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Please give me an idea on buy and hold income strategy?

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  • Please give me an idea on buy and hold income strategy?

    Please go easy on me, Ive had potentially life threatening illness the last couple of years. We are 40yo.

    Ok I earn about $110k pa plus 9% super in aus. IT Pro.

    The Mrs earns $90k plus 9%. Dr in Biology

    I expect our incomes to raise.

    Long term after 15 years I wish to pursue a passion as a career without the fear of income getting in the way, CAD design and Jewerly.

    We want to semi retire in NZ in about 15 years. We really dont have much in assets aside from $60k super for me and $25k savings for her.

    We want to buy properties in New Zealand to generate approximately $100k pa on our return along with owning a home in Fitzroy New Plymouth.

    We are not interested in the Auckland market at this stage, as we just wont have the deposits and feel there is a risk exposure there (not really wanting to debate this).

    So whats the idea, you save for deposits, buy an IP and get it to neutral gearing, then start again and say get to 7 IPs then start paying down on them?

    So how many properties would I need to generate $100k gross?

    Also if not buying Auckland, what towns/cities tend to be good income earners (vs capital growth like Auck)?

    We were thinking of spreading the risk, New Plymouth, Dunedin, Tauranga and Wellington.

    Any help appreciated.

    Kind Regards

  • #2
    Heh, you need a spreadsheet! Seriously it's all about sums and risk, and education. Suggest set up a spreadsheet for some specific properties as a paper exercise, taking into account initial and ongoing costs, and tax. There used to be one in the Library on this site, that was a while ago though.

    Once it is set up you can change the parameters and extrapolate over time till you reach the income level you want.

    And just to add, property is quite a hazardous investment, lots of things can go really wrong both at a micro and a macro level. Might pay to also look at the sharemarket - there are some blue chip companies that produce a good return year on year, with full imputation credits and untaxed capital gain. And no rubbish tenants or calls about burst water pipes in the middle of the night.

    Comment


    • #3
      Also without knowing your overall situation and whether your illness meant you were;t working etc. But if on 200K a year you have managed to save 25K at 40 you have some serious money management issues to work out before you start investing. In the short to medium term real estate puts pressure on you financially so if you already can't live within your considerable means this is a big problem.

      Comment


      • #4
        being judged and looked to explain myself wasnt quite what i was looking for. but essentially im a contractor and have had to use life saving for the last 2 years. the situation going forward is quite different. we live within our means better than any other humans i know.

        anyone else looking to help based on the original situation would be very much appreciated.

        Comment


        • #5
          Originally posted by motoman View Post
          being judged and looked to explain myself wasnt quite what i was looking for. but essentially im a contractor and have had to use life saving for the last 2 years. the situation going forward is quite different. we live within our means better than any other humans i know.

          anyone else looking to help based on the original situation would be very much appreciated.

          Might have helped if you'd given some of that information at the start.

          "We have had to spend a lot of our savings on medical/private issues recently, but still have $X and expect to be able to save $Y per month/year"

          A common wealth creation stratgey in property is to "recycle the deposit". Basically means buying a property that needs some work done, well under its fixed-up value. Fix it up and then ask the bank to lend you more money because it's worth more.

          Example with some numbers:
          You buy a run down house for $200k in an area where nice houses are selling for $270k (probably the hardest part).
          Your deposit is $40k, for 80% lending. Your mortgage is $160k.
          You fix it up intelligently, spending money only where it needs to be spent. This costs say $20k.
          The house is now worth $270k. You ask the bank to bump up your lending to 80%, allowing you $216k total borrowing
          You already have $160k mortgage, so you can borrow another $66k. There's your deposit and renovation budget for the next one.
          AAT Accounting Services - Property Specialist - [email protected]
          Fixed price fees and quick knowledgeable service for property investors & traders!

          Comment


          • #6
            Wasn't judging you at al that's why I said: "without knowing your overall situation and whether your illness meant you were;t working etc". If you were just bad with money investing is not for you.

            I think being all over the country may drive you nuts. Better to pick a town/city, maybe 2 and focus your energy there. As Ant has said recycling deposits is the simplest way to do what you want and not keep needing lots of cash. If you are patient and either find a town that isn;t booming or wait till the boom ends you may find houses at 15 to 20% under RV then you can recycle deposits in 6 to 12 months without having to buy do ups. I would look for multi income properties where you can be cash positive after mortgage payments then you don't affect your ability to borrow as much.
            And with your incomes I would aggressively pay down the debt on your first one so you can use the equity to 100% borrow on the next and keep attacking the debt on house 1 with any surplus income. you can always re-borrow it.

            Comment


            • #7
              sorry i didnt mean to sound rude, ive just been attacking a very serious illness last 2 years and we think we have it beat. its taken everything out of us. mentally, physically and financially (some serious private medical costs).

              i think you are right spreading across too many areas might become unmanageable.

              i thought people tended to save one deposit, buy IP and either reno to generate next deposit or just saved for another deposit, collected 5 or so houses, then in 10-15 years started to pay down on them. if you are not working you cant get stung for tax? i thought part of the reason is that if you wait until you pay 1 off at a time, the capital growth by the time you get to house 5 (or the actual asking price) may have doubled.

              we can save approximately 2000-2200pw whilst currently paying $500 rent.

              Comment


              • #8
                I didn't say to pay it off I just said to put surplus income into paying debt down. It is basically exactly the same as saving the money in the bank but firstly reduces your interest payments. In a low interest environment money int he bank is a waste. And if you build equity quickly through debt reduction it means you can potentially 100% borrow on the next one which gives you 100% deductibility.
                If you can save 100K a year then don't sit it in the bank get the first house paid off faster and use that equity to buy the next one and the next one and the next one.

