recent (ridiculous) story about a couple with seven properties worth $4.2 million

https://www.news.com.au/finance/rea...n/news-story/61d5dfd52e6724eff7c65a919694413a

This is probably one of the worst REA articles out there LOL. even if i beleive the 198k income (which doesnt seem right based on a few property examples they have but lets roll), their 3M debt at 6% is 180k a year in interest. and taking out rates, even under 0$ maintanence these are basically in the red. and without having a ppor! like.... and these people then go and open buyers agency.... OMG.... this is insane.

 

It's a good start. If they survive.

 

Fool's errand.

Better still some have acquired a lot of older properties and surprised how large maintenance bills can be....

 

Did you read the end bit - quit their jobs to become buyers agents. Its an advertorial type article.

But $198k rent and $180k interest means they are probably negative geared by about $25k or so. But this is on IO and at some point within 5 years their payments will almost $20k per month or $240k per year.

 

yep thats what i wrote too, became buyers agent. can you imagine they will advice on this strategy to clients?? and i am sure that fig 198k is gross, i.e. before even rates/insurance/maintanence which for 7 properties is ~ 30k a year and im beeing generous

 

WTF?

 

For some (most?) of the population, 7 properties is unimaginable enough, and they are financially uneducated enough, to think that means they know what they are doing as buyers agents.

 

Are his buyer really happy at this one stop shop after buying properties which they have so little equity, in and would be almost undewater after aquisition cost would be cash flow negative, have high holding and maintaince cost, little depreciation but the buyers will have to pay for previous owners depreciation. look like housing in housing commision areas. Recent Buys / Happy Clients - Taylored Property Wealth

 

If we're to take the information at face value and make some assumptions on expenses, $42k expenses, 7.7% property management fee, 6% I/O, very modest depreciation, assume they're both earning some modest personal income so can benefit from negative gearing, the numbers are fine really. In terms of return, we'll assume modest growth (3%) and assume they paid $800,000 deposit across the properties to arrive at 80% LVR for the $3,200,000 debt, which seems unlikely as they mention paying less deposit but will keep things simple, so total purchase price of $4,000,000. Though note this doesn't matter at all for the yearly cost numbers, but it does for Internal Rate of Return. In terms of yearly cost to hold these properties (net cost column), it's very manageable. And the return is "fine" too really despite assumption on modest growth, though I expect in reality it would be far better given they seem to have paid less than the $800,000 deposit Is assumed here with the hypothetical.



If interest rates were to rise (significantly), it would be a different story. But otherwise, looks good to me.

 

Correction it is $3.2m debt.
At 6% interest only when they roll over in 2023/2024 - their interest bill will be $192,000
Gross rental income $198,000
Minus all the rental cost $39,600 at least - 20% of gross rental income.

They are already $33,600 under.
They aren't even paying off the principle of the loan yet.

Another question... can anybody qualify to become a buyers agent?

Maybe I should get into mortgage brokers or buyers agent? Seems like every Jone and Jane who's own a small portfolio of low value properties have become "successful" professional property investors.

 

If you are mainly dealing with people who have never bought property before, it feels like a lot of the work is teaching the basics and mindset. That doesnt take an expert investor, just an empathetic person who knows how to sell.

as long as they arent being paid by developers and hiding it with jargon. People need help.

 

I couldn't imagine leaving secure paid employment to become a BA with no guaranteed income, with the kind of expenses they've got.

 

im 100% with @skater here. its either suicidal or information is incorrect

 

If they were smart enough to fix for 3 years around 2021, they would potentially be riding out the IR peak while raking in increased rents. So quite possible that their increased interest bill isn't going to come until some time in 2024, and their portfolio could be positive atm.

 

True dat!

Just spent $10k on one and $15k on another in maintenance.

 

Agreed. This doesn't pass the sniff test. Something is missing from this story.

 

Lots of things smell wrong
The pair then began buying up properties in Queensland and South Australia – all while continuing to rent in Newcastle.
It’s a strategy known as rentvesting.

Um not its not. How can you have a main residence where you dont live ? Rentvesting is the process of establishing a main residence then being absent from ONE property. Not all of them.

And a portfolio value is not correct. Deduct the loans. And then allow for unrealised tax and their equity could be far smaller than suggested. Good luck with the career change as they seem to love and know property. But perhaps have a narrow view. How will that work with refinancing ? Cashflows can be different to property value. If you cant sustain the cashflows from interest rate increases. P&I loans, fixed rates ending, maintenance etc then you can be pushed to sell when you dont want to. Lenders wont easily be doing cashout of equity as values rise if they are self employed.

 

I coonsider 'rentvesting' (which is a trademarked term) to be renting where you live while investing in property elsewhere.

 

Ditto