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Dreaming of quitting your job, how to get cash-flow to replace income and use leverage to execute a strategy that delivers top rents and high occupancy rates?

 

High Occupancy versus Top Rent

How to create Income to quit the day job?

 

Some do—others don’t quit the day job

 

 

What brought me here was a discussion with a fellow investor who said to me, you got there—quit your job, I never will. Talking like that does not sound convincing if you dream of financial freedom. And having figured out that money is not rolling effortlessly into your bank accounts, enabling you to retire earlier and work less is actually a good start.

 

It is not what we get, it is what we become in the process of doing that we love most. It is the activity to deal with reality. Let us look at some key issues for propelling property investor’s dream into reality. You know about the basics of equity and yield, the drivers of the property market such as supply and demand, and investment strategies using leverage, cash-flow, market values.

 

Becoming successful, all that matters is playing the present market. That is were the fun is. Changes to the property market like new lending and taxation rules can easily dry up your cash-flow and become an obstacle for obtaining finance. If you dream from quitting your job, all that matters are your income streams and cash-flow that pays your bills. 

 

 

Headache finance and cash-flow

 

The underlying message is, yes there is a lot of uncertainty when starting out as full-time investor. Without sufficient income streams you would not try it. Even if so, not being able to prove your expected income to the bank—finance will cause headache and dry up quickly.

 

For instance a fellow investor was convinced by taking on some part-time jobs that would pay his bills, hiring a property manager would free up time and buying more would  increase returns.  Unfortunately exactly the opposite happened, serviceability dropped because banks penalize people without employment (steady income), new LVR (loan value ratio) blocked buying more and lower net rental income caused financial hardship.

 

 

Leverage commonly misunderstood

 

Leverage in terms of time, money and business relationships is a business booster, getting in relatively short time great results. Often not seen, it works in both directions with the same force. Let me illustrate;

 

Leverage money  -  investing money you don’t own

Using that strategy works to magnify investment returns and to off-set loss against taxable income.  But what happens in a downwards market when e.g. the equity drops below loan values or the income becomes insufficient? A negative cash-flow strategy won’t work if you need income to replace your job.

 

 

Leverage time— engaging services

For solely investors it might be helpful to engage somebody like a property manager to chase rental payments, managing repairs and maintenance or conduct rent reviews with tenants. But if you are in the stage of building up a (landlord) business you would not want to outsource the key area by losing control over your investment properties.

 

That will work to increase the efficiency of a well established businesses but in a development stage it might not work for everyone and could result in nightmares and failure.

 

Leverage knowledge and skills

That is my favourite.  The basic idea is to congregate with like minded people and exchange creativity, intellectual property or people’s knowledge and reputation. Such business relationships work very well with finance brokers, lawyers, and agents.

 

 

But again –leverage works in both directions. It is quite logical that contractors, agents and associated partners have their own agenda, otherwise they would not be in business, right?

 

 

 

Top rent vs. higher occupancy rate

 

In both directions it is a balancing act to get top-rents and high occupancy rates. Depending on the market top-rent properties tend to have vacancies between tenancies for two reasons; top-renters are harder to find and top-rentals need more attention.

 

Our experience is top-rentals  need “breathing time” when changing tenants. That is necessary to maintain high standards. As successful investor you would work out for each property a customized strategy to balance the rent and occupancy rate.  (see example below)

http://klausterproperties.info/
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Investor’s & Landlord’s Blog

Investor’s & Landlord’s Luck and Failure

 

 

 

 

Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.

http://klausterproperties.info/blog-register.htm

 

His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.

 

The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.

 

Come along and share your views—learning from each other gives confidence

Lower rental income for the benefit of higher cash-flow

 

The blog post “Being taxed when making loss” illustrates the opposite extreme. Have you ever thought about increasing expenses (reducing income)  for charging top rents?

 

Well, here are three reasons why doing it:

 

· Banks like to see high rental income for approving finance

· High quality chattels are appealing to prospective tenants and are depreciable

· Top rent results in a higher valuation and sales price

 

To summarize

If you want to quit your day job, execute a cash-flow strategy. Top rents must offer value for money and higher valuations help to obtain finance. If the cash-flow dries up, that is a clear indication for changing the investing strategy.

 

 

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