My husband and I hate debt - we are wondering if there are any like-minded folk out there who are interested in teaming up and pooling funds to avoid debt?
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Hey Smartinvest,
I was like you - debt averse.
I bought my first three property deals in cash. I was lucky enough that they have all doubled in value, and so I made some money, still a very good, no, spectacular return both in cashflow in capital gains. Probably 120 percent return on my cash in the deal in 18 months.
not complaining or anything.
BUT, if I had my time again,
I could have bought 5 times the amount of property, and had five times the amount of capital gains.
My paradigm at the time was that three houses all at once was 'huge' and I couldn't have 'thought big' enough to think little old me could have bought 15 all at once.
But I literally could have, using a 20 percent deposit and borrowing 80 percent.
If I would have bought 15 properties, not 3, I would have been a millionaire within 18 months.
People I know that DID buy 15, 20 of them then, ARE millionaires now.
serviceability is of course a factor which is why it is essential to purchase CF+ve properties - but the NZ streets were paved with them, 18 months ago, even in Auckland. I could have serviced fifteen, too, because all the yields at that time were well over 10 percent.
The thing that is the worst is that it was my F-E-A-R-S (false expectations appearing real...) that stopped me even applying for finance to see what I could borrow! if the truth was that I'd only been able to buy 4, or 5, or 10, I'd still have been way better off.
Without borrowing, you don't get the power of LEVERAGE, and then you are basically - as my mentor says - bicycling, when you could take a car.
or a lear jet.
Yes, pooling your resources is fine, and of course it's better than doing NOTHING. However, finding a group of like-minded people to all put twenty percent into a deal to fund the 100 percent? Well, that's 5 people that could all buy a property EACH. So you limit the others too by trying to find other people scared of debt.
Sorry if this is a bit challenging, but hey, it's the internet, and I don't think you can thump me from where you are!
I would suggest reading Robert Kiyosaki, rich dad poor dad.
He explains the difference between BAD debt (you are right, it is bad to do hire-purchases and such for consumer goods) and GOOD debt (for income producing assets that themselves grow in value.)
I.e. let's say you have 20k, the bank lends you 80, and you buy for 100k. If the 100k property goes up by 10k, you only owe the bank 80, and you only put in 20, then you made 50 percent on your investment (of 20k.)
By using leverage, you fast track the returns on your money - multiplying it many times over.
let's say you had 100k and you use it as 20k deposits on 5 properties. (20k is a high deposit, you may only need 10k, but 20 percent is considered very 'safe' as a rule of thumb.
Then each goes up 10 percent in value i.e. from 100k to 110 k, then you just made....50k on your 100k in a year. as in 50 percent capital growth. Even though the PROPERTY itself only went up in value 10 percent.
If you bought the property cash, for 100k, you get 10 percent cashflow, give or take (as no borrowing costs) and you made 10k capital gains, on 100 put in - so you made 20k.
Versus 50k....
And that's just an example on properties going up a little bit.
Now imagine if you were me and you bought three properties for cash which doubled, and you realised you could have bought 15 for the same amount of money which doubled. Now do you see that you are pretty much shooting yourself in the foot if you don't borrow? -
Hi,
MiniMogul you make some very good points about using leverage to get ahead which I would like to comment on.
This absolutely depends on level of risk one is willing to take. If you're a high risk taker then this strategy would suit you, where on the other hand if you're a low risk taker then 1-2 IP's would be enough. Sure if you leveraged your money at the time then you would have made a killing but if the market took a dip... well you know how the story would end.My paradigm at the time was that three houses all at once was 'huge' and I couldn't have 'thought big' enough to think little old me could have bought 15 all at once. But I literally could have, using a 20 percent deposit and borrowing 80 percent
Personally my risk levels are in the middle. For me it means getting our IP debt to a level where we can borrow upto 80%, and use the equity to invest further. For us 80% is the level where we feel comfortable at.
This would depend if you could convince your lender if you could service a $400K loan (or $450K for 10% deposits). You may believe it is possible and have $$$ galore in equity but if your figures don't match up to their criteria then this strategy won't work.let's say you had 100k and you use it as 20k deposits on 5 properties. (20k is a high deposit, you may only need 10k, but 20 percent is considered very 'safe' as a rule of thumb.
SmartInvest as MM said there is a HUGE difference between good and bad debt. I'm not exactly sure what debt you want to avoid, so can you clarify this please.
MM out of curiousity what's a millionaire in your book??
WadaComment
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Hi,
The sad aspect about debt is that it has to be repaid at some point of time.
