High income ($500k+) but clueless

Hi all

Would love advice on what to buy for our first investment property. We're in our early 30's, high income earners (we own an ecommerce business) but clueless about where to start on our property journey.

Goal is to funnel our business income into property to start accumulating real wealth, both to retire early and to help our children (currently 2 and 4 years old).

Background

Combined income: $560k/ year (company/ trust structure)
PPOR: Value $1.2 million ($600k remaining on loan)
Savings (currently parked in offset account on PPOR): $270k

Strategy

Option A: buy a property in a middle ring suburb in Brisbane with decent potential for capital growth (perhaps $800k - $1 million)

Option B: buy two cheaper properties in regional Brisbane or Gold Coast (eg Logan, Pimpama, etc) for $500k each

Which option would you pick in our situation? Cash flow isn't really an issue for us so we are thinking capital growth should be our main driver, but I like the idea of diversifying risk by purchasing two properties instead of one.

Loan

How do we structure the loan for the IP? Use our cash as the deposit or try and get more of the loan on the IP somehow (which will be deductible)?

Any advice, strategy, tips, war stories would be greatly appreciated!

 

I would rent your current ppor and buy a new home in a blue chip suburb otherwise invest in your e-commerce business.

 

We did think about upgrading and turning our current PPOR into an investment property, but the truth is we love it and can't imagine moving.

When you say 'blue chip' suburb, are you just alking about expensive suburbs with potential high growth?

 

Congrats on your position so far mate


You have a lot of possible paths you could take, given your income. None of which will offer you certainty (risk is unavoidable hence certainty doesn't exist) but over the longer term, the probability of building more wealth is likely.

By the sounds of your goals, you're gonna need to build a **** load of equity. So I'd start to focus on that as your next major goal. Building a ton of equity.

The how? Well this is somewhat more complicated, but not rocket science either. You can choose to do it actively or passively. It will depend on your risk tolerances, knowledge, commitment and mindset.

If it were me, I'd be looking to do add value deals. Whether that's though structural renovations, developments or subdivisions.

If someone wanted to do it passively, then buy assets you think will have good CG over time. You could do a mixture, BnH plus add value deals. All depends in how much your willing to learn and your commitment.


I would actually do it all. I'd grow your e-commerce business plus get good BnH assets Plus buy an add value deal to work on. Attempt to milk all the angles available to you. I've actually done very similar with my approach to wealth creation.

1. Own businesses
2. Own residential assets growing
3 . Add value via renovations/ development

Re property, my #1 tip is get educated. Spend the time and effort to learn the craft. It'll save you time and money in the long run.


My 2 cents.

 

Thanks Sackie! Really appreciate your detailed and thoughtful reply.

My partner is very keen on the subdivision route (buying a property on a large block, renting it for now, then subdividing in the future). I see it as a little more risky, but maybe that's a mindset I need to get out of.

Definitely working on expanding the business (we still reinvest a lot of the profit into new products, expanding into new countries, etc) but we want something to do with the cash that's accumulating quickly outside of this. Property seems like the obvious choice and I think passive investing in the property market is my hope for now (so I can continue to dedicate most of my time to the business).

I'll definitely start educating myself on all things property investment - if there are any resources you'd suggest/ recommend I start with, please let me know!

 

I only have one thing to add here, but it would be good to work out the upside/downside risk on the income in order to figure out what you're playing with in terms of regular cashflow from your business.

Well done on your position.

 

Michael Yardney, How to build a multi million dollar property portfolio

Jan Somers More Wealth from Residential Property

Margaret Lomas How to achieve property success

I buy Houses, Paul Do

20 must ask questions, Margaret Lomas


None of them are a holy grail, but they'll give you a lot of good foundational knowledge. Then you can pick and choose what you think works for you and form your own viewpoints/approach.

For the development stuff...I did some courses years back as well as learn from a mentor. But really it's the experience which teaches you most. But still, you should learn the basics before jumping into anything.

