34 and retiring - Canberra focused portfolio highly CF+

Discussion in 'Investor Stories & Showcase' started by ads99, 25th Oct, 2020.

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  1. ads99

    ads99 Member

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    Long time reader, first time poster! Just wanted to share my story as it's a little different - focused on renting rooms individually - not as difficult as you may hear and the cash flow is amazing!

    My total portfolio (4x houses and 2x 1BR apartments) is currently worth $4.5m and generates $350k/yr in rent. All located in Canberra's growing Gungahlin area.

    I'm 34 and will be selling most of my portfolio over the next 18-24 months so I can 'retire' debt free up north in sunny QLD! Ideally I'd love to sell everything privately (at market value), completely 'as is' with all tenancies and furniture in place. Might be a good opportunity for the right person to take over! Otherwise I'd probably just terminate all tenancies and sell with vacant possession (which would actually be a shame to be honest since its a good setup).

    Anyway you might have heard the horror stories about share house type arrangements, but if managed properly (I self-manage everything) with proper Occupancy Agreements and house rules in place (ie minimum 6 month stays, 4 weeks notice, early termination fees, 4 weeks bond etc) things are no riskier than a standard rental. It might take a little extra effort but the returns are worth it as you'll see below. I probably spend 5 hours per week managing things. That's with 25 tenants across 6 properties and me doing absolutely everything - running ads, inspections, maintenance, finances etc. Surprisingly the majority of my tenants are mature Australian males. Vacancies are near zero.

    The Properties:

    It started when I first moved to Canberra in 2012 as a graduate public servant. I bought a small 3BR townhouse for 400k with a 20% deposit I had saved through Uni. I lived in one room and rented out the other two rooms for $230wk each which more than covered my mortgage. I ended up selling that property in 2018 for $480k.

    Modest capital growth over 6 years compared to the larger cities, but like I said my strategy was more focused on the cash flow, purchasing newer properties for the depreciation benefits, less maintenance etc, and using that extra cash towards a deposit on the next purchase.

    So a year later in 2013 I bought a 4BR house in Gungahlin town centre for $515k. That property is now worth $680k, and with each room rented separately it returned $56,884 in rent in 2019-20, or $1093wk! Two of the four tenants at that place have been there around 2-3 years now! This is the first property in my portfolio I'd be looking to sell - by June 2021 to spread out the CGT.

    In 2014 I bought a duplex for $800k, which comprised 2x self-contained 4BR houses. With each room rented separately, that property returned $97,523 in rent in 2019-20, or $1875wk. This is the only property I intend to keep - to fund my 'retirement' lifestyle. Once everything else is sold I'll be able to pay off the remaining debt on this property, and turn it into a standard rental for $1200wk (ie $600 each house) and hand it over to a property manager to free up my time.

    In 2015 and 2016 I bought a couple 1BR apartments off the plan, one for my mum to live in, and one which I planned to flip on completion but ended up renting it for a good amount so decide to keep it for a bit longer (paid $380k, currently $470k, rented for $550wk furnished).

    In 2017, I bought a block of land for $500k, and spent another $500k building a duplex similar to my other one, with a total of 8 bedrooms, again with each room rented individually. In 2019-20 this property returned $99,142 or $1906wk.

    In 2018, I bought my dream home for just over $1m in the beautiful Canberra suburb of Crace. 4BR incl 2x master suites, 2x living rooms, luxury finishes with high ceilings etc. This is the place I'm currently living in. After my marriage failed I ended up renting out the other three rooms to three other mature guys for $955wk. This covers the mortgage and all expenses plus some.

    Thoughts:


    I understand living with strangers isn't for everyone, and I don't plan on doing it for much longer, but for those who are able to (young/single), renting out part of your home to the right people can prove to be very lucrative. As can turning your IP into a share house, provided it's in an area where there is that kind of demand and you're nearby to self-manage. In my opinion, this kind of setup is best managed yourself.

    I'm not going to lie, self-managing share houses isn't without headaches. The biggest one being you end up getting involved in household conflicts particularly when it comes to cleaning etc. However with the right strategies eg cleaning roster, inspections every few months, getting the occasional professional spring clean, and selecting the right tenants in the first place etc, I have found a lot of these issues can be avoided or minimised.

