Domain (Fairfax): The Gen Y couple from Sydney making $300,000 a year with 28 investment properties

Discussion in 'Property Experts' started by Paul@PAS, 27th Mar, 2017.

Join Australia's most dynamic and respected property investment community
  1. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Article in media last week : The Gen Y couple from Sydney making $300,000 a year with 28 investment properties

    I read this the way that the ATO might...These guys may operate a property business through a systematic plan and approach to generate income through the activity of property ownership and income production that includes renovations and leasing that combines resi and commercial. Not passive investors but active as business income.
    That comes with consequences....And its a self-assessment basis of taxation so they may (or may not) have needed to seek advice to avoid really incorrect tax assumptions at some point.

    That what they seem to be conveying in their SPREADSHEET posted in media !! I have to say that publishing this data is a really unwise thing to do even if there is nothing to hide.....and in doing so they disclose information that is public and then used by the ATO's media review team to select audit targets. I gathered that the journo validated their information to identify their story as genuine. Thats fine. But I really dont think it was wise to republish that. And if a journo says or mis-describes the wrong thing for the sake of simplicity or brevity - It could trigger a unwarranted problem.

    Some issues that may occur with property business owners

    1. Capital gains or not ?...No small business concessions either since there are no active assets. Perhaps all property is held on revenue account, perhaps some, ...?
    2. Maybe super opportunities later ? (s66 real busienss property)
    3. Ownership of ALL properties may be joint ie 50/50 and title will be ignored. This can radically alter tax outcomes v's normal rental property rules which work on who is on title. (Yes some in trusts is noted)
    4. Disclosing a profit making intention through reno's, buying underperforming property and developments may blend all property into a revenue issue where it was acquired to produce profit expectations. Strategic choices for structure etc may have occurred so that these issues are quarantined and safeguarded but that not apparent in the media article...So be careful with replication of the example

    Rather than focus on the media hype intended by this article I suspect many of PC would like to explore exactly what Scott and his partner did well...After all 28 properties in this time frame is astounding. I cant believe that a person could start this journey now and achieve the same. All the lending restrictions now have to impact. The opportunities of five, three or even 1 year ago has changed the whole ability to finance, refinance, manage repayments and buy some good opportunities.

    One of the strategies I noted was to buy to rent and renovate etc. Nothing new in this at all but the volume and hold strategy is something that could expose a risk. A risk that the intention between income production and renovation for profit seems blended. And the ATO view when it isnt clear cut is to call a CGT asset a revenue asset. Hence no CGT. How is that risk managed ? I suspect one answer is this - We dont expect to sell... Agreed. But eventually at some time someone has to face a CGT tax question and a tax rate that is half is always a good goal. Does CGT apply to this or is it business profits or a series of profit making transactions ?

    One of the key issues I would like to understand includes how is debt managed - How does debt compare to those assets ? That aspect of the media was poorly portrayed IMO. To indicate a $20M portfolio and ignore debt levels is a bit one sided. And land tax. What is the annual land tax bill and what may it have been if it was all owned by the wrong entities (ie two people!) What strategies achieved this saving ? (QLD trusts I suspect)

    And finally I would like to understand more about the blend of business activities and CGT events. especially a self described business that assists and supports others to learn from these strategies.

    I would be very keen to hear some words of wisdom from the likes of Scott or anyone else with a very large portfolio. How did they build their team or advisers and who has been most helpful. What mistakes can you share ? What are your best decisions and risks ? How did you manage those ?

    Hopefully we can avoid efforts to knock down what seems a rags to riches story that many on PC would love to emulate.
     
    New Town likes this.
  2. DaveM

    DaveM Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    3,761
    Location:
    Adelaide & Sydney
    I recall that couple, Scott joined the forums last year and used his intro to shill Rethink, and it was all edited out.

    Generally these media stories are nothing more than free advertising space for spruikers/investment companies to get clickbait for new clients for their businesses.
     
    teetotal and Redwing like this.
  3. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    There are 3 in there from QLD that have made a pretty serious loss of about 450k
    420 -> 325
    500 -> 280
    445 -> 310

    Had they been unlucky enough to start with one or two of these then they would not have been able to get in at such a great time and lost a lot of their profits.

    Not to say they did not do the hard work or that it isn't deserved, but I wonder if the market was doing averagely instead of the huge boom that has happened over this time what would they reasonably expected to be at now.
     
  4. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    This is where they would want really, really good advisers in tax and taxation law.

    This is where your advice to seek advice before purchasing is so important. If investors are planning to build a portfolio this large, buying individually, buying in trusts and buying in companies are all going to have very different tax outcomes. Personal advice is needed before buying. Probably both personal tax advice and legal advice would be needed here.
     
