New and loving it here!

Those tend to negatively impact borrowing power tho.

Reframing what the op is asking.

other than more income, what increases borrowing capacity / limits? More cash savings? IO? Asset levels / lower lvr? Guarantors? Bluestone / Pepper?

interest rate cuts? Relaxed regulation?

 

I’ll definitely have to have a chat to his broker, but friend has told me that he didn’t do anything special. Just save and wait for equity.

 

You're reading this as if there's multiple metrics that you can use to your advantage. That is not the case. There are multiple metrics, each of which must be met, to determine how much you can borrow. If you don't meet one metric, passing the others won't matter.

The other main metric is a complex calculation that determines cash flow (as defined by lender policy). One side of this caculation is income (your salary being the major component of this, but it also takes into account rental and other income. The other side is expenses (living expenses, existing debts, etc). What's left can go towards determining how much you can borrow.

Y-man has indicated some of the other metrics, although these ones tend to be fairly mundane in nature. He's right though. If you try to just buy 30 sqm appartments, you're going to face some interesting challenges regardless of how strong your income is.

Sorry, you don't get to exploint one metric over another. You need to meet all of the lenders metrics. The good news is that different lenders have different ways of assessing these metrics. You can take advantage of this. The bad news is that the differences you can work with might be the difference between 3 and 4 properties, it's not going to between 3 and 7 properties.

 

Thankyou. This is exactly the question I wanted to ask, but as a newb is hard to ask the question with specific examples as you have.

 

Most do struggle to own more than 2-3 investment properties.

What hasn't been said is what is the value of these properties? There's a few posts about how people have bought 5 properties, but these properties tend to be fairly low value. If your borrowing capacity is $1M total you can buy 1 properterty worth $1M or 5 worth $200k each. These portfolios will have different charicteristics that will acheive different outcomes. The trick is understanding this and which outcomes get you close to the end goal.


What I mean by an active strategy is doing something beyond the general 'buy and hold' approach.

I have a client who buys a house, lives in it and renovates it over a couple of years, then sells. He's never owned more than 3 properties at once in the 10 years I've been working with him. With each transaction his net worth increases, in part because he's able to use the profits to get to the next property with less debt. He's now looking to buy a large block to develop 2 units, thinking he'll keep one long term and sell the other to leverage into the deal after that. None of these properties are postitively geared in their own right, that doesn't matter. He's actively working a strategy where he adds value to property and transacts in a way to keep him moving to a larger outcome.

 

So, 3 x properties worth a little over $1m = $330k each. The next question to ask is, when did he by them, and how much did he pay?

As you know, we're in a boom currently. He may have purchased them for $200k each and they've grown in equity. He may have renovated them to increase their value. The fact is, that there are a lot of variables that come into play.

This property game isn't black and white.

 

It takes time.

 

@Jake235, you need to understand achieving 100k net passive income in 10 years from residential real estate, is something probably only a tiny handful of people are able to do. It is no small feat for the vast majority of people who invest in residential real estate.

Then factor in your challenge is compounded even further by starting with a tiny amount of equity, very poor serviceability and virtually zero to tad amount of investment knowledge.

I'm not saying this to dishearten you or be overly harsh, but that is the simple reality. If you want to achieve those goals, you don't have time for pleasantries.

You need to greatly increase your income and knowledge ASAP. Work 7 days, 15 hour days if need be. (I have a friend who did just that 10 years ago. He is very, very wealthy today and FI living an amazing life). Forget about having a pleasant, rose smelling journey to growing your portfolio. That will never happen. You need to hussle, and hussle big time. Plenty of blood, sweat and tears to come. Focus on add value strategies as soon as financially capable. And even then, its quite unlikely you'll achieve your goal in 10 years, but it is possible.

IF you decide, gee, that's all too much for me (which I anticipate in time you very likely will), then increase your timeframe to achieve your goals and do it more gradually over time as your income and knowledge grows.

My 5c.

 

As @Sackie said, it is POSSIBLE, however it will take an enormous amount of work commitment and focus. You will probably have to adjust your timeframe as well. Please don't let this dissuade you, because heck, if an old girl like me can do it, I'm sure you can as well.

Best thing you can do for starters is read, read, read and start learning. There's a huge amount of information here. Speak to your friend with the three properties, and talk to a couple of brokers. I'd suggest that you start right here and approach a couple that contribute here. Brokers don't last long around here if they don't know their stuff. You don't need someone local, everything can be done via phone & internet these days.

 

Lots of great answers here to give you food for thought.
I agree with the suggestions to read other books to get a broader view. Different investors have differing strategies and what works for them.

The thing that stuck out for me, from what you said is:-

I'm sure you get that there is always a ceiling.

Also that property investment is NEVER set and forget.

You seem to be focussed on cashflow property but you may be served better by capital growth. Capital growth can launch you into the next property. Most standard cashflow properties return little and without capital growth its difficult to own enough to earn a decent amount in a decent time. Of course once they are paid off this increases but it's not the quick route.

Read different sections on this forum. There are some VERY knowledgeable people here willing to share.
I find it very helpful to network. You can discuss what people are doing etc. Checkout the Meetup section and attend a meetup once lockdown is under control.

 

I see. So just because you have the equity to use, the bank won’t let you access the equity if they feel you have hit 6x your income or whatever multiple they decide to use? I’m assuming it doesn’t matter how much equity you have?

Correct me if I’m wrong, but I’m guessing the only way to sidestep this issue is to sell the property?

If you sold the property to liquidate the equity then technically you’d have more capital to use and it would mean you don’t have to borrow as much from the bank to achieve the same result? Essentially what Peter said one of his clients does?

Am I finally on the right track?

 

I suppose you’d have to calculate what would be more profitable in the long run. Selling the property before 12 months and incurring double the CGT to get to the next property quicker (with the goal of saving time and being able to compound your capital quicker) vs losing a year of time but saving 50% CGT.

What are the usual transaction costs?

 

I’ll be more specific. What are the costs associated with buying and selling a property?

So buying?
- Stamp duty
- Conveyancing
- Buyers Agent

Selling?
- Agent fees
- CGT
- Conveyancing

What else is there?

 

If borrowing more than 80% you'll have to pay LMI, about 2% of the loan amount.

Perhaps another $5k for other stuff, but that about covers it.

The total costs of buying and selling run to about 10% plus CGT. Selling within 2 years usually doesn't turn a profit unless you've bought really well or done a significant value add project. Essentially an activity strategy.

 

Well, I’ve had the chance to ponder and ruminate about your repeated and unwavering suggestions about increasing income.

I am a hobbyist cyber security tinkerer. I love it. More than the job I currently have in fact. I figured, why not pursue it as a career?

The average salary for a cyber security specialist is usually $100,000+. It’s something I don’t need a bachelor for (helps but not vital), just certifications.

I have a friend who works for a cyber security company who has forwarded me associate positions.. hopefully in the next few years I’m earning over 100k. Hopefully just in time to hit my serviceability ceiling.

If I don’t initially get a role specific to cyber security, the knowledge required to be proficient in cyber security can get me other jobs which will easily pay in excess of 55k.

I’m actually kinda excited for this new adventure. Not just for the benefit of my portfolio, but to work in a different field that I already love.

 

Yep. 100%.

 

Can pay a lot more that $100k.