Actually normally you would be welcome, but you were personal. You have been questioned before, what happened to the Gary who took it on the chin?
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Next Steps Help - Moving from 6 to 50+ properties .... Advise in Wellington
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Originally posted by Gary LinAPIA at one stage wanted to give away Graeme's books to APIA members, but Graeme blew his chance.
PM me if you like.Facebook Property Chat Group NZ
https://www.facebook.com/groups/340682962758216/
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I like Wellington, nice place.
My few tips Kiwibean:
You need to approach a broker or bank manager and ask the hard questions based off a plan. So plan should project through to 10, then 20, then 30 houses etc and you need some numbers around proposed rents and purchase prices so the plan is fairly based in reality not dreams. This doesn't take 5 minutes either you will need to spend many hours putting it together.
Questions to ask - Every bank has different rules and these change as market risk changes so your plan must be fluid:
Note: Any comments I make about numbers / percentages are to do with me, you are not me and your bank manager is different so only as a guide.
Equity:
1 - What percentages do the use of value: 90, 80, 70, 65 LVR and when do these levels kick in???? (we have had all levels applied to us and now have 70% LVR BNZ & 65% LVR ANZ). More borrowing lower LVR etc.
2 - What are the LVR level changes eg. 1 million, 3 million etc
3 - What is their policy on revaluations (especially after renovations) (ANZ straight away, BNZ 6 months)
Once you have an understanding of how a bank calculates equity then you know the criteria that you have to hit to keep going forward, how many banks you use etc.
I am not going to getting into a discussion over 1 bank versus lots as lenders as we all have an opinion. I know that most bigger investors I personally know in HB, CHCH, Dun (and a few commenting on here already) tend to limit banks and build relationships as owning 10+ houses becomes a different kettle of fish from 1 to 6.
Serviceability - This is the biggest issue for big numbers, equity becomes easy as time & renovation usually helps with this but rents don't grow as fast.
1 - How do they calculate your cash flow from a rental 80, 75, 70% of rent used?
2 - Calculation interest rate it. it is not floating ours are generally 6.5%
3 - Safety buffer - low debt may be zero, high debt may be 2 times
4 - How much of your job income will they allow you to use.
Guide calculation
Starting out:
$ 300pw rent = 300 x 52 x .75(%) = $11,700 income
Debt servicing with no safety buffer is $ 11,700 / 0.065 = $ 180,000 of loan.
So for 300pw you can pay for $ 180k of mortgage (IO or PI varies but you get the drift)
So if loan is $ 220k then your income must cover the cost of the extra 40K servicing so you can see your income can run out very quickly in it's ability to help you borrow)
Our ANZ Situation:
$ 300pw = 300 x 52 x .75(%) = 11,700 income (same)
Debt servicing has a safety buffer:
$ 11,700 / .065 /1.5 (safety buffer) = 120k of loan servicing
As you get bigger you can borrow less based off rental income and therefore have to earn lots or buy at high yields or just wait or win lotto or rob banks or deal drugs etc to keep meeting these requirements.
So this then gives you a target purchase yield
300 x 52 /120000 x 100 = 13% so if you can hit 13% gross yields the properties become self sustaining in the banks eyes for us. Anything above 13% gross does not eat into other properties incomes.
When we started out we were at 9 % yields in Dunedin in 2008, have climbed, peaked at 24% yields in 2012 in HB and are now fighting to get much above 12% in HB. Haven't bought in Dun or CHCH for a few years because of this.
Your Risk Profile:
1 - Ask the bank what they see in you as risk problems: eg - age, credit card debt, HP, children, job security etc. Unless you cull children you can't really do much about some of this stuff but at least you know and some things you may be able to change.
2 - Rent reliance is real and every time I talk to my ANZ bank manager he says when are you and Lis going to get a job, we would feel better and could give you more money. We still seem to get more money but he would feel better if he could tick the have job box again for applications to his credit department.
Banks in general:
One tip I have learnt is the person you deal with doesn't make the decision around your finance a credit department does, someone you will never meet. Work with your bank contact not against them as they have to get your applications across the line and generally want to help well organised and prepared investors.
