Strategy advice

Hi all,

First post! I'm fairly new to Investing and wanted to get some advice on a (perhaps insane) strategy I've cooked up.

We (me and wife) only have our PPOR in Sydney at the moment but it's got a fair bit of equity so we want to invest.

We were talking to a broker and he was giving us figures on interest only loans. This lead me to a thought, what if I accumulate quite a lot (10+) of high yield apartments (thinking Carlton, Melbourne) on interest only loans giving me substantial cash flow, I'm envisioning around $4K+ per month.

I then use that cash flow to smash the remaining balance on my PPOR home loan ~$240K to pay off house in 2 years or less.

Then I concentrate on paying off all the units individually by targeting them with that cash, and voila! Property empire amassed.

Is this deeply flawed? Like my name says I am a noob to property investment but I thought this is a possible strategy.

The one risk I thought of is what if interest rates rise, but I know they won't for a good couple of years at least.

Thoughts?

 

Hiccup I see are they really cash flow positive?

 

Hiya

When working out cashflow - are you taking into account all costs? There's going to be strata, rates, PM fees, insurance, maintenance and interest on your equity release against PPOR and IPs.

Cheers

Jamie

 

Yes
Size of these apartments may be an issue?
Lots of student accommodation in Carlton not necessarily great for growth?
As OP mentioned will it really be cash flow after all costs

There are better options to create cash flow by simply adding value ie renovating, dual occupancy, sub divide a block into 2 and build at rear, sell front, land and house packages etc.

research various options and make sure you have the correct numbers before jumping in, also look at what markets in Australia are moving and what markets are peaking or have peaked.

MTR

 

The Burgess Rawson Portfolio property auction on tuesday has produce Net yelds from 4.0% to 7.6%

IGA NSW 7.4%
McDonalds NSW 6.2%
CBA branch Sydney 4%
BP Service Station 7.6%
Freedom Fuel Brisbane 7.2%
Childcare Centre Townsville 7%

Based on 4% funding cost on a 7.4% yield we still making 46% of the Net rental
Less than before but still adds profit to our bottom line

 

I just spoke to my broker, who is far more knowledgeable than myself in this area and he told me to watch out for vacancy rates and inflated rents.

Anyway, please take a look at this:

518/528 Swanston Street Carlton Vic 3053 - Apartment for Sale #121862802 - realestate.com.au

1br apartment $220K, currently leased at $1434 p/month

I've plugged in an interest only loan at 3.99% of $240K to allow for stamp duty and other financials.

Repayments are $800 p/month. Rented at $1434 p/month that leaves you with around $630.

I don't know the strata/council rates so I'm allowing around $200 p/month, which leaves you with around $430 p/month, so it's a ball park figure, could be a bit off.

However, still left with close to $400 p/month cash flow.

Again, on interest only loan.

Am I missing something? I am definitely no expert.

 

Ah crap, it's a serviced apartment. What are people's thoughts on these? They seem like an undesirable purchase.

MTR, not too concerned with growth really if I can maximise cash flow and pay off my PPOR in no time.

 

you may have to up your allowance for BC/Management fees, especially if its a serviced apartment.
It seems risky even CF based- the number in and around that area are staggering, and more in the pipe. Also ones such as the link you have posted also partly compete with southbank/docklands and the CBD- not just carlton.

 

I wish they would advertise those things! However, I still think I can manage a similar scenario on other units in Carlton that are not serviced apartments.

 

I suspect you'll have trouble getting funding at 4% for any of these properties given that they're all specialist commercial.

Consider 6% (or more) at 60% LVR (or less).

 

Will have high strata and management fees. As mentioned vacancy rates can be a problem with these properties too.

I've read enough problems about these types of investments that I wouldn't even look at them.

It is unlikely you will get high LVR finance on this type of property and 3.99% sounds optimistic too. It probably has a very small floor area which makes financing more tricky too.
Your broker should have answers to all these things.

These are the kind of properties that tend to attract first time investors who later discover all the draw backs.

Who is your broker? please tell me it isn't one recommended by the real estate agent/developer or someone otherwise associated with the sale.

 

I'm having trouble coming up with a lender that will offer 3.99% on an interest only investment loan over a serviced appartment.

Lot's of people over the years have told me how good the cash flow looks on proposed serviced appartment purchase. It's fairly rare that they hold the same opinion after owning it for a year or two.

They never seem to sell them for much more than their original purchase price either.

 

Friend had one in Melb cbd caused them much grief, promised cashflow never came, "creative expenses" by the service provider, offloaded to another investor for $50k less than paid.
They said "Selling was the best investment they made".
I hope that there are some good stories out there ?

 

Before you rush in and spend your hard earned on a strategy that very few forumites would look at at this time , take a couple of drinks and spend the next couple of months reading the forum .

Cliff

 

My only question is why are you relying on a brokers advice for wealth creation?
Yes they can assist in finance strategy but are you going to put your financial destiny in the hands of someone who has a vested interest in you taking out as many loans as you can service?

I suggest less post more research and spend time reading as much of this forum and old somersoft as possible before taking any further steps..

 

what drink do you suggest? For a serviced apartment in a grossly oversupplied area, I would suggest whisky, vodka, gin etc.

 

I think some of you guys have misunderstood, or maybe I didn't paint a complete enough picture.

1. I didn't realise it was a serviced apartment till just now, so I will definitely not be buying something like that. However, I still think something similar is achievable with a normal apartment in the same area.

2. My broker did not advise me to do this. It was an idea that I had. I later ran it by him and he told me to be wary of certain things so he was actually being quite helpful. He actually gave me other ideas to increase cash flow that require less loans so he certainly wasn't just trying to make as much commission off me as possible.

He can get me 3.99% on an investment property using my current equity in our PPOR.

PFS Financial Services - Home Loans | Commercial Loans | Business Loans - Hodor asked who my broker was.

He was recommended to us by a friend, not RE agent lol.

Let me find a non-serviced apartment and come back with some figures.

Thanks for the advice so far I do appreciate it.

 

For serviced appartments I'd recommend home brewed moonshine.

 

Disagree...home brewed moonshine should be reserved for those considering investing in mining towns like moranbah etc.

 

lol. See above I didn't realise it was a serviced apartment! I won't be buying it so let's save the moonshine for another occasion, like Bill Shorten getting elected perhaps