Building a Property Portfolio Impervious to Market Forces....

Discussion in 'Investment Strategy' started by sash, 23rd Jun, 2015.

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  1. Ben_j

    Ben_j Well-Known Member

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    Hi @sash

    I hadn't previously considered H&L packages as something investors choose - not sure why, maybe the similarity to OTP's and the fact that the develop factors any growth into their initial sale.

    Can you please give some more information on what you look for with H&L, what to avoid etc?

    Thanks

    Ben
     
  2. ross100

    ross100 Well-Known Member

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    Great Post as always Sash.. Welldone
     
  3. Moist

    Moist Well-Known Member

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    Hey Sash,

    I can't understand why your LVR is only at 39%? Is it for serviceability purposes to get further finance?

    Surely if you're lookinig to grow your portfolio and buy/build more properties you would be looking to access all that equity and bring your LVR back up to 80%? or at least 70%?

    Am I missing something?
     
  4. sash

    sash Well-Known Member

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    To get house land package right you need to look for the following:

    1. Get the land cheap or early in the release. Stages 1-3 from the developers will be the cheapest. Get in early before the heard moves in...sometimes a developer will market an estate with just a concept. I you can compare with what the developer has done in other estates...and can visual if it is a good product you maybe on a winner.

    2. Get the build price and quality. I go for the best value for money builder not the cheapest.

    The mass advertised H+L land packages are not the best value.


    Hmmm....not thanks.....when you are already i hock to the tune of 4-5m...the last thing I want is to go to $8-10m.

    Here is the way I look at it....lets say you have an interest only bill of 200k....doubling to 500k is not easy particularly in the current environment. Also...I like to ensure I have quality and safeguards in place.

    Here is a sobering thought...lets say you are on 4.5% I/O.....what if you suddenly overtime have all your loans go to PI loans. That would add about 1% to the loan depending on how many years you have to pay off. That represent about 40-50k increase on a loan size of 4-5m....on 8-10m...that is like $50-100k...and if you are unfortunate to have interest rates go up by 2%..that is another 100k or 200k on 8-10m....do the numbers and that is a recipe for disaster.

    The way I have set-up my loans ...principle is reducing by 4-5% per annum. That is how I am maitaining my low LVR. So if my portfolio in to an average value by 4-5% vi CG and another say 6-7% via acquisitons..this is the ideal method. I will post on this via the never ending Tim Tam method!
     
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  5. Moist

    Moist Well-Known Member

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    I wish I could understand your grammar better.....

    Surely you could refinance to interest only again after the initial interest only period?

    So you have all IO loans but pay the extra cash after expenses into offsets? effectively reducing your loans? You must get a pretty good return from the rent + depreciation from the new builds? How often do you look to increase rents and by how much? Have you had any trouble increasing rents over time?

    Can I ask what you do? or what sort of income (PAYG) you have had to build such a large portfolio?
     
  6. sash

    sash Well-Known Member

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    The problem is serviceability...I do have a lot more left in the tank but now a lot of banks are basing servicing based on about 8%. So if you have say a 200k income and 500k in rental income. Your servicing will be 200k plus 80% of rents which is about 400k....that is about 600k in income. If you use the old method to calculate what you can service you can use 50% of gross income or 300k to service loans. Based on a 7% IR that will cost you about 70k in interest payments to service per million. So technically can borrow $4.3m.

    Now a couple of cavests and gotchas along the way:

    1. A lot of the smaller banks will stop lending to you when you hit $3m in loans
    2. The tax advantage of Neg Gearing is not factored in...lots of banks no longer allow this some still do
    3. Rent reliance policies are an issue if youy don't know how to present your file
    4. Extra rental income from more properties are not included.

    As for what I do:

    1. All rents are paid to offsets
    2. Depreciation from new builds generate extra cashflow...this is equivalent to 2-3% CG
    3. Try to review rent upwards every year
    4. With 80K you should be able to get to $3m...with 150k...about $6m.....with 200k....$10m+ is achievable. Of course you will need reasonable CG. But if you take a 10-15 year view it is entirely possible to retire with 60% of you income. With tax advantages it will not be too different to your final income.
    5. I work in IT


     
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  7. Moist

    Moist Well-Known Member

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    Great story Sash and thanks a lot for the advice!

    How long has it taken for you to get to nearly $10 million?

    I am at about $2.2mil in almost 2 years. Made 2 mistakes in buying regional with great yield, but no growth. I have since targeted capital cities, namely Brisbane. My best buy so far has been in Woolloongabba where I bought a renovator 3 bd Queenslander 15 months ago for $500k (+$50k reno) at auction and have recently seen a comparables at $700k.

