4 properties (6 incomes) in 6 years, welcome any comments!

Hi everyone, I have been silently stalking this forum for a few years now. My wife and I have bought 4 properties since 2012. I would put it mostly down to luck, timing and some bits of advice over the years!

I feel like we have done pretty well but I would be interested to hear any comments or advice given the changes in the current environment.

1. Fairfield West (4br house + 2br granny flat)

• Bought 2012 @ 470,000 - 80% LVR
• Current Value @ $850,000 (my estimated current value is $900k+)
• Improvements - $120k construction loan for granny flat in 2013
• Current Rent = $480 (House) + $430 (GF) = $910 / week ($47,320pa)
• Loan #1 = $490,000 @ 4.19% fixed I/O (IO expires May 2019)
• Loan #2 = $130,000 @ 4.99 variable I/O*
• Gross Yield = 10%
• Net Yield = 3.82%
• Strategy: - Rent is currently under market. Can increase to 550-600 pw with a 40k renovation. I have good long term tenants at the moment so am reticent to kick them out.

*Used this loan to pull out Equity. It is used for all property related expenses - with all savings against an Offset facility - currently offset at $90,000 and growing this by $7,000 per month with savings.

2. Rosemeadow (3br house + 2br granny flat)

• Bought 2013 @ $348,000 - 80% LVR
• Valued at $820,000 (Mar 2018)
• Improvements - $140k construction loan for Granny Flat, $30k kitchen and bathroom renovation to unlock equity and rent increase – both in late 2017
• Current Rent = $450 (House) + $350 (GF) = $800 / week ($46,600pa)
• Loan #3 = $440,000 @4.19% fixed I/O (I/O expires 2022)
• Gross yield = 12%
• Net Yield = 4.8%
• Strategy: - Collect rent

3. Slacks Creek (3br townhouse)

• Bought 2016 @ 232,000 - 90% LVR with LMI
• Valued at $240,000 (Aug 2018)
• Improvements - Nil
• Current Rent = $335 / week ($17,420pa)
• Loan #4 = $213,000 @3.99 fixed IO (Just refinanced so I/O expires 2023)
• Gross Yield = 7.5%
• Net Yield = 1.6%
• Strategy: Collect Rent. This area is pretty flat so am not expecting any CG. I will pay the loan down to 80% LVR.

4. Bray Park (3br house)

• Bought 2016 @ 360,000 - 80% LVR
• Valued at $400,000 (Mar 2018)
• Improvements - Nil
• Current Rent = $370 / week ($19,240pa)
• Loan #5 = $280,000
• Gross Yield = 5.3%
• Net Yield = 0.5%
• Strategy: Collect Rent. Considered a granny flat but my research indicates that there isn’t a market for this form of housing in this locality. Site is 10 minutes away from the new Petrie uni. Long-term could potentially do a renovation to unlock equity or increase rent however it has been indicated to me that the rental market isn’t great.

Overall Summary

• Income $125,580.00 (before tax)
• Interest + Expenses $84,658.04
• Profit $40,921.97

Loan Amount
$1,485,050.00

Property Value
$2,310,00

LVR 64%

Looking back I have some regrets about buying the last two properties as they aren't likely to achieve much CG, I wish I held on and bought another house in western Sydney @$500-600k, or perhaps I could have hung back and not leveraged myself so much then looked at other opportunities. At the time my wife was about to go on maternity leave so we just scraped enough serviceability to pick these up for a bit of extra cashflow and perhaps some long term CG. Brisbane hasn't really paid off for me, put perhaps in a few years when Petrie Uni comes online

At the moment we are saving $7k per month and filling up the offset account. The way I see it I am benefiting by compounding the interest, so for example $7,000 per month @ 5% will save interest and hence progressively increase passive income by $350 per month, or $4,200 per year playing the long game.

My wife and I just turned 30, we are high earners and aren't likely to reduce our income in the next 5-10 years. She is in strata management and I am a town planner working for a private developer so we are in this space, and perhaps may look at doing some smaller duplex developments with the family.

We are building a duplex currently (owned by the in-laws) which we will move in together with the kids and then rent the other. I added 1 bedroom studios to each unit as well for a 5th bedroom so we can get some separation but be close enough for mutual support!

I have had some concerns with doomsday media reports of the impending P&I cliff, however I haven't had any issues in recently extending 2 loans to I/O. The bank simply gave me 3 year IO term tied to a 3 year fixed loan, with the option to apply for an extension a further 2 years. My feeling is that the cliff will affect the bottom of the market and the mostly highly leveraged investors. On that note I considered gong P&I to pay down some debt but this would pretty much absorb all of my property cashflow, and I am getting the same interest rates on fixed term IO loans, so I cannot see any benefit.

In terms of long term strategy, I will keep refinancing to push back IO’s and build up savings to offset debt. I have mostly ‘improved out’ my portfolio with renovations and dual income so my limited options over the next few years would be:

1. 40k renovation of Fairfield house for rental increase and equity
2. JV with the in-laws on another duplex site
3. Do both 1) and 2) or do nothing!

Cheers!

 

well done there @Sydney Villain

and nice first post.

 

Excellent outcomes and thanks for sharing.

The issue you may face will be accessing equity due to serviceability constraints implements by the government regulators essentially halving borrowing capacity in most cases.

 

Big thing here and just about everyone at the moment is serviceability so what does your borrowing capacity look like right now as this will dictate what you can and can't do.

