The Journey - Chris Ashenden

[spaceman]

Chris

Looking from my side of the fence. I'm more impressed with the work you're doing, than my efforts....... frankly I admire the size of your balls and you willingness to share here at PT.

Here they have giant land snail ..... bigger than your fist ..... chop up a few, skewer them, throw them on the barbie ..... mmmmm yummy escargot on a stick ....... lunch

For dinner it would have to be something real special

Cheers
Spaceman

[Cliffy]

Hi Chris,

Thanks for the great answers.

As a follow up:

In any given entity, set up one or more of the loans as a revolving credit facility...

Do you have a guideline for how many properties / what value to each entity?

How do you decide when you need another one?

[ChrisAshenden]

Hello Tamara,

Hi Chris

I thank you for the inspiration you have provided me and the insights that you have given.

Thanks. And you are welcome

I was wondering if you have needed to use any creative financing approaches and if so what they are.

Please define creative financing as you know it. I have done of lot of highly leveraged deals and no money down deals - but the no money down deals just mean none of MY money. Money almost always had to change hands.

All the Invercargill properties were bought with 20% down via credit cards and high interest loans.

I have bought a lot of properties for cash (mine or someone else's) titivated the property (often before settlement) and then refinanced against the new after repaired value. I have done the same but by putting 20% down and this is now my standard formula. When I first started banks were very aggressive in their lending and this refinancing process would take anything from one day to three weeks. Now, you will find a more cautious approach from most of them but as long as you can substantiate with your valuer that work has been completed on the property HENCE the valuation well above your original purchase price then you should be fine.

One of my early lenders was quite happy to lend against the valuation but I promptly moved past him in that bank (his limit was 500K) and happy days were over.

I have tried a few other things like buying with second mortgages and then discounting the mortgages for early repayment but this leaves the vendor with too much of a potential tax headache and the paper trail is a killer.

With the trading I come across plenty of people who want to cut corners and ‘vary this’ and ‘swap that’ and ‘don’t show the bank this.’ Don’t go there - as you get bigger and bigger and everything becomes a lot more transparent you will realize that staying out of the grey is the only prudent philosophy. I know of a number of serious investors with outstanding track records and relationships with their banks who get loans to valuation at settlement with every purchase. This is NEVER bank policy so it is special treatment in every instance.

Also what rules you use to decide what property is a buy and hold and which ones you will on sell?

I use the money and circumstances rule.

At its most fundamental level the money part of the equation is: How much will this property pay me to buy it and keep it? How much will this property pay me to buy it and sell it?

Ultimately it comes down to what I want (cash/cashflow) and the property’s suitability for one or the other. I am always looking for the path of least resistance.

Some circumstances I then take into consideration are:
Cash at hand
Stock Levels
The Market
Suitability to trade, keep, sell with Lease Option etc (if it’s a skinny deal, I will never keep it)
Velocity on capital either way
Use of money equations (use it here or better elsewhere) also incorporates time frames and how long the money will be tied up.
Use of borrowing equations (everyone’s borrowing power is ultimately finite – so you want to maximize it as much as you can)
Amount of work required (if it needs renovating)
Availability of my work crew to complete the work


A few thoughts:

Regardless of whether I bought a property to keep or not, if someone offers me REALLY good money for a property – I will sell it.

If I find over time that a house that I bought to keep is a bit of a dog – then I will sell it. This has happened a surprising number of times. If you buy well though, you will still get paid.

To date I have never lost money on a property deal. I expect this to change if and only if I let my emotions get in the way of what should be a purely intellectual exercise. If this happens then most likely it will be because of either greed, or because I get too proud.

I would like to go through my entire property investing career and always be able to say that I have never lost money on a property. However, I subscribe to the thought that if its costing you money and you can’t find a way to get out of it, cut your losses and move on. Although I have never been tested in a "loss" situation, I am sure I will stick to this as I know that IF and more likely WHEN this happens, Spaceman will happily slap me if I don’t stick to the plan.

Accountability is a beautiful thing.

