Early 30s and wanting to expand - where to next?

G'day all,

Long time reader. I am very keen to expand my portfolio in the next six months and just want some thoughts and opinions of where I should turn to next based on my current situation.

ASSETS and LIABILITIES:

PPR: $530k (Country Vic hosue, built in 2017)
IP 1: $400k (Country Vic house, bought in 2014)
IP 2: $570k (Inner Brisbane townhouse, bought in 2015)
IP 3: $410k** (Hobart duplex, currently under construction)
IP 4: $410k** (Hobart duplex, currently under construction)
Share portfolio: $100k

PPR mortgage: -$380k
IP 1 mortgage: -$280k
IP 2 mortgage: -$410k
IP 3 and IP 4 mortgage: -$320k**
Loan from family: -$200k**

**IP 3 and IP 4 are a duplex being built in Hobart, very close to completion. I was in between jobs when it got off the ground and therefore had serviceability issues forcing me to borrow from family. Plan is to keep IP 3 and sell IP 4. From these profits I will pay back the loan from family, pay the GST, CGT, commission, etc., and have about $150k cash left over.


CASFLOW (all pre-tax per-annum):

My salary income: $90k
Start-up side hustle: $35k
Mrs AD's income: $80k
IP 1 rent: $17k
IP 2 rent: $26k
IP 3 rent: $22k

PPR mortgage (P&I): $23k
IP 1 mortgage (P&I): $17k
IP 2 mortgage (P&I): $24k
IP 3 mortgage (P&I): $18k
Misc living expenses: $40k
IP expenses: $13k


I have a couple of questions for property chatters:-

1. It is our intention to keep IP 3, as the yield will be excellent...but is this the right move?
2. With the $150k cash and extra serviceability available, Mrs AD and myself are wanting to expand...what would be recommended? I had been considering starting a two-lot duplex development locally, but considering the downturn I am toying with the idea of a 3-bed townhouse around Brunswick West/Pascoe Vale South/Pascoe Vale/Oak Park, or a terrace house around Brunswick at a stretch. Are any of these options good? Or maybe should I look at something/somewhere completely different?

NOTE:
I will be finishing at my workplace at the end of the year as I will have completed the project my contract was for. I am looking to go full time into the start-up side-hustle next year, but this will mean a very significant hit to serviceability, and therefore I am hoping to secure an investment before then.

Thanks in advance!

 

My only advice is to look forward, not back.

If you intend to sell an IP, take a long hard look at future prospects regarding rental and capital gain before you decide which to sell.

If you decide it is better to keep IP4, you may be able to refinance to repay the family loan and retain tax deductibility - check with your accountant.

If repaying the family loan is your main (and commendable) objective, this may enable you to retain all your current IPs if that is what you want, rather than incur selling and buying costs if you sell one IP then buy another.
Marg

 

Yes I see what you are saying re buying and selling costs - it would be a $40,000-$50,000 exercise. My original plan with Tasmania was not to be over-exposed, and to keep one (at most) and deploy the money elsewhere where it could make more. I think Hobart has had a good run, and perhaps doesn't have much more in it...?

Thanks for the response Marg

 

Yep will be looking to do that Rolf - definitely long on property...the fundamentals (in Sydney and Melbourne in particular) over a 20 year horizon mean that the gravy train won't stop. Perhaps growth won't be like it has been for the last 20 years, but it will still be superior to anything else.

 

1. Sell the shares
2. Direct proceeds to pay off PPR
3. Redraw funds to buy shares

If you do not have significant gains on your shares you will be better off recycling your non-deductible ppr debt into investment debt by following that method

 

@aarond I’m in a relatively similar position to you, probably a couple of years behind.

Something that I’d definitely put some thought into is kids, if they’re on the cards in the not too distant future, does that mean you’ll go to one income for a while? Maybe quite a while?
Especially if you’re going to try and quit your job soon this may be your last chance to refinance for quite some time.

You seem to be in a great position I would be wary of overextending, unless you’ve got a solid plan around cash flow and or exit strategy.

The one thing you want to avoid is being in a position where you have to sell because can’t afford the ongoing repayments, even though you will have a good chunk of equity by that time that won’t help the day to day payments.

 

Thanks Toby, will look into it! Cheers

 

Hi Brendon, thanks for the response.

I am quietly confident the new business will go ok...I have been working in this specialised field now for nearly 10 years. I have a reasonable client base, a good pool of referral sources from complimentary businesses, and have identified a potential niche that is currently missing in the local market. Currently it's bringing in $35k (net, ex-tax) with just doing a bit here and a bit there after work and on weekends (say 8-10hrs per week). Conservatively looking to be about $60k-$70k (net, ex-tax) first year, and around $90k-$100k (net, ex-tax) in the second year. Currently we are putting close to $70k-$80k per annum into the offset, so we should have a fair bit in the kitty to ride out any storms.

In terms of exit strategies...to be honest we don't have one...!