How do I get there?

Hi all,

Most people's big dream is to own a property, by 'own' I don't mean the bank owns it.

In common situations a couple, single or a family purchase a property and slowly slowly starts the big mortgage journey. Certainly they will play around with equities, taxes and rent to relieve some pain, but is it this the only way to get there?

I would like to share my goal with you to understand how would I get there...

I have been in Australia for over 5 years now, but despite my love for it, I want to move back home (Italy). The ideal position to move back would be sitting on $500+ pw of passive income generated by a combination of rental properties and a mutual fund.
Currently, I am working full time, earning just $900pw (net) and my savings are enough for a deposit, BUT I don't want to fly back in 30 years, not even in 20, more like 5-7.

I am aware that I set the goal very high but I wanted to give you the real goal to seek the best advise.

Thank you for your time and I hope you are well,
MB

Ps. Aside from winning the lotto option..

 

You would have to do something very outside the box to get there in 5-7 years, what that is I do not know. High risk = high reward or of course the exact opposite.

Are you starting currently with nothing at all but a deposit?

 

$500 a week so approx say $30k a year? Assuming on average the equity gets you 5% yield, you need $600k pure equity.

 

Hi Joshwaaaa,
Thank you for your honest answer, I guess you could count my gf's income to help out a bit, but I like to see the hardest way first. I think I really need either a second job or a small business on the side. Cheers anyway

 

Hi EN710,
Thank you for your post...Forgive my ignorance, would you be able to 'translate' your answer so that I would fully understand it please? I just want to see the picture clearly

 

Banking purely on buy and hold property I would say you have a very slim chance. You could buy extremely well, get great growth and then sell down and invest into high yielding property to achieve your goal.

The key though is you need to be able to pay down more debt because $900 per week after expenses leaves you very little to invest and debt reduce.

You touched on it but business is going to be your ticket in your short time frame. What is your background?? A business you would need to build from scratch is going to be very tough as well. Most businesses make very little if anything in their first few years.
A side business where you can generate an additional 20-30k though will go a long way to help you achieving your goal.

 

@EN710's post was very clear to me. Basically you want around $30k per year of passive income.

Keeping it simple, you need 600k of equity (lets say unencumbered assets) to generate your 30k of passive income if the return you have on your capital is 5%.

Some ideas. Own say 4 properties, maybe worth 350k each. (Use capital growth from one to eventually get to 4 properties). They each continue to grow in value. Later on you can sell off two and pay down all debts of the remaining ones? Note that you need reasonable borrowing capacity and decent cashflow or else the banks wont lend.
You also need to buy in the right part of the cycle for the above to work.

Other than that, also look at renos, and possibly if you're brave enough, a development? You could get there very quickly.

 

Going to have to buy well and add value. Only way I see, if you're gonna do it through residential real estate. Gonna have to hustle to get it.

 

Not easy but doable.

5 x IPs returning $100/wk after costs in 5-7 years.

Buy, reno (for equity and cashflow), pull equity for next one, repeat.

 

If you move back you will also be up for foreign tax rates rather than resident tax rates so you will also have to factor that in if it's $500pw net you are targeting.

 

NRAS @euro

 

Most people over estimate what can be achieved in 1 year, and grossly under estimate what can be achieved in 10.

I'm assuming you have no other debts (credit cards, car loan etc). If you do you need to pay them off quick smart

You need to make some difficult and life changing... Changes.

Most of the above comments are accurate, but focus on only one aspect. There are many aspects to building wealth.
Your biggest hurdle it seems is your income. Yet you seem to be pretty good with your money if you have been able to save a deposit (again, assuming it is genuine savings and not some kind of windfall). So focus on your income. Find ways to increase this.
1) ask for a pay raise
2)figure out how to get promoted
3) change jobs
4) take a second (and third) job
5) start a side business.
6) do a study course and 'up skill'
Every $10/week more is valuable savings.

Look at your expenses closely. Doesn't sound like an excess lifestyle already, but there is always 'room' to trim. If you have a car, sell it and down grade. Move into a share house, or get a boarder in to share your rent etc etc etc.

Is this girlfriend of yours going to become a wife? Will she travel with you? In otherwords is she part of the planning, and on board? If so, join up, and make further cuts. Direct one salary to savings and live off the other

Purchase an IP as soon as practicable. In line with what @steve Ryan said above. Something you can add value and increase rent values.
Cash flow positive but tax negative. Your tax return at year end will give you a nice kick start for the next IP.

You need to be able to achieve all this, without increasing your lifestyle (generally as income increases so does living costs).
Be clear on what your target is. $600k in clear equity in 5-7 years should be fairly achievable but it will take some radical change, and will be a lot of hard work.

If you want it enough you can make it happen. It's up to you.

Blacky

 

Correct. Agree here.
focus on increasing income + CF pos property.

