Oh wow, the answer to this one is the same as the answer to, “How long is a piece of string?”
And you get as many answers as people you ask.
I have friends that have done very well on stocks, & options in particular – means they can speculate on the market going up or down.
On the other hand, I embarked on a 10-year property purchasing program about 10 years ago & I now have total value of about $3M & total debt of about $2.5M. Now here’s the kicker: Over the next 10 years, that total will double, just as it did while I was building it, while the total debt remains the same. So my $3M will become $6M.
Which means that at some point in the next 10 years, I can afford to borrow against the equity, let’s say $100k a year. So, in broad terms, my value increases to $6M (as above) & my debt increases to $3.5M. Am I still ahead? Yep! Does my lender love me? Yep, well as much as they can, anyway. Does my finance broker love me? Oh, yeah!
The only other criterion I need to satisfy is “capacity to repay” i.e. my ability to meet the repayments. This is covered by rising rental income over time. So at some point in that next 10-year cycle, I retire on $100k a year income, tax free.
I’d go even less, for the same reasons. Most of the agents I have dealt with never mention investing, because they are so caught up with selling me the property, although some of them are starting to realise that investors are becoming a much larger proportion of the potential buyers.
OK, not necessarily talking about getting them some cash out of the deal, more like keeping the roof over their heads at a price they can afford. I guess my line of question has to do with how much of a bargain you are getting, how much it will appreciate over time (combined with how much you will need to sink into it to have it appreciate faster), versus how much rental income the tenant can afford to pay & how long they can handle occasional rent increases. Of course, the answers to these would require some reasonably complex arithmetic, but the question is more of an ethical one: Is it do-able?
So is it possible to provide a win for everyone, by buying the place & renting it back to the former owner?
You get a property at a discount price, providing you with equity & hopefully long term growth. You charge them market rent, which is generally quite a bit less than the total cost of ownership. Do you guys get tax breaks on the ongoing costs & interest payments, like we do? And the family gets to stay in “their” home & maintain some dignity.
Thanks, Ryan. I’ve been at it for nearly 10 years & by the end of next year, I’ll have a total value of about $3M & debts of around $2.5M. After that, the value grows exponentially & the debt growth is either static or linear (static if I leave it alone, linear when we start borrowing against the equity & retire).
Not sure if I’m in the right place here, because I don’t flip. I buy to hold, good quality with good capital growth. And I’m doing OK too, with 6 rentals & finally actually living in one, plus 2 more on long term settlement.
10 posts found
AussieRodney writes, Aug 17, 2008: (10 posts)
(Topic: Other Stuff! / Real estate word association game)
Oops, dream (now).
AussieRodney writes, Aug 17, 2008: (10 posts)
(Topic: Other Stuff! / Real estate word association game)
Key
AussieRodney writes, Aug 17, 2008: (10 posts)
(Topic: Other Stuff! / Real estate word association game)
Dream
AussieRodney writes, Jul 26, 2008: (10 posts)
(Topic: Financing, Law and Taxes / Invest in Real Estate or Stocks???)
Oh wow, the answer to this one is the same as the answer to, “How long is a piece of string?”
And you get as many answers as people you ask.
I have friends that have done very well on stocks, & options in particular – means they can speculate on the market going up or down.
On the other hand, I embarked on a 10-year property purchasing program about 10 years ago & I now have total value of about $3M & total debt of about $2.5M. Now here’s the kicker: Over the next 10 years, that total will double, just as it did while I was building it, while the total debt remains the same. So my $3M will become $6M.
Which means that at some point in the next 10 years, I can afford to borrow against the equity, let’s say $100k a year. So, in broad terms, my value increases to $6M (as above) & my debt increases to $3.5M. Am I still ahead? Yep! Does my lender love me? Yep, well as much as they can, anyway. Does my finance broker love me? Oh, yeah!
The only other criterion I need to satisfy is “capacity to repay” i.e. my ability to meet the repayments. This is covered by rising rental income over time. So at some point in that next 10-year cycle, I retire on $100k a year income, tax free.
So that’s one answer to your question.
AussieRodney writes, May 23, 2008: (10 posts)
(Topic: Other Stuff! / The best real estate guru?)
Really, the obvious answer to this question is: “Me, of course!” (just kidding)
Feel free to look at aussierodney.com for my perspective.
AussieRodney writes, Apr 23, 2008: (10 posts)
(Topic: Selling Talk / What Percentage of Agents are Investors?)
I’d go even less, for the same reasons. Most of the agents I have dealt with never mention investing, because they are so caught up with selling me the property, although some of them are starting to realise that investors are becoming a much larger proportion of the potential buyers.
AussieRodney writes, Apr 23, 2008: (10 posts)
(Topic: Foreclosures and Pre-Foreclosures / Is a Foreclosure Home For-You?)
OK, not necessarily talking about getting them some cash out of the deal, more like keeping the roof over their heads at a price they can afford. I guess my line of question has to do with how much of a bargain you are getting, how much it will appreciate over time (combined with how much you will need to sink into it to have it appreciate faster), versus how much rental income the tenant can afford to pay & how long they can handle occasional rent increases. Of course, the answers to these would require some reasonably complex arithmetic, but the question is more of an ethical one: Is it do-able?
AussieRodney writes, Mar 27, 2008: (10 posts)
(Topic: Foreclosures and Pre-Foreclosures / Is a Foreclosure Home For-You?)
So is it possible to provide a win for everyone, by buying the place & renting it back to the former owner?
You get a property at a discount price, providing you with equity & hopefully long term growth. You charge them market rent, which is generally quite a bit less than the total cost of ownership. Do you guys get tax breaks on the ongoing costs & interest payments, like we do? And the family gets to stay in “their” home & maintain some dignity.
Or have I over-simplified the issue?
AussieRodney writes, Mar 26, 2008: (10 posts)
(Topic: Introductions & General Chat / G'day from Australia.)
Thanks, Ryan. I’ve been at it for nearly 10 years & by the end of next year, I’ll have a total value of about $3M & debts of around $2.5M. After that, the value grows exponentially & the debt growth is either static or linear (static if I leave it alone, linear when we start borrowing against the equity & retire).
AussieRodney writes, Mar 26, 2008: (10 posts)
(Topic: Introductions & General Chat / G'day from Australia.)
Not sure if I’m in the right place here, because I don’t flip. I buy to hold, good quality with good capital growth. And I’m doing OK too, with 6 rentals & finally actually living in one, plus 2 more on long term settlement.
More at http://blog.fiddaman.info/ & http://aussierodney.com/
Regards, Rodney.