Hi All,

Thanks for reading my post and for the discussion here.

Perhaps I should qualify my post a little by stating that this post was aim at the property seminars pruikers promising riches through property.

I agree with some of your views that you can build a substantial property portfolio with average income, However, you will need to build up your equity first, and it will take a long time (depending on the market). My post was targeted at the claim that you can buy a property at 90 to 95% LVR then revalue after only 6 months to release equity and buy another one. This is impossible unless your property increase substantially in 6-12 months.

My other argument was cash flow. Again targeted at the get quick rich property schemes, if you bought your first property at 90% and above, on average income you won't be able to service an extra property without stretching your budget to the max. In this current market, even 2-3 years ago when interest was low, it's impossible to find a positively geared property without going to small country towns. Of course if you hold your property for say 5 years, then it may become positively geared. However, that's 5 years away.

As for BV's point about low docs, no docs. You have LVR restrictions with this type of loans, most low docs are 80 LVR or less (in this market good luck finding a low doc loan that's affordable). Thus you will need a bit of capital or equity anyway to use low docs. I can't stress enough that banks look at serviceability first, especially when you're highly geared.

As for valuations, i have not seen a valuation that increase enough to make a substantial difference to leverage against in just 6 to 12 months, say you decided to buy another property for $350K, and you borrow at 95%, you will need $17.5K (5) + stamp duty (say $12K)+ mortgage insurance (say $10K) = $39.5K. That means you have to have increased in equity of at least $41.5K (95% LVR). I can't see that happening on an average property in 6-12 months in this market.

I call this "chase the market" strategy, works if you have the cash flow and equity to back you up, but if you're highly geared as promoted by these pruikers, when the market turns you'll get caught.

Thanks for the feedback and i hope we can continue this robust discussion.


BB