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Is this a good short term (5 year) strategy?

Discussion in 'General Property Chat' started by B-Mac, 20th Nov, 2015.

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  1. B-Mac

    B-Mac Well-Known Member

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    If you had $50k & a goal to create $500k in equity over the next 5 years what would you do?


    Proposed Strategy: Adelaide (south, north) reno & refi.


    Buy @ 200k x 85% LVR,

    $10k reno

    reval. At $230k

    refi @ 90% LVR = $37k cash out


    Do this every year and by 2021 (assuming 4.00% year on year growth) = manufactured $450k equity.


    Focus Questions:


    Will Adelaide grow @ 4.00% every year until 2021?

    Can I refi & withdraw cash up to 90% (assuming serviceability is OK)

    Is 5 x low end properties in north/south Adelaide too high concentration risk?
     
  2. joel

    joel Well-Known Member

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    I'm sceptical about your numbers.
     
  3. Big Will

    Big Will Well-Known Member

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    I think it is very ambitious.

    Have you considered stamp duty and other fees (LMI etc)?

    Also I feel in the current climate you might struggle to get the 90% cash out each time.

    Also the 37k cash out doesn't leave much to purchase with the buying costs.
     
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  4. Michael_X

    Michael_X Mortgage Broker Business Member

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    Hi B-Mac,

    It can be done but be prepared for a tough road ahead. Try one and see how it goes. Two things I know about renovations:

    1. It takes longer than you planned
    2. It costs more than you budgeted

    On the growth rate, that's all crystal ball stuff, no one can say for sure. If you are going down a path of renovations, then buy well, add value and sit on the rent.

    A few other suggestions

    1. Purchase at 80%, so you can valuation shop after the renovation. You won't be burning LMI if you had to switch banks for a better valuation
    2. Pull up to 88% + LMI. You don't want to go above 90%, alot more hoops to jump through to get the loan approved

    Hope this helps,
    Michael
     
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  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    What's your experience with renovating at this budget? If you can do some of the work yourself then you're going to bring down the total cost (at a cost of your own time, but equity is equity).

    Alternatively, do you have trades local to the areas you're buying that you can trust to do all the work? Or someone you trust to arrange them, manage them, arrange their access, etc?

    I wouldn't bother with a project you can only get make $20k on ($30k reval minus $10k spent) - look for better projects. There's less of them, but as you said yourself, you only need 1 per year.

    No I don't think so - depends what the rest of your portfolio is though.

    I think this is an okay number to use in projections, there'll be years of minus 10, positive 10, etc, it's not a smooth ride. Luckily, most of the properties you're referring to are cashflow positive and will therefore support themselves. Nothing worse than having to support a property that isn't performing.
     
  6. MTR

    MTR Well-Known Member Premium Member

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    wise words
     
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  7. sash

    sash Well-Known Member

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    Sorry to pop your bubble but the stamps and legals to get in will be about 10k in Adelaide add aonther 10k for a reno...plus another 5k provision for unexpected items...you are down 25k ard cash....at 230k reval...you are just breaking even.

    You need at least 50k to make it worthwhile...

     
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  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    Yup :)
    Or 100k when you can find them!
     
  9. sash

    sash Well-Known Member

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    I am a newbie Dave..can you find me one in Adelaide... :D..I promise I have my finances organised...

    On a more serious note..how often do you find these at the moment in Adelaide?? 50k is reasonably easy...but the 100k is a much harder...
     
  10. D.T.

    D.T. Adelaide Property Manager Business Member

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  11. Mogwai

    Mogwai Member

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  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    Probably $20k?
    Ingle Farm is a slightly different market though.
     
  13. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    Sounds like a good strategy, and will work but might take longer than 5 years. It's just hard to find the great deals all the time where 50k can be gained.
     
  14. property world

    property world Well-Known Member

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    How much does it cost for revaluations to be done?
     
  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    Nothing usually - check with your broker perhaps
     
  16. Big Will

    Big Will Well-Known Member

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    Usually nothing if organized through a bank but some can cost.

    If you organize it yourself it depends it can be from a couple hundred to over a thousand.