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  1. #1
    Join Date
    Aug 2004
    Posts
    21

    Default how to take advantage of the CG?

    hi guys, just a question about capital gain. i have set my goal to own 6 freehold rental property to provide enough passive income. i understand that i should always treat capital gain as bonus. but what should i do if the bonus does come out sometime?

    before i get the target number of houses i want (which is 6), i will refinance to use the increased capital gain to fund my deposit for the next house purchase. but after i get the 6 properties, what can i do to take advantage of the capital gain, if there are some?

    cheers, happy new year everyone!

    a

  2. #2
    Join Date
    Dec 2004
    Location
    Sydney, Australia
    Posts
    413

    Default

    Basically you are on the right track already. You can use the capital gain on any of your properties to gain additional funding from the Banks to pay for the next property (deposit). It will just be a case of getting a new registered valuation done and obtaining the finance from the Banks or lenders.

    If you have postive cashflow properties (after all expenses) and good captial gain in this market you are doing well!

    No need to stop at 6 either, if the positive cashflow is there, plus capital gains, this will give you equity to borrow against so you can carry on adding to your portfolio.

    Cheers

    A

  3. #3
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    Hi a

    For the most part I agree with London Kiwi, why stop at 6, once you've reached your goal then why not buy more just keep yourself leveraged at a much lower rate to keep you safe.

    In terms of turning capital gains into money there is little you can do barring selling the places (But why would you if it is a good property? Unless I guess it was to pay off your other properties faster) or borrowing further against them.

    We are kind of in the same boat in that we purchased most of our properties in 2003 and so have seen a fair amount of CG. Now it looks like we are going to have to change towns and buy a new home to live in but we are asset rich cash poorish. We are thinking of selling our present home to an LAQC, turning it into a rental and using the money this generates to buy, or act as a deposit on a new house.

    David

  4. #4
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    Oh and I would definitely not recommend what was promoted on some of the Aussie property forums at the height of the boom, just borrowing the capital gains amount each year via revolving credit account and living off that! Way too risky when the market turns if you ask me!

  5. #5
    Join Date
    Feb 2004
    Location
    Welly-town
    Posts
    1,095

    Default

    You could also borrow against the equity to purchase other investments that will generate further income.

    You know, the balanced portfolio thing that we all know we should be doing but probably aren't.

    Not sure what you would look at. Pyramid selling springs to mind as a ood income stream (just kidding)! But just as there are positive cashflow properties out there, there must be other income generating investments.

    Gerrard

  6. #6
    Join Date
    Aug 2004
    Posts
    21

    Default

    thank you guys for sharing your opinions
    hi Monid
    once you've reached your goal then why not buy more just keep yourself leveraged at a much lower rate to keep you safe
    not quite understand this, can you expand a little more please? my opinion is that keeping a property freehold is the safest way. cheers,

    a

  7. #7
    Join Date
    Jun 2004
    Location
    Auckland
    Posts
    2,103

    Default

    Hi a,
    my opinion is that keeping a property freehold is the safest way.
    You meant "mortgage-free" not "freehold" (which is about the title of a property, where you may have "freehold", "crosslease", or "leasehold")?

  8. #8
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    Hi A

    basically what I meant is that some leveraging, whilst slightly riskier than having the properties mortgage free is still going to be fairly safe. Imagine having just %20 of your equity tied up financing other properties. It is hard to see the emergency that could occur which would then force you to fold. Property prices would need to plummet! And if that happened I would be very worried about what would happen to rentals.

    So yes, leveraging is always taking a risk, but at low levels it isn't much of a risk and the potential for growth and profits is much higher.

    Having got the set of rental properties that we want mortgage free as a minimium Our basic plan now is that every $40000 of equity we build up we will use $20000 of it as a deposit on a new place.

    This means that our loan to value ratio is slowly decreasing over time while our portfolio is growing.

    Also there are several reasons to regard a bigger portfolio as less risky.
    The larger the numbers the more likely they will perform to statistical averages. ie with just say one property if the market it is in turns weird or funky you will greatly affected, with many you can spread your markets and thus risks.
    Likewise if you have one place and your tenant leaves you are in trouble, the more places the less likely it is you will have them all empty at the same time.

    Nonetheless I generally agree with the aim to decrease your lVR overtime, it's what we are aiming to do, just we will also keep increasing the size of our portfolio...

    Happy new year


 

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