 

Thank you Albanga, I found your reply really helpful! I have always been in sales but I have also worked many years in hospo, I am squeezing my brain to find an idea and I will

 

Thank you Gockie for the explanation as well as your advice, it is much appreaciated!
I get what you mean and I will work towards it

 

Dear Blacky thank you, the response was brilliant and would love someone like to mentor me lol
My savings are genuine, and you were on the money: I don't have debts and I do conduct a pretty simple lifestyle.
I surely see her as my wife but I do want to ask questions as a single to see the hardest picture and she will definitely be helpful and supportive along the journey.

And you re so right: If I want it enough I can make it happen!

Thank you

 

Cool, i'm glad it makes sense.
Ps. Lots of good info from a number of posters here.

 

Hi Marco
First of all great work on your savings, so many people can't get past this stage!

There are many ways to get there, as stated above. One of the most important lessons I have found is always to be in the best possible position to jump in if you see deals. That means having savings for deposit monies, and e.g. not having credit card debt you can't repay quickly. We made money when we first started investing just by watching prices in our local area booming and being able to buy and sell on quickly. We didn't have a massive amount of money though at the time, so we did well but could have done even better. The reality is that the more money you have the easier it is to make more. This made me realise the need to value my time more. These days I'm not happy to work for less than I can earn. If I'm working a job I prefer to work out in a remote area or do something else to earn maximum money for less time. We did this for the last few years and I reinvested everything we earned into property while my colleagues were eating in restaurants and drinking cocktails every week. Did they have more fun than me? Personally I don't necessarily think so, but depends on what's important to you and how you like to have fun. Anyway, think about this, could you upskill, retrain or do anything to maximise your earnings? Also related to being able to jump in to opportunities is networking with successful investors. It took me a long time to take advantage of this because I'm probably a bit introverted and used to rowing my own boat. I've now learned that I get there a lot quicker when I use other peoples' knowledge as well as my own. I've had good outcomes doing this.

Second lesson is don't hesitate. I find a lot of people overanalyse stuff or find excuses to not do things. No one has a crystal ball but there are relatively safe options for buying investment properties i.e. cash flow positive or neutral, city with multiple employers and growth drivers, close to infrastructure etc. I'm probably the only one on this forum who uses p& I mortgages a lot. I don't care what the market does as tenants are paying most of my mortgages. If you can't find an area that is obviously booming that looks tempting to invest in then it's better to do something rather than nothing. I've cleaned up in the past in areas of the UK and NZ that most people have probably never heard of. Just had 20% gains across most of my portfolio. All cf+ and not capital cities. I could have achieved even more if I'd realised the power of time in the market and compounding earlier.

If you're a bit of a nomad like me, you'll need to give some thought to tax residency. I'm having to work this out at the moment for myself. If you buy Aus property and move overseas you may trigger a capital gain event and be liable for tax (if you had a gain in the value of your ip). You can work around it, but it does get complicated and gets even more complicated if you then want to buy in Italy. Get a good accountant.

Could you buy your property portfolio in Italy instead of Aus? IMO Aus sucks with it's huge stamp duty for every purchase. This will slow down your progress, although people obviously still manage to deal with it.. If you don't have stamp in Italy could you start buying over there from here? It may be less complicated if you intend to eventually reside in Italy.

Best of luck!

 

Hi Ellejay,

Thank you for sharing your lessons, they have incredibly valuable and inspiring. I did think about buying in Italy, although the tax regime is really strict and there are strong pro tenants laws and the growth of value is quite limited due to economic circumstances. It would be good to buy there if I had more cash behind me I guess. Definitely a great accountant will be useful, and not too hard to find. The hard people to find are genuinely successful investors, see, I am very talkative and I find myself in the best waters when I deal with people (professionally or not), but I do not know how and where to find them; any suggestions?

You mentioned p&i mortgages, I had a quick look and understood little, what are the advantages?

Being a sales rep/account manager gives me little to play with but finding a better job is doable, I hope you are well and thank you again.

MB

 

Going to the meet ups advertised in the networking section of the forum is a great start. There are regular meet ups in east and west melbourne.

Ideally I want an ip to cover all costs on a P&I mortgage so that I'm not relying entirely on capital growth. The only IP I have on IO is in Australia. There may be some higher yielding ips in Aus that would cover P&I but I haven't looked. It's harder to do it here and I think most investors just pay IO for years until they either are forced to move to p&i or they've had enough gain to be positive. I'm focussed on paying down debt because I want income now, not in 30 years time.

You do need to talk to an accountant who understands international tax issues. When you move to Italy the ATO may see this as a cgt event and you're up for tax. You could move to Italy and avoid cgt but as soon as you have to revert to Italian tax residency you'll get a bill. It may make sense to just pay the cgt earlier rather than wait because your ip may increase further and you'll get a bigger bill.

That's my basic understanding but I'm not an accountant.