6 Properties. Positively Geared & No More Finance.

Hi guys,

Im new to posting on forums, I'm usually a leech of information from the many wise people on here. Leeching has got me this point and now I feel I need to jump in and become a part of the community; to share and to learn.

THE STORY

Back in 2011, while studying law and accounting, I saved my sandwich shop wages and bought a cheap property in Sydney. Lived in it and renovated it, moved out and rented it. Refinanced it and bought another one. Market moved and there I was with 2 more. Started my own construction business and got slapped with a Vodafone default. So there went my financing ability; self employed with crap tax returns and Vodafone default (paid but still on record).

Fortunately, I met my girlfriend and I had a deposit on hand. She had and still has a good government job (100k) and I bought a property with my deposit and her finance, all in her name and its tenanted.

Then I found another property, bought it, my deposit, her finance.

I've spent some money last year fixing up three of these and ended up through and through, breaking even on the four in my name and she is making about $75 on paper on the two in her name. Nothing to brag about. My tax returns are looking better in $ but still a mess. Vodafone default is good as new. So Im out of the picture until I can get my house in order.

THE PROBLEM

Being a good girlfriend, she bought a $30k commercial van for my business also in her name, at a (great!!!) rate of 12.3% per annum. The van got me out of a dangerous situation of driving a coffin but it depreciated rapidly to the point its worth 5k less now than what we owe. The repayments are at about $115 per week (charged fortnightly) with a balance of 20K.

None of us have any other finance.

We don't consider ourselves de facto and its beyond anyone's speculation that we would be (no kids, not living together, no shared accounts etc etc). I know that there is all the financials above but it's all verbal between us and as far as documents go, she owns two properties and a car and I don't. So that's the risk I choose to take.

The problem is I've found many properties I'd like to purchase and can't get her pre-approved (and she can't either).

We are talking cheap rentals on the gold coast for under $250k. Once I renovate it on a tight (10k) budget, they will be positively geared. I have the deposit saved but now despite having a small positive property portfolio, which when you take only 80% of rent or however much it is, would be negative, she can't get past $100k finance because of the car finance owing.

Someone smart might say get the car finance in the name of the business with a new loan (but it's a massive pain having the business buying from a private entity and not a dealer in terms of fees and turnaround and then relies again on my Vodafone-stained record) and having the loan is a tax write off as it is so paying it out chips into my deposit and renovation budget and removes the interest element of my tax deductions. Selling the car is detrimental to my business. Refinancing one property is impossible because it was maxed for a renovation budget.

The other property is at 70%LVR and hard because its company title and it took 9 months to get it financed with an inexperienced broker in the first place (don't ask how, but my hair did go grey). However, having said all of that, the refinancing and paying out a loan may be the best option in that mix.

THE HELP

- Are there Queensland/New South Wales based brokers with a firm grasp on financing of Company Title property - this is for the refinance and potentially for the purchase.

- Where do you good folk go when the big banks say no? Who are these second and third tier lenders our friends on Youtube keep talking about? Surely we aren't talking about credit unions? They as far as I know always had the same if not stricter rules around lending.

 

Totally agree.

@Alex Pushkin, for starters, what is your end-game? What is your strategy to get there? ...

Without all the details, it looks like, on first reading, you could be a victim of a train wreck called “Buying A Portfolio Of Cheapies”.

There are some on PC who have gone down the same road, only to find out the it ended in disaster. I know of others not on PC who did the same thing (one owned 20+ properties), had to basically sell and start again.

I am a big fan of buying a portfolio of a smaller number of high growth properties such as this as it gives you more flexibility (but it all depends on your end-game):

Retirement at 55 - Line of Credit

 

@kierank
I really appreciate the reply. I’m genuinely interested about the cheapie portfolios you’ve heard of.

I don’t think I understand where you’re going with the cheapie logic. My strategy is to level growth properties which have neutral or slightly negative cash flow with cash flowing property so I can get more finance to build a portfolio which I will split in half in the next boom - whenever it is; sell the properties that grew in value to cover the mortgages of the properties that are cash flowing. So end up with a debt free portfolio of property and the benefit of that to me would be the income on a weekly basis.

 

But are you now at the point where you kept harvesting equity to balance it out with cashflow properties, but your stuck because there isnt enough equity left and the cashflow isnt enough for further serviceability?

Strategically, would it have made more sense to push for more growth properties first, if you had the income to make up the negative cf?

 

@Trainee

In terms of strategy, the first 5 are in growth areas with all 5 sitting at 80LVR. All are within an hour of Sydney.

property 6 is cash flow with 70LVR and the next 3 I want also for cash flow. I know 80LVR isn’t ideal but I don’t need the equity to fund a deposit on the next property as I have the cash. Issue is I don’t know where to apply to get the finance when the big banks say no. There is this incredible avalanche of people on YouTube saying “max out the banks and go to non bank lenders, second tier, third tier, B grade, C grade” I have no idea who they mean in terms of Australian institutions.

 

Understanding Non-Bank Lenders & How they Can Push Your Portfolio Further