Financially free at 32 – My 10 year property journey

Just a quick note to say that on your recommendation I listened to the "Seasons of Life" and "Seasons of Work" episodes and they really resonated with me! This is exactly what I needed at this point in my life. I've had a 10 year IT career, already achieved what I wanted to achieve in this career, and now embarking on a new path, to build a business.

Will respond to your other comments shortly.

 

Wow that's a very inspiring story indeed. I am currently having a forward and backward motion when it comes to investing real estate properties. I am quite paranoid when it comes to investing a huge money but your story is really inspirational. I think I need to take a leap of faith.

Thanks Jack for sharing your story. Keep on inspiring us.

 

That's is great to hear. His philosophies and practicality really resonate with me also. Wish I'd found his podcasts years ago. His advice really targets most people.

Look forward to your response and following your progress.

 

I will definitely check these podcasts! Did they release a book yet?

 

Thanks @KJB! Surprised you still remember my old PC handle

Thanks @Player! I had no idea the podcast went live until a colleague at work told me his wife was listening to me. What did you think of it?

 

Sounds like a solid strategy to me and definitely something I've been utilising for myself. I'm holding a mix of ETFs and LICs. The more I think about it, the more I'm starting to lean towards LICs for Australian shares exposure. Are you familiar with LICs, and are you familiar with Peter Thornhill's work? Reading his book gave me alot of confidence in investing in shares for the long term.

I know for sure I wouldn't be competent nor have the inclination to do my own stock selection. It's also highly unlikely I'll be able to consistently outperform the index and the investment managers working in the LICs. Happy to outsource the stress and worry for a measly 0.11~0.16% in fees and gain significant diversification aswell.

I'll PM you for my recommendations for buyers agent and mortgage broker.

 

Yes you're right @Gockie I just double checked it, 23 mins if transferring at Strathfield otherwise 29 mins (12 stops) if not changing

 

I detailed my share portfolio here:
Financially free at 32 – My 10 year property journey

Additionally, for reference these are the four LICs that Peter Thornhill uses which @wombat777 did some backtesting on:
NSW - Sydney Thornhill Event - 17th June

 

Thanks for he reply.

I will have a look into Peter Thornhill as I have not done any research into him or read his book. I didn't realise the fees for LIC's were so low. Definitely worth taking the stress and effort required to pick stocks. If something like only 20% of fund managers beat the market, what hope have I got.

That would be greatly appreciated in regards to mortgage Broker and Buyers Agents you use.

In regards to putting cash into ETFs and LIC im of the opinion that the market is over values and im thinking of going with a more conservative approach and making sure I have the cash available to buy if there is a correction or more likely when there is a correction.

I like the look of

Vanguard Conservative Index Fund wholesale

Management cost 0.33% p.a.

Since inception has returned 5% growth and 5% dividends.

Being a conservative etf these returns are probably a bit over inflated due to the performance of the ASX over the last 9 years.

 

Hi Jack, first time post (long time lurker) here.

Just wanted to thank you for your inspiring post. I'm just starting out my career now and admire your motivation to get things done. Hopefully the next 10 years will be kind to investors!

 

Thanks for the kind words and best of luck @Jonny! Sounds like you're already on the right path.

 

Sounds like a decent set and forget style investment, but quite heavily titled towards fixed interest and cash, which is not ideal for those looking to maximise returns. I generally prefer the listed funds due to lower fees.

 

Interesting that the LIC's were able to maintain dividend payment, will need to look into this. I have a few IP's but the plan is for a PPOR next. Once that's sorted I will look into putting some cash into shares/debt recycling etc. Haven't experienced a 'boom' yet for that boost in equity so fingers crossed.

 

HI Jack, thank you for sharing I have a very similar story, but started earlier with regional properties then as soon as I could afford to I bought in Sydney inner city rushcutters, in 2006, 07 darlo, 08 redfern, 09 in northern beaches, 10 surry hills OTP, 12 cremorne OTP, 13-15 studios in prahran and spring hill to balance the sydney focus. I own 80% of my 6 mil portfolio.

Lately I have hit a wall with banks refusing to loan even with great LVR. Im a stay at home mum half the year so they dont give me any credit anymore. Finance has been a big issue. Gone are the good old days of low doc loans!!

My questions:
1. what's your exit strategy?
2. will you upgrade your PPR, which seems the best strategy of all considering its a tax haven?
3. why would you favour +CF when CG wins hands down every time? I was forced to do +CF when I started out as a 19yo woman on minimum wage as I didnt have a choice, but will continue to buy for great cap gains...

cheers

 

Congrats @Poppy. Sorry to derail Jack's thread slightly but question/s for you. You were implying (I think) that you were selling the Syd properties given we're past the peak and years of stagnation await? Is that the case? Also what's your current yield on debt ie total gross rent per annum/total debt remaining if you don't mind me asking?

And how do you propose to continue buying if you can't get finance?

 

Congratulations,
Just imagine the next 10 years, then the 10 years after, like you say even growing at only 5% CG, without adding any more on....without borrowing more.... Let the compounding do its thing but you are still young so I am sure you will accumulate further?
I also like your LVRs, not over exposed, you have buffers available for unforseen circumstances?
But best of all thank you for sharing, inspiring, motivating and being grateful to others. Yes RE is teams game, and your team is so important!
Keep us posted..... and from time to time also enjoy the fruits of your labour.

