Growing your portfolio outside of a boom

I'm curious to know what strategy people plan on using to grow when CG is back to a modest 3-5%? My limitation is going to be getting the deposit together to buy more properties rather than my ability to service the loans.

Assuming that you buy 10% below market or that you are able to add value immediately, you still need another 2 years worth of CG to get to 80% LVR. Even if you have a fair amount of equity in a PPOR before you start, you'll cap that out pretty quickly and be left waiting for growth to enable you to unlock more equity for deposits.

I'm only in the early stages of building up some properties (currently have three - soon four, properties including my PPOR). I'd really love to buy more properties here in Brisbane over the next 12-24 months but I don't think I'll have the deposits/equity to do that.

Is this a really standard problem or do people bite the bullet and get LMI?

 

Earn more, save more, invest more.

 

How can your limitation be saving a deposit but not servicing the debt? Sounds like your flying close to
the fire.

 

Not at all... even if you have an income of $200k and no loans, you still need to save over $100k to buy a $500k house (at 80% lvr). After tax and living expenses, you might need well over a year to get that deposit. Doesn't mean that you are going to struggle to repay the loan.

 

LMI - hell yes, if it means you move forward and continue making money. Its peanuts in the scheme of things.

Look at adding value ie develop, renovating. Start with smallish project, for example house you can retain and build at rear, Sell one, keep one, increase cash flow, reduce debt, or keep both? Dependent on the numbers.

Its OK to sell... read this...
It's OK to SELL

 

@Bris Jay
Agree with what @MTR said - LMI will definitely help you move forward, as you will have more exposure to the market. However, with an LVR of over 80%, most lenders will require you to do principal and interest repayments - so need to make sure you do your cash flows. There are some good fixed rates available for P&I currently - a number of our clients have consciously chosen to go P&I, whilst they had the option to go Interest Only, as the differential in repayments with the lower fixed rate was very small, it just made financial sense to do so.

 

That could be your problem right there. You're seeing LMI as a bad thing and not as a tool.

 

If deposits are the limiting factor then using LMI is not a bad thing. It is best to get it early on rather than later as the more loans you have the tougher it will be to qualify for their more strict lending criteria

 

Agree - LMI is your friend.

Aim for a 12% deposit plus costs - this gives you a happy medium between better leverage and not-too-outrageous LMI costs.

I also agree with MTR - make sure the properties you're buying are also going to give you bang for buck. Small developments are the key to long term property investment these days, buy and holding for growth is not going to be quick enough or give you the cash flow you need to keep moving forward, especially now that servicing is tougher and the cash-flow hit of 80% is now much bigger than it used to be.

 

Im surprised so many are opposed to LMI. I don't see it as a huge cost at all in the scheme of things. I haven't used it yet but have no hesitation in using it when I'm maxed out on the equity I have

 

And it can be capitalized!

I always chuckle when you hear people "wisely" say with absolute confidence "you know LMI protects the BANKS, not you, right?"

Let's see who feels more protected when **** hits the fan - the guy who just poured everything they have into their house, or me with an extra few hundred K sitting in my offset and three extra properties going up 100k a year each, which wouldn't have been possible without LMI.

 

LMI can actually put more money in your pocket in the first 5 years. Because the tax deductions can be bigger than the interest incurred.

 

See this often. Got to look at the big picture, I you are spending $10,000 to make $100,000 what is the issue??

 

Gold...

Doesn't make sense to lose $100k to save $10k

 

I guess my question has been answered

 

LMI is essentially a 'Let Me In' faster approach. It's a tool well worth using especially in the early acquisition phase of building a portfolio. It's a cost of doing business which allows greater leverage of your dollars to build an asset base quicker. So instead of having a base of 800k you may be able to use LMI and leverage those dollars further to say 1.5m. At 5% return that's 75k as opposed to 40k pa on average. Big difference.

 

I would suggest going back and reading posts by guys like:
Sash
HandyAndy
Rockstar
book by Phil Jones, and even Nathan Birch eek

Specially on the old forum.
I'm sure there's a few others, but those come to mind