How do you own that many houses??

[tech/a]

Mint.

I dont have the time to devote to a comprehensive reply just now.
But will tonight.

Just for the record.
In a bull property Market the Vendor is worse off
In a flat and or declining market the Purchasor is worse off.
Over many years BOTH win at different times.

It is a WIN/WIN but not at corresponding times.
An interesting topic one I'm happy to chat about.
ASX and I wont have a problem---he's of the same ilk!

 

[The Mint Man]

I saw a similar story a while ago and the guy just bought cheap properties, mainly in rural areas and had them positively geared, so he was making money on the rent and didnt have to worry about interest payments.

I think it's quite common that houses are positively geared in the country, you buy something for around $100,000 and can rent it out for $150-200 a week. Just rough figures of course, don't quote me on that.

Steve Mcknight would be the person you speak of. He recently sold all his propertys (hundreds of them to his partner) and is 'starting again'. But his strategies sound different, now he seems all doom and gloom at times and talks of buying bill boards and selling advertisment on them. His latest book sucks IMO, just going over what he has said before in his other two books, with only a couple of new ideas. But hey, what do you expect from a book that was written in such a short amount of time!!! he has a site www.propertyinvesting.com.au I think it is.
I am currently reading a series of books by Margaret Lomas, she has a different approach to property compared to Steve Mcknight but the end result is the same, making money. Margaret is more..for lack of a better word, straight down the line no crap, where as Steve can be more airy fairy at times, none the less, his stratergies can work.

cheers

Like I said in my first post, best to read a few different books.

 

[mime]

Likely they got in before the boom and leveraged.

 

[Realist]

I saw it on A Current Affair tonite!!

One lady owns 71 properties and holds seminars telling people how they can do it.

The ridiculous thing is she admitted to only having $2M in leverage.

I suspect when the property downturn hits the rural areas and she owes taxes she'll have little left.

And even at the moment she could not even afford ONE property in a nice suburb of Sydney.

Yet she tells everyone else how to do it!! Why does she do this? To make money for herself of course!!



She does know about positive gearing, and leverage though I'll give her that. Who doesn't?

As Warren Buffett said "If everyone entered a coin flipping competition, the eventual winner would run seminars and sell books on how to choose heads or tails"

She got lucky buying in at a great time, and she did a few smart things, but if you take her advice now it'll probably cost you money at the moment, because the very fact her properties have gone up so much makes them more likely to be overvalued now.

Leverage works both ways!! Never forget that!

I'm not saying she was wrong, I'm just saying her advice is as useful as all the weight loss tips they have on that show.

Eat well and exercise, only buy a additional properties if you can positive gear it and it is not overvalued!!

There, you don't need to watch A Current Affair now!

 

[Wysiwyg]

I just watched that program and if a miner on 80k + can`t make it in life then he`s peeing it up against the wall.Like any investment if the :arsch: falls out then expect to suffer the consequences.

 

[tech/a]

Realist.

There is a huge difference between you and her.

Shes doing it your knocking it. You really dont understand supply and demand.
She is about 65% geared---thats very acceptable.

If I was her Id be getting gearing below 50%---there is a time to gear high and a time to be lower---that time is now.

WRAPS

This is a WIN/WIN,Vendor/Purchaser arrangement,not recognised in some states.

Generally Its targeted at those people who are high income very low capital rich.Couples who have great income together but havent saved anything and dont wish to wait or waste money renting.

The Vendor finds a buyer who fits this catagory,does the maths and sets a price for a property that they will initially rent from the vendor but eventually buy from the vendor.
The deal can be setup in a number of ways but is often setup something like this.

Joint income $100,000 a year. Can afford $36, 000/ year in re payments.
Home value $400,000 agreed purchase value (Commonly agreed upon say 5 year average price increase in the area---lets say 8%) To be purchased in 3 yrs.$503,000.
Interest rate agreed upon is normally 2-2.5% more than market which the vendor would normally take as interest only.
Default on payments even once means the vendor can remove himself from the contract and keep all rent payments and evict the prospective purchaser.

The purchaser must be able to satisfy lending criteria to a lender within 3 yrs.
Some Vendors offer up to 50% of the interest addon over the market rate as an incentive to satisfy all criteria. In the above case thats around $15,000 in the period of the 3 yrs.

