I was all set to go and build a massive buy and hold property portfolio, after all you can leverage other people’s money, you are building your net worth and creating a source of passive income. I started facing challenges with the banks when I hit my first $1M, because it just happened to be with the same bank. So they were going to whack me with a massive LMI (Loan Mortgage Insurance) even though the properties were to be secured separately, with their own equity and packages.
When I got to the $2M mark, even though the portfolio as a whole was sitting at around 65% LVR (Loan to Value Ratio), and positively geared, they were penalizing me again by not wanting to land me the amount of money I needed because they felt that the serviceability wasn’t there on my income. I wasn’t on a bad wicket either.
So it soon became apparent to me that building a traditional buy and hold property portfolio to grow my passive income was not as simple as it was made out to be. Yes it can be done! And the current market is certainly the time to pick up some bargains, if you are in a situation where the banks will lend you. But what can you do if they don’t?
That was the predicament that I found myself in. It meant I had to find other measures to move my property dreams forward, and to still use this asset class to my advantage. I had to get creative!
Get A Mentor
There are lot of scams out there, so be sure who you listen to! If it says you can get rich quick, stay away. Property deals take time, no matter what form they are in. You have to allow time to find the deal, seal the deal, do the deal and complete the deal. These processes take months.
I also tend to look for those that have done what I want to achieve and can mentor me on the process. You know the saying about teaching the man to fish!
You will need to decide what you aim to get out of property right now? And target your search toward those people. A good mentor will be worth their price in gold!
Network with Like Minded People
So you sought out a mentor, learnt their process in the workshop, connected with others there… Now what? You still don’t have the cash!? But there are people that you are in touch with now who have the cash but not the time!
All you have to do is connect with these people on a personal level. Suss out what they want to achieve, what sort of deals they are open to, and put your learnings into play: find a deal!
It will mean effort, yes. But you would have put this much effort into finding a normal buy and hold deal anyway so why would you not take this opportunity to create something better.
Structure the deal
So you have found the property you can make money out of. You will have to get yourself a money partner. So think about the deal. Why would someone want it? How much profit can they make? What would they need to do for it? What’s the turn around time? How is their money secured? Prepare a document to answer their question, provide photos, comparable sales data and be prepared to answer their questions.
And since you put the effort into it, you want to see financial rewards out of it. Are you going to be a spotter only? Or are you going to manage the project? Are you going to just provide the lead or are you going to negotiate the terms with relevant parties? The price goes up the more involved you get.
Once you deliver the deal and get the cash the question is, what are you going to do next? It will really come down to how much involvement you want to have and how much time you want to put into this strategy.
Personally I shifted my focus from finding the deals in the front to searching for deals from those that need a money partner. It takes a lot less leg work from my end, and I still have great returns.
I will tell you about how I find them and how I vet them in my next article.