Hope this gives you some guidance as I am always still learning but understanding your business partner THE BANK is key to a healthy and prosperous relationship allowing you to continue to invest.Last edited by ScottSI; 23-10-2015, 02:43 PM.Plan and invest wisely - You only get one life so make the most of it!
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Originally posted by orion View PostHi Mark,
Yes it is a balancing scenario at times. Sometimes you need more equity, sometimes you need more cashflow when building up your portfolio.
It’s not until you have built a good solid foundation and both are 100% handled, that you no need to be concerned about them.
Banks take 75% of rent which I think could be done at 70% rather than 75% and still be fair.
When you take, rates, insurance, maintenance and property management out, you are generally left with about 70 - 75% of your rent. That doesn’t take into account vacancies etc either.
Getting the deals takes a while to consistently get them at good prices. Again as I said to someone else who said a similar comment – if you think people buy them and rip someone off, or the agent does in any way, then you will not find any. Read the “Lucky” article where this is covered.
There are many ways you can buy under market, some with agents and some privately. Negotiation comes into it, terms come into it, sometimes quick settlements, sometimes agents price incorrectly, some are forced sales, some are landlords who want out because the property didn’t go up in value and the tenants haven’t looked after them, 100’s of reasons.
In the last 24 months I’ve bought 50 (16 in the last 3 months) and all would be under what would be considered market value. Some 10% below and some 25% below.
I'll have a read of that lucky trend of yours. Prehaps I'm missing an important peice here.
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Awesome post ScottSI - I've been looking for a yield breakdown like yours for some time!
cheers,
donnaEmail Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk
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Originally posted by orion View PostStill don't know what you're talking about Gary?
PM me if you like.
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Originally posted by kiwibean View PostHi all,
Thought I would throw it out here. I am looking for someone in the greater Wellington region that I can buy a coffee and have a chat around property investing and what are the next steps to help me with my strategy. I currently have 6 properties which I have purchased since 2013. I am looking at growing this substantially and would to get some advise from someone that has done it. (I had a property investment company call me no long ago to see if they could "help" me, when I asked how many properties they had, they told me the mentor had was less than mine........ it didn't really interest me, as I know they are just trying to sell me their services)
I am very keen to learn from someone that has done it, looking at buy and hold strategy. Guess the one of the main questions is around banks and how to get to the next stage.
I am already signed up with WPIA which is great but thought I would try here to see if there is anyone I can possibly talk with.
Thanks in advance,
Simon
What suburbs are you buying in?
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Wow, I have been away for the weekend and come back to some great and not so great comments, thank you all. The main thing for me would be to have a chat with someone over a coffee and talk with someone who has done it. I am not looking for advise from people that don't or are in other regions eg: Auckland. I want to buy in the greater Wellington market because I am comfortable with my knowledge of the area.
Thank you to the people who have pm'd me to have a chat.
^Dan, I have bought in Porirua area, Lower Hutt and Kapiti as all my properties have over 10% yield so good cash flow.
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There are many ways to achieve your goal in property and many people who are experts in their field or experts in their own mind.
I take the approach that I learn as much as I can from everyone and don't believe every thing that every one says.
One fallacy I can expose is that you cant get Yield and capital growth in an area, so a dodgy area like Clendon in Auckland or that wellington town that ends in ......tai, that's in a "bad area".
Clendon rose from 170k to 300k in a very short time.
You could easily fast track high capital growth and high yield buying there.
Many supposed experts told me never to do it, Ron and Olly and others.
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I stopped reading at page 3 sorry.
But my question to you Kiwibean how do you measure wealth.??? By number of properties? Or the passive income one have?
I know now what I rather. 15 properties that generate say 300k a year passively then 50 properties that generate say 100k passively .
There are many people who built large portfolios of say 30+ IPs but still have poor cash flow.
I say don't think about the numbers of properties. Think about building more income with less properties if possible.
isn't why we all invest in property, so we can have income to do whatever we want with our life?.?
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