Finance to get to 100+ Properties

[PTILoveYou]

Gary - the property market is constantly evolving. What you bought over the past 5 or so years will have very different financials than a property being purchased today. I'm betting you bought at yields closer to 6% (possibly higher) than 4%.

Forgetting the balance of your 12 properties - let's review the financials on you next purchase independent of your portfolio

How far cash flow negative will the property you're planning to purchase with the $1million pre approval you talked about yesterday?

Your yield will be no more than 4.5% and at best your mortgage rate will be 4% (it's possible yield will be 3-4% and borrowing closer to 5%) - therefore even if you stump up the $300k to have this property (not your portfolio) at the 70% LVR requirements you will be AT BEST cash flow neutral with a fair bit of hope and creative accounting my calculations put you at negative $7500 annually. To improve the yield you may be able to do some changes to the property - more cash $25k-$50k so now you will need ~$325 - $350k out of your own pocket.

now multiply this by 100 to get to the desired 100 properties... $750k negative cashflow on top of $63million mortgage and a deposit of ~$30 million

You keep reverting in your posts to your own situation - as a coach (in any field) the coaches experience is relevant but only useful if they can adapt it to the students situation and current market environment - you talk about your portfolio being cash flow positive so you choose to leverage this cash flow to buy more growth assets and minimize tax - sound strategy for you if your risk tollerance is ok to hold more Auckland property in an already elevated market. Not such a sound strategy for a 19 yr old on $20/hr who is asking for advice on how to grow a portfolio bigger than 99% of private investors in a market with super low yield, limited other income and prices that have been running hot for a good while now.

Im here to share my views and my experience and my way of investing.

If if our students want to have their say, they can share their experience themselves.

See my reply to Courtham

[JBM]

What about trading a few? I traded quite a lot with a partner and rolled that income into a run down central city property that renovated a lot and upped rent from $800 to $1300. Am looking for another one and then will probably trade some more to pay that off too. From there the core assets can pay for each other I guess since there (in theory) will be stuff all debt.

Say properties cost $500K to buy and $50K to reno and you can make $70K on a trade after GST. That's $50K cash in hand (ish). Do that 4 times, on the 5th keep the property instead of trading it, and pay down a whack of deposit. You now have a $620K value property with only $350K debt. Start small so you can hold the property if the market turns etc and treat it like a business. It's broad strokes numbers I realise but if you know enough about value to do well in shares property isn't that much different.

Yes I understand I have spec built five properties in Queenstown during the 2000's along with a reno ...as well as investing in the couple of section investments during this time ..

So I understand the "CORE" to increasing one's wealth is to grow your capital base and equity in investments(property being really the only one the Banks see as having decent value)

Now the issue the present newbie would have is to grow one's capital unless he's on huge wage, the banks just not going give you a huge loan to buy even one Auckland property ,,,

Even myself with 15yr+ history of paying back in full twenty + investment loans and a very diverse investment history ,good capital + income
The banks don't treat me all the much better to the leverage I can have compared to 10yrs ago ...!!!

..Maybe those Auckland Bankers drink the easy lending cool aid and are happy to fund investors negative geared properties ??

..Of course if many are using the history of the NZ property market of the last 30yrs+ as being the blueprint of the next so many years are in for a major re-think ..........or should I say major Bankruptiecs ....taller they are the bigger the fall ...etc

[Rosco]

Hi all,

Here is really simple numbers on a $1 million property, no cash in, at 4% gross yield as mentioned in earlier posts.

