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Someone else's back

Someone else's back is a buy and hold property strategy. It is based around Cash flow Positive properties. The aim of this strategy is to input as little as possible of the owners resources into their properties. Basically the tenants end up financing the property until it is entirely paid off. This will often be over a 25 year period although this will be reduced if the property is considerably cashflow positive since it's excess income can be used to pay it off faster. Obviously this really only suits Cash flow Positive or Cash flow Neutral properties.

Example

An investor finds 5 cashflow positive properties which - once they are paid off - will provide enough income for retirement. The properties are on long term, fixed mortgage rates and the investor waits 25 years. At that point the properties are paid off and the investor is financially free.

Part of the Property Cycle it best suits

The part of the property cycle which this strategy suits best is a slump, since otherwise straight out-and-out cashflow positive properties are hard to come by. Of course, with some creativity or a big deposit, this strategy can be applied in any part of the cycle. The time frame is probably 15-25 years. While a 25 year time period is not going to suit many people, it should be emphasised that this can still lead to early retirement. (E.g. If an investor started at 20, retirement could be achieved by age 45.)

Advantages

None of the investor's own money needs to be involved (except for the initial deposit). This means that people who can't afford to snowball can still do this. It is low risk.

Disadvantages

Very slow means of generating wealth. It can be risky if a property is misjudged to be cashflow positive when it is not. It is also vulnerable to fluctuations in the market and significant increases in interest rates could put the investor in a vulnerable position.

Optimising it

This strategy is difficult to optimise without contributions of the investors own capital. Renovations may be used to increase the overall income. This strategy can be easily converted into, or combined with, other buy and hold strategies.
--Monid 10:01, 1 January 2008 (NZDT)