Intrigued - how do those with large porfolios seem to be able to continue to borrow?

Discussion in 'Loans & Mortgage Brokers' started by ORAC, 1st Apr, 2017.

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  1. ORAC

    ORAC Well-Known Member

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    One thing that has intrigued me over the years is, how do those with large property portfolios, albeit ones that appear to be cash flow positive, seem to be able to continue to borrow, even when they don't appear to have a job?

    Another example of a Gen-Y, Rentvesting couple, with a large property portfolio that have continued to add properties in a relatively short period of time.
    The Gen Y couple from Sydney making $300,000 a year with 28 investment properties

    I've read the exploits of this couple before, congratulations to them both on their highly successful property journey. There would appear to be a combination of good luck (good equity growth in Sydney), identifying opportunities to buy out of favour unit blocks, buying in different areas, adding value and delving into commercial property acquisition, to produce what appears to be a cash-flow positive portfolio. (Yes, all good strategies and yes, they have started a property advisory company!).

    Along with others (e.g. Nathan Birch, Todd Hunter / whereGroup etc), they seem to be following a similar path. What has always intrigued me is how do they appear to be able to obtain the loan funds so readily and easily?

    I've noted from my own personal experience, working in a professional job, that the time and effort it takes to make loan applications, compile income / tax returns, asset / liability / income data etc, getting loans reviewed and approved, it takes time and effort. I consider that I keep meticulous records but always not that easy. Then you got to finalise the purchase of a new property, get it rented out, and then get some rental data - it all takes time.

    For this couple, appears 4 deals in 2017, 3 deals in 2016, 5 deals in 2014 etc - how are they able to move so quickly in terms of getting the financing? They must have excellent records!

    Thoughts?
     
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  2. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    If you have a ~10.4% debt yield as calculate as - Rental p.a / total debt - the purchase should not have an effect on your borrowing capacity assuming using one of the major banks.

    From the article, their weekly rent is $13,938 or $724,780 p.a. If I take the 'value' column and minus away the 'equity' column it looks like their total debt is $6,957,271.

    That gives a debt yield of $724,780 / $6,957,271 = 10.4%.

    It looks like their portfolio is pretty much taking care of its self without them needing any income. Looking at the article most properties were purchased for below $400k. They seem to focus on very cash flow positive properties, buying multiple properties on one title, and subdividing.

    They will be getting close to the point where they need to look at more generous lenders to continue investing (Latrobe, Liberty etc). Based on the numbers in the article the could potentially have all their loans with a major bank and would only need to be earning enough income from their day job to cover their living expenses and any PPOR debt.
     
    Last edited: 1st Apr, 2017
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    They did it prior to 2016.


    Also don't believe everything you read!
     
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  4. euro73

    euro73 Well-Known Member Business Member

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    Also, look at the dollar size of the debt...not the # of properties.
     
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  5. Ace in the Hole

    Ace in the Hole Well-Known Member

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    Exactly.
    These people are primarily boosting their business incomes via self promotion.
    Property is their product.
     
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  6. Charlie F

    Charlie F New Member

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    Articles like that are ads in disguise...

    On a side note, structure can be important, especially when targeting high yield. When purchasing property through trusts, you can potentially block banks from knowing your real 'net worth', the number of properties you own and skew their serviceability calculation. (i.e. 3 properties through 3 trusts and through 3 different lenders). For subdivision and building projects they went through, highly unlikely they went through them under personal loans.
     
  7. Excalibur1

    Excalibur1 Well-Known Member

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    how did they buy house in Clontarf NSW (northern Beaches)for 490k... you cant find anything there under 1m for a house! is there another Clontarf in NSW?
     
  8. ORAC

    ORAC Well-Known Member

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    There is a Clontarf in Qld, near Redcliffe.
     
  9. Excalibur1

    Excalibur1 Well-Known Member

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    I know about Qld one... but there is none other in NSW. I the article it says its NSW. probably just typo
     
  10. Shawn

    Shawn Well-Known Member

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    I look at these stories and I think.. This could be me.

