ByJohnSageMelbourne
Thinkaboutconstructingastrongcollectionofhighdevelopmentresidentialorcommercialpropertiesandloweringyourloan-to-valueratios(LVA).Here‘showitworks:
MichaelYardneyfrompropertyupdate.com.audescribesthatwhatmattersisthevalueofyourassetbase,whichmightbealittlenumberofwell-selectedhomes.Evenifsomebodyhasaagreatdealofresidentialorcommercialpropertiesdoesnotimplythatthey‘recarryingoutwellforthefinancier!
InMichael‘sexample,theinvestorhasactuallyaccumulated$5millionofwell-locatedhomesover10or15years,plustheyowntheirownhome.Ifyouhadacommon80%Loan-to-ValueRatio,youwouldbenegativelygeared.
Ifyouhadnofinancialobligationagainstyourpropertyportfolioandhadpositivecashcirculation,youwouldprovideupthebenefitsoftakeadvantageof.Ifyouhada50%LVR,yourpropertyportfoliowouldbeself-funding,andwhileyoumaygetsomemoneycirculation,itwouldnotsufficetoliveon.
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Whiletheideaofa$5millionpropertyportfoliowithoutfinancialobligationsoundsgood,it‘sbetterandmoresensibletobuildupa$5millionportfoliowith$2.5millionofdebt.Itwouldpermityoutogotoyourbankandsecureanextra$100,000loan,asyoumightshowyouhaveaself-fundingportfoliothatisn’treliantonyourincomeandhassomecashleftoverforserviceability.Inthisway,you‘regraduallyincreasingyourLVR.
Afterpayinginterest,you‘reentrustedaround$93,000peryeartoliveoff,andthat‘smoneyyoudon’tpaytaxonasit‘snotearnings.Nowthatpictureofastunningretirementisenteringfocus.
Conclusion
Onelastthingtostateistobepatientandwaitfortherightproperty.Donotgetimpatientandendupbeingburdenedwithanunprofitableproperty!
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