Early 50s noob investors

Hi Dogga

I would read up more on Rational Aset Allocation (based on age) , Sequence of Return Risks if i were you...

 

Why 5, it would be a good idea to buy one with a low LVR, you cant go wrong, Buying property doesn't mean you cant buy shares, I think it is silly saying its got to be one or the other they complement each other. keep your LVR low and use equity and/or cashflow to fund share purchase, you can pay a house off quicker that way and create funds for new property. It is erroneous to think shares will go up at a constant 4% year 3 they could drop 50%, but if they are secured with property it doesn't matter, as often the increase in the value of the property will offset the drop in share price and you may even be able to buy more shares at a cheap price. If property drops and share prices increase it is also a property buying opportunity, If both drop at least one will probably be earning income. It is silly to just go and buy 5 houses. You need to be opportunistic and buy when opportunity knocks which cant be predicted,

 

From what I'm reading.

Your combined income is $185k. Say $100k post tax.
You have a freehold property - no debt.
You are saving $715/fortnight. $18,590/year.

You wish to purchase real-estate.
What's the end goal here?

I'd first look at your spending habits and what the desired outcome is.

Yes you could go and leverage into 5 neutral geared properties.
In 10 years when you are ready for retirement, you will have 5 slightly positive geared properties which will not help you in retirement. The cost of liquidating these assets at a later age will eat through a majority of the profits, and as pointed out in previous posts, the lending environment is not so friendly at this point in time.

Unless you plan on manufacturing growth with subdivisions/renovations/developments, real-estate investing as a buy-and-hold requires a long term strategy. This may be useful if you plan on retiring in 20+ years.

If you are insisting on property, perhaps look at purchasing 1 or 2, and paying it off as quickly as possible. This may yield a higher quality result than thinning out funds over several investments.

Compounding LIC/ETFs may be a better option. Liquid, and less overheads.

 

I find with many couples I work with 1 partner is super keen on property and the other slightly more passive or neutral minded about it. Its great to have conversations and ensure nobody is feeling hard done by or ignored, but don't stress about the differences they are the spice of life too!

There are plenty of things to consider and its easy to feel overwhelmed, don't worry many of us have been in that place before. As folk have mentioned you have some time but less perhaps than others (increases the need to make quality decisions) but more equity to start with (good thing). You are in the right place to learn and lots of good operators here if you want to build a team.

I would suggest some good sit down goal setting to ensure you are both on the same page, and even if a reduced goal of 2 or 3 properties were set as an interim goal, then you can re-evaluate whether to push for 5 based on how much fun and profits are happening from the first few.

I would agree with above comments that slightly more active strategies like renovations, small development and buying in areas with medium-term growth potential could work in your situation to manufacture equity faster.

Suggest keeping the purchase price of the first one sensibly low to dip your toe in and get some momentum.

 

We have goodly amount of LIC's which we will continue to grow and hold. I think your suggestion on doing 1 or 2 IPs sits better with me

 

We still hold these LIC's and these already will produce 1/2 the required income so we would be looking for the properties to provide the other $30K

 

This is making it hard to work the scenarios. If you want 60k, you need maybe 3m other than your home. If you already have say 3m in lics, then the property is just for fun. If you have 100k in lics, you need to be more aggressive.

Look at all the scenarios on the basis that no one knows your financial situation.

 

Wow.... so much going on here I’m not sure whether to comment & if so, where to start..... Here’s my opinion:

OK, the NAB “advice”.... absolute garbage IMHO. Forget they even said anything at all. As has been stated, number of properties is irrelevant. End of story.

60k passive income goal - realistic & very achievable IMO. Considering your age, the Supperannuation “asset vehicle” is likely your best friend in achieving this goal due to the favourable tax treatment in pension phase which is just around the corner for you. I’d keep maxing out up the current concessional limits for each of you. ie. 25k each so 50k /yr combined.
This will see 500k added over 10 yrs which will generate 25k /yr @ 5% draw down without even considering returns over that period.

Current IP - what is the current leverage/equity & cashflow position? Do you intend to keep into retirement or transition into a less maintenance intensive asset? What proportion of your target income is this asset likely to contribute? 5k, 10k, 15k, 20k per year?

Current LIC holdings - are these substantial? Ie. do they form a significant contribution towards your 60k goal already? What total contribution are you planning for these to have? 5k, 10k or more per year?

Current savings - 160k.... is this generating any real return at present or largely sitting idle? You have many options here but considering your age, making it work for you seems to be a fairly high priority in order to achieve your income goal. Have you considered putting part of this into your super if at all possible?

Superannuation - depending on current balances, you might already be at, close to or well on your way to your 60k income goal with super alone. A combined balance of 1.5M @ 4% or 1.2M @ 5% draw down would do it. If you max out contributions for the next 10 yrs (500k combined) & noting growth over that period, your current combine balance would only need to be around ~500k to get over the line on super alone with max contributions for the next 10 yrs from my rough back of the envelope calculations.... might be way off so do your own sums here.

