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

Discussion in 'Investor Stories & Showcase' started by Samj40004, 9th Apr, 2018.

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  1. Perthguy

    Perthguy Well-Known Member

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    Where are your hashtags? ;)

    I am using strategies to increase equity, increase cashflow and reduce debt but I'm not selling them to you :D
     
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  2. MarkJ

    MarkJ Member

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    Thanks Sam for your post.

    Cash flow is the most important criteria - especially during periods of tight credit that we are experiencing now. With any IP that does not generate enough cash to meet P&I repayments - investors need to reconsider their hold strategy. Increase income from other sources (salary, business income etc), reduce debt, borrow from family or consider the sale of IP's as foreclosure is not a good option. Try to hold onto your family home. Good luck.
     
  3. MummyInvestor

    MummyInvestor Member

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    I've read all of your posts to this point and you have incredible insight. I agree with your comments and approach on this particular case.

    Please, if you have any time or energy, could you look over my plan/questions in a thread I've started. Would love any input you could provide. Thanks.
     
  4. euro73

    euro73 Well-Known Member Business Member

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    It may be better if you PM me and we take the discussion offline. :)
     
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  5. Wanttoretire

    Wanttoretire Well-Known Member

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    Hey.
    I agree that we need to reduce debt.
    We have a cashflow positive portfolio. BUT. In 2021, we have to change to P&i from IO.
    So we need to take a defensive position. BUT....
    Today...we could have not done what we did in last 8 years.
    Do not let older posts leed you into what you might do. Things have changed. You need to be really educated about borrowing. It’s now different.
    Negative Gearing is not not sustainable long term.
    R.
     
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  6. Shazz@

    Shazz@ Well-Known Member

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    How would investors build their portfolio post APRA? There seems to be some really good stories pre APRA, but times have changed.
    I am in the situation where I am trying to invest, but with all these lending restrictions.
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The same way generally but at a much slower pace. The key will be paying down debts, debt recycling and strategies to improve serviceability.
     
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  8. euro73

    euro73 Well-Known Member Business Member

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    It's amazing how many on here still aren't having the penny drop. Not only does IO debt get absolutely punished by today's servicing calculators , there is an IO quota which makes the probability of being forced onto P&I after 5 years extremely high. Portfolio's need to be P&I proof. Simple as that.

    I don't understand why any new/young investor reading these forums wouldn't have concluded that by now, and stopped pursuing speculative growth. It's fools gold.

    Today, you need to build a portfolio around cash flow, so it can reduce debt and survive P&I migration. There is no point chasing growth and ignoring cash flow. For starters, everyone else has borrowing capacity issues as well, so the growth cycles of the past you are relying on to decide what markets to invest in, are redundant. Put bluntly, growth of any material kind is unlikely to happen - and more importantly, even if it does happen it would need to happen within 5 years because that's when the P&I cliff comes a calling, and if you haven't made your money, sold and gotten out by then, the growth wont make your P&I repayments for you. It wont matter what your property is worth when you miss a mortgage repayment and then another and then another and the bank takes over....

    Buy for a 20 year plan. Purchase strong yields/cash cows in solid locations. Dont buy in one horse towns. Buy solid, working class properties that will do a job for you. Set loans to P&I from Day 1. Pay the properties off in 20 years or so.... Retire with a passive income for life . With or without growth which relies on credit being generous rather than constrained- you'll be set for life

    Always remember - 30 years of easy credit got very few people retired. Growth making you rich is a MYTH - for all but a very small percentage of people. Liek I said- fools gold. We have 30 years of data telling us so. And if that generation couldnt get it done with easy money and 95% LVR's and neverending IO ...what chance is the post APRA generation ? Buckleys and none.

    Buy for yield. dividend reinvest and pay off the properties, and in 20 years or so you will be debt free and you will be amongst the small percentage of truly financially independent types. retire if you want.... or don't. It will be a choice to work or not. Not a requirement.

    The maths on this stuff is so mind bogglingly simple and so mind bogglingly clear. What's most amazing of all is that it achieves these outcomes even if we are unfortunate enough to have to endure 20 years of nil capital growth. It is quite literally a no brainer.

    But most here will continue to chase fanciful dreams of making millions from speculative growth investments - a strategy that worked for hardly anyone for the 30 years pre APRA, when money was easy and IO was forever...... but rather than accepting it has has little chance of working post APRA where money isnt as easy and IO isnt forever...they will continue to pursue these outcomes. They will more than likely end up working until 70, struggling to pay their mortgage off, struggling to get past 1 or 2 or maybe 3 INV properties, and they'll brag at family BBQ's about how they "own" 3 properties.

    For others, the penny will drop and they'll realise cash cows and dividend reinvestment/debt reduction is where their financial independence can be found. These are my kind of people...they'll have 6 figures net per annum in retirement. They wont say yes to anything they dont want to do. They will fly business. They will just smile politely when others start talking about how many properties they own and how "big" their portfolio is.
     