    Also by purchasing 'higher-end' and newer properties which I have then furnished to a nice standard, I have been able to charge a slightly higher rent, and attract a higher quality tenant (eg no students/backpackers, more the young professionals and mature singles/divorcees with full-time jobs).

    It also pays to treat it like a business - be hands-on and look after things! Don't be that landlord that just collects the rent and nothing else, otherwise things will deteriorate VERY quickly. When selecting tenants the key thing I look for is communication - if they communicate and present well it says a lot. Not all tenants will be able to provide references or rental history, that's just the nature of share housing. So a lot of it comes down to how you get along with them, and your gut feel.

    Taking a bond and rent in advance is a must. As is landlord insurance (technically separate policies are generally required for each room however this has never been an issue for me), as well as a well-written Occupancy Agreement with everything clearly spelt out. The standard Tenancy Agreement's aren't suitable for kind of this setup.

    These properties aren't classified as boarding houses (at least not in the ACT), and therefore there are no additional legal requirements like fire safety etc. The only thing I have really done is put locks on each bedroom door but that's about it, everything else is pretty much standard.

    Anyway just thought I'd share my 2c and perhaps inspire some other young investors to think outside the box to get their foot in the door. Happy to answer any questions or DMs about this kind of investing, just note my experience is limited to the Canberra market only!
     
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  2. The Y-man

    The Y-man Moderator Staff Member

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    Nice.

    For those interested, in Vic, it will be deemed a "Rooming House" if the owner does not live there:
    Sharing in a rooming house

    One killer we found (along with unmitigated use of utilities - hence I agree with good onsite management) was the inability to get more than 2 weeks bond and 2 weeks rent in advance.

    The Y-man
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Why sell?
     
  4. ads99

    ads99 Member

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    Good point. Utilities definitely need to be monitored, or better yet, make the tenants responsible for the bills. Just need to have a good spreadsheet which works out everything per room pro rata, because if you're caught overcharging there are big fines in the ACT.

    As for why I'm selling - because it will allow me to buy something in QLD mortgage free, and pay off the debt on one of the IPs which I'll keep as my primary income source. Although the total income is good, it ties me to Canberra, and I much rather have my free time and no debt, I'd quit my public service job, and spend my days travelling and fishing!
     
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  5. Hamish Blair

    Hamish Blair Well-Known Member

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    How are the rooms configured - standard bedroom and shared bathroom, kitchen etc? Or did you ensure each bedroom has its own bathroom / ensuite?
    Anything specific about the design? How about the number of car parking spots on title?
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    In Vic, utilities costs can NOT be passed onto the tenants unless it is for an individually metered supply to their rooms. It has to be built into the rent.

    The Y-man

    Who pays utility bills?
    Generally, the operator is responsible for paying water, gas and electricity bills.
    An operator may only charge a resident for a utility if the room has separate meters and if the resident has an exclusive right to the room.
    In these cases, the operator must not charge the resident more than what the utility provider charges the operator.
     

    Attached Files:

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  7. ads99

    ads99 Member

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    They are pretty standard houses / configurations - the master room has an ensuite which obviously rents for more, and the other rooms share a bathroom. They all share the kitchen and living areas. There are double garages which are rented for extra otherwise they park on the street.

    Looks like there are a lot more requirements in Victoria! In the ACT, the bond doesn't even need to be lodged (although there are current proposals to change this).

    https://www.legalaidact.org.au/sites/default/files/files/publications/Occupancy_Agreements.pdf
     
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  8. mickyyyy

    mickyyyy Well-Known Member

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    Great story and thanks for sharing
     
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  9. Lacrim

    Lacrim Well-Known Member

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    So how much net income after expenses and before tax are you envisaging being left with once you sell down (and buy your PPOR)? And whereabouts are you thinking of moving to in QLD?
     
  10. Shazz@

    Shazz@ Well-Known Member

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    Nice story and well done!
    How do you find your tenants? Is it through sites like flatmates.com?
     