    But then, I struggle to find strongly positively geared properties in great locations haha
     
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  11. Coota9

    Coota9 Well-Known Member

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    Current median in Clontarf QLD is about 420k
     
  12. ORAC

    ORAC Well-Known Member

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    Thanks for the clarification regarding debt yield. My other question was about the transaction time, assembling paper work, having tax returns up to date, getting properties rented out with verified information. Surely the banks would also have de-rating factors for expenses, loss of rent, increased interest rates, etc.

    With so much equity, there's an argument to say that they could sell up, pay the capital gains tax, buy a $1m plus PPOR debt free and have funds left over to build a new portfolio, or just sell a portion of their existing portfolio to buy a nice PPOR!
     
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  13. jins13

    jins13 Well-Known Member

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    So true! I bet there are so still so many people that out there who possess an enormous portfolio. I know my mentor has over 30 properties in his possession but he is not featured in any articles or magazines. I am sure there are quite a number of humble people in the PC community as well.
     
  14. kierank

    kierank Well-Known Member

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    One doesn't need to have a job to borrow money. All one needs is income and loan security.

    I don't have a job (I retired in 2010). Last year, I took out my biggest loan ever. It was two to three times my previous largest loan which I took out when I was working.

    There are many ways of generating income and creating assets/security. Having a job is just one way.

    Successful people outsource everything that they can, especially if other people can do it cheaper and better than they can.

    Here is an example that drove this home for me. When I was first in business, I used to believe I had to do everything myself. So much so, I used to mow the grass at our PPOR. This would take 10 hours of my time and would needed doing every week in summer.

    Back in those days, I valued my time as $150 per hour. It took me a while but, one day, the penny dropped. I could hire someone to mow my grass for $25 per hour. That is, for $250 or less than 2 hours of my time.

    I still apply the same principle today. I only do those tasks that only I can/must do.

    Delegate everything else to someone one. That is the only way I know how 'to buy time'.
     
    Last edited: 2nd Apr, 2017
  15. jins13

    jins13 Well-Known Member

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    2910?
     
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  16. kierank

    kierank Well-Known Member

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    Thanks. Bloody big fingers on my iPhone.

    I have now corrected my original post.
     
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  17. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    Not too bad, assuming they are not working all they will need are bank statements, loan statements, and property manager statements. Bank and loan statements are easy assuming all their loans are with one bank they have to do nothing (the bank has visibility over these)! I personally use a statement feed company so all my clients have to do is login into online banking and tick the accounts they want to share, takes ~30 seconds per bank. Property manager statement should be sitting in their email, just find and forward to the bank/broker. Not too hard!

    The bank reduces rental income by (normally) 20% to factor in expenses, vacancy etc. I have factored this into the 10.4% debt yield.
     
    Last edited: 2nd Apr, 2017
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  18. Omnidragon

    Omnidragon Well-Known Member

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    It's all smokes and mirrors.
     
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  19. highlighter

    highlighter Well-Known Member

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    Honestly these types make me worry. Few of them seem especially savvy. Many seem over-leveraged and are counting on only gains to keep them afloat. A good investor right now should understand quality beats quantity, yet many of these young investors featured in the news have snapped up dozens of the worst assets in the most horribly oversupplied areas, accumulating them with little thought or sense, and without reference to market fundamentals.

    Their portfolio is 80% apartments and most are in the most absolutely bubbly cities, like Port Macquarie (which has a median multiple of 9.8 - out-pricing New York on 5.7. London on 7, San Fransisco on 9.3, LA on 9.2 and almost unseating Melbourne on 10. I mean, seriously people, it's Port Macquarie. What's going to happen to the relatively few jobs there in any future recession? The place has a population of less than 50,000 people and no diverse economy of any sort. It's extremely dependent on tourism to get by, and tourism is fickle - beyond this it's basically just a retirement village. I honestly cannot think of a worse place to buy right now.)

    It's property people, not pokemon cards.
     
  20. dabbler

    dabbler Well-Known Member

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    Well, these things are not going to knock on your door, nor pop up in a online search etc

    As for the OPs question, I guess you can tag Scott, he is/was on the forum.