More than a few IPs?

[mandimoo]

Hi there,

Im just wondering, people with more than say 2-3 investment properties, how do you handle the multiple rates bills every year?
I have been reading magazines and they have people buying like 4 properties a year and if they are positively geared it is only slightly, so I know they arent saving up rent for these costs. We have 3 properties at this point one we live in and the other two are a bit in the negative, we only purchased the two IPs within the past 14 months. When we get our 3 lots of water and council rates.... well it's a lot of money! We overpay our mortgage and can redraw from it at any time to pay bills but if we had 10 properties we would be stuffed. I am wondering how people manage so many.

Amanda

 

[skater]

All part of the due diligence you do at the start.

 

[HotRod]

Budget for them.

Also, pay them in installments to smooth the cashflow.

Kind of the reason why PGing property works better with multiple properties. After a certain number of properties, NGing requires you to do without.

 

[Peter_Tersteeg]

The truth is that there is a very fine line for cashflow positive, neutral and negative. It's highly dependant on interest rates, holding costs, mainentance and tax deductions.

I suspect most people who think they're about neutral are probably actually negative to varying degrees when all the costs are taken into account. Many people who are happily cashflow positive right now, will find themselves in a cashflow negative situation if rates return to the longer term average of around 7%.

Also keep in mind that most banks have very different criteria to most investors as to what improves your affordability. Many investors would argue that a rental return of around 8-9% is cashflow positive and I'd probably agree with them. For the next IP purchase to increase your purchasing power as far as the bank is concerned, you actually need a rental return of around 12%.

I'd suggest that whilst it's great to aim for cashflow positive properties, you should still be buying for growth potential in the long run. You won't go broke buying a property returning $100 per month cashflow, but if that's all it ever does, you'll need to own a lot of them to replace your regular income.

 

[brisbane 04]

Hi,
We pay in installments and have our rent go into one account where mortgages and other property related expenses come out of.

 

[beachgurl]

We have the notices sent to our PMs and they pay them with our rates monies. Cos we don't see them it's no big deal having to pay 10 at once. If cash flow is so tight you can't afford to do this then maybe the decision is already made about whether you buy any more properties.
Alternatively get your accountant to work out the deductions so u pay less tax per week and therefore have additional funds to pay the rates/water.

 

[travelbug]

Yes it can be a killer. ALL my rates are due next week. Plus some strata. As Skater said it's dd. Make sdure you knoe ALL the costs before you buy so you can make an informed decision about the purchase.

I too have an account that rents go into, interest comes out of and I pay bills from that account also. I used to top it up every couple of months but now I don't need to.

If you are getting the agents to pay it make sure you are aware that less money will be paid into your account that month so make sure there is sufficient funds to cover the interest.

I don't pay the whole year. Just 1/4ly. THAT would kill me.

 

[DaveM]

As PT says, cashflow positive should be net costs not just rent vs mortgage. ie after everything which includes PM fees, mortgage, rates, strata if applicable, insurances, R&M etc etc.

 

[jingo]

Hi there,

Im just wondering, people with more than say 2-3 investment properties, how do you handle the multiple rates bills every year?
Amanda

Hi Amanda,

As others have outlined, its also water, body corporate fees, insurance and land tax (well in our case anyway). Take into account the agent's management fees and repairs. So all up, it can be costly.

If you have equity in your properties you can set up a line of credit and pre-pay your costs annually, then when you get your tax return, pay down your line of credit. This is the strategy I use. I'd rather pay everything all at once as when you have multiple IP's it's actually time consuming paying all the bills each quarter. I don't trust pm's to handle all of the outgoings for me, so I do it myself.

PB is right - a lot of people underestimate these costs when buying resi IP's and calculate they are neutrally geared when rent covers interest payments which is very wrong. I've even seen investment presenters gloss over the outgoings and just focus on interest costs.

All the more reason to invest in other asset classes after you have accumulated a few resi ip's.

Regards Jason.

 

[redwing]

Hi there,

Im just wondering, people with more than say 2-3 investment properties, how do you handle the multiple rates bills every year?
I have been reading magazines and they have people buying like 4 properties a year and if they are positively geared it is only slightly, so I know they arent saving up rent for these costs. We have 3 properties at this point one we live in and the other two are a bit in the negative, we only purchased the two IPs within the past 14 months. When we get our 3 lots of water and council rates.... well it's a lot of money! We overpay our mortgage and can redraw from it at any time to pay bills but if we had 10 properties we would be stuffed. I am wondering how people manage so many.

