How to generate $100k net income from low risk, low maintenance resi property in ~12yrs.

How to generate $100k net income from low risk, low maintenance resi property in ~12yrs.

This model only works if:

1) 'Rentvesting'

3) Properties average a minimum of 4.00% p.a. growth

5) Interest rates stay ~5.00%

6) Properties are neutrally geared from day 1

7) Living expenses (inc. rent) are </= $120k p.a.

and here's the kicker....you need to earn approx. $400k EBITDA for this model to work (more on this at the end).

Step 1:
Save $284k (~2 years saving $12k p/mth)

Step 2:
Buy 3x $350k properties in Melbourne outer suburbs & 2x $650k properties in Sydney outer suburbs @ 88.00% LVR.

If you started purchasing in 2019, by 2032 you would have asset value of $3.982mil, nil debt & net rental income of approx. $100k.

Also, you would have well located & desirable properties and even the potential to increase CF/CG by subdivision, dual-occy, renno's etc.

If you are in your 20's, and being in this position looks appealing in your 30's, then suggest looking for a business/career path where your EBITDA can be circa $400k.

If you think these businesses/career's don't exist, you have already lost...

 

good thread

but interest rates at historical lows? the norm is likely to eventually hit around 7.5-8% how will this impact on numbers/years?

 

Good question, something like 5 year fixed rates across all loans as soon as investor rates start creeping past 5.00%...I haven't given this much thought tbh.

This probably a question for the more experienced investors on here who have been through rate cycles & have 'tried & true' strategies to mitigate IR risk.

 

If you can EBITDA 400k, 100k passive is ****.

 

Agree, however....

A passive $100k p.a. into shares returning 7-10% compounding for 10-20 years is not ****....

Probably should have noted I wasn't posting this as a plan to 'retire'

 

I was thinking the same.
One you start earning that amount, 100k passive after such a long timeframe would seem like a massive under achievement.

 

400k income pa would not be average income though for majority, perhaps not even half would fit average profile investor? 12 years ???

 

That's the point....To earn $100k passive with low risk resi investing in 10 years you need 'above average' income, so my strategy starts with finding a business with 'above average' income.

If you are in your 20s, starting a great business is the only was you can achieve this by your 30's

 

Sorry b-mac, not thinking straight, agree

I think I realised this a long time ago. That is why I tweaked my strategy many moons ago

Sash has some 30+ properties and I was surprised how woeful the cashflow was. However, if he sold down it would be a different story.

Whats the answer?

 

I've modelled this off post-APRA serviceability calculators, namely $2mil @ 7.5% P&i = $15k p/mth + only accounting for 60% of rental income.

By using actual's, low-doc products, mid-tier lenders etc. I'm sure one could grow a portfolio 5x this on $400k income. But with this comes added risk....

 

If you've got a business earning 400k, with some effort, this could also be grown over the 12 years.
Also, at the end of 12 years you can sell the business for millions and pay down all debt.

We more or less did this just last week, and it was 12 years too, but started from zero.

 

Nice work, just goes to show there is so many ways to skin a cat!

 

So where does the low risk / low maintenance part you mention come in?

 

If you have that much income, you can save $2.5m in 10 years and buy any investment that generat 5% yield...non property, less headache

 

If you run a business making 400k a year, I would like to think you could have much better ideas than taking 12 yrs to buy residential property that result in you earning 1/4 of your income in passive retirement.

 

Not quite...

Assuming $400k Net Profit
less tax @ 28% = $272k
less living @ $120k = $152k p.a.
x 10yrs @ 2.0% compounding (without accounting for tax) = only ~$1.6mil

 

I think you have a typo. "Net" is already after tax. Gross is pre tax. You mean EBITDA
Anyway, 400k * .72 = 282k

Side note. 2% compounding would be **** poor?

 

.... but my living expense is one fourth that... maybe that's why I'm not earning 400k though

At 1.6m find investment delivering 7%

 

Takes a special type of person to start a business earning over $400k....not to mention the time to start it up. Very few businesses would earn that sort of coin from day 1, let alone starting to save ~$12k/month. Starting the business would be a risk in itself.

Haven't even got to the property risks and estimates yet....


pinkboy

 

Retirement?

Also, does running a successful business mean you are also great investor?