Don't decide on a strategy now. Spend a little time self educating . Then see what you think.

And if you're into philosophical teachings of a personal development prophet, buy/download seasons of life by Jim Rohn. Anything by him really.

 

A couple of things:

1. Learn to crawl before you run...a subdivision as your first project is fool hardy. Look for a small cosmetic reno or a simple H&L in a growth market.

2. The simplest processes make the most money.

3. Business is great but it can fail...property well diversified, well funded, and bought at the right time is low risk

4. Question all advice on this forum and ensure that it fits for you. Run a mile away from people who claim they are successful but can't provide much detail. And run faster from people who cr ap on about success gurus.

Finally I will leave you with this....

"People overestimate what can be achieved in 1 year but underestimate what can be achieved in 10 years"

I started over 20 years ago...it took 5 years for my first million....then another 5 years for the second....then 4 year for 4m.....4 years for 8m...and another 4 years for 16m plus....is can be done. Just need the right strategy (both entry and exit).

Oh...one more thing....you need to be prepared to sell at the right time to get to bigger things...

 

Agree with everything you said but particularly this! We're doing everything we can to secure our position in the market and grow our business but I ultimately see property as the safer path long term.

So I guess the million dollar question is... is now the right time to buy? My preference is purchasing house and land in a growth market.

 

I generally agree with the feedback you have got so far, but I would challenge you to think bigger.

With $560k a year (I assume net) income, you will have a very strong borrowing capacity, I'm not a broker but imagine you could get access to at least $4-5m. I wouldn't be mucking around with pain in the *** rentals in Logan/Pimpama that don't move the dial much on your income or net worth.

You could go thedeveloper route but if your business is keeping you busy and you don't have time for that you could get a couple of commercial properties that generate better returns and a more meaningful increase your assets.

 

Yes it is in parts of Perth.

 

Imho people don't have enough money/serviceability for the endless opportunities all year round, every year. In my over 20 years of investing I've never had a problem finding opportunities somewhere in Australia. 'Opportunity' however, doesn't mean no risk.

When people ask me, Is it the right time to buy now? I always say, are you ready to find the opportunities?

 

Great starting position - regardless of which path you choose make sure you get the loan structuring correct from day one to help accelerate debt reduction.

 

You could borrow 100% of the investment property purchase + costs (5%) by using a separate loan split secured ONLY against your PPOR for the 20% deposit + costs (approx 5%) of the new property/properties being purchased.
Then borrow the remaining 80% secured against the property being purchased.
This avoids LMI altogether and maximises the tax deductibility of the debt while keeping your cash aside as a buffer/for other opportunities.
Obviously you would need to seek specific tax advice regarding this.

I don't think buying 2 properties in the same suburb is technically diversifying risk, maybe 2 properties in completely different markets would.

 

Thank you! This is exactly what I was hoping to do, so glad to know it’s possible to put most of the loan on the IP and keep our cash in our offset on the PPOR. I’ll talk to our lender next week about a split loan!

Thank you so much again (and to everyone that has replied so far - I’m reading every single reply and soaking up all this great information).

 

Thanks so much for this! Yes, that is overall net income - combination of our regular salaries ($210k) and business income ($350k).

I realise we have the serviceability for it, but taking the leap straight into development (as inexperienced investors) worries me. And the problem I see with commercial property is better rent/ yields but not much CG (where cash flow isn’t our concern).

 

If you're going direct to a lender instead of using a broker, please make sure they do NOT cross secure your PPOR with the Investment property (known as cross-collateralisation) most lenders prefer them to be cross secured because it's what's best for them not you but you should avoid it at all costs, it can be done without it.

 

I would say you need to read a lot, you cannot expect to invest without the same effort as is put into a business, cause that is what it is really.

If you are clueless, get yourself clued up over the next few years. You can always start with small low risk low $ investments so you learn by experience.

 

+1. I don't know a single person who has achieved phenomenal results over a sustained period of time with little effort.

1 or 2 on here claim they made it big with not much effort. Total BS of course.