Regards,

Chris Ashenden

[ChrisAshenden]

Hello Chemill,

Hi Chris

Sensational story so far!

Thanks!

Just a quickie, What sort of houses do you look at for trading? E.g. do you get your 9% yeild house and then decide to trade. Or do you find any type of house that's under valued and flick it on (adding value if necessary)?

Good questions. I have probably answered some of it upstairs in the previous post. I am not too sure where everyone gets this 9% yield thing though as I wouldn't buy a house to keep on a 9% return.

To your question:

YES, I will buy any type of house that's under valued, tidy it up as required and flick it. I have done this in a range from a $35,000 property in Invercargill to a $700,000 property in Auckland and will happily go higher or lower if the deal stacks up.

HOWEVER, when my stock levels are high (over 10) and/or I am being a safe and prudent investor, I would only buy a property to trade where, in a worse case scenario - I could keep it if I had to AND refinance all my money out AND still structure it to be positively geared for cashflow. This is the rule I followed exclusively when starting out.

If I was a rank beginner in a softening market or did not have very strong cashflow then I would ONLY follow the safer path UNLESS I had bought the property exceedingly well and could FIRESALE it on for a profit OR I had nothing to lose by having a go, failing and then going under.

Have a super time in Europe!

Thanks mate.

Regards,

Chris Ashenden

[ChrisAshenden]

Hello Spaceman

Looking from my side of the fence. I'm more impressed with the work you're doing, than my efforts....... frankly I admire the size of your balls and you willingness to share here at PT.

Thanks mate, I'm glad you are enjoying it. In any case, the real key to squashing any fear/doubts/concerns is to just go and take massive ACTION.

Like I said earlier, ACTION is my drug of choice.

Here they have giant land snail ..... bigger than your fist ..... chop up a few, skewer them, throw them on the barbie ..... mmmmm yummy escargot on a stick ....... lunch

For dinner it would have to be something real special

Not only are you a humorous Spaceman you obviously understand the fundamentals of selling.....

I’m quite interested in what you have in mind for dinner.

Regards,

Chris Ashenden

[ChrisAshenden]

Hello Cliffy,

Hi Chris,

Thanks for the great answers.

You are welcome mate. Thanks for the great questions.

Do you have a guideline for how many properties / what value to each entity?

How do you decide when you need another one?

Good question. If what you doing is buy and hold (rental) with the occasionly trade thrown in then it is not really an issue. Just keep the trades and the buy and holds in completely seperate entities.

Some people who want to play it very safe keep firing up a new trust every six to ten properties but it is a head ache and not really necessary for most. The idea behing this is two fold, one, you can liquidate the lot in one of the entities without tainting the rest for capital gains issues (if they are set up right), two, over the long term if you generate a couple of million in equity in each trust then they are compartmentalized and this would be considered safer from an asset protection standpoint. It is very unlikely that they would all topple unless you go under with the banks across the board. Bear in mind that you would probably pay down all mortgages in at least one entity if you could (or use a completely different bank) to keep at least one trust secure, and it goes without saying that over time you would have your own house and batch completely compartmentalized from the others and seperated by both entity AND ideally by LENDER.

Another scenario might be that you have a trading entity and a buy and hold entity with about 8 or so houses in it. For whatever reason and after a short period of time you decide to sell out three or four of the houses, realising a substantial capital gain. In the event of an unfavourable ruling from the IRD and you losing the court battle you would probably find yourself buying any future buy and holds in a brand new buy and hold entity. The multiple trust idea is just an attempt to give more flexibility and protection and side step this issue in advance. If you are going to do things like wrap and sell houses on lease option then you will need multiple entities and smarter structuring advise regardless.

What I would do starting again is:
ONE trust set up properly for buy and hold
ONE trust set up properly for trading properties
ONE trust set up properly for wealth retention (family house, batch, tons of cash and your favourite classic ferrari).