 

Poppy,

Even though it gets harder couldn't you speak with someone higher the hierarchy and explain that you are unique, where you have a self sustaining property portfolio THAT IS NO LONGER RELIANT OR DEPENDANT UPON YOUR EXTERNAL LINEAR INCOME (Income from any job)?
I would do a business plan based on your IPs, where they are located, recent IP sales next to you for valuation purposes, rents, expected rent and capital growth. I would produce a spreadsheet and with this information I would illustrate to them that your $6million asset base portfolio should suffice to extract some equity to live off or whatever you wish it for!
Assuming net return of 3% (assume 4% gross yield less expenses of 1%) on $6million that's $180K less say $100K interest for loans (say 5% on $2million), that still leaves you income to live off. I assume your PPOR is excluded?
So you go to the bank and you show them that your $6million in 10 or 14 years growing at say X% (the % you would derive on past performance from your IPs) would generate $Y million. You would do the same for rents based on your past performance. You could even have a worse and better scenarios each. Now imagine only 5% CG, using rule 72 (72/5=14.4 years), it would take 14.4 years to double your equity to $12million, yet your loan will still remain $2million, so you tell them they should lend you say $1.4million. This would buy you that time, say 10 years or so as the interest is compounding, but you already have cash left over from your IPs at the moment too! In 14 years your loans would be say $3.4 million but your asset base would be $12million, so you would be ahead (your assets doubled, grew by $6million less extra loan of $1.4million so you are $4.6million ahead!). The bank is better off, holds more value of your assets, they have larger loan they lent you, and you are better off too increasing your asset base. A WIN/WIN situation!
Even though it may be harder it is possible BUT you must have proof, be proactive, devise the figures, show them and tell them, that you are different (not a basket case!).
Many people in banking, no disrespect, I have many friends that work there, do not understand what a self sustaining portfolio of well located properties with low LVRs, not being reliant on other income mean! One of my friend said that, when I said to him, why would I pay you a million off, if I did that I would need to earn about two million (for taxes), than reduce my portfolio to sell and pay off, when my portfolio would grow more in value if you lent me more! He said I was a unique case, really?
Although I have a much larger asset base but slightly higher LVR, and another say 10-12 years to use the equity I certainly plan to do that. You need to think outside the box, and prove to them you are different and unique, and try again!
I hope that helps!!!! It is worth a try, if a door closes, knock on another one and try again, try ALL the banks! I would make my spreadsheet and business plan full of data and be prepared for any questions they may have (what if IPs don't grow in value, etc......!).

 

Lending to a STAM is pretty much impossible at all regulated ADIs (Banks/BS/CU) once you have a few IPs as there are very strict serviceability requirements with the stricter rules on haircuts on income and higher requirements on expense its getting very difficult to lend. The haircuts and buffers were alot lower previously and the exceptions process was a lot more flexible.. Not anymore...

You can try the non-banks or if your numbers are really good the business banking arm of the banks where they do asset lending but that means you would waive all your consumer rights + higher rates + cross collateralisation + ability to recall loans + maybe annual/quarterly financials.

 

Even if you have a portfolio generating say $500K with no debts or 20% LVR?
Wouldn't you take our tax out of it than expenses and then some of this rentals as income say 60%?
Why don't people realise that income is not derived equally?
You can have income where you go to work and get paid hourly for hours work, if you don't turn up the next day, don't put in the hours you do not get paid, the income is linear and not recurring, right?
What if you had income that was recurring passive income, derived say from rentals, so each year you receive $500K gross, then pay taxes and so on, you do the work, investing only once, and then someone else needs to go to work to earn their income to pay you rent, hence you receive passive income that is recurring?
You see my problem is that we tend to categorise every person, every individual into one box, yet we are all different and unique.
So if I won/inherited $30Million and went to a bank to lend say 30% in addition to invest into property since then my total portfolio would be worth $39 million generating say 3% net of $1,170K they would not lend to me?
Yes it is getting harder but at the end of the day wouldn't your financial situation and asset position dictate that? Perhaps larger asset base and much lower LVRs are required but the lender would be silly not to take advantage of that. I suppose at $30million you can then wait few years, generate and save that income, and then buy for cash? Why then would we need the banks?
Please remind me are we still living in a capitalist world?

 

APG223.27 Loan serviceability policies would include a set of consistent serviceability criteria across all mortgage products. A single set of serviceability criteria would promote consistency by applying the same interest rate buffers, serviceability calculation and override framework

APG223.34. APRA expects ADIs to fully apply interest rate buffers and floor rates to both a borrower’s new and existing debt commitments.

APG223.39. When assessing a borrower’s income, a prudent ADI would discount or disregard temporarily high or uncertain income. Similarly, it would apply appropriate adjustments when assessing seasonal or variable income sources. For example, significant discounts are generally applied to reported bonuses, overtime, rental income on investment properties, other types of investment income and variable commissions; in some cases, they may be applied to child support or other social security payments, pensions and superannuation income. Prudent practice is to apply discounts of at least 20 per cent on most types of non-salary income

How the banks do it is something along the lines of.... if you are getting $500k gross income - 5% yield = portfolio of $10m, loan of $2m. Assessment will be based on $500k - tax = $300k net x 0.7% haircut = $210k income. Loan Expense will be $2m x 7.5% (minimum rate - think some banks use 7.75%) on P+I = $168k loan repayment.

Income $210k
Expense $168k
Living Expense (Poverty line) $24k
net income $18k/year - You qualify for a $500 limit credit card