Not even considering your preferred retirement age, I can’t see why 60k /yr passive net income isn’t achievable within 10 yrs or less depending on your risk appetite & use of leverage. Even with low risk conservative approach it seems your 60k goal is highly probable within the 10 yr window.

This is, of course, all my personal opinion.... I recommend you seek out credible advice rather than listen to that nonsense from the bank.

 

3M to make 60k /yr...... WTF..... surely you jest.... either that or you need help with you math.

 

Ok well I know a bunch of people (in both accumulation and pension phase) working on assumptions of 5-6% gross yields indexing roughly for inflation netting down to around 2.5-3% when fully paid off and generating retirement income. (before all the Sydney and Melbourne investors scream I am drawing on real examples in OTHER markets where yields aren't so low as 2-3% gross in some suburbs of Syd/Melb).

Of course, you can do better with a good local boom, small development etc but conservatively use that as a realistic guide. Assuming the above, you would need $1m- $1.2m unencumbered to hit $30k net. If you mean net of tax also and have a tax liability perhaps you need to push it up to $1.5m worth of assetts to make it more like $40k with of income.

Either way, you could get 2 decent properties and pay them off yourself, or get say 4 more affordable properties, sell 1-2 to pay of the others at the end, buy 1-2 with development potential, finance new build turning each site it into 2 or 3 dwellings... or a blend of those 3 strategies. Given your focus and your timeframe the stronger the cash flow the better so houses where you can add granny flats, multi-unit setups etc are all worth considering to squeeze the extra 1-2% out of them.

Disclaimer not specific financial advice, comments are general...etc etc

 

Not at all. Conservatively 4-5% return. 2-3% inflation.

 

Ohh i see ... your assuming low yielding zero capital growth assets. Definitely not the investment domain I'd correlate with a net 3M investment portfolio .... or maybe I've been floating in the pool here too long & have soggy brain.

Each to their own....

 

For planning purposes using shares, I would suggest 4-5% income/dividends and capital growth of 8-9% (that is, 5-6% above inflation at 2-3%).

 

Thats too aggressive for me in retirement phase.

 

@DoggaPP, I know everyone is different but I will share our strategy with you:

• We use property to primarily create Net Worth, especially with the use of leverage, But it takes time (due to the high buy-in costs, the high holding costs, and the high selling costs) and a lot of work (property is NOT a passive investment) to do this.
• We use shares to primarily create income, with growth being a bonus. It takes time for compounding to weave its magic but shares are a lot less work then property.

I feel you left it too late to get into property .

Plus you state you are seeking income.

There is nothing wrong retiring withj an unencumbered PPOR, a massive share portfolio earning more income than you need and all the time to enjoy yourself .

Some of the gurus much loved on PC have done this including the likes of Peter Thornhill.

 

... and I feel 0% growth (gross or net) is too risky

 

Its never too late to invest but present market conditions dont assist with confident buying decisions. But targeting 5 makes no sense. Its not a quantifiable value as it could be 5 terrible properties because they are cheap. Or dumped on you by a shonky spruiker.

Assuming you want passive income and within 10 years you need property that is cashflow + but perhaps with tax concessions to alleviate the issue with tax on income. A newer property perhaps ? Or higher yield ?

Where have you been looking ? Often noob investors look around them when they should look further away. What does tassie, SA or QLD look like ?

Follow the maths. If a gross yield is 3.5% then after interest and other costs you wont make $. So you need growth. And growth alone needs time and may cost you annually if you get the CF wrong. And if growth is negative thats even worse. With 5 properties (or even 3) it remains a high debt strategy exists so debt reduction isnt really going to assist. So why will rents rise if values arent ?

If you have no debt then there is another way that can allow some strategies around super to assist you. It still can leave you and wife neg geared but with less overall gearing. So the super $$$ assist the strategy and its share of income is taxed at a low rate. Over time you enhance how much the fund owns so the super fund acquires more from yourselves. Turn age 60+ and its a strategy that has helped build the super and deliver good tax savings each year through property and maybe extra super contributions (tax deductible) so the fund builds it ownership of the property. When you retire hopefully the fund has amassed a gain and later on the property could even be sold...tax free ?

I'm not trying to explain how it works - Thats complex but I mention it to indicate you havent likely considered other options. Planning is important. Knowledge helps.

 

This is what interests me. The soft skills around property investment however, elude me.

 

Read some books.

0-130+ properties in 3.5 years. By Steve McKnight
Margaret Lomas books.

Those are good starter books with the basic maths in it.

A lot of the strategies are now irrelevant in the current market, however it will get your brain ticking.