Tuesday, 26 February 2008

7 Steps to Becoming a Property Millionaire, Prt 6 (Buy More Properties)

Step 7: Buy More Properties

Our property is now valued at $330K (10% increase); we have outlaid only $19.5K and are raring to go for the next one. It is 12 months since we started and we have been saving money since we began a year ago. All depending on our savings and availability of cash from other areas, such as equity in our own home we can now do the same again.

If we can't come up with any more cash just now, we just have to wait until our investment grows enough to access some of the equity. Assuming the average 10% growth rate again, the property will be worth $399K two years after we settled on it ($330 x 1.10 x 1.10 = $399K) . We can then refinance and use this equity as deposits.

Our equity in the property is $399K less $297K (loan) = $102K equity. This has taken 3 years so far, but not bad considering we didn't have to work for it.

We now buy 2 more investments off the plan with deposit bonds, for settlement in 18 months. We choose Victoria as the cash outlay will be less. The valuation and purchase price of each property we will say is $350K. We need to come up with cash for two deposit bonds, approximately $7K, other costs and stamp duty approx $5K, so total outlay of $12K for the two properties. Another phone call to our friend the mortgage broker, and we borrow this from the equity in the first property. The repayment increase a little, but we are now controlling another $700K of property.

So now we control $399K + $350K + 350K = $1,099K of appreciating assets. We have a loan on the first property of $297 + $12K = $309K.

Yes within 3 years from starting, we control over 1 million dollars of investment property, an asset that is going to increase in value on average 10% per annum, which is $100K growth.

Eighteen months later our 2 properties are built and we need to settle. The combined value of our properties is now $1,099K + 18 months growth at 10% p.a. = $1,270K.

We can borrow 80% = $1,016K less existing loan $309K = $707K. This is enough to settle as the amount required is $700K.

It is now 4.5 years since we started, we control property valued at $1,270K with equity of $261K (and a loan of $1,009K).

[ In Part 1: Why Choose Property As A Vehicle For Getting Rich? ]
[ In Part 2: The Plan, The Concept and Understanding the Property Cycle ]
[ In Part 3: Get A Deposit, Find A Great Deal ]
[ In Part 4: Buy Off-The-Plan Property, Start up Money Using Leverage and Deposit Bonds ]
[ In Part 5: Settlment, Renting Out The Property ]
[ In Part 6: Buy More Properties ]
[ In Part 7: The Power of Compounding, Summary ]

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