A race to $100K p.a. passive income - Commercial, resi, equities, dual ocs...?

Yeah with my income I can borrow another $800K or so for a standard resi property. I understand this could be different for Commercial but need to look into that.

a) $2M to pay down would take like 15 years I guess.
b) yeah there would be CGT and selling costs and probably hard to find a safe 10% p.a. investment that gives you consistent returns
c) I would have time to do that once I stop my current job but not really possible at the moment. The problem is that if I buy more properties to develop later, I am not sure whether I will have the borrowing power to actually do the developments once I actually stop working in my current job....

 

Thanks for the info Jingo.

 

Given your current amount of equity, the simple answer is you need to build up a lot more equity if you want that 100k passive income in 5 years.

You will likely need to pursue a strategy that is strong moderate to high risk in order to have the chance to achieve your 100k passive income in your TF.

 

Do I need to do a 'this is not advice' disclaimer? Then this is not advice.

1. Private Finance: Take funds into high yield first mortgage loans, or a touch riskier, second mortgage. Relatively passive, however you need to do your due diligence. It's a different type of investing. If you do it yourself, 11-24% returns. Via a business that pays commissions, 8-15%.
You'll get your $100k straight away from $1M in assets, without any need to do renovations etc.

2. You clearly can't save your way to $100k passive income.

a. Start a business which can be managed remotely, or with minimal work. This however in my experience to date, takes years of mistakes to achieve. So may look quick, but without guidance, or several tumbles early on. Will take a long time.

b. Still business in my opinion. Chunk deals for equity gain. Then divert into cash-flow afterwards. Likely a 5-7 year time-frame.

Terry and Sash mentioned it earlier. Achieving $100k passive post tax income from property would take a lot more than $2.5M. You would need to put funds aside for renovations and other miscellaneous items. Would likely need $4-5M unencumbered assets.

 

Like that's impossible?

 

Only based on a $100k savings rate over 5 years.

If he had 30-40 years with 0 inflation. No problem.

$100k savings today, is not the same as $100k savings in 20 years time.

I found it easier to create a semi-passive business that generates 6-figures, than create an unencumbered, or encumbered portfolio with a net 6 figure cash-flow income.

So I'm not the best person to speak to about short-term portfolio creation to generate the above stated desired income.

That said. I haven't met anyone create that sort of cashflow from property in a short time-frame without having started with some serious cash.

So when people ask me based on my experiences what's the best way to achieve the above desired result with real-estate. I say. 'You don't', or, 'you need way more time'.

 

Hi Mark, I just joined the form to reply to your message.

I Emigrated to this wonderful country 6 years ago and within the last 4 years we have achieved $90k passive income. I'm a much simpler guy then most on here but I know how to make money my way. The responses you've received are overly completed and will take to long to achieve your goal.

Here's what I did:
I bought a 3 bed property for $270k in one of the cheapest areas in Perth buy an area with a very high rental demand.
I built a 70m2 3 bedroomed steel framed Granny flat, I say granny flat because that's what the planning was for but it is more like a 3 bedroomed house or unit at a cost of $78000 Owner builder. Everything separate from the main house eg: gas, electric and a fence separating the two properties. It's basically like having two separate rental properties with high returns on your investment.

The following year after a good rest we did it again.
3 bed house for $310k
This time we got a builder to do most of the work at a cost of $96000

And earlier this year we finished our third project.
3 bed house for $305k
Builder cost $90000

An appraiser recently came and was valued the first property at over $500k
The other two should be similar.
We currently receive $96720 in rent and have no mortgages on these properties.
$320pw for the main houses
$300pw for the rear properties

I think with the equity and the 100k savings each year you could easily do something similar.
Put a bit of hard work in for 3 years and you'll be free.

I'm not stopping, one a year is the goal for now....

GoodLuck!

 

Curious how long it took to create the semi-passive business generating 6 figures? (and is it 6 figures per month or per year?) Also I guess in some ways running a property portfolio is a business too- from managing tenants to property managers to reviewing rent/prices etc)

 

This is very impressive. Thanks for sharing.

 

Sounds terrific.

Wondering if you had any loans for the purchases or used cash? If you paid for the properties and builds in cash that makes a huge difference to a person aiming to generate $100,000 in income from scratch through residential real estate.

