Where are we at with finance and multi property portfolios

Discussion in 'Property Finance' started by JKWS, 24th Nov, 2018.

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  1. JKWS

    JKWS Well-Known Member

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    Is there still the chance of building a multi property portfolio nowadays using the following formula?

    Land purchase 150k (30k deposit) 120k loan
    House build 100k ('m a lic builder so will be keeping costs down)

    Debt 220k
    Site value 450-500k
    Equity on completion approx 260k

    Retain and rent $410pw after expenses, management fees, rainy day repairs etc, etc

    Repayments at P/I $300pw 6%

    $110 pw cash flow positive

    Would I be able to take the formula very far? Rinse repeat? Or would the lack of cashflow become a problem.

    For example sell every second one?
     
  2. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Yes, but it is all in the structuring.
     
  3. jazzsidana

    jazzsidana Mortgage Brokers - Investment Savvy Business Member

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    Only thing constant in this world is change ...

    Possible? yes. More thought/planning required? Of-course yes and regular short/long term review to avoid road blocks...
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There hasn't been any changes to the ability to build a multi-property portfolio, but there has been changes to how much people can borrow.

    A few years ago, properties might have cost $400k each and people's borrowing capacity could be strategically structured to allow them to borrow as much as $2M. Therefore it was possible to build a portfolio of 5 properties.

    Today, borrowing capacity is might more restricted and we're at the end of a boom so prices are much higher. That same person's borrowing capacity might be $1.2M and house prices are $800k. They buy one property and find that they need to look to cheaper locations for the second.

    That's really all there is too it. I have some clients on quite high incomes that are buying multiple properties, but most people simply don't have the borrowing capacity to do what others did up to 3 years ago.

    You can still buy 5 or 6 properties, some people just have to find properties that are worth only $200k each.
     
    Last edited: 27th Nov, 2018
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  5. Buynow

    Buynow Well-Known Member

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    if you can make that much money on each one, then you could just sell when you got your borrowing cap.

    $100,000 seems extremely cheap to build and landscape sufficient to get $600 a week rent (working back from your $410 a week net)

    $600 a week is 6-7% yield - where will you be building to get this?
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Something worth mentioning is the magic bullet for borrowing money...

    There's two things you can do to increase how much you can borrow:
    1. Reduce existing debts.
    2. Increase income.

    Whatever strategy you employ at any given time, if they achieve one of these two things, they'll improve borrowing capacity. Building a house and renting it will give a person increased income, but the debt increase will likely be more than the income increase for borrowing purposes. It's always been this way, just the limits have changed.

    You could build two properties. Sell one, use the funds to pay off much of the debt on the first one (or simply not needing to borrow as much for the next project is probably even better). You won't keep everything with this strategy, but you do meet both criteria above.
     
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  7. JKWS

    JKWS Well-Known Member

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    Thanks kindly for the reply's and awesome comments.
     
  8. Kent Cliffe

    Kent Cliffe Active Member

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    If you can build a house for $100k, then there is more money in growing a successful building business. I'd take 50% margins over specing to hold any day.