	Expected Rental Return -
	House Value		$1,000,000
				$1,000,000
	Less Deposit
	Total Borrowed			$1,000,000
	Income:
	Rent -	Weeks	50				40000
		Per week	800
			As a % of total house			4.00%
	Less Expenses:
	Accounting					250
	Bank fees					50
	Body Corporate					0		If interest goes up
	Insurance					1200
	Interest		Rate	4.50%		45,000		7.50%	$75,000.00
	Property Management at 7.5% plus GST					3,450
	Rates					2500
	Repairs and Maintenance					1000
	Seminars					100
	Subscriptions					300
	Travel					86
	Total Expenses						53936.00		$83,936.00
	NET CASH SURPLUS (DEFICIT)						-13936.00		-$43,936.00
	Less Depreciation			Building			0.00
				chattels			5000.00		5000.00
	NET TAXABLE PROFIT (LOSS)						-$18,936.00		-$48,936.00
	Tax refund						$6,248.88		$16,148.88
		Person 1 -	Tax rate	33.00%	Own	100%
		Person 2 -		30.00%		0%
	Overall Cash surplus =Taxation refund less cash deficit						-$7,687.12		-$27,787.12
	Weekly cash						-$147.83		-$534.37

[Rosco]

So for any investor they are looking at a certain $7,687 cash loss per year(after tax benefits) vs potential capital gains of ?

Note
- if interest rates go up, cost could be a lot more
- if tax rules change could cost an extra $6,249

This is a gambling strategy where you are gambling that the property will increase in value more than the costs. Only time will tell whether this is a good or bad move.

Main things to consider with this strategy

1) Can you afford the $148 per week, cash top up? If interest rates go up how will you combat this?

2) How many of these can you do? Low income, probably none. High income, you will be able to do some more but will get to a point where you can't do it anymore.

3) If you want to get to a large amount of properties using this strategy, you are reliant on capital growth. If you get amazing growth like the last 7 years in Auckland, then you will be able to get a few. If the market goes flat for a number of years you will stall.

4) If you can do improvements to add real value, then that can help with moving ahead quicker. Plus if you can increase rent, that will help. But still looking at a very negative property (even with very low interest rates) and left hoping it will go up.

If rent goes up 5% per year for next 5 years, cashflow would look like below. So still negative!'

Rent -	Weeks	50				51050
	Per week	1021
		As a % of total house			5.11%
Less Expenses:
Accounting					250
Bank fees					50
Body Corporate					0		If interest goes up
Insurance					1532
Interest		Rate	4.50%		45,000		7.50%	$75,000.00
Property Management at 7.5% plus GST					4,403
Rates					3191
Repairs and Maintenance					1277
Seminars					100
Subscriptions					300
Travel					86
Total Expenses						56189.06		$86,189.06
NET CASH SURPLUS (DEFICIT)						-5139.06		-$35,139.06
Less Depreciation			Building			0.00
			chattels			1000.00		1000.00
NET TAXABLE PROFIT (LOSS)						-$6,139.06		-$36,139.06
Tax refund						$2,025.89		$11,925.89
	Person 1 -	Tax rate	33.00%	Own	100%
	Person 2 -		30.00%		0%
Overall Cash surplus =Taxation refund less cash deficit						-$3,113.17		-$23,213.17
Weekly cash						-$59.87		-$446.41

Ross

[Don't believe the Hype]

Hi all,

Here is really simple numbers on a $1 million property, no cash in, at 4% gross yield as mentioned in earlier posts.

	Expected Rental Return -
	House Value		$1,000,000
				$1,000,000
	Less Deposit
	Total Borrowed			$1,000,000
	Income:
	Rent -	Weeks	50				40000
		Per week	800
			As a % of total house			4.00%
	Less Expenses:
	Accounting					250
	Bank fees					50
	Body Corporate					0		If interest goes up
	Insurance					1200
	Interest		Rate	4.50%		45,000		7.50%	$75,000.00
	Property Management at 7.5% plus GST					3,450
	Rates					2500
	Repairs and Maintenance					1000
	Seminars					100
	Subscriptions					300
	Travel					86
	Total Expenses						53936.00		$83,936.00
	NET CASH SURPLUS (DEFICIT)						-13936.00		-$43,936.00
	Less Depreciation			Building			0.00
				chattels			5000.00		5000.00
	NET TAXABLE PROFIT (LOSS)						-$18,936.00		-$48,936.00
	Tax refund						$6,248.88		$16,148.88
		Person 1 -	Tax rate	33.00%	Own	100%
		Person 2 -		30.00%		0%
	Overall Cash surplus =Taxation refund less cash deficit						-$7,687.12		-$27,787.12
	Weekly cash						-$147.83		-$534.37

so my calculation of negative $750k/yr across 100 properties was spot on - who'd have thought that! - rising to $2.8m/yr negative at the higher interest rate -

you'd want to be on a good hourly rate to pay that bill

- Thanks rosco!