However in the property area things are eased somewhat by rent received and quite often in the property cycle cap gain will exceed the current interest rate.
To get a feel for the situation go back 10yrs and consider where you would be today with say 100K in property full equity or 500k with 400k mortgage. If your cap gain was 75% you would have property worth 175k and 875k - equity would have increased by 75k & 375K assuming no cap repayments. Additional cost would be interest (reduced my your marginal tax rate) and of course the additional work in managing any aditional properties.
regards
OCComment
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Big ups to what Wada said.Comment
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I don't like debt either, but recognise the value of leverage. Some poeple assume that because you have debt today, you will have it for the rest of your life. That's not my plan.
I'm working to reduce debt now, and as soon as I have reached my magic figure of income producing assets I'm going to work to pay off the debt rather than buying more assets.
This is all about risk management. If I'm leveraged up to 80% from now until eternity I will be uncomfortable with the level of risk. If I pay off the debt I generate a good income with very little risk.
All I want is to live a comfortable life doing what I love. Other people are driven to constantly build wealth until the day they die. Each to their own I say. Determine what your priorities are in life and what level of risk you are happy with. Listen to others' opinions but make your own decisions.
GerrardComment
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> This absolutely depends on level of risk one is willing to take.
Yes, and some people think that property investing is RISKY - full stop.
Now I was buying for CF remember, then.
I was OK with the 'risk' of buying a 23.4 percent yielding cashflow property with 'nothing to do' (I created this, by adding together -
costs= purchase price + renovation). I mean, my figures work out DESPITE the fact that I am capitalising the renovation costs and counting it as 'purchase price'.
So I had mitigated many risks. No borrowing costs....no maintenance (I'd done it all- and I'd got a builder's report upfront so I knew EXACTLY what I was up for- negotiated the price accordingly -) -I increased the appeal so increased the standard of tenant...was buying in a town with strong rental demand...rental agent confident to let this property quickly, and did..etc etc.
I thought my RISK was very low.!!!!
I could have had 50 percent, 75 percent vacancy and still made a profit!
Risk of property going down in value?
Perhaps, but as long as cash was coming in proportionately to my cash in the deal, and as long as I wasn't intending to have to sell, then very low.
Risk of tenant damage - for an extra 300 bucks a year I could have insured for this too.
>If you're a
> high risk taker
....and still, (i rest my case!-) many people thought I was taking a big risk. Those people didn't KNOW what I knew, what I had found out, how to do the calculations I'd done. And if I explained, they were still not convinced.
One of the worst 'unconvinced' people was my Dad. I made a deal with him: If I make more than a 5.5 percent cashflow return on this money, better than the term deposit you are suggesting would be a better place to park this cash, will you then agree that it was a good idea?
Remember, I was still not expecting CG's. I made about hmmm 12 percent or more CF net after costs, so I was happy with that.
>where on the other hand if
> you're a low risk taker then 1-2 IP's would be enough.
hah!! Back to the 'buying IPs is risky' mindet...so while you're in that mindset, sure, 1 is less risky than 500....
But I believe the opposite!!!
500 is less risky than 1!
It's spread!
>Sure if you leveraged
> your money at the time then you would have made a killing but if the market
> took a dip... well you know how the story would end.
'if, if, if'....
I already told you that buying for a cashflow return at 23.4 percent was more than enough for me.
If the market had gone down 20 percent (unheard of in that price-range) remember I'd added value by renovating. let's say the price went down 20 percent, then the purchaser would have been buying a tenanted property with ;nothing to do' on a 29.9 percent yield. Would you have bought that?
Sure!
have you ever SEEN such a deal for sale? No?
well exactly, it would have been snapped up.
Anyway, even if the market went DOWN 20 percent and I had to sell, provided I had held the property for a year, I would have still made a profit of $900.
> Personally my risk levels are in the middle. For me it means getting our IP
> debt to a level where we can borrow upto 80%, and use the equity to invest
> further. For us 80% is the level where we feel comfortable at.
Now, I agree, 80 percent LVR is a nice comfy not too on the edge place to be, that banks like, too.
Now is 100 percent LVR more or less risky? LESS!!!
How risky is 50 percent LVR? NOT VERY!!
See how I could have easily bought double and STILL been extremely low risk.
Lenders (ah hindsight is a beautiful thing) would have lent me 70 percent of the purchase price in that area, and cross collateralised two properties together probably.
I said:
> let's say you had 100k and you use it as 20k deposits on 5 properties. (20k is
> a high deposit, you may only need 10k, but 20 percent is considered very
> 'safe' as a rule of thumb.