Putting serviceability to the side I think its good to keep your eye on the different markets but I would wait until the dust settles in the finance world before jumping in again.

Another consideration is offloading the non performing properties and keeping the loans active and port them across to a new property (if servicing is an issue).

 

I would have thought lenders will still check serviceability under responsible lending laws?

 

Some lenders allow you to port the loan provided that there is no increase in the LVR or loan amount so no servicing is required.

 

I was able to get NAB to port the loan after selling a property..however after few months lot of hum an ha in me, I end up asking NAB to cancel this swap. You'll continue to pay the current mortgage BUT they give you the term deposit.

No application or servicing check was done by NAB for swap, but they're not prepared to make any variation of the contract loan.
If you have $500k loan which you want security swap to a $400k loan property . You will need to continue pay interest on the $100k balance minus a term deposit. For example, if your interest rate is 5%, the term deposit is 2%, then you have to pay 3% for the life of loan. Of course you can use the 100k as you second property substitute..

 

Wow, that sounds like a dream comes true for most of the investors focusing on positive cash flows! Congrats!

Do you mind if I ask when you were building your Granny Flat, did you have to kick out the tenants living in the main house? I am planning to have a GF built at the back of my IP but my tenants may become hostile. Thanks in advance!

 

Of the 4 granny flats I built, I only had 1 tenant vacate amicably. New tenant moved in straight away.

I didn't drop rents, though offered to pay electricity and water till the granny flat was built as we were using it.

 

I was lucky with my first property as it was in a culdesac and a fairly large site, i was able to separate it pretty well from the main house during construction. That said I still had a lot of issues and complaints with the main tenant during construction, particularly around use of power and water by the builder, and then the metering arrangement caused some issues.

For the second house, it was a much smaller block. The main tenant was pretty poor, but I sent them a notice offering to let them stay on reduced rent and I would pay a set amount for water and reimburse electricity. They opted to leave (good) so I got a new tenant on a short term lease (a young couple looking for cheap rent). Again I was clear and upfront from the start with the terms of the arrangement. When the GF was complete i moved on to renovate the house, I did all the externals while the tenant was in there. They opted to move out, and I got a good tenant on a higher rent. So it worked out well.

In summary:

• It depends on the configuration of the site (i.e. separation, fencing, construction access, areas for garbage, parking etc).
• Demeanor of the tenant and local rental market (cheap rent, are they looking long term, are they a 'professional' tenant)
• Be upfront, have a conversation with them first. Then sent a notice in writing*

* Be careful with the timing. The tenant will become aware on submission of DA, so let them know when you intent to build. Make sure you have all approvals in place and builder ready to go.

Advice on Design:

I am a former Council town planner and I have seen plenty of poorly designed and sited duplex and granny flats from investors. It is not always possible, but the best outcome would be to site the GF so it looks like a separate dwelling with its own access and car parking.

I worked for a major apartment developer, so I adopted a market tested model which caters to young families.
* 2 bedroom with large living space combined with kitchen
* internal laundry
* large bathroom, with shower and tub

In NSW you can gain extra floor area by going with a DA to Council over a CDC. It takes longer, and it is more expensive to build but it hasn't failed me.

I have uploaded a plan, feel free to use it. If you need any assistance feel free to PM me the address and if I get time I will have a look.

 

Fantastic floor plan and great use of space. I think it would be dependent on the council though - I would hate the thought of trying to get anything through Kuring Gai council.

 

@Sydney Villain That is one of the best designs for a granny flat I've seen! Spacing works very very well.

 

How much extra floor space can one get going through DA?

 

Excellent floor plan. One of the best I've seen for a GF. Functional, simple & efficient use of limited space.

 

DA's are assessed against the Council's LEP or the SEPP which is generally 60sqm measured from the internal walls. Although I have known one or two Council's who will allow up to 80sqm in their LEP.

CDC will allow 60sqm also however this is measured to the external wall

The extra 10sqm makes a huge difference to the internal design and gives you the space for the internal laundry/larger bathroom.

 

@Sydney Villain well done great read! do you think the granny flats increased the overall value of each property dollar for dollar or do you think you increased the value by more than they cost to build? Will you look to subdivide in the future.. if this is possible? If you had to, do you think you would be able to sell them as they are and there would be a decent market for each property as it is with GF on each?

 

Big congrats to you and your wife on getting to the position you are.

Small error in your post it isn't saving you $350 p/m on interest or extra CF p/m but it does increase your passive income by $4,200 p.a. (simple interest) but would be more with compounding - the second year appears much better with $8.3k if you keep only depositing 7k.

 

I have the same floor plan for one of my granny flat builds. Although I had a workshop added to the back of mine.

 

Nice work and absolutely killed it buying in Sydney when you did!
Wouldn't be too concerned about the doomsday media although getting I/O moving forward is going to be harder and rates could possibly increase, saw WBC (St George and Westpac) increased their rates a bit today so keep an eye on the other majors now as well..
Lending will probably get harder before it gets easier (being in the industry) although you're smashing it

Thank you for sharing and what's the longer term plan i.e. you've mentioned a few options but hypothetically if you wanted to "retire" what would you do instead? Depending on what your "passive" income goals is you could do this sooner rather than later and consider getting into property full-time, if that's something you'd be keen to do

 

Wow, It was very nice of you to share it with the PC community! Thank you so much for your kind offer too!

I am just wondering if your blocks with granny flats on are corner blocks or just normal blocks? Also, does it mean the tenant on GF has to park off street? Thank you!