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**fudosan** · 12-09-2005, 08:38 AM

Hi Karter,

Your biggest advantage over a lot of people including me is -- your age. With the will to succeed and followed by subsequent action, you'll be doing very well soon.

Someone once posted on this forum about luck

"I get great property deals because I expect to find them. So I get lucky on a regular basis. Less experienced investors don't expect to find great deals and so settle for less, consequently they are not out looking for the better deals that 'ordinary luck' will provide from time to time. "

**JohnL** · 12-09-2005, 12:58 PM

There have been other threads covering some of your questions. One thing to consider is that you are actually borrowing 100% by using equity in your father's house. You are also tied to using the same lender as the one holding the security over that house.

One good idea is for your father to put a revolving credit on his house and then lend you the deposit money (payments of which you factor into your cash flow calculations). Lower risk for your father and it means you can use multiple lenders as your portfolio grows.

If he is not able to do this and you have to be involved for servicability reasons, you can still ensure that the lender who has security on your fathers house is not involved in any other IP.

John

**seanw** · 12-09-2005, 04:36 PM

Hi Karter,

What are your impressions of the Richmastery 3 day Property Academy?
I am in a similar position to you. 21 years old, almost completed degree. I have a fairly hefty student loan though but no other consumer debt.

I am considering the October event.

Regards,
Sean

**FreezingandHot** · 12-09-2005, 05:05 PM

"One good idea is for your father to put a revolving credit on his house and then lend you the deposit money (payments of which you factor into your cash flow calculations). Lower risk for your father and it means you can use multiple lenders as your portfolio grows".

I am doing a similar structure by pulling equity from a partner, can I also ask the partner to use a revolving credit facility.

FH.

**NZGEMS** · 12-09-2005, 09:58 PM

Hi Karter,
Johns idea of a revolving credit is probably best, if you want to build up a good portfolio you are best to look for properties which pay their way with 100% borrowing. and buy as many as you can, i would do interest only loans first till you have the number you want, but if you are on a 6 figure income you should be in a position to pay some off with that or use some for deposits if you do have some deposit money it is easier to find properties that pay their way, and once you get to the number you set your goal of you could start paying down then.

I used to have a goal to have 10 properties by the time i was retiring age, then if i didnt have them all paid down, which i had hoped to i would sell one or two to pay them off, of course that went out the window long ago for me but there is nothing wrong with that sort of goal, if you are living at home which i guess you are stay there unless you really cant stand it any more, and for me i certainly would buy my own home rather than rent, but that also depends what you can rent for, you dont need a flash home to start with, many in my opinion make this mistake.

Live within your means until you can afford to splash out a bit, that is not to say you shouldnt allow yourself some small rewards along the way it helps keep the focus sometimes.

best of luck.
Robyn

CJ · 12-09-2005, 10:51 PM

Originally posted by fudosan

Hi Karter,

Your biggest advantage over a lot of people including me is -- your age.

Dont forget the near 6 figure salary!

YOu have got the foundations of a strategy but you need to refine it a bit more.

You should also do a personal budget so see how much free cash you have personally. High paying jobs also come with a high costing lifestyle so figure out that one first and keep an eye on expenditure. that new BMW/Audi/any car will look nice but it will also take up a whole years dispoalable income (I am not saying dont buy a car, just make sure you make an informed decision).

You appear to be a conservative investor but dont be to conservative. Being on P&I may be a good idea (I like it) but that doesn't mean you cant buying more houses until the first is paid off. Just keep looking at the numbers - keep your DSR etc in good order and the banks will stay happy.

Keep to the positive cashflow properties (39% tax rate will help). You can increase depsoit to make positive cashflow (this kind of defeats teh purpose) but could be a good idea if you expect to get good capital gains or if you get a property with a big section you can build on.

YOu should have learnt lots of tricks at the Rm Academy so decide on the ones you like/feel comfortable with and start putting them into action.

**Karter** · 13-09-2005, 11:11 AM

Thanks everyone for your replies.

it is great to get different peoples opinions and your advice is invaluable

the revolving credit is definately something i will look into and hadn't even considered, thanks JohnL

will also think about using interest only if (sorry when!!) i get properties that pay their way with 100% borrowing. Cheers Robin.