    Colin Rice likes this.
  5. SmileSydney

    SmileSydney Well-Known Member

    Joined:
    20th Nov, 2015
    Posts:
    144
    Location:
    Sydney
  6. teetotal

    teetotal Well-Known Member

    Joined:
    7th Nov, 2015
    Posts:
    736
    Location:
    Sydney
    Interesting story, they mostly did Regionals. And regionals generally are cashflow positives.
    Makes me thinking now, especially in the tight lending environment. You may not need to focus on CG but on CF to improve serviceability.
     
    Last edited: 28th Mar, 2017
  7. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    I have a number of clients who have that view. Regional areas that arent coastal / coal / mining towns with strong local industry
     
  8. Abooking

    Abooking Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    126
    Location:
    nsw
    What's their land tax bill each year?
     
  9. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    3,189
    Location:
    Australia
    Was there more content in this thread that was erased? Everyone was questioning the numbers as they didn't stack up, and I wanted to know how you create so much equity in the same month you purchase.
     
  10. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,935
    Location:
    Lower Blue Mountains
    its in the article
    copy below:
    upload_2017-4-4_15-2-50.png
     
    Hung and Perthguy like this.
  11. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,935
    Location:
    Lower Blue Mountains
    took it one step further for those playing at home
    [​IMG] upload_2017-4-4_15-9-53.png
     
    Hung, Lacrim, JohnPropChat and 4 others like this.
  12. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,935
    Location:
    Lower Blue Mountains
    there's something funky going on with the group buys and re-val
    i looked for a minute and couldnt work it out:oops: eg Bought 3 then valued individually
     
    HUGH72 and Barny like this.
  13. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Trusts seemed a feature yet its one big portfolio. That could expose some deficiencies in the trusts too. Could the trusts be crossed to the individuals and an asset risk becomes exposed ?

    Also blending resi, commercial and also development sites is really somewhat inaccurate as a snapshot picture.But ignoring that...On a quick guess....

    $11.3m value less $6m debt = $5.3 equity less original investment $8.5 = $3.2m loss based on present values. So future value increases need to be guaranteed and assured (dev sites !) to counter this since its not a income producing strategy either. When the holds are eliminated I wonder what the others truly look like ?

    So they are happy to wear a current loss and hope that property prices dont collapse by more than 28% that seems fair as an assumption...And then hope that IO and financing problems dont curtail access to liquidity so they can complete developments which may recover further equity potential.

    I question cashflows associated with land tax - Thats gotta hurt somewhere and impact yields. I question if "yields" are net of interest and land tax.

    Maybe without excel it looks like this:

    [​IMG]

    More questions than answers
     
    ellejay and Wukong like this.
  14. JDP1

    JDP1 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    4,244
    Location:
    Brisbane
    funny how these articles never mention how much debt they have on those properties.
    They have a large cumulative equity so i suppose they could sell some to pay off debt if they chose to do so.
    Also, note that their ( almost sole) blue chip in maroubra has the highest equity...which seems, at the face of it, to go against their strategy of quantity vs quality ( given that they have 28) ..cant say definitively- just at the face of it. This appears to give the ( sometimes true, but also just as likely to be false) view that quantity trumps quality for CG yet their maroubra holding has the highest equity and assumed CG contributed to that number the most.
    Well done to them nonetheless for creating equity via property.
     
  15. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    Could have been 3 in one line? Buy, strata, revalue? Makes sense. People keep saying the numbers don't stack up but then don't present evidence that they don't.
     
    House likes this.
  16. Cimbom

    Cimbom Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,568
    Location:
    Back in Canberra!
    I'd be more than happy with just the first two properties - $1 million in equity and almost $1000/week income net. More than enough for me. A lot of the rest just seems like a headache.
     
    ellejay, wylie and Ardi like this.
  17. Daniel007

    Daniel007 Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    256
    Location:
    Sydney
    Just buy a quality commercial asset, best of both worlds
     
    Perthguy likes this.
  18. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,125
    Location:
    The beautiful Hills District, Sydney Australia
    I have been saying this for some time. Decade to deleverage. This is why I have used NRAS and Regional Dual Occ. I can accumulate assets that add significant surplus income ( 8-10K per annum each) which can then be redeployed for debt reduction, generating equity and improved borrowing capacity.

    In other words- dividend reinvestment plan using property rather than shares.

    Imagine you owned 3 of these for example, generating 24-30K net after tax income per annum. Imagine how powerful that would be if used to pay down debt....
     
    Last edited: 6th Apr, 2017
    charttv likes this.
  19. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,125
    Location:
    The beautiful Hills District, Sydney Australia
  20. Cimbom

    Cimbom Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,568
    Location:
    Back in Canberra!
    That is really the key issue and the reason people don't look to these areas as options. I'm not sure if government subsidies are really going to change things.

    It's like when Barnaby Joyce was saying that young people should move to Tamworth so they can buy a cheaper house - not taking into account that it has among the highest rates of unemployment in the country.
     
    Perthguy likes this.