Amanda

AUGUST is a fun time with rate payments, we've yet to win one of those rate paying competitions though

 

[skater]

I too have an account that rents go into, interest comes out of and I pay bills from that account also.

Yes, I have a dedicated account that all the rents go into & all the expenses come out of. To be honest, I don't even notice the bills. Most are paid by the PM & the residual rent gets paid to me. Some months I get paid less than others, but it all rounds out in the end.

If you are living hand to mouth, and a couple of rates payments is causing you grief, then you really can't afford to be buying IP's. That, or you need to budget a lot harder.

 

[Trogdor]

I wouldn't bother with more than a couple.

Seriously, why would you do it to yourself.

Go commercial property and / or shares.

I don't even know when my rates, water, body corp, etc.. get paid for my CIPs - the tenant (via the managing agent does it all).

All I see is some land tax for them - but I believe if you have bigger and badder CIPs than mine you can even pass that on also. One day.

 

[Dazz]

All I see is some land tax for them - but I believe if you have bigger and badder CIPs than mine you can even pass that on also. One day.

We roll all of the expenses {CR / WR / Ins / LT / Maint} plus GST on the lot into one big bundle, then divide by 12.

That's the figure you charge the Tenant every month on top of the rent + GST.

Start in January, and you have all of the Tenant's money in your bank account ready to go, so come August time, there is sufficient funds there to pay for them as they roll through. Land Tax comes very late in the year, 'bout now actually.

That way, you actually make a bit of interest on the money they give you to pay your bills, and you come out a little bit in front.

Has worked OK for us, and doesn't inhibit your growth in acquiring more property.

 

[kathryn d]

I figure out the cost per year and pay the average each month, plus a little bit more to offset any increases.

 

[matto_]

Also ITWV - so you get your tax back each pay period - helps us smooth out the cashflow bumps.

But as others have pointed out - expenses being paid out by PM, along with coming out of one account.

 

[Deltaberry]

Different class of assets entail different risks.

The biggest risk with the type of CIPs we invest in is non-payment, tenants struggling with their business, market reviews etc. All very well for CIP agents to say this property returns 9%, but does the tenant actually pay? Can they afford to? That's what a bit of retail business acumen is very important. If you can't survive on that type of rent, maybe the tenant won't either.

Our wost scenario was a tenant who operated a Korean karaoke in the CBD opposite Telstra's HQs not paying rent for 9 months then fleeing the country. The guy was in business for over 15 years too. Prime residential will rarely have that problem.

 

[mandimoo]

Thank you, so basically the answer is budgeting and setting aside money for these kinds of things, or the fortunate people who have the rent paying for it
We haven't owned ours for long enough to get into a 'flow' yet. All income from any source goes straight into our PPOR mortgage to offset our non-deductible interest so our money situation can be difficult to keep track of at times as I leave money in there always and just take it out bit by bit when we need it for normal living expenses and the mortgage payments.

We haven't had a problem paying rates or strata fees so far (and one of our properties has $5000 pa strata paid quarterly!) but I do feel as though we are shelling out constantly. You are right about the interest rates changing everything, our properties are so borderline on negative - neutral that rate rises will tip them over for sure. I plan on fixing our interest rates soon to something sustainable as we owe $750,000 for our 2 IPs

People with multiple mortgages, do your eyes bug out of your head when you see the figures on your netbank? haha I have gotten used to only looking at the top part of ours now

 

[beachgurl]

Nah I generally don't think about the size of the mortgages. Only when I go to the bank and the teller reacts to our number of loans. It's funny cos per bank we don't really have that much debt.

 

[westminster]

Mine are paid quarterly by my PM from the rental income. That at least reduces the amount going out all at once.

 

[Angel]

People with multiple mortgages, do your eyes bug out of your head when you see the figures on your netbank? haha I have gotten used to only looking at the top part of ours now

No, I used to work in a bank and handle more than $100K in cash every day. This was nearly 30 years ago, so probably half a million in today's eyes. It very quickly became just numbers on pieces of paper. I focus on the value of the assets the loans pay for.