Capital growth on the other hand is just an estimation. Could be 10%, 7%, 0% and even in some cases -5%. Most of us like to think that our property will grow annually by at least 7% if not more. That’s normal. We are only human. We expect +7% capital growth and disregard the fact that it could end up being 0%, when we should be hoping for +7% but be prepared for 0%.

    However it would be common sense to focus on what we know and what we can control to maximize our return and minimize our risk. We have limited knowledge and most importantly no control whatsoever over capital growth (renovations/improvements/additions can result in an instant boost of equity but they stop there and don’t continue annually and require more funding to begin with) so why place all our eggs in that basket.

    REGARDING BANKS AND LENDING
    A bank’s job is to manage risk and they are good at it (excluding US banks… :) maybe they got better now). Banks are better at managing risk than us. So if they don’t want to lend you money that kind of tells you that you are too risky for them, based on their lending policies. Of course you can go to another lender with less stricter lending policies, and increase your risk, but at a certain point that strategy will stop.

    REGARDING LONG TERM INVESTORS LIKE STEVE
    Investors like Steve accumulated dozens of properties, within a few years, 20 years ago when the property market was different. Now competition among investors is higher (who follow those strategies) and the economy and government policies are different. Those strategies won’t get you the same number of properties in today’s market.

    Cheers
    Andrew

    superAndrew | Property Analyser and Finder Tool
    https://property-analyser.com.au

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

    One other thing to remember when comparing total returns is that there is a very big difference in the tax treatment between rental return and capital growth.

    But SuperAndrew’s post resonates strongly with my views too – capital gains are speculative and cannot be guaranteed, whereas rental return will always be there. Doesn’t mean that purchasing for capital growth isn’t a valid strategy, but it’s certainly dangerous to rely on significant CG to keep your investment numbers afloat.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of DeanCollinsDeanCollins
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    @deancollins
    Join Date: 2015
    Post Count: 376

    @corey, yep totally agree, when it comes to cashflow calculations I totally ignore capital growth until its realized.

    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    there are a lot of variables that points to capital growth areas. unless the whole economy goes on free fall, those variables have firm foundation.

    either way, cashflow is a preview to capital growth?

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

    Cash flow certainly can be a pre-cursor to capital growth, but I wouldn’t say it’s always a direct progression. Some areas show strong CF for a reason, because capital growth is in the dives indefinitely (buying in Timbuktu with no growth factors).

    As always, the profit is in changing demographics – increasing buyer/seller ratio, increasing owner occupier percentages, zoning changes etc.

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

    Investment Focused Finance Strategist - servicing Australia-wide

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

    Cash flow is oxygen when building a property portfolio particularly if you want to delink your “JOB” from your ability to invest.

    • This reply was modified 4 years, 11 months ago by Profile photo of Don Nicolussi Don Nicolussi.

    Don Nicolussi | Mortgage Broker - Home Loan Warehouse
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    "I think of finance as a technology, a way of getting things done." Robert Shiller

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Hi Coogee,

    Going back to the original question….
    A few things about your opening post.

    1. Trust will actually reduce your borrowing capacity ( as you cant use negative gearing) – but def a vehicle for asset protection/ income diversification and land tax etc..

    2. The good old “foreign” investment trick is a fraud in most cases…pretty much it was a “westpac” policy….any foreign income they will take from a simple letter- one of the dumbest policy! but hey westpac probably made Billions writing foreign investment loans…this policy has now changed only as of Oct 0214.

    3. Low doc also won’t work as your not self employed ( i presume?)

    ——a few simple way to increase or really to MAX your borrowing capacity—-

    In order of importance.

    1. Choosing the right lender to use a at the right time and keeping the “easier lenders” LAST – Ie NAB/ Macquaire bank/ AMP etc…

    2. Using up the foundation lenders early on – ie ANZ/ St George/ Westpac/ CBA

    3. Using high LVR early on and sticking with low LVR for your 13,14,15th property etc…

    4. Using the right loan structure – Ie Interest only and know WHEN TO FIX…..fixing can also increase your borrowing BUT only for certain lender and normally it has to be over 3-5 years.

    5. Reduce “bad” debt – ie CC limits/ HECS / Car loan

    6. Increase income ( not easy)

    7. Increase rent ( also not easy)

    8. Buy with the right yield and property type to increase servicing ( change your buy strategy based on your position…ie for me every time i buy a good capital growth property i would buy 3 rental yield property to support the lost…effectively making my portfolio “0” effect = unlimited borrowing)

    9. For something a bit more creative – Invest in Insurance bonds the income can be used in servicing ( taking on some risk though)

    10. for something with a LOT more creative – Flip a property/ renovate and sell – some banks will also take on this income

    11. Enjoy the experience and ride :)

    • This reply was modified 4 years, 11 months ago by Profile photo of Mick C Mick C. Reason: add

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Same Banks. Better Rates. Served With a Passion.

    Profile photo of Coogee126Coogee126
    Participant
    @coogee126
    Join Date: 2009
    Post Count: 51

    Hi Mick mate

    thanks very much. Your suggestion is very useful and see how we think alike !

    yep.. am currently doing 1, 3, 4, 7
    after that, am going to go for 8 , 10 . I have some investment in funds and shares.. but i prefer things that I can control to be honest.. even though i can get it wrong sometimes.. but the most fun part of investing besides making money is to make the decision and act on your judgement and learn.

    am always doing 11

    hahahaha

    happy holidays..

    Profile photo of Captain Risk0Captain Risk0
    Participant
    @worked
    Join Date: 2015
    Post Count: 14

    Interesting discussion. I would like to think there is other ways to borrow more…..apart from being shonky.

    Banks are a pain in the bum especially with serviceability. You can present a good case to your broker with the worst case scenario and you will still get rejected under the banks ‘serviceability rules’. And it doesn’t seem to matter if the property is to be bought 50k less than market value.

    Are there private loaners out there who are willing to look at the whole picture?

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    All lenders and the broker will be subject to the NCCP.Can’t lend you money unless you meet certain requirements. But the NCCP only applies to natural persons borrowing.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Captain Risk0Captain Risk0
    Participant
    @worked
    Join Date: 2015
    Post Count: 14

    Hmm. I remember that one next time my work colleagues ask me for lunch money. They will probably resort to being a different entity.

    Profile photo of TkpurserTkpurser
    Participant
    @tkpurser
    Join Date: 2014
    Post Count: 5

    So in Steve’s book (0-130 properties, revised edition) starting at page 172 he talks about how once he reaches his borrowing capacity he then re-structures his family trust and then approaches another lendor.
    I read in another post that this is no longer possible?
    Would another bank loan money if say the original trustee (e.g Trustee Company Pty Ltd) was sacked as trustee and another company was created and made trustee which in turn the directors would then be the guarantor/s? Therefore creating a new trust structure?

    • This reply was modified 4 years, 9 months ago by Profile photo of Tkpurser Tkpurser.
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