You said:
> This would depend if you could convince your lender if you could service a
> $400K loan
> (or $450K for 10% deposits). You may believe it is possible
hang on, have you ever taken a 23.9 percent cashflow yielding property to a lender to see what they reckon?
have you????
No????
Ever even HEARD of a 23.9 percent yielding property fully renovated and nothing to do?
No?
OK, I am not talking about the average 100k 7.5 percent yielding property, although I was using the figure of 100 because I knew people could relate to it, and it's easy to show calculations.
> and
> have $$$ galore in equity but if your figures don't match up to their criteria
> then this strategy won't work.
My figures more than matched up, believe me.
> MM out of curiousity what's a millionaire in your book??
Um, a person worth a million bucks or more.... is this a trick question?Comment
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"as I have reached my magic figure of income producing assets I'm going to work to pay off the debt rather than buying more assets. "
so be it
"This is all about risk management."
No, it's about your perception of the risk, and your COMFORT zone.
"If I'm leveraged up to 80% from now until eternity I will be uncomfortable with the level of risk."
I rest my case.
But you are missing one vital part of the equation which is TIME passing, i.e. the 'eternity' you mentioned.
Look, most 'parents' in NZ that own their own house, pay it off 'for eternity', then retire on a pension, and breathe a sigh of relief that that don't have any more 'risk'. (And don't invest in property apart from their own home.) That is what the AVERAGE person is COMFORTABLE doing, and so be it.
"If I pay off the debt I generate a good income with very little risk. "
OK, let's say you bought in...Tokoroa, right now, for say a ten percent return. Decent middle class home and street. Let's say 70k rented 140 per week.
It rents along, and the years go by, and suddenly it's ten years time, and properties are now worth 180k, and they rent for 400 p.w.
So you are busy busy busy paying off your 70k debt because you are consumed with uncomfortable debt fear, but you miss...the fact that your LVR is now only...less than 40 percent, without you having paid off a cent (if you had started to.)
Your cashflow has doubled..... and nearly tripled....
What else could you have done with the money you saved 'paying off the loan' (at anything faster than 30 years, or better still, interest only) -
and why, what are you still scared of with that much extra CF and equity?
>All I want is to live a comfortable life doing what I love.
roger that... do you want to do it faster, or slower?
Drive is a funny thing, you either have it or you don't. People who have drive to everything with drive, and people who don't have it do nothing with drive.
>Other people are driven to constantly build wealth until the day they die.
What are you suggesting is a superior alternative?
Build wealth, then stop? And let inflation eat it up?
Build wealth, then un-build it? or spend it? so when you die you've used it all up? Build wealth, then....
I don't get what is wrong with drive (for anything) or building wealth. God knows, only 5 percent of the population retire independently wealthy, and there need to be more, to put less tax stress on the nation, surely and let the government have more to spend on good stuff...
I am not saying that I may not get to the point where I don't spend any more on 'myself'. i.e lifestyle. But why would I stop creating wealth if I knew how to do it?
why wouldn't I use it to help others? it's not just 'my own desire for comfort, luxury and doodads' that I am talking about.....Comment
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Gheez Mini - you''ve given me a job to reply to all that!
Maybe it will, maybe it won't. You're happy to take the risk that it will. I'm not.OK, let's say you bought in...Tokoroa, right now, for say a ten percent return. Decent middle class home and street. Let's say 70k rented 140 per week.
It rents along, and the years go by, and suddenly it's ten years time, and properties are now worth 180k, and they rent for 400 p.w.
So you are busy busy busy paying off your 70k debt because you are consumed with uncomfortable debt fear, but you miss...the fact that your LVR is now only...less than 40 percent, without you having paid off a cent (if you had started to.)
Your cashflow has doubled..... and nearly tripled....
What else could you have done with the money you saved 'paying off the loan' (at anything faster than 30 years, or better still, interest only) -
and why, what are you still scared of with that much extra CF and equity?
Actually I'm not that far off it now. When that horrible catch phrase "financial freedom" is used, most people dream about all their income coming from passive sources so they don't have to work. I'm going to be working for a fair while yet because I can find work that gives me satisfaction and fulfilment. Why on earth would I want to give that up? I don't need to take the fast lane to wealth because I'm so close to it now (and most people would be amazed at how low the monetory figure as part of my wealth is).>All I want is to live a comfortable life doing what I love.
roger that... do you want to do it faster, or slower?
I was re-reading Graeme Fowler's book last night and saw his goal to have a net worth of $20 million. He obviously has his reasons and drivers for that. I have different goals.