For ease of accounting and borrowing I would buy all the buy and holds in the one entity. In the event that I bought a dog I would sell it and carefully document the process with my accountant. In fact, if I sold ANY out of this trust within 10 years of purchase I would document it very carefully and fight the IRD to the ground if they tried to pull capital gains taxes and taint the lot. Basically the buy and hold trust would buy and hold and the trading entity would do ALL the trading. The wealth trust wouldn't do much apart from lend the other entities copious amounts of money.

Some might notice that there is no LAQC listed up there. This is intentional.

Hope that helps.

Regards,

Chris Ashenden

[drelly]

You'll really need the holiday after all these questions...

I wouldn't buy a house to keep on a 9% return

What return do you require to hold a house?

Some might notice that there is no LAQC listed up there. This is intentional.

I suspect that like many on here, I'm in the position of having an LAQC that has lots more equity in it than was anticipated. Do you have any advice regarding what to do in this situation? I already have a "wealth trust".

[Josko]

Hi Chris,

All the worthy questions keep getting asked.

I would like to find out, when you were new to investing, (say in your first 50 transactions) if you have a favorite memorable DEAL, and why?

Regards,

[Robot]

Some might notice that there is no LAQC listed up there. This is intentional.

Why no LAQC grand master sensei? Also, any tips on setting up a buy and hold trust the right way?
And as drelly asked, at what % return do you hold? 10%?

[Oopsick]

Hello Chris!

Thanks for spending your precious time typing these posts. They are great!

I think you could easily print a book with all that info and charge us for reading it

Some might notice that there is no LAQC listed up there. This is intentional.

Why is that?

Cheers

[tamara]

Hi Chris

Thanks for your comprehensive response to my question. This thread has really made me look hard at my property investment plans and in some instances refine them.

The finance question is a challenge for me as my husband and I live in Brunei and lenders really favour 20% deposit each purchase (there are a few exceptions though) and I have been trying to think outside this little box to work out how to best us the tax free dollars earnt up here.

It is obvious that I need to buy more prudently when making future purchases.


Regards

Tamara

[Robot]

lenders really favour 20% deposit each purchase (there are a few exceptions though)

tamara, I really interested in the few exceptions, could you elaborate? All the brokers/banks I contacted insist on a 20% deposit (if you're overseas).

[HermanZ]

Chris,

Superb thread, thanks for sharing.

How would you structure a JV where one partner does all the work,
and the other provides all finances (and only finance, broad brush strokes only)?
Buy and Hold or Trade

Regards
HermanZ

[smallfish]

Hi Chris

Great thread. I am a small time investor (read 1 IP) but would like to grow much bigger.
The problem is getting the required returns to grow bigger.
Here in Christchurch the cheapest 3BR house you are likely to find is about $180K. Rent on such a place is likely to be around $230 P/W giving the grand return of 6.6%.
Considering that our bank (BNZ) will only consider 70% of the incoming rents and that they base their debt servicing on a principal and interest loan at the current floating rate (not sure but this could be about 8.5% at the moment) I would need to get a return of over 12% just to break even in the banks eyes as far as not affecting my serviceability for any future loans. (12% return on 180K = $415 p/w - - it's not going to happen)

I read that you would not buy any property that had a detrimental effect on your serviceability.

I have tried thinking outside the square (adding extra bedrooms, extra dwellings if possible) but still wouldn't come close to a 12% return.

I would very much like to be a bigger fish but I cant seem to find the right fish food.

Should I be looking in smaller regional areas or is there something I am missing.

Your thoughts would be appreciated.

I would like to be a whale but I'm looking more like a whitebait at the moment.

Thanks

[spaceman]

If I may be so bold as to answer for Chris.

Regarding why he has no LAQC.

My guess is because the "L" stands for LOSS and Chris wants to make money on every deal from day one.

Chris as for dinner.

Agouti is a kind of giant rat, that lives in the jungle. You can have it all sorts of ways, a bit like the 1001 ways to cook shrimp in the movie Forest Gump.

So if you suddenly snap, go insane and decide to come. You better stay for at least a week to try as many of the tasty ways to eat giant rat as you can .......mmmmmm jungle rat fried, bolied, grilled, baked, in a stew etc etc

Cheers
Spaceman