3 years, 3 properties, $400k equity, what now???

Sort of relevant - I'm not the one galloping into every thread with the hero solutions - but miss some information in the OP.

My IPs also irrelevant - just had to play devil's advocate.

 

So for all we know, you are all hat and no cattle?

To be frank with you, where the equity lies is absolutely irrelevant. The borrowing capacity issues remain whether the equity sits against PPOR, IP1 or IP2 or all three. The 472K PPOR debt remains whether the equity sits against PPOR, IP1 or IP2 or all three.

Of course, you would know that if you had any expertise in post APRA servicing calculators or the broader value of a concept such as debt reduction to improve holding power and borrowing power as a response to said post APRA calculators.

My first comments remain accurate, suitable, prudent and correct.

#stayinyourlane
#notmyfirstrodeo
#allhatnocattle
#whatsyourtrackrecord?

 

Mate I'm interested to know what kind of properties these are? Duplexs?
What kind of yield would the op have to be getting to get a 8k return a year

 

Excellent thread. I think majority of us are in this similar situation in terms of being equity rich but untilised because of lending changes.

I get Euro’s big push on his cash cow strategy to reduce debt. Can’t his strategy be achieved in a faster, cheaper, much more liquid manner through Australian equities rather than buying “nras+dual occ”?

What I’ve been doing over the past 3-4 years was periodically re-valuing my properties and establishing/increasing LOC. This was done in a way to both extract AND lock in equity to ensure it was available to me. Admittedly this was done in light of any backward movement of property value, but it has worked well to defend against APRA/lending changes as of late.


Moving forward to combat reducing my non deductible debt, I have

- started research on a new side business venture
- used funds in these existing LOC to invest in Aus equities with franking (cash cows lol) and surplus I will place into the non deductible loan over time.

 

Question euro’s cash cow of $16k p.a net to reduce debt. What is that of a percentage..? Would be great to compare this to aus equities fully franked!!!

 

What is LOC and Aus equity?

 

LOC is Line of Credit. Aus equities probably means Aus shares, LIC.

 

16K is across 2 properties not 1. So you can expect to see @ 8K CF+ per property. You contribution depends on how you structure things. Lets say you do 90% INC LMI, where you contributed 12% + stamp duty using cash or equity.

The 12% deposit would equate to @ $68,400 based on 570K P/Price.
Stamp Duty would equate to @ $4,440 ( the land is 170K)

$72,840 contributed. 8K net generated. 11.04% return NET.

Or you could take that 72.8K and buy a US property... and see how much change you get from 2-3K each year

If you get better than 11% returns...maybe. Sure. Why not. certainly lots less effort than property. But this is Property Chat, not Share Chat And given the fact shares have barely returned to pre GFC levels, leverage isn't readily available ( well it is, but at much lower LVR's and its always "at call" ) and banks ( which have a huge influence on all Australian share outcomes) are about to see dividend getting trimmed as profit margins contract, I dont see a compelling argument that this approach will produce better results. But I guess if you take a very optimistic view you may be able to support an argument that they may get close...but outperform 11% year in and year out? Unlikely

I would also point out that many of the pre APRA NRAS deals produced 16-20% ...some even produced 25% or better...but those deals are long gone now.

Ultimately, there's another way to view it as well. Just set the cash cow loans up as 25 years P&I from Day 1 . They would drop back to @3K CF+ ( about the same as the much hyped US properties being spruiked a lot lately. Note. Thats AFTER tax, not BEFORE tax. Big difference! ) so you could simply pay the property off over 25 years or less.... closer to 20 years to be fair. This way, with or without growth you would have turned 72,840 into 570K in @20 years ... and you would have retained the income stream. Its currently @ $650-660 per week so if it takes 20 years to double, that's going to lead to $1300+ per week of retained income ( minus expenses and taxes of course ) as well as an asset worth 570K... all achieved even if there is zero growth. Try doing that in the markets lover 20 years, when they have barely recovered from their pre GFC highs of 10 years ago....

Its just simple dividend reinvestment using an asset class that provides as good or better yields than other assets, at higher levels of leverage , and without ever being "at call"

I agree it isnt as liquid...you are correct about that. But I don't care, because I'm in it for the end game. And the end game is a large passive income for life with a large real estate asset base, even where zero growth occurs for 20 + years across real estate.

 

If you keep the place in Ipswich, will it really grow that much? It is still in the mortgage belt. It is fairly new, so a depreciation deduction applies, but however you have tax deductions in property #3.

If you sell it for $325K you would get to keep about $50,000. Without rushing off again, chasing growth rainbows, look at all different cashflow strategies. I research commercial, so particularly fond of a 2.5 - 3% yield cash-flow between what you can receive in rent and what you borrow (tenant pays outgoings). But there are other creative strategies out there, like putting more apartments on a large block with a house on it, adding extra rooms, etc. When you earn real cash you can actually make more choices as well as borrow if you like.

 

Exactly right. Investing instead of speculating.

 

What you are saying is very valid. I’m not seeing much growth at all. There’s a costco soon to be opened nearby but I’m not sure how much positive impact it will bring. Next year may I finish my fixed interest period and am thinking towards selling it..

 

@euro73

i'm very new to property-chat but every single word that you've said here on this thread has resonated and is inline with my view 100%. i'm come from a background of stock investing as a pastime and now i want to settle into real wealth generation, so i'm getting myself ready to dive into property investing and your methodology and rationality is exactly how i naturally align!

Literally no one else around me nor reading on property-chat is saying what your preaching.

I'd love to be mentored by you, possible? happy to DM you and introduce myself

 

Many people are CF focused and into debt reduction. Nothing new. You're just too green to realize it.

 

I hope you mean PM rather than DM

 

Why are you choosing to leave stocks now?

Seems market is killing it right now.

Property is in the opposite phase now.

Did you have a bad experience,would it not make sense to stay in Stocks now?

 

@euro73 sure, debt reduction, cf+ and all that is well and good. However if the purchase price is 575k including stamps and rent is say $670 per week, that only works out to about 6% gross yield.
Hardly worth buying such an expensive asset in the middle of nowhere with so much land around.

Sure you can argue 'depreciation'. But considering you can buy an assets worth 400k or less(e.g. in Hobart or Brisbane) and get 6% yield easily, any benefit derived from depreciation claims from the product you're selling has already been paid for by the buyer. It is being paid for by bigger loan repayments due to higher purchase price.

 

I agree with your statement in general but just want to point out that a property cost less than $400k giving you 6% gross yield in Hobart now is most likely in an outer suburb which has quite low demographic (Tas standard) and low CG potential. And Hobart is quite close at its peak atm imo.

 

Would be a combination of rental income, tax deductions and depreciation and likely living below means.

 

Or having high income combined with good assest selection

 

Yeah... no. A few small details you are omitting

Thats 6% pre tax. Its much higher after tax when the substantial depreciation is factored in. You can be flippant about depreciation , but its a legitimate part of the net cash flow.

Orange isnt the middle of nowhere. Its the 5th fastest growing area of the past 12 months. The properties are being revalued at 620K + upon completion - and thats a conservative bank valuation. You may not like regional... but you'll learn ( like all other naysayers) that the post APRA credit era , combined with the massive increase in treechangers and seachangers - will draw money to these more affordable areas....

But hey....you are entitled to your opinion.