    Last edited: 17th Sep, 2018
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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Possibly due to a lot of misleading and deceptive marketing which is going on.
     
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  10. euro73

    euro73 Well-Known Member Business Member

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    This is only true if you have the necessary borrowing capacity - and if everyone else does as well - because you are relying on others being able to borrow enough to drive prices higher and higher consistently. I seriously doubt this reliance on growth "cycles" will prove itself to be a reliable strategy over the next decade. It's just counter intuitive to whats really happening , where borrowing capacity is contracting and holding costs are expanding .

    It's almost like an addiction - this mantra that it must be growth. There cannot be a repeat of growth cycles when people cant borrow enough to pay more. There cannot be a repeat of growth cycles when many people cannot afford to hold under P&I conditions. - even if they can afford to borrow - which many cannot

    You are far better off understanding and accepting that if your borrowing capacity is already basically exhausted, paying down debt with cash flow offers the only mathematical possibility of even being able to buy something

    Any other argument is just nonsense.

    Like always - I have outlined an argument supported by real servciing calcs which prove the argument. Others are just throwing around theories that worked once, but don't anymore.

    #reundantthinking

    #outoftouchwithreality

    #postAPRAain'tpreAPRA
     
  11. euro73

    euro73 Well-Known Member Business Member

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    Also wrong. Bathurst and Orange have disproven this. Port Macquarie has disproven this. They will continue to disprove this. Bendigo and Ballarat will be next to disprove this

    Once again - redundant thinking, biased by pre APRA experiences when borrowing power and holding costs were very different.
     
  12. euro73

    euro73 Well-Known Member Business Member

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  13. Gazza215

    Gazza215 Member

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    Good stuff buddy !!
     
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  14. Samj40004

    Samj40004 Active Member

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    Hi everyone

    Thanks for the comments so far. I’ve learened a lot and I hope I am also helping others to learn using my case as well.

    Recently few things have changed hence a short update... again welcoming any comments and thoughts.

    1. Bank valuation came out quite nicely. $680k for my ppor (which I think is higher than the market value) and $650k for the second IP.

    2. Ppor was on IO but now due to rate increase I switched it to I&P, adding about $1,000 extra repayment per month.

    3. 3.99% IO loan on first IP is expiring next year about April or May. I also went on without tenants for 4 months and it killed a lot of my cash flow..

    4. Second IP was on IO @ 4.86% so I refinanced it to Westpac @ 3.85%, fixed until Nov 2020.

    5. With extra $100k from refinance I am about to purchase remaining portion of my boss’s (about to retire soon) shares in the current business, which will increase my annual income by around $70k.

    6. A side network marketing business which I honestly expected to take about 2 years to build a solid passive income picked up quite nicely and is making about $2,500 per month extra for me. I got quite fortunate and was able to find good business builders and consumers that are continually building my downlines. I should do $4,000 by mid next year unless something terribly goes wrong. (This is not 100% passive yet and I do spend time consulting and educating my team members etc)


    Investing in property did an exceptional job in building my wealth but in doing so I continued to increase loan and interest expense. Given the current conditions of increased burden for repayment and slowed capital growth I am focusing more on other income generating methods.

    I’ll wait another 2-3 years until I save more cash and during this time I hope the property investment conditions will improve, but who knows...
     
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  15. Redom

    Redom Mortgage Broker Business Plus Member

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    Nice work @Samj40004.

    Some general comments from reading through this thread and alternative plan proposals;

    The big issue with property dividend re-investment plans that rely on debt is that it is inherently flawed and not designed to work in changing circumstances. One thing that the changing debt environment has taught me is that DEBT is where the biggest risk to portfolios lie. Good debt management is crucial to building sustainable portfolios over time. I think this is a lesson some young investors didn't place enough importance on during the heights of the boom and are learning more and more about through forums/etc.

    Noting that, property as a 'dividend re-investment' model is susceptible and weak at best. Why? Debt is risky and you can't control the price of it, the supply of it and changes to the terms of it over time.

    There are far better dividend re-investment models with other asset classes. This may be a good idea for the next stage of your journey.
     
    Last edited: 14th Dec, 2018
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  16. DOSHman

    DOSHman Well-Known Member

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    Are you able to return back to IO once you have been forced to pay P&I after a period of time?
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes if you qualify. You would be best off refinancing prob
     
  18. boganfromlogan

    boganfromlogan Well-Known Member

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    Good plan
     
  19. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Some banks will let you extend the IO term past 5 years providing you can service the remaining debt over 20 years in the example of a 10 year IO period.

    Another way is to refinance to a new lender and reset the IO term for another 5 years as mentioned above, you need to demonstrate serviceability in line with responsible lending laws.


    There are still some legitimate loopholes to explore when hitting the serviceability ceiling, although very much limited post-APRA/ASIC regime.
     
  20. DOSHman

    DOSHman Well-Known Member

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    Ah I see, so you can continue to jump between lenders locking in IO rates and not hit a roadblock of having to switch to P+I? Can different lenders look at your history of borrowing and follow your trends?