Some people have it, some people don't. Some people use it in different ways other then just making money. Welcome to planet earth. We're all different.Drive is a funny thing, you either have it or you don't. People who have drive to everything with drive, and people who don't have it do nothing with drive.
I know when enough money is enough for me. I'm not interested in being a large American corporate machine that spends it's whole life chasing bigger profits.>Other people are driven to constantly build wealth until the day they die.
What are you suggesting is a superior alternative?
Build wealth, then stop? And let inflation eat it up?
Build wealth, then un-build it? or spend it? so when you die you've used it all up? Build wealth, then....
Ahhh, now that's a great point. My wife and I were discussing the other day how great it would be to use our skills and build the next JR MacKenzie trust or the like. Nice idea - we're going to look at that once we have achieved goal #1.I am not saying that I may not get to the point where I don't spend any more on 'myself'. i.e lifestyle. But why would I stop creating wealth if I knew how to do it?
why wouldn't I use it to help others? it's not just 'my own desire for comfort, luxury and doodads' that I am talking about.....
GerrardComment
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I think the original question was :
Is anyone going to answer the question
there are any like-minded folk out there who are interested in teaming up and pooling funds to avoid debt?Comment
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Hi,
Like I said in another post MM you do make me chuckle.
MM it is obvious you are very thorough and have great success. I take my hat off to people who 'walk the walk'.and still, (i rest my case!-) many people thought I was taking a big risk. Those people didn't KNOW what I knew, what I had found out, how to do the calculations I'd done. And if I explained, they were still not convinced.
I presume a registered valuer was used after the renovations, to confirm an increase in value.If the market had gone down 20 percent (unheard of in that price-range) remember I'd added value by renovating.
Yeshave you ever SEEN such a deal for sale?
What is the significance of holding a property for year? Is this a financial startegy or a magic period of time I should know about?Anyway, even if the market went DOWN 20 percent and I had to sell, provided I had held the property for a year, I would have still made a profit of $900.
Yes and it took awhile for us to educate themhang on, have you ever taken a 23.9 percent cashflow yielding property to a lender to see what they reckon?
Yes.Ever even HEARD of a 23.9 percent yielding property fully renovated and nothing to do?
No I realise it would be a waste of time on youUm, a person worth a million bucks or more.... is this a trick question?
I've just read "The Millionaire Next Door" and wanted to compare how they define a 'millionaire' to how other people define millionaires. I have friends who earn 7 figure salaries and they don't consider themselves millionaires.
I'm with Gerrard where I know the figure that we need to live on, and enjoy life when we retire. I plan to have the odd investment to keep the mind ticking over and of course some extra pocket money. And yes TIME is a vital factor. Some people want to reach their financial goals as quick as possible. I actually love my job so chucking it all in so I can leverage my time to increase my net worth as quick as possible doesn't interest me.Other people are driven to constantly build wealth until the day they die.
What are you suggesting is a superior alternative?Build wealth, then stop? And let inflation eat it up?
WadaComment
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I think we all have a good drive here, we just have different goals for which we use that drive to achieve.
Personally I'm on my first IP, and my goal is to obtain financial freedom as soon as I can. I suppose this is fairly consistent with the objective of most of you guys. The PURPOSE of that freedom is probably what is really being discussed here.
For ME the purpose is to be able to do whatever I like when I get up in the morning. I might then spend the day on some hobbies I have, or I might spend it researching for good property deals for my personal enjoyment, or I might do a bit of freelance work if I feel like it, or I might hang out at the beach - but the whole point for me is to obtain the freedom to choose anytime. The goal for me is not to reach a 'magic' $XX million or to continue building wealth forever just because I can.
I immigrated to NZ a little more than a year ago from Europe, and I came here to enjoy the relaxed lifestyle. I have far too many friends back there who dont realise how they constantly stress themselves to the limit, how they are literally slaves of a 9-5 job forever, how they volunteer to work overtime (!!!) because the whole lifestyle and society expects it - its actually prestigious to work overtime there...!! SCARY! And then some day they will retire with - nothing.
I get a satisfaction from knowing how I managed to 'escape', to do the right things at the right time, just by considering things a little more carefully. And as MM and others pointed out, FEAR is the biggest hurdle to overcome. In every aspect of life, wheather it comes to emigration, investment or just changing your way of life a little. Most people never even step back and take a critical look at their lives. And so they don't get anywhere. They never reach their real goals.