    I also bought in Bracken Ridge, Bald Hills and Coombabah....all existing houses. Good growth in Bracken Ridge, made money on an immediate reno in Bald Hills. I probably got caught up in the Gold Coast hype with the Coombabah buy, instead of really assessing the market. We'll see.....the yield is pretty good, which makes me feel a bit better :)
     
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  8. sash

    sash Well-Known Member

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    Nice work....you can get to well over $10m in 15 years with a structured approach....I have some dogs also...but some have come good over time.

    The trouble with stuff like Wooloongabba is they take extra dollars...with a 70k in costs plus reno of 50k that is 120k.

    I bought a house in Strathpine for 301k...5 months ago..reno for 8.5k..,now worth 360-370k. Much prefer these ..also rents for 350pw.



     
  9. Moist

    Moist Well-Known Member

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    Yeah I do agree, I don't plan to have a portfolio of highly negative cashflow properties. The value though just seemed way too good to pass up....$500k for a standalone character house 2kms from the city.....hard to walk away really

    What sort of reno and quality fittings did you do with $8.5k? Would you say you just bought exceptionally well there or have you seen capital growth around the area there now?

    How long has it taken you to get to nearly $10million?
     
  10. Moist

    Moist Well-Known Member

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    1. Also don't these Strathpine renos and the like seem more lucrative than H&Ls? Immediate reval after the reno and then recycle equity into the next one. Sell one if servicing becomes tight. Usually less risk of over supply of land being in an already established area and also being closer to the CBD. Downside obviously less depreciation...

    2. What do you think of Chris Gray's approach? He revalues his entire portfolio every 1-1.5 years and brings his LVR back up to around 80-85% ( assuming the $10million in Eastern Suburb units have grown each time). He then uses a little for buffer to pay the interest only bill for a few years, uses a little to live off the next few years, and then the majority to reinvest in renovator units in Sydney's East.

    I do wonder how the banks see his servicing capacity, given that he doesn't really work and his Sydney units haven't had nearly as much rental growth to support further lending....
     
    Last edited: 9th Dec, 2015
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  11. Pins

    Pins Well-Known Member

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    He has a buyers agency targeting the eastern suburbs so I imagine he does pretty well out of that
     
  12. Moist

    Moist Well-Known Member

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    He claims he makes very little from it.....
     
  13. Excalibur1

    Excalibur1 Well-Known Member

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    He does work... the buyers agency and the TV deals. He has multiple incomes. Its how it should be if you want to achieve wealth.

    He has done well... I think at the beginning it was all property but then he diversified in other things. Now i think most of his income comes from sources (TV, books, agency) other than property (rent).
     
  14. Moist

    Moist Well-Known Member

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    His books are free by the way
     
  15. Biz

    Biz Well-Known Member

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    Chris Gray is just another Nathan Birch. They have used their successful buyers agency business to build big portfolios. Why is this so hard for people around here to understand? What they did back then you can not do now, they are just selling the sizzle.

    If you want to build a big portfolio create yourself a big income. Simple.

    In 2015 your not going to do it on an average income unless your timeline is 20+ years. Anyone jumping in now is not going to see much for a long time unless they can leverage off someone elses experience or get creative which takes experience to execute properly anyway.
     
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  16. Rockys

    Rockys Active Member

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    Not a follower of either of these two mentioned above however i'm pretty sure Nathan had a large asset base before starting his buyers agency?
     
  17. Sackie

    Sackie Well-Known Member

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    Its really simple that most newbie and not so newbie folks miss it/ignore it.

    It all comes down to property investment education. I'm not talking about asking a random question here or listening to someone's opinion there. Those are fine but no where near enough to build and sustain a portfolio with a decent amount of passive income for most people. Just aint gonna happen. I've seen it a million times. For every person who wings it and does really well with investing with little to no knowledge, there are 1000 people who will fail/not get very far.

    Property investment education is the absolute key. Its so bloody simple, yet many refuse to do what's needed.

    just my opinion.
     
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  18. Biz

    Biz Well-Known Member

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    It was a good size but no more than a lot of people on you see on here. Things really took off for him when he started Binvested 5 or 6 years ago. Look back at the old posts on Somersoft.
     
  19. pokeutopia

    pokeutopia Active Member

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    How come? Did he used Binvested to hire people to help him look for good deals in the Western Sydney region? I've always wondered how he manages to always buy below market value!
     
  20. tvadera

    tvadera Well-Known Member

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    Well done Sash, very inspiring read.

    It shows that it can be done if one is patient and willing to learn and apply the knowledge along the way

    Do you have a team or you do all the research by yourself and make a decision on your own as well?
     
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