Not trying to pick holes in what you have achieved but you’d also need to allow for ongoing property expenses including rates, land tax, water, repairs, insurance, vacancies etc as well as tax on the rental income which would eat into your gross rental return of $96,000.

 

If you are chasing high yield, go for commercial. 6% yield is easily possible. Consider buying an industrial warehouse in QLD / Brisbane region. To get $100K income, you need $1.6 mil commercial property. Sell some residential , if required. That is the quickest way. Granny / Dual locs can get your there but its going to take more time and more hard work

 

It is 6-figure net profit.
Turnover would be over 6-figures per month.

It has been 4 years, though was hitting those numbers much earlier on (from observation 7-10 years for a stable, profitable business).
To note, I also started with some equity behind me. (a handful of Sydney proper purchased pre-covid)

Not a good industry to step into now. I'm in hospitality during Covid-19.
It's been an absolute demoralizing roller-coaster - business is healthy, but could still tank.

I have staff that handle the day-to-day. It's more the mental agility to keep the business going through a dynamic environment.

Overall though, this affords me a higher quality of life vs income than working in a PayG.

Business is not straight forward. I have a friend that went from net 7-figure profit to below 5-figures in construction when covid hit. Another in tele-health went from 5-figures, to net 7-figures during the same time period. It's not just about skill. Government policy becomes something you need to keep an eye on regularly.

Focus on scalability, and systemisation. Tech is the better field to start-up in IMO.

Now I'm over-sharing. I'll add this. The friends I have who treat real-estate as a business vs a side-hustle, the results are astronomically exponential.

Buying a house and waiting 10 years for capital growth, vs actively creating a funnel of developments in the $10's of millions. Same time period. Different head-space. It's just another product to buy and sell.

 

NDIS …. but do your own DD and IMHO it’s for experienced investors

cliff

 

Thanks for sharing. I'm in healthcare so relatively been shielded. Definitely true about government policies and whims affecting businesses to a large degree.

Did you start the hospitality business from scratch, or purchase from someone? Also how long to be profitable.

 

From scratch. Depends how you define profitable.

General timeline I'm experiencing, and have seen in general. 7-10 years to really feel the benefits of business ownership.

'Profitable' from day 1. If not including paying back what you put in. I'm talking cash-flow in, cash-flow out.

First few years (I'm at year 4) up to year 7, you are cash-burning. You take the bare minimum income, and use the rest to expand the business. Might write off car, phone, fuel, etc through the business. Or pay yourself well, and loan-back to the business.

From year 7-10, you are earning enough to both grow the business, and pay yourself back capital investment. If you do this any earlier, you'll likely strangle your businesses growth.

From years 7-10, you can start looking at branching into aligned business, or start investing in real-estate, shares, etc. I have done this along the way, but really didn't have much to play with as Covid stung me quite badly. Eg. friend in development, is now opening a construction arm for 3rd parties, and another business for property management as he has so many properties he's holding onto already. If you're in health, you may branch into buying and renting the building itself. Etc.

This isn't based of any books, or stats. I'm just sharing my experiences based of observation. Also most of the 'successful' business people I met. They were at attempt number 3. Same as me. First 2 businesses failed.

So probably a longer time-line than 7 years. Still. Don't know many (read none) property people who achieved the same result in one 10 year cycle.

 

1.6M outright- I guess some investors would have that level of money. I'm interested in your experience with industrial property?

 

Many have that in super alone, more when it comes to investments.

 

its a simple No brainer for me. You can borrow $1.2m. That forms a 35% deposit on a value add commercial property around $3m, you should generate 10-15% ROE on your $1.2M and you hit your target.

We have been investing in commercial only for a decade and already generate a comfortable 7 figure passive income nett of all holding costs and loans.

Always keep your Interest Cover Ratio @ 3x to factor in rate rises & vacancies + keep cash on hand.

I never understood why people with large sums of money would ever purchase shares.. the control and the leverage you generate assures a superior return in CIP.

 

Where does the other 65% come from?

 

I have done mortgage lending and I truly wouldn’t recommend it. You are not getting the advantage of leverage, nor the underlying capital growth on the asset.

As Yields have gone down, so has the returns in lending. good sponsors and good projects can typically command 6-7% these days and double digit returns come with significant risk imo.