  11. ads99

    ads99 Member

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    I've calculated about 2M in equity and savings, so about 800k will go towards a PPOR on the Gold Coast (thinking around Miami/Burleigh), 400k to get a place for my mum so she can move up too, and 650k to pay off the loan on the duplex I'll keep which will return $1200wk or just under $1000/wk net, which is more than enough for me to live off. Although I'm thinking it would be better to just leave that 650k in the offset for the duplex rather than actually pay it off in case I want to use that money for something else down the track or buy an IP on the GC, at least I'll have options as I doubt I'll be able to borrow much again without a salary.

    I'll likely end up spending half the year overseas anyway, in which case I could always rent out the PPOR too for additional income. And I figured if I have kids in the future I could always pick up some casual work or do some business online if needed. It will just be so good to have that passive income and freedom which is exactly what I set out to achieve when I started my property journey 8 years ago! Because at the moment I definitely feel stuck to Canberra and find it hard to switch off, unable to go away for extended periods etc. Between the share houses, my job and a small side business I run too, there's a lot going on, will just be so good not to have to worry about anything!

    Shazz - yea I find tenants through Flatmates, Facebook (marketplace and local share housing groups) and Gumtree.
     
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  12. Lacrim

    Lacrim Well-Known Member

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    Kudos - sounds like a plan. Yeah I could survive on fumes if I was by myself. But with a partner and kids, changes the equation dramatically. Whoever you get married too, make sure they have a good, high paying job lol.
     
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  13. ads99

    ads99 Member

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    lol that would be ideal! Will need to look into asset protection too at some point haha.. luckily the ex-wife was reasonable and it didn't set me back! But I've heard the stories and you just never know. Better to be safe...
     
  14. Lacrim

    Lacrim Well-Known Member

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    Yes, seeing you're rationalising your assets, protect the crap out of them so all trojan horses are repelled.
     
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  15. Lacrim

    Lacrim Well-Known Member

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    Was just thinking, the other alternative is to sell less assets and rent a place in Miami/Burleigh until such time you're SURE that's where you want to be. With kids if/when you have any, you may want to live elsewhere with good schools. I mean, you might decide the GC isn't for you.
     
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  16. ads99

    ads99 Member

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    Good point, hadn't thought about the schooling issue. Still a few years away though and I guess could always resell and move somewhere more kid/school friendly down the track if needed. Never been a fan of renting or rentvesting. Just rather be in control of everything and have that security. Would be nice to buy something near the beach with reno potential to keep me busy and create some equity. I'll be doing a bit of recon once the borders open up, suss out the specific areas a bit more etc. My old man will also be relocating from Sydney, he's had enough of the congestion etc, likely get something on the canals in Runaway Bay with all the other oldies.
     
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  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    At age 34 $2m is not going to last until typical retirement age unless you work etc. Its a long 30 years. Selling will trigger tax where using the equity to enhance the portfolio may add additional income and growth. And the positive income assists to support that where selling will remove it. The ACT take a far less rigid approach to boarding houses than any other state and it would be difficult to replicate this elsewhere. eg In NSW a lock on a door is a fire offence without specific approved building mods and council would cancel the occ cert and evict all occupants. I have a client going through this now in the Local Court for many dwellings that had council approvals but not for rooming use despite the plans looking like that use was potentially open but as they didnt apply for registration and permits the council treated it as single occupant use in approval. It a good example of "you didnt tell us".

    The ACT land tax would be a killer. At even $1500 a quarter x 7 = $42K..plus. And when you move from your own home it too would lose exemption.
     
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  18. rizzle

    rizzle Well-Known Member

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    Even $1.5m at 3% SWR is $45k gross p/a for a single which would have a very high probability of preserving capital forever. That would go pretty far in GC no?
     
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  19. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Congrats OP - a good read. Best of luck with your move up north.

    Cheers

    Jamie
     
  20. GirlPower

    GirlPower Well-Known Member

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    Nice work! Don't worry there are decent schools on the Gold Coast. Miami High School Principal won Principal of the year. With the changing demographics come the better public schools. Plenty of private schools. Come join everybody in Miami and Burleigh lol.
     
    Last edited: 28th Oct, 2020
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