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Has anyone paid off their ips and used the snow ball effect ?

Discussion in 'General Property Chat' started by Drunkanbarbarian, 18th Oct, 2016.

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  1. Drunkanbarbarian

    Drunkanbarbarian Well-Known Member

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    Hi just wondering if anyone on here has paid of multiple ips using the snow ball effect
    I just want to hear your experiences and what you thought of the process or what your thinking about the process ( for thoese that are doing it now)

    Im interested in this method and want to hear your thoughts
    Thanks
     
  2. thatbum

    thatbum Well-Known Member

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    What do you mean by the snowball effect?
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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  4. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    I'm guessing he means if he pays off say 3 IPs the rents from them will pay off the 4th which will pay for the 5th and so on...
     
  5. larrylarry

    larrylarry Well-Known Member

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    The OP asked a similar question in another thread.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    But I didn't put any gifs on that thread.
     
  7. larrylarry

    larrylarry Well-Known Member

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    You can now. ;)
     
  8. kierank

    kierank Well-Known Member

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    I don't think it would work in Brisbane/Queensland - too hot :) :).
     
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  9. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Would it make any difference?

    Say you have 4 properties with 500k loans each one.
    Rent is $500/week each property.

    Whether you pay one property off one at a time, (by fully offsetting debt), or pay a bit off each property equally:
    1. Your rental returns will be the same.
    2. Your overall debt will still remain the same.
    Am I missing something?
     
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  10. Perthguy

    Perthguy Well-Known Member

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    You buy 4 IPs. You set IP 1 to P&I. IP 2,3&4 are IO.

    You pay down IP 1 ASAP.
    You then set IP 2 to P&I and pay down ASAP. etc
    Until all are paid off in full.

    The problem is that I don't think it works. I have done some crude modelling in excel and as far as I can see it is faster to set all to P&I and pay them concurrently.

    Unless you can afford to make additional repayments, it will take 30 years but you will own 4 IPs outright.
     
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  11. Perthguy

    Perthguy Well-Known Member

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    It makes a difference if you don't use IO (snowball is slower). I didn't model 30 years of repayments using IO because most banks would not go for that.
     
  12. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Wouldn't snowballing into increasing controllable debt be more effective than snowballing to reduce debt?
    i.e. Increase your total debt as you progress rather than reduce debt.
    Surely most successful investors have a lot more debt as a total now than when they were just starting out.
    Need to take advantage of leverage.
     
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  13. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Rather than attempt to pay the IPs down, I'd rather aggressively attack the mortgage on my PPOR. Investment-wise, I'd rather have a bigger portfolio and sell down half the properties after seeing good capital gains, I wouldnt try to pay them off at the time being. In the meantime I'm claiming all the interest expenses and depreciation for all the investment properties I own on my taxes.

    If/when the PPOR is paid off then I might start putting money into an IP's offset, unless I can think of somewhere else I'd rather put my money, which could possibly be shares (for diversification) or super, or more property perhaps.
     
  14. Perthguy

    Perthguy Well-Known Member

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    Yes, much more effective. I personally can't see the value of buying 4 sub $350k IPs and working for 25 to 30 years to pay them off.
     
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  15. Ed Barton

    Ed Barton Well-Known Member

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    Selling cocaine to fund IPs?
     
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  16. dabbler

    dabbler Well-Known Member

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    This must be talking about paying off loan faster than required, can't be anything else ?
     
  17. Perthguy

    Perthguy Well-Known Member

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    It is a question of which is quicker, paying off 4 IPs concurrently or sequentially, which the OP calls 'the snowball effect'. Here is 'the snowball effect' in the OPs own words:-

     
  18. Perthguy

    Perthguy Well-Known Member

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    You have IP1, IP2, IP3 and IP4.

    While you are paying off IP1, are IP2, IP3 and IP4 IO or P&I? I modelled IO but that could be wrong.

    As far as I know, if all interest rates are the same, it would be faster to pay them all off at the same time.

    I think this is a slow and steady way to pay off IPs. How much extra can you put on the loans each month? Even $400 per month would make a huge difference.

    If you have 4 IPs all at $350,000 ($280,000 loan), all at 4%, all set to P&I, it would take 30 years to pay them off. If you could put an extra $100 per month, per property, you could save 3 years, 7 months. If you could put an extra $100 per week, per property, you could save 10 years, 2 months.
     
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  19. dabbler

    dabbler Well-Known Member

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    You only get a snowball by paying a set higher amount and continuing it relative to the interest rate or increasing it even further as time passes.

    If they are the same loan rate/period, then it is all one debt really.

    Won't work for me, I would be buying another IP/s most likely.
     
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  20. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    There was this chick on Somersoft, Nikolina was her name I think.
    Her snowball strategy was to only buy the next IP once the previous one was fully paid off, so that all the funds such as rent and personal income could be contributed to the next IP so it gets paid off faster.
    As you get more and more IPs, accumulation gets faster.
    Didn't want to accept that she was at a huge disadvantage by not taking advantage of leverage.
    Think she's in Sydney and was on her first IP quite a few years ago, wonder how many she's racked up by now......:rolleyes:
     
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