[JBM]

Yes add in the fact "Bank of America" come out today with a prediction of a major 10-15% correction in the major US markets ...could well be the pin the pops the never-ending growth in much of international Property bubbles ..

.. think the local Government will in-act far more anti investor tax rules aka ..removing neg gearing coming into the 2017 elections but sweetened with a TAX cut for all ....

Also the banks leading rules around apartments/units must be fixed(for least first home buyers etc) ... it plain stupid that these properties that could help the first home buyers into their own property (and save them thousands per year in rent) need to have 40-50% deposits ....surely this doesn't happen in the many major cities of the world

[PTILoveYou]

Thanks Ross and co on the negative cash and potential rise of interest rates.

I am well aware of these risks for the past 3+ years.

It's a calculated 'gamble' of risk vs reward.

When I buy a 4% gross yield property today, my minimum equity gain would be about $150-200k instant after reno.

So yes I will be losing hundreds a week, but at the sametime, I have got 6 figure equity gained right now, and with 2 more years if not more capital gains coming for this boom.

Also in the long run, I'm a firm believer that Auckland is the next Sydney, and property prices will continue to go up, as long as capitalism & immigration keep on going.

As for our students or investors in Auckland, the question you want to ask yourself is, do you want to buy today, to take advantage of the rest of this boom?

Or would you happy to be disciplined, and keep your hands in your wallet, stay away from temptation, and buy at the recession, when the prices are higher in Central Auckland than today?

If you invest in West and South Auckland, be very careful what you buy today! Because the coming recession won't be pretty in your area of woods.

Those who believe that Auckland prices will collapse:

[PTILoveYou]

As for interest rates, why would the interest rate go to 7.5%?

Ask yourself, what would trigger such scenario?

Inflation, the magic bullet of Capitalism.

Where does inflation come from to trigger a higher interest rate?

Devaluation of the dollar, supply and demand, which results in price rises.

So if price of every day goods rise, yes interest rates will go up, but so does income.

When prices & interest rate rise, income will also rise, or people will over throw the government.

When income rises, so do rents.

When income rises, so do property prices, because people are now modern slaves to the banks, people have to get into debt in order to get into their homes.

When property prices rise, maybe it's time to cash up our well earned equity?

[PTILoveYou]

According to Olly Newland's Newland Burling & Co Facebook article:

"
BIG BOOST IN MORTGAGE SPENDING
Mortgage lending picked up a pace in April, taking annual growth to its highest level since before the global financial crisis.
Reserve Bank figures show mortgage credit rose to $1.8 billion in April from $1.5 billion in March, will growth in the year ended April now 8.3%, the fastest since June 2008.
"

Investors in Auckland and rest of the country are out there speculating in mass.

We at Ronovationz are actually doing good work for our students to get them to buy properties today sensibly, and not just blind speculate buy anything like part of the flock of sheep out there.

I often see my students come for our help when they have bought the wrong types of properties, ie plaster terrace houses, and properties with large land with subdivision potential but at 2% yield and $700/wk negative cashflow!

We can't save them all, but our students do invest sensibly under the limitations of todays market, and take calculated and manageable risks.

We certainly don't take on students who can't borrow or are financially tight.

[Don't believe the Hype]

As for interest rates, why would the interest rate go to 7.5%?

Ask yourself, what would trigger such scenario?

Inflation, the magic bullet of Capitalism.

Where does inflation come from to trigger a higher interest rate?

Devaluation of the dollar, supply and demand, which results in price rises.

So if price of every day goods rise, yes interest rates will go up, but so does income.

When prices & interest rate rise, income will also rise, or people will over throw the government.

When income rises, so do rents.

When income rises, so do property prices, because people are now modern slaves to the banks, people have to get into debt in order to get into their homes.

When property prices rise, maybe it's time to cash up our well earned equity?

