From $10K in Cash to $3.3M Portfolio

Thanks @Ko Ko Naing for sharing your journey.

 

Thanks @Ko Ko Naing for sharing! Impressive

 

Pretty much exactly one year after I replied to you, Vick. One of our loans is now on P&I, paying $1,348 a month. We don't feel any financial stress since the P&I conversion.

Not wanting to bring cash flow vs. capital growth debate here, however, I still think cash flow will take a lot of stress out of people's lives, especially when a lot of things are uncertain with our economy at the moment.

Below is a snapshot of cash flow analysis with this property in Crestmead (Maintenance expenses and Depreciation deductions were not included here for the sake of simplicity).

 

Well done.
However, you need to understand the tough road is ahead after IO loan period ends. I can have a lot of cash flow during IO loan period. However, I am forced to sell some properties due to the loan repayment is almost double because of IP loan, together with 60k land tax per year.
Look at this example:
3M loan, I/O for 5 years, 30 year terms, 4% interest rate. The loan repayment is $10,000 per month. After IO period ends, the loan has to be repaid within 25 years. The PI repayment is 15,835.
Some of my loans have 10 years I/O period already, or even longer. They have to repaid with 20 years.
Luckily, those properties' value increase from from 300k+ into 1.6M.
My loan size was reaching 6M at one stage.

 

You are 100% correct on this. At one point I got to $7.8m in loans now winding this back...and have less $3.7m in loans now...my plan is to get this down to zero debt in about 3 years ...well technically as they will be on offsets.

Most younger investors do not understand the impact this can have. If they grow too aggressively...they will not be able to refinance and when rates do go up they may dire straits.

I for one am buying (new properties and higher grade) and selling (older high maintenance properties).

If you think CF properties will give you a retirement income....people are about a very valuable lesson soon.

Best to sell less than ideal properties and keep the better ones...the market is now strong...the question is when will it turn....rents drop...and interest rates go up. The trifecta...if that happens it will present an opportunity.

 

I personally think it's very risky to build your portfolio on an IO plan and become very dependent on extending the IO period with lending becoming harder.

My portfolio is pretty much all PI loans but I am comforted in knowing that I can service PI loans and ability to make the regular repayments. Besides, it's good to see the loan amount dropping every month.

 

It'll come down to individual's goals. I don't plan to own all the properties outright. It's never my intention to hold the whole property portfolio with zero debt at retirement. When it's time to sell, I'll sell down some, maybe hold half. May look at buying other asset classes that have better cash flow and less hassles that come with properties.

Property investing to me is to provide us with options in the end. Personally, we can service the whole debt on P&I even at 6%, so not worried too much on that front. Well, if interest rate become more than 6%, we might have to sell some.

 

Would you add commercial to your portfolio?

 

I definitely would at some point. I know it's a totally different game to play. So I will have to learn a lot.

 

Yes you have to learn to
1:spend the big profits.
2: pay lots of taxes .
3:find things to do as the tenant paid management will do all your work.
4:live with positive yields.
5:dealing with contracts rather than personalities.
6:watching your assets being improved by the tenants. Often in the hundreds of thousand dollars sometimes in the millions.

 

Great read, any issues with tenants in the Woodridge/Crestmead properties?

 

Woodridge one has never had any issues. With Crestmead ones, late payments here and there, cleanliness issues here and there, but nothing major. Full Landlord and Building insurance in place, so I've got peace of mind to some extent.

 

Congratulations Ko Ko, great read. and what an inspiration.
I am a Noob to property investment, although I am not a first home buyer anymore.
I've got a quick question and it might be a stupid one if you don't mind.

How do people accumulate properties and keep borrowing more money with not much of an increase in salary from their day to day job? Or do you have to have at least a 6 figure income to get good serviceability from lenders? I am 5 figure income earner (maybe 6 if I count my spouses), just want to paint the picture for myself because I am determined to build the portfolio up.

 

Loan Structuring is everything, when it comes to accumulating properties. Whichever lenders with good policies lend me money to expand my portfolio, I'd go with them. Interest rates are not the only thing I look at. I usually look at big picture over long term.

And yes, I did have a 6 figure income, when I was in my corporate career. My missus didn't work when we started our investing journey though.

It's also mindset that play an important role in expanding a property portfolio. Have your mindset right and you are halfway through already.

 

Thanks Ko Ko, I’ll look into it.

 

How many properties were you able to buy on a single income and the time before you had your mortgage broking business? I’ve read income from business will help substantially in buying more properties.

Were you able to borrow again with the same personal income but have positive rental income or you had pay increases to supplement serviceability?

 

I think I've mentioned this before when you asked questions of someone else @Redjane.

These questions are irrelevant. How many properties someone can buy on a single income will come down to
1) What that income is and how many dependants.
2) What value the properties were. You may buy 10 x $200k property or 1 x $2m property.
3) Rental yield on properties. Were they 20% yield in Broken Hill, or 2% yield in capital city?
4) Risk profile

 

thanks skater and sorry for asking the same questions

pls ignore my post

 

When you buy certain properties you do not need a salary to keep buying properties.
The properties keep producing great income and allow you to continue to build the portfolio.

 

What's the:

1. Type of property you would buy? Eg warehouses, strata/freehold, retail, motel, office etc.
2. Where? Eg capital city/metro vs secondary city like Newcastle or regional and
3. What minimum yield?