In the end the Vendor has a guarenteed buyer at a guarenteed price and a tennet who looks after the property and often renovates---as it will be theirs at a future date.

So by now there will be the likes of Realist and Stop who are scratching their heads and saying ---those purchasers have to be nuts.

Well in a flat or negative market I agree,but I know of at least 10 cases because a client of ours had over 10 properties who set things up pretty lose to the above.In the 3 yrs the AVERAGE over those years was 19% growth.
The Purchaser made way more in increased equity in the 3 yrs than the vendor.
After 12 mths they could see the benifit and were the perfect tennents----the Vendor made sure they were shown the statistics.

Not for everyone but you'd be suprised how many line up to see if they will be accepted by the vendor---vendors can be very choosy. Cashflow is ALWAYS positive and banks loan on increased equity on valuation every year---less in some cases.

There you go.
Capitalist Property Mogles!!

 

[wayneL]

WRAPS

This is a WIN/WIN,Vendor/Purchaser arrangement,not recognised in some states.

I had an extended email exchange with Jenman over wraps (it is well known he is against them on ethical grounds)

It pains me to say he scored a few hits on an ethical basis, as there is a risk to the wrappee that they may lose all equity in the case of the wrapper going bankrupt... and it has happened.

I eventually had to agree with him.

 

[tech/a]

Wayne thats very true.
Never thought of that,vendor could definately go belly up and it may not have anything to do with housing---Broken marriage,Business,Gambler.

I didnt like them being a greedy landlord I didnt like the idea of giving away up to 50% of my equity.

Those with large property holdings can and should be selling---capitalising equity and placing it in either freehold or enough to positively gear their holdings at 10% interest.

Basically negating risk.

 

[theasxgorilla]

Those with large property holdings can and should be selling---capitalising equity and placing it in either freehold or enough to positively gear their holdings at 10% interest.

Do you think rates will go to 10%...or are you suggesting that it is prudent at this stage of market cycle to reduce gearing, regardless?

 

[Realist]

Realist.

There is a huge difference between you and her.

Shes doing it your knocking it. You really dont understand supply and demand.

Uggghhh.

Sydney property prices have dropped for over 3 years now.

The ASX is soaring, and as you know with our bet I'm doing okay.

Thank Christ I didn't buy property is all I can say.



I am a fan of Ben Graham's theories on leverage, I'll never be the richest man in the world by not taking risks, not that I want to be anyway.

But the most important factor is I'll never lose the shirt off my back. No matter what happens.

Greed is a deadly sin!

 

[Smurf1976]

I'm not opposed to it on moral grounds but I do think both sides need to understand the risks involved. No doubt there are many who fail to understand these risks and that's not a good situation for either side to be in.

Given that we're living in an era of incredibly loose credit, if the bank says no then that's a pretty loud alarm bell ringing as far as I'm concerned when it comes to any sort of financial dealings with that individual.

Credit has been so easy to get that I've been offered a credit card with a limit double what the bank thinks I earn in a year. And I've been offered enough mortgage debt to take fully 75% of my after tax income in interest alone. Anyone who is actually knocked back for a mortgage would thus seem to be a rather large risk. And they are precisely the people the wrappers are likely to be dealing with.

As I said, I'm not opposed to it but with the overall state of the market I wouldn't personally choose to do it rght at the moment. As for the argument that it produces no real wealth, agreed but then neither does speculation in shares, bonds, commodities or forex.

 

[tech/a]

Do you think rates will go to 10%...or are you suggesting that it is prudent at this stage of market cycle to reduce gearing, regardless?

At this stage just prudent.
While the returns are less than spectacular cut back on gearing.

And they are precisely the people the wrappers are likely to be dealing with.

Take a 2 income career driven couple who have chosen to travel.No equity but plenty of servicability.
OR
Take a Self Employed entrepeneur who has a successful business which he has been ploughing profit back into and not into a home no equity plenty of servicability.

The Vendor CHOOSES his BUYER carefully---he doesnt want them to fail!

I really cant understand why the majority of posters on this thread think the majority of investors in larger amounts of property are that stupid that they would place themselves at risk of ruin? These people are in the minority.(Those that place themselves at risk of ruin)

Most multiple property investors actually have a good understanding of what they are doing,particularly risk mitigation. It seems it's those who dont invest in any substantial amount of property that are most afraid of the RISK that these people MUST BE taking???!!