CJ- haven't actually written out a budget yet so is something i will get onto. Don't plan to buy the Ferrari for a few years yet but thanks for the tip. Also, how will the 39% tax rate help with getting positive cashflow properties? Sorry, may be looking straight past the answer!

Thanks again for your help guys any more comments would be much appreciated

P.S:seanw i will PM you with my thoughts on the academy!

**SEIBU** · 13-09-2005, 12:27 PM

Also, how will the 39% tax rate help with getting positive cashflow properties?

Sorry CJ for jumping in and answering first:

For example, if you use a LAQC structure. Let's say after depreciation and expenses, your losses are $10,000. You claim thoses losses against your taxable income (e.g if your taxable income is $99,000 it effectively becomes $89,000).

Being in the 39c tax bracket, the actual return from that $10,000 loss is $3,900.
For someone in the 19.5c tax bracket, the actual return is $1,950.

Hope that helps, and good luck with the investing.

**Karter** · 15-09-2005, 09:11 PM

Hey seibu,

does that only work if you're making a loss: ie negatively geared, or is it different with pre and after tax income?

If you have positive cashflow property wouldn't your rental income be taxed at the your marginal rate?

Also, with 100% borrowing does that mean buying below valuation then valuing up to get your deposit out?

Any help on this would be apprecited- am starting to confuse myself.

Cheers
Karter

CJ · 16-09-2005, 01:44 AM

Karter,

You are correct re being taxed at your marginal tax rate. The term "positive cashflow" is normally use after tax so if you have a large depreciation figure which is not cash, you may get a tax refund even if you your cash rent exceeds your cash expenses. Just remember that cashflow and taxable income are different. Eg:

Rent $10,000
Exp ($ 8,000)
pre tax cashflow $2,000

non cash exp (depn) ($3,000)

Taxable income ($1,000)

Tax refund $390

CF after tax $2,390

100% borrowing can be done a number of ways, one of which you mention. The another option is to use security in another asset (ie debt free personal home) so that the banks lend you 100%. Or sometimes 2 teir lender will lend you more but at an increased cost.

**JohnL** · 16-09-2005, 04:01 PM

I tend to think of positive cash flow being positive before depreciation is claimed. At the end of the day, if you sell the house at some stage, the depreciation is clawed back so its only really an interest free loan from the government ( you can do things with the chattels to help reduce the clawback).

Its great to buy so well that after you have refinanced, you have no money left in the property. Makes your deposit money (or your fathers house equity) go on forever. Your portfolio size is then only constrained by your ability to service the debt. This is where buying strongly positively cash flowing properties comes in.

John

**duwi** · 16-09-2005, 04:47 PM

If I use someone else equity (eg my brother's house), does it mean:

- I have to borrow from the same bank as my brothers bank?
- My brother & I have to be the owner of the new property?
- Bank will check my brother's income & expenses again for the new loan?

Can someone please tell me how I can use someone assest to borrow $ ?

Thanks

**fudosan** · 16-09-2005, 06:27 PM

1. Your brother can take his house to any bank of his choice to get a loan.
2. He then gives you the money.
3. You use the money to pay for 20% of the property you want to buy and use this property to obtain 80% of the purchase price as a loan from any bank of your choice.

**tinbum** · 18-09-2005, 11:12 AM

Hi Karter,

My recommendation to you is to treat your investing like a business. Build a team around you of professionals who will help you achieve your goals. The team should include; a solicitor, accountant, a structures expert, a mortgage broker, a valuer, real estate agents and most importantly a mentor. Then create a business plan.
Orion had a post recently that struck a cord with me

imagine you as an individual are a company. What would you do differently if you had your accountant, your lawyer, your network advisors, your shareholders all watching what you do each day. Would they be impressed, or would they fire you as the chief CEO? Live and act as if you were in charge of your own large company with all these people watching what you do and the financial decisions you make.

Build your team, find a mentor who has done what you want to do. Then take MASSIVE ACTION.

Knowledge without action is wasted.

Best regards for your investing.

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