Expat looking to get established

Hi all,

I'm in my mid-30s, family, living in Asia for a while now, but from NSW originally and know Sydney reasonably well.

I've had an interest in property investing for many years, but have waited far too long before getting serious about it. Signing up here is hopefully a first step in that process i guess. This seems a fantastic resource with plenty of genuine investors willing to share/exchange their views.

My ultimate objective is to build up sufficient free cash flow to give me flexibility in terms of managing my own time. Somewhere in the $100-200k p.a. mark would be a good base i guess.

Concerns over market valuations, and a desire to build up a decent deposit plus buffer for job risk etc, have held me back so far. I remain concerned about broad market valuations, but residential prices at a minimum are now moving in my favour, so i need to get ready.

I'm reasonably familiar with real estate and investing more broadly, and have now built up enough of a deposit to be able to invest probably up to or a bit above $1m including debt. Being offshore, I need to clarify borrowing capacity in the current environment though.

In terms of strategy, I am a big believer in simple investing for cash flow. However, i am not focused on simple buy and hold at this point because of valuations (both residential and commercial) as well as the fact that with current yields i am likely to run out of debt capacity before getting anywhere near my targets. So i am hoping to learn more about value-add opportunities that can allow me to build my capital base.

However, i dont plan to move back to Aus in the short term, so any value-add strategies would need to be able to executed with only limited time spent on the ground. I appreciate this is a major hurdle, but cant be helped at the moment.

So hopefully this forum will allow me to build up my confidence, contacts and skills to get involved.

Looking forward to interacting with this group!

 

Welcome to PC, Dave, you'll have fun here.

 

Hi @Onlinedave

Welcome to PC... valuable resource indeed.

Lender options will be driven by the currency you are earning in. Lenders shade foreign income, so not all income can be used for borrowing capacity purposes.

Sydney will go sideways for sometime, but at the same time a buyer's market - so you may find some good opportunities.

 

Depending on your timeframe to achieve 100-200k passive income , your comments above conflict with eachother imo. If you chase CF now with rents, I am 99% certain you wont reach 200k passive income while you still have dark hair, or hair at all for that matter .

Firstly you need to understand what you're up against. 200k passive income from residential RE is a goal maybe only ( rough guess) 0.01% of investors in Australia can achieve .

So put differently, what are you gonna do that puts yourself in the 0.01% category ?

You correctly identified that you'll need to find add value opportunities .

Gonna cut and paste a post I recently made to a poster who wanted to achieve significant CF in 5-10 Years. I don't know your timeframe but I believe the advice is still relevant to you , at least from my perspective it is.



1. Commitment: Make achieving your goal an obsession and be willing to sacrifice some serious time and taking on a level of commitment that 99% of investors will never do.

2. Study: Spend some time ( prob at least 3-6 months to actually study (not merely flick through pages) RE investing via many books, on line resources etc. This is where the bulk of your hardcore study will come in. Investing basics, fundamentals of building a team , easy mistakes to avoid, cycles, due diligence analysis ( S/D analysis, SOM, Discount rate, vacancy rate, etc) of state, city, suburb, property, demographics, understsnd how to maximise leverage, CG Vs CF and what balance you'll need, negotiation strategies, networking tactics and outlets, how to assess and mitigate risk and more.

You'll need to learn your craft well. 99% of investors never do this and tbh they don't really need to as most have vastly more modest goals than what you want and a looong timeframe .

3. Add value strategy: Adopt an active approach ( specialise in an active strategy) to investing in order to give yourself the greatest chance for largest/quickest returns . Subdivisions, structural renos, small developments and possible JV partnering . Even more study here around risk/feasibility analysis , building a specialist team and further networking. However what comes with an active approach is greater risk . And alot of it depending what strategy you choose.

4. Mindset: Develop and maintain a superior psychological mindset than most others when it comes to investing. IMO without this, you have no chance. YouTube Jim rohn, Les Brown, Tony Robbins . YouTube "its not over until you win. Your dream is possible". 35 minute clip .

5. Financial capacity: Serviceability/income/current money on hand . If your currently earning 40k a year ( for example) and have no savings, large credit card debt and bad spending habits, its pretty much game over. You need to have strong financial capacity to be able to allow you to adopt an active approach and achieve your goal of 200k especially if it's in a short period of time.

Alot of work ? Consider this . Who doesn't want to build a chunk ( 100-200k) of passive income and retire early if they wish? Everyone does . If it were easy, everyone would be doing it.


You'll often hear "financial success is a journey". Imo that's BS. There are many ppl who journey their entire lives and never attain much financial independence.

Attaining financial success is a process not a journey, though it'll definetly take you on one hell of a rollercoaster ride.

Good luck

 

Thanks Sackie for the response.

I actually caught that message on the weekend and watched the YouTube clip. Very interesting, although I can’t get past that sort of speaker filling a stadium like that. Only in the US perhaps.

I hear you on low cf from resi, so i am also exploring commercial. It’s a completely different game I realize but I do deal with it to some degree regularly. However I’m not sure that the returns justify the risks in that space now either.

Capacity building is what I have been focused on so far though saving, and want to do a bit more before trying to move into value add investing. Looking at some of the lending calculators for the major banks, they suggest I would have the capacity to invest up to $2m or so at the moment, after adding my deposit. Although as the Property Twins kindly noted, that’s before adjusting for the fact that my earnings are in yen, so in reality it would be less.