Infact Id be suprised if they were at the same risk of ruin as those who dont invest in property.---even remotely close.

 

[Sultan of Swing]

A topic close to my heart.

As far as wraps go, I know dozens of property investors and none I know of have ever done a wrap or are remotely interested in being involved in wraps. Personally, I think they’re risky for all parties.

For anyone that has owned their own home for a while and built up some equity, the easy way to get started is to draw down some equity in the form of a Line Of Credit (LOC) and use it as a deposit. There are plenty of properties in good areas, be it rural or on the outskirts of Melbourne, Brisbane, the Gold Coast etc, for around the $160 - $300k. Rents will be in the $200 – $350 pw returning $10 – $15k per year.

With an Interest Only (IO) loan, after all deductions including depreciation and depending on what your marginal tax rate is, the short fall may be as low as $10 or $20 pw.

As far as the lady on ACA, she has $6 mil worth of property with equity of $2 mil leaving her debt of $4 mil. With IO loans at 7.5%, that’s interest of $300k pa. Assuming she’s getting an average rent of $200 pw per property allowing for a 2% vacancy rate (each property empty for 2 weeks per year), that’s $710k in rent pa, leaving a positive cash flow of $410k. Take $2k per property for rates, insurance, management fees and maintenance etc and she still has $270k or so left over.

If she buys no more, in another 7 – 10 years, history shows that they SHOULD double as should the rents. $12 mil of property with $4 mil or debt giving $8 mil in equity. Assuming interest stays at 7.5% or so, interest will still be $300k pa with rents doubling to $1.42 mil, leaving cashflow of $1.12 mil per year.

It’s not rocket science, just a matter of learning to live with good debt and not over leveraging. Financial institutions don’t lend up to 95%, (85% without mortgage insurance), because real estate is a bad or risky investment. Property investors don’t start out with 71 properties, they buy one at a time, (to start with anyway). They also fix there interest rates for as long as they can.

Books I’d recommend are ‘More Wealth Through Property Investment’ by Jan Somers (or any book by her for that matter) and ‘10 Million Dollar Property Portfolio in 10 Years’ by Peter Spann. Peter is also big on shares. Both authors are Australian and very realistic.

Cheers

Disclaimer: Please do your own research!

 

[tech/a]

Good explaination S

 

[ducati916]

tech/a

So which one of the outlined strategies does not involve debt?

jog on
d998

 

[tech/a]

Your classification of debt and mine are vastly different.

Debt which works for you is in my veiw good.
Ask anyone who runs a successful business whatever that may be and they will all have good debt.

Using other peoples money to leverage your return wether in conventional business/Property/Trading or even certain collectables is good business.

Bad debt such as credit card debt which generally doesnt assist in capital appreciation should have no place in your finances.

If I or anyone can liquidate asset and be nett positive then your not in my veiw in debt. Your in business.

But you knew that anyway ducster!

 

[nioka]

Anyone who studies management will be taught the four Ms, Management, materials, machinery and money. All important in the overall scheme of things. Most people participating in this forum are wanting to invest and make M O N E Y. They want a return for investing and will invest in the market that gives the best return. Some will invest in property.
Of course there are those who will invest in travel and having a good time. They most likely will end up renters. When the return on property falls the money comes out of the market and goes elsewhere then there is a shortage of rental properties and the cycle starts again. Not rocket science.
How do you own that many houses?, you do it in the same way as shares. You take RISK.

 

[ducati916]

Your classification of debt and mine are vastly different.

Debt which works for you is in my veiw good.
Ask anyone who runs a successful business whatever that may be and they will all have good debt.

Using other peoples money to leverage your return wether in conventional business/Property/Trading or even certain collectables is good business.

Bad debt such as credit card debt which generally doesnt assist in capital appreciation should have no place in your finances.

If I or anyone can liquidate asset and be nett positive then your not in my veiw in debt. Your in business.

But you knew that anyway ducster!

Indeed.
But what we are actually talking about is the cost of capital, and a hurdle rate.

jog on
d998

 

[Bronte]

How do you own that many houses?

One sensible way is to:
Find a mentor to show you how he/she did it.

 

[The Mint Man]

where do you find one of these and how do you go about asking them to be your mentor?

cheers