The above is nothing more than a very good story there Gary - and you shouldn't let facts get in the way of a good story

QUOTE - 'When prices & interest rate rise, income will also rise, or people will over throw the government.'
1 - Where is this causal link between interest rates rising and income rising? If interest rates are raised to combat inflation in a high inflation environment income in real terms may actually decline.
2 - when was the last time the NZ government was overthrown by people power for any reason?

[Don't believe the Hype]

According to Olly Newland's Newland Burling & Co Facebook article:

"
BIG BOOST IN MORTGAGE SPENDING
Mortgage lending picked up a pace in April, taking annual growth to its highest level since before the global financial crisis.
Reserve Bank figures show mortgage credit rose to $1.8 billion in April from $1.5 billion in March, will growth in the year ended April now 8.3%, the fastest since June 2008.
"

Investors in Auckland and rest of the country are out there speculating in mass.

We at Ronovationz are actually doing good work for our students to get them to buy properties today sensibly, and not just blind speculate buy anything like part of the flock of sheep out there.

I often see my students come for our help when they have bought the wrong types of properties, ie plaster terrace houses, and properties with large land with subdivision potential but at 2% yield and $700/wk negative cashflow!

We can't save them all, but our students do invest sensibly under the limitations of todays market, and take calculated and manageable risks.

We certainly don't take on students who can't borrow or are financially tight.

i have no doubt you and Roy can help people make better choices if they're already bought into the capital growth can go on forever... Get onboard now or miss out forever bandwagon - what concerns me is the blatant denial and almost ridicule of a balanced point of view... The HYPE generate around being able to time the market and that property prices won't - even can't - decline bothers me.

Time to balance out your optimistic views with a word of caution on what happens IF your predictions don't come true.

[Wayne]

The above is nothing more than a very good story there Gary - and you shouldn't let facts get in the way of a good story

QUOTE - 'When prices & interest rate rise, income will also rise, or people will over throw the government.'
1 - Where is this causal link between interest rates rising and income rising? If interest rates are raised to combat inflation in a high inflation environment income in real terms may actually decline.
2 - when was the last time the NZ government was overthrown by people power for any reason?

Gary is very Trumpesque - shoot from the lip.
Remember he did say this in the Trump thread

But I like Trump better because he talks straight and not caring about political correctness. I talk up front and straight too, so I can relate to Trump better.

What it really means is he talks without thinking - as you say - 'don't let the facts get in the way of a good story'.

[Wayne]

i have no doubt you and Roy can help people make better choices if they're already bought into the capital growth can go on forever... Get onboard now or miss out forever bandwagon - what concerns me is the blatant denial and almost ridicule of a balanced point of view... The HYPE generate around being able to time the market and that property prices won't - even can't - decline bothers me.

Time to balance out your optimistic views with a word of caution on what happens IF your predictions don't come true.

At some point the music will stop.
What will the coaches then do to help the last in survive?
Stump up some $ to help them out?

[PTILoveYou]

i have no doubt you and Roy can help people make better choices if they're already bought into the capital growth can go on forever... Get onboard now or miss out forever bandwagon - what concerns me is the blatant denial and almost ridicule of a balanced point of view... The HYPE generate around being able to time the market and that property prices won't - even can't - decline bothers me.

Time to balance out your optimistic views with a word of caution on what happens IF your predictions don't come true.

Wow, hold on there, who says prices can't decline?

Ron has been anticipating that the peak will be 2017 (maybe longer due to ongoing record immigration and housing shortage in Auckland) for the past 2 years.

We are very focused on observing the trends and anticipating market changes, to be prepared for the peak.

Most important of all, we want all students (including the coaches) to be prepared for the peak of the cycle, and be in a position to BUY when the market turns.

Peaks and troughs are BUILT INTO capitalism, that's when the rich take the money from the poor, legitimately.

We would rather join the rich, than become the poor, and we certainly want to help as many people not become a victim when the slaughter time comes.

[PTILoveYou]

Gary is very Trumpesque - shoot from the lip.

I'm just not into big articles and essays like GF is.

I don't like reading long winded articles, and so I would not wish that to my readers.