Care to share your IP strategy grand master plan?

Love to hear what people’s big picture strategies and theories are around investing and building wealth and how they see it working out. How is it going and have you had a change of plan as you’ve gone along?

I started out in property investing after reading Rich Dad poor Dad & Steve McKnighty Knight, so we started out with the cheapie strategy in our my mid - late 20s. The plan was to get positively geared properties. We got 2 places in outer suburbs of regional cities in 2013, 1 property worked out well the other one wasn’t bad but had periods of being vacant. Late 2015 bought a fixer upper townhouse in Reservoir Melbourne as a PPOR. That property earned so much in capital growth comparatively over the next couple of years we really questioned the positive gearing cheapie strategy, even though we hit the jackpot with one of our cheapies having both great yield, great tenants and great growth. Still if we had of bought 1 place in Melbourne in 2013 instead of 2 cheapies in regional towns we would have been in a much better position considering how fast things grew in Melbourne from 2013 to the top of the market. Hindsight for you. Since then we’ve sold the cheapie we had that wasn’t doing as well for various reasons and still made a little bit of CG so nothing lost there. Going forward, we haven’t quite worked out what the new plan of attack is. Anyway that’s been our little journey so far, love to hear some of yours.

 

Hey mate,

Much the same as you started off with reading those same books, along with some others leading me to believe I’d follow the same path.. First IP is much the same and is too far out, with little growth prospects.. 3-4% pa long term I’d say. I plan to sell it. Thankfully I found the forum and got stuck into how to correctly research that I didn’t continue making the mistake of chasing yield or cashflow first thing.

Gone are the days of owning 129 properties in 2.3yrs.. lending has changed and with most people only being able to accumulate a handful of properties before servicing runs out, it makes much more sense to purchase the highest quality IP with growth prospects that you can, and often (not all) times thats in place of yield.

im late 20s so personally in early stages I’ll be staying as close to premium/inner city suburbs as I can, where the demand usually always is.

 

Starting a new business later this year.
Keep my 1 rental property let it pay itself off as equity increases I’ll take it out to buy more shares.
Save money and Invest everything I can into lics. That’s me for the next 10 years.

 

Never really had any long term plans in regards to investment properties, only short term as circumstances change so fast.
Most purchases were done spontaneously when the time felt right.
If you make long term plans and commit to sticking with them regardless, you may be restricting opportunities in other areas of your life.

 

Mine hasn't changed much from day one. All my deals must meet these criteria.

1. Buy at a good price which reflects value, not just a cheap price for the sake of it.
2. Add value in some significant way. Either through a significant renovation or development capacity.
3. Buy in an area with strong fundimentals and is dominated by OOers . For me, Sydney upto 60km from CBD, Melbourne upto 15km from CBD and Brisbane upto 12km or 5km ( depending on my strategy.)
4. Selling some stock along the way to manage debt, recycle cash into more projects and enjoy chunks of profit at the same time. I'm not bloody waiting 30 years before I can relish the fruits. That's too depressing.


For my investing, I'm all about creating as much equity as possible. Not into CF with residential RE.

When you create a lot of equity, you can pretty much have any master plan you want at any time once you have the equity.

 

My strategy

- Hold maximum 2-3 IPs (in Sydney, I focus on older red brick units or villas, affordable entry price for me and only if land ownership % is large.) There are blocks of 8-12 units sitting on large parcels of land with future high rise potential
- Pay all IPs off
- Buy ETF and other blue chips for dividend income
- Generate passive income of a average working wage
- Small % of net worth in speculative shares
- Buy lotto tickets with $20m+ jackpot

I suspect future governments will raid Property holders (landlords) for wealth tax to feed the populists. Large landlords are always the easiest targets.

TB

 

My strategy as follows:
Buy, hold, reduce debts, and recycle

 

@Des Would you have been able to afford holding the 1 Melbourne IP instead of 2 CF positive IPs?

 

Trialing retirement at the moment....well not quite but at least out of the rat race. So selling down at the moment...

I have bought about 34 properties. Sold 2 before 2010...have sold 2 in 2018.

Last year (2019) sold 1 and have one under contract and another about to go to market. If that all proceeds to plan I will be at 27 properties by 30 June 2020. Have put deposits on another 2 places...doing the due diligence.

My strategy is as follows:

1. Continue to sell down inferior older properties...I am doing this because maintenance will eat into your profits no matter what. Most of these are 4-6 out of 10 properties.

2. Continue to build new homes most of these will be 6-8 type of property for its market. This will increase my depreciation...and this will assist with reducing my tax as my income will grow with debt reduction.

3. Focus not on a income side of say 200k but only to pay about 70k in taxes. The better way to is to have say 180k in income and pay say 10k in taxes..so this translates to an equivalent of 280k income. This is done via depreciation credits, franking credits, pension streams (too early but post 60 this is the way to go).

4. Transfer some property asset sales proceeds into Super over the next 7-8 years get to the $1.6m cap (likely to be $1.8m with indexation). At 60 you can draw down tax free assuming the govt does not change rules.

5. Continue to create a Clayton's super fund of LICs/ETFs to the value of $1m by 60 from sales of properties.

6. Develop at 5-7 new properties (at least significantly renovate). over the next 7 years. Know down and rebuild some of my places based on feasibility. Convert portfolio to mostly new places to reduce maintenance costs.

Target income is 200k clear a year after tax. Currently income is around the low 6 figures...but tax optimized. With asset sales I am hitting over this figure this is not included.

 

Do you manage your own builds @sash ?

I'm also thinking about how to maximise the credits, still early on in my investment journey but can see in a few years my IPs will need some work done for the kitchen and bathroom etc.

 

I have learnt the build process well...and also know what sites to get and what to look at for over time.

 

You might be surprised how much you can still borrow...

 

I run the equivalent of a dividend reinvestment plan using property instead of shares, and using resi lending instead of at call margin lending

I buy assets that produce dividends ( NRAS or Dual Occ ) - better known as cash cows
I reinvest the surpluses/dividends into debt reduction.
This model/strategy reduces my taxable income and increases my after tax income
It retires debt and removes any possibility of issues with holding costs/P&I cliff
It creates equity even where there is no growth
It improves borrowing capacity through the reduction of debt.
It will deliver the certainty of a very comfortable retirement over @ 20 years.


What this model/strategy does NOT rely on is speculative outcomes. ie capital growth or favourable credit conditions, which are the two ingredients that all other models/strategies depend upon for their lifeblood. It certainly welcomes both with open arms , but doesn't need either to deliver the certainty of a very comfortable retirement income.

 

I guess it depends what strategy is followed sash.. id say yours given your after less maintenance and more income, would allow for more borrowing at your stage... Im bloody early in the process so am still quite negative and chipping in a decent amount of funds each month (Granted I'm on P&I though) I have room for 1 more before I have to shut shop for a couple yrs

 

There are more than one way to skin a cat...I reckon you have more capacity....but that will involve a longer convo..and my fingers will get tired typing.

 

That is possible...with rates down...you need about 4.5% to be neutral...it has to be newer so you aren't killed by maintenance.

This is where a lot of the CF+ mob buying in Logan and other places got it wrong...they are not factoring in maintenance particularly lower socio areas...

 

I’m pretty confident yes, I mean not a Toorak mansion obviously but something similar to the combine purchase price of our 2 cheapies yes. We had 2 FT wages and no children/debts so I don’t see why not.

 

Great read, thanks for sharing.

 

Interesting! I’m a total newbie with a lot of this stuff and I don’t entirely understand how you do this. What is Resi lending?