                Comment


                • #9
                  Originally posted by motoman View Post
                  Please go easy on me, Ive had potentially life threatening illness the last couple of years. We are 40yo.

                  Ok I earn about $110k pa plus 9% super in aus. IT Pro.

                  The Mrs earns $90k plus 9%. Dr in Biology

                  I expect our incomes to raise.

                  Long term after 15 years I wish to pursue a passion as a career without the fear of income getting in the way, CAD design and Jewerly.

                  We want to semi retire in NZ in about 15 years. We really dont have much in assets aside from $60k super for me and $25k savings for her.

                  We want to buy properties in New Zealand to generate approximately $100k pa on our return along with owning a home in Fitzroy New Plymouth.

                  We are not interested in the Auckland market at this stage, as we just wont have the deposits and feel there is a risk exposure there (not really wanting to debate this).

                  So whats the idea, you save for deposits, buy an IP and get it to neutral gearing, then start again and say get to 7 IPs then start paying down on them?

                  So how many properties would I need to generate $100k gross?

                  Also if not buying Auckland, what towns/cities tend to be good income earners (vs capital growth like Auck)?

                  We were thinking of spreading the risk, New Plymouth, Dunedin, Tauranga and Wellington.

                  Any help appreciated.

                  Kind Regards
                  Have you had a read of the articles in the section at the top here?
                  If not, have a read through all of them first.
                  Definitely possible with the info you have given to achieve what you are wanting.

                  Regards
                  Graeme
                  Facebook Property Chat Group NZ
                  https://www.facebook.com/groups/340682962758216/

                  Comment


                  • #10
                    Originally posted by Damap View Post
                    I didn't say to pay it off I just said to put surplus income into paying debt down. It is basically exactly the same as saving the money in the bank but firstly reduces your interest payments. In a low interest environment money int he bank is a waste. And if you build equity quickly through debt reduction it means you can potentially 100% borrow on the next one which gives you 100% deductibility.
                    If you can save 100K a year then don't sit it in the bank get the first house paid off faster and use that equity to buy the next one and the next one and the next one.
                    gotcha. the idea is to keep the property neutrally geared, especially being in Aus where they wont include negative losses in income tax. my idea was to buy while in aus, save the money into managed funds, then when the nz dollar is 75c to the AUD again, quit work and pay them off and sell some. with no income, i have no tax. hope that makes sense.

                    Comment


                    • #11
                      ive been reading a lot of grahams posts and learning a lot from someone who is sensible.

                      he said work out how much income you want and work back from there.

                      so that means work out how many houses i need. now if i want them paid off in 15 years i need to work out how much deposit or equity i need in each house to offset the rent to pay them off in that time frame.

                      couple of questions. i need a couple of tools.

                      is there a web service for showing recent sales to work out market value?

                      is there a calculator to work out how much deposit i need to make that pay off in 15 years? im going to have to look at local rents to guess some of that i presume.

                      Comment


                      • #12
                        i guess i also need to keep in mind that properties in auckland might be viable in 2 years should things go the way some suggest.

                        one thing im confused about a lot of people say dont buy in cities under 100000. but a lot of the really nice place people want to live in are smaller cities.

                        Comment


                        • #13
                          Originally posted by motoman View Post
                          ive been reading a lot of grahams posts and learning a lot from someone who is sensible.

                          he said work out how much income you want and work back from there.

                          so that means work out how many houses i need. now if i want them paid off in 15 years i need to work out how much deposit or equity i need in each house to offset the rent to pay them off in that time frame.

                          couple of questions. i need a couple of tools.

                          is there a web service for showing recent sales to work out market value?

                          is there a calculator to work out how much deposit i need to make that pay off in 15 years? im going to have to look at local rents to guess some of that i presume.
                          Let me know your e-mail address and I will fwd you a property purchase calculator you can use.

                          For a 15 year loan with today's interest rates you would need about 10% yields, but if you extend to 20 years, you would only need around 8.25% which is more easily achievable if you are starting out.

                          Market value only comes from experience, not data. You would need to look at 100 or so properties in 1 specific location you want to buy in to know it well enough.

                          Regards
                          Graeme
                          Facebook Property Chat Group NZ
                          https://www.facebook.com/groups/340682962758216/

                          Comment


                          • #14
                            Originally posted by motoman View Post
                            i guess i also need to keep in mind that properties in auckland might be viable in 2 years should things go the way some suggest.

                            one thing im confused about a lot of people say dont buy in cities under 100000. but a lot of the really nice place people want to live in are smaller cities.
                            Don't ever worry about what might or might not be with prices. Interest rates yes, allow for them to go up a few percent in your calculations so you know that you could cover the shortfall if that did happen.
                            Buy properties based on the yield and price etc at the time you buy, not on what may or may not be. That way, if prices did go down, it's not that big a deal.

                            Yes approx. 100,000 population.
                            Areas less than that may be nice places to live but that's not the point.
                            If the population dropped significantly which can happen in small towns, you may not find it easy to rent your properties out.
                            If you have 1 or 2 in small towns and say 10 in an area or locations with 100,000 plus, then that is okay, just don't buy all of them in a small town.
                            Facebook Property Chat Group NZ
                            https://www.facebook.com/groups/340682962758216/

                            Comment


                            • #15
                              Hi all thanks for the advice. Im not doing to well, have had some serious health issues the last couple of years and found out it came back before Xmas.

                              Anyway Im quite depressed by the idea of working behind a desk for 20 years. I dont think I could do it longer than 10 years.

                              Whats the possibility with a $200k dual income of making $1m in 10 years? Id like a freehold home, some income from IPs and then start doing something I enjoy in life.

                              Comment

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