need help with my strategy

Hi all,

if i'm able to find deals that are 20-25% bmv and i'm able to pull equity out pretty quickly due to renos etc. and working off the average income of 55k p.a. with a borrowing capacity around 1m. how would i be able to continue to grow a portfolio as with new lending policies would cut me off once i hit 1m?

surely being able to buy a property do a reno (or not) etc. and then get 20-25% equity out quickly is value? but whats the point if you could only buy 2-5 properties and then be stopped. i was thinking going extreme and buying a trashed / burnt out property for a massive equity gain and then use that equity for a cpi? or maybe something that earns high return 7-15% but then of course higher risk... as the interest repayments would be for resi property they would be extremely low compared to cpi / margin loans? (correct me if i'm wrong) which would be a PRO?

should i try to aim for the most high equity pulls quickly and max my borrowing capacity out (allowing for the equity) and then use that equity to buy a business?

i thought about selling after i've increased the value or just bought bmv but figured once u take out taxes and REA commissions it just isn't worth it.

CONS i'll be buying most likely regional / further out from cbd to be able to get the 20-25% equity pulls. so will not be best capital growth properties.

PROS can get 20-25% equity out quickly allowing me to purchase the next property / use equity elsewhere

Randy,

 

Id start with one and then see how you go

 

Your strategy has some issues.
1. You probably are not going to buy 20-25% bmv
2. Buy, Reno, refinance the equity out works for the first few but as you say, then you stop UNLESS you get good CG - which can happen in metro but not so much in regional.
3. Lenders are not keen on doing high LVRs on some regional.
4. Trashed and burned out property may not qualify for a mortgage in the first place.

 

I would look to increase the 55k per year income figure substantially if possible as you would most likely run out of serviceability quickly.
Buying well under market value isn't easy unless the market is rising.
I don't think you will have any problems borrowing for regional purchases providing you stick to major centres with 40-50k+ populations and economies not dependent on mining. People often lump regionals together but there not all equal.
Maybe look for places with a solid yield but don't use this as your only filter. I would be wary of very high yields 10%+ they generally come with problems which might not be immediately apparent.

 

This doesn't assist the OP at all.
How about offering him/her some advice?

Your strategy will work, you just need an initial strong equity base in order to go out and acquire multiple properties (even if you do get them 20% BMV).

Eg, you bought one or two higher valued properties, tidied them up, they so had some decent growth due to a solid location, THEN you can do your equity pull and go secure 3,4,5,6 cheaper properties to tackle your strategy.

It is difficult to just leapfrog from one into the next, a straight like approach and the next property pending the outcome of the current one being renoed..
If you had multiple avenues on the go, you have more options to keep moving forward of one does not get revalued to what you wish, worst case you just end up with a god yielding renoed property and wait for some CG via time.

Many investors start like this. I have read articles time and time again. Bought 1 or 2, lost interest.. Time did it's magic, then they came back and bought multiple years later and got a page in a glossy mag!
But they all had the common trait of a solid foundation..
I'm not saying you can't create CG either..

In relation to your burnt out scenario, you can do it.
You need to have a good builder on your side.. Prob one that specialises in insurance work..

Reason someone like Nathan Birch could do it was that he was able to draw equity and probably buy the entire property without taking a mortgage against it. This overcomes many hurdles.
Another option is that some lenders will value the site on land value, thus you may still be able to get finance, just at land value. Someone like ANZ may be able to do finance where broker, buyer and property are in the same state they will accept the contract for valuation.

My disjointed 2 cents!

 

Looks like advice to me.
Whether it assists the OP or not depends on perception.

 

working of the assumption i can get 20-25% bmv. and also i wouldn't really want to sell as i'd want to find a way to be able to continue to grow the portfolio and not have to sell ideally. also some of these properties might be really rural so putting them on the market may take a while and would have to maybe discount price and not get the 20-25% i would if i just pulled equity out. like i said with the pros / cons i'm sacrificing metro / capital growth for quick equity pulls

 

When you say rural do you mean regional or rural?

 

True. I think that anyone can sit on the sidelines and pick holes in others ideas etc, it's not difficult to do.

 

Very hard to Buy BMV. It's literally a 1 in 100 occurrence

 

Buying below market value will give you equity (assuming it is possible) but not the extra income. it is the income that will hold you back before you run out of equity.

Perhaps you could do a few and then sell, generating an income. If it is not capital gains, but income, especially via a company, then it will be taken into account when applying for further loans. This income will supplement your wages for serviceability purposes. It will generally take 2 years for this to be taken into account.

 

Can I ask what makes you so certain you can buy at 20-25% BMV for all of these purchases?

 

both. locations wont be good for capital growth though. thats the con.

 

i'm trying to implement the same strategy that nathan birch has done.
the only major cons is with the new changes i'll only be able to get to 1m before being maxed. instead of 3m+ as before

 

interesting. so if i did a few in my name it wouldn't be counted as income? i thought it would because it still gets added to my taxable income -50% discount. and with a company are there any lenders that allow 1 year statements? also random question with income from shares. are they 2 years before they are counted as income? and am i to believe it's normal for the lenders only take into account 80% of the share income?

if i used a company to buy and sell properties through maybe 1 a year to start, could i then have access to use low doc loans?

 

Generally banks won't take income from capital gains for servicing. They consider this one off income.

With a company they won't see it as one off sales, they will see it as director fees or dividends.
You will be treated as self employed, different to receiving income from shares.

 

I know it is easier to criticise than create. I first off picked holes, as I saw them, in the OP's strategy. Before offering a solution, which I'm happy to do, I wanted to get the OPs agreement that he acknowledges the issues I raised could be a problem. If not, then he's all sorted.