So I guess I am in the “study” phase st the moment. I am comfortable with the investing basics and theory etc as I deal with it daily, but the other points specific to teams and property level DD are what I need to work on.

One point you raised that I saw previously on the forum was discount rates. I was wondering how people would come up with them for individual deals? They are obviously very subjective, and market discount rates do move a lot (just compare retail vs industrial now to 5 years ago). Would just an NPV approach not be as informative, captures capex etc either way etc?

Also last one: what is SOM?

 

I've done a lot of work with expats in the past, I hate to say it but your borrowing capacity is going to be a lot less than what the lenders online calculator suggests.

Firstly you need to realise that these calculators are designed as a marketing tool to get you to apply. They usually don't actually conform with the lenders own policies and are only accurate in the most basic scenario. I'm yet to find an online, self-help calculator that is consistently accurate (assuming the data entered is also accurate).

The other problem already indicated is that lenders won't use all your income. The Yen is a fairly solid currency and most lenders will use 80% of it, but they also treat how tax is applied in a draconian manner. In some cases, when it's all done, lenders are using less than 50% of the actual income.

All this adds up to very average results for expats.

 

Thanks Peter, that’s very useful. I figured it was all downside relative to what those basic calculators indicated, but hoped it wasn’t too draconian. Hence the initial thought of maybe $1m, give or take, in total capacity.

That probably suits my risk tolerance for the moment perhaps anyway, until I get more experience and confidence that I know what I’m doing!

I imagine it would also be a very difficult to sell Aussie banks on the idea that I can lower my tax rate by depreciating some older buildings over just 4 years here.

 

Actually just one question on this: is there much of a spread in the level of conservatism on this sort of thing (expat lending) between the majors and the non-bank lenders?

Thanks again Peter

 

What does this mean and how does this apply to australian property?

 

I use Discount Rate of a suburb to get a general idea of the demand/sentiment of that suburb. Then compare apples with apples within a suburb to come up with a price you think is reasonable and offers value for you.

SOM is Stock on Market. Increasing or decreasing. It also goes to S/D an potential price movement trend of a suburb.

One thing I will say is many folks try to analyze to death quantitative data with RE investing and marginalize the qualitative research. I personally believe the latter is often more revealing and significant.

 

Just that Japan has very generous depreciation schedules for older buildings, particularly if they have wooden frames.

This article gives a bit of an explanation. Serious policy risk now on this one though.

ISG Japan - Reducing Income Taxes

 

Got it. Thanks Sackie

 

But how do you expect this to have an impact on you borrowing to buy in australia?

 

Just that in an ideal world I would prefer the banks to consider what Aus property investing would have on my actual after tax CF, factoring in this tax loophole, but I doubt that would happen.

 

@Onlinedave Australian lenders generally don't give consideration to depreciation of property in their serviceability calculators. There might be ways to generate exceptions to this, but they definitely wouldn't apply to expats.

What they tend to do is take your net income as evidenced by payslips and bank statements verifying the salary is going to your account. They then take 80% of this (for currency fluctuations), convert to AUD, then apply Australian tax rates to it.

In essence, they take 80% of your post tax income, then tax it again at Australian tax rates. Hence with some lenders your serviceability is fairly awful.

Many non-bank lenders are mortgage insured even below 80% LVR (you just don't pay for it). As a result, most of these lenders don't deal with foreign income sources. I think there are a few non-bank lenders that are okay with expats, but most aren't.

 

APRA has well and truely foked many folks serviceability. So I'd forget ideal banking notions for the next 5 plus years.

What you need to do re finance is get in touch with a gun broker to discuss options relevant to your specific situation. Anything else is just a waste of time.

 

You cant apply offshore depreciation rules to australian property. What am i not understanding?

 

Thanks Peter. The 20% discount sucks, but if there’s any relative positive it’s that japan already has high tax rates, so it isn’t as big of a hit as if I was in HK or Singapore.

I am guessing my expenses aren’t discounted 20% when considering my income vs expenses?

 

Hi Trainee
Because I am ultimately a Japanese tax payer is the short answer. And japan doesn’t differentiate by location when taxing a residents global earnings.

Japan taxes people on a global basis after living here for 5 years, so their tax treatment of property investment apply to my investments no matter where they are once I meet that duration hurdle. It would be different if they applied a different depreciation schedule for offshore property, as had recently been proposed, but at the moment they don’t.

So if I buy in Aus, I believe the way it works is I would do my local tax calculations in Aus using its depreciation schedules etc, and it tax or not in Aus based on that. But then when I report all of that back here, I would be able to factor in the Japanese rates of depreciation, tax, mortgage deductions etc.

Hope that helps. Basically not relevant if you’re not living in japan though.

 

The real problem is they treat you as if you've been taxed in Japan, then the banks assume what's left will then be taxed at Australian rates. Double whammy, they think you're going to be taxed twice. The 20% for currency fluctuations I can appreciate, but this is just dumb.

I think they started doing this when APRA started getting active, sometime between 2015 and 2017. I had two different lender reps tell me that this is the way it's always been done (I'm fairly certain that's not true, otherwise I've got quite a few clients who didn't qualify for their loans.).

They'll use the Australian income for your living expenses but by that time it will be so low it won't matter.