We only live once and I believe we should prioritise and spend our time on what we REALLY like. And as I mentioned, that may be investment, hobbies, friends and family or whatever - we are all different in this forum, except for one thing: We have identified our goals and are actively pursuing them every day
High resolution Fractal Art on quality canvas: www.FractalArt.co.nzComment
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Hi Rolf, nice to hear from a 'first IPer', with total respect to your personal observation and efforts, Id like to interject with some points others may consider.
I agree to the extent that the goals are only different by the 'time' and 'level' of financial freedom one wants to have.I think we all have a good drive here, we just have different goals for which we use that drive to achieve.
The start of this post was in relation to the level of debt and YES that is directly related to the freedom you are able to have.Personally I'm on my first IP, and my goal is to obtain financial freedom as soon as I can. I suppose this is fairly consistent with the objective of most of you guys. The PURPOSE of that freedom is probably what is really being discussed here.
I call this 'success', when you reach this freedom you have personally succeeded.For ME the purpose is to be able to do whatever I like when I get up in the morning. I might then spend the day on some hobbies I have, or I might spend it researching for good property deals for my personal enjoyment, or I might do a bit of freelance work if I feel like it, or I might hang out at the beach - but the whole point for me is to obtain the freedom to choose anytime.
Since this is personal, ok, however - You will never succeed unless you quantify you goal. How much will you need to be a 'success' taking into account the above definition? Whatever that is to you it can be translated into a mathemematical representation of when you will succeed.The goal for me is not to reach a 'magic' $XX million or to continue building wealth forever just because I can.
Welcome to NZ. Yes No FEAR must be part of the motto.I immigrated to NZ a little more than a year ago from Europe, and I came here to enjoy the relaxed lifestyle. I have far too many friends back there who dont realise how they constantly stress themselves to the limit, how they are literally slaves of a 9-5 job forever, how they volunteer to work overtime (!!!) because the whole lifestyle and society expects it - its actually prestigious to work overtime there...!! SCARY! And then some day they will retire with - nothing.
I get a satisfaction from knowing how I managed to 'escape', to do the right things at the right time, just by considering things a little more carefully. And as MM and others pointed out, FEAR is the biggest hurdle to overcome. In every aspect of life, wheather it comes to emigration, investment or just changing your way of life a little. Most people never even step back and take a critical look at their lives. And so they don't get anywhere. They never reach their real goals.
Yes to all you say, identify, quantify, achieve, succeed.We only live once and I believe we should prioritise and spend our time on what we REALLY like. And as I mentioned, that may be investment, hobbies, friends and family or whatever - we are all different in this forum, except for one thing: We have identified our goals and are actively pursuing them every day
The only difference between our goals is the time it takes to achieve our success, and remember when you achieve the quantifiable goal, if you are happy with your success, great, otherwise XX marks the next goal.
Rolf, this is a general self actualizing post if it helps to strike any positive chord in the reader we have done a mighty deed. In all other cases thank you for reading, any comments appreciated.Comment
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Hello lovely people,
just replying to some lines at random,
> Maybe it will, maybe it won't. You're happy to take the risk that it will. I'm
> not.
The risk that a property won't double in ten years?
I don't think that's a risk, even in Tokoroa!
>
> What is the significance of holding a property for year? Is this a financial
> startegy or a magic period of time I should know about?
It was the time frame that mitigated the risk of (worst case) the property going down in capital value by 20 percent combined with me having to sell at that price. If that happened and I had held for a year I would have still been quids up.
>
> I have friends who earn 7 figure salaries and they don't consider themselves
> millionaires.
I guess no matter how much you 'earn' from your job, if you spend it all and more on the Amex, then you're broke, if you ever lose that job.
>Quote:
>Ever even HEARD of a 23.9 percent yielding property fully renovated and nothing >to do?
>Yes.
Well, if you ever see such a deal, and you don't want it for yourself, I'll PAY you $1000 bucks to sign them up in my name (payment once vendor has countersigned) Provided it's in a town with a rental manager (i.e. not Murapara, Mangakino, etc) who will agree to manage it and provide a written rental assessment. If you see one of those...let's make contact, and I'll give you the clauses etc. and fax number for me to sign the offer.Comment
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Ok, one more bite from me
The fact the property will/wont go up in value is kind of irrelevant to me. I'm after an income stream, not just assets worth X. So what I'm really interested in is the rent going up / and or debt going down. That's where my income will come from.> Maybe it will, maybe it won't. You're happy to take the risk that it will. I'm
> not.
The risk that a property won't double in ten years?
I don't think that's a risk, even in Tokoroa!
GerrardComment
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