My Strategy - Any Good:)?

Ok guys,

I'm totally inexperienced, but after spending some time on this gold mine of a forum, this is what I'm planning to do. Of course, my strategy might change and develop further over time as I learn more and based on your invaluable input. I plan to use B&H strategy, 10-15+ year hold, potentially doing some improvements, subdivisions and renos along the way as I get more experienced. So this is what I'm thinking of doing and your input would be priceless.

Strategy:
1. My IP1 is on its way, it's likely going to be a house on around 600-650sqm of land within 10km of Brisbane CBD (CG focus); 88% LVR, IO with offset account,
2. This year next time we'll have around 250k saved. Buy a PPOR outright in Perth, a small apartment, like the one below:
reiwa.com - 37/29 Heard Way, Glendalough. Our living standards are very modest and we would be happy to live in something like this (or even rentvest but I think this strategy makes more sense).
Assumption: Perth hits the bottom next year, or is close to the bottom.
3. Straight after this purchase set up LOC against my equity in PPOR and borrow 105% for my IP2. This purchase will be focused more on cashflow and will be neutrally or positively geared from the outset. It will be in the market that proves to have good fundamentals at the time. Approximate value: 500-600k,
4. Soon after IP2 or within one year, I will use the last 100k of the equity in my PPOR and borrow again 105% of the loan for IP3. Depending how I'm doing with other two IP's and cashflow, IP3 might be CG or CF focused,
5. At all times have around 50k buffer in one of the offsets just in case something goes wrong (no tenants, unemployement etc.),
6. Use equity from my IP's and PPOR, as well as savings (but preferably equity) to keep the portfolio growing... and it's going to be a great success!

Buying criteria:
1. Always buy in capitals, maybe in regional centres as well to utilize the ripple effect, such as Geelong, Central Coast, Gold Coast, Newcastle (not sure about this yet though as I'm worried that this may be more risky than buying in capitals),
2. For capital growth focus on houses with solid land component (600-650sqm), as close as possible to CBD, preferably with value add potential,
3. Throw in some apartments/villas/townhouses in my portfolio to diversify and assist cashflow. Make sure they are in small complexes (also no pools, gyms, lifts etc.) with low outgoings (such as strata fees etc.), in relatively old buildings to avoid paying a premium for new developments. I guess an example would be something life the link I posted above.

Goal and risk profile:
Ideally my goal would be to reach financial independence in the next 15-20 years. If that's not possible, I'm still happy to gradually increase my net worth. And with regards with my risk profile, It's pretty low as I wouldn't want to lose my hard earned $$$.

So please throw in your ideas, I'm equally welcoming positive & negative feedback.

Have an awesome day!

 

Sounds familiar

 

As in that's how you started?

Anything that you would change or add to this strategy?

 

Sounds like a reasonable strategy. Just borrow 105% for the first IP.
Consider ownership structure and lending structure too - from the start.

 

Hey Terry, I don't have any equity available at the moment or guarantors that would allow me to take 105% loan for my first IP. Otherwise I'd love to! Do you see a way to do this under my circumstances?

Also my understanding is that if I buy a 250k PPOR outright, that I will have 200k equity (80%) I can use, or 2x100k deposits for 2x105% loans for the next two IP's, each up to 650k in value. Is that correct?

Thanks a lot!

 

If I consider ownership and lending structure from the start, that would mean buying a unit in Perth now and prolonging a purchase in Brisbane for a few extra months. However Perth is still a declining market and I'm not sure if this would be a good idea..

 

Term deposit with the bank lending you the money which can be used as security. No. 3 of
Tax Tip 61: How to borrow 105% on your first purchase

 

You can borrow against cash. Tax Tip 60: Never use cash to invest

 

I think what you've got is a good plan. Not many people borrow 105% for their first purchase but it could be a good idea for you because a) you're on a high income and b) you'll be paying it back quickly.
Bear in mind its an expensive structure to hold so you want to have an exit plan.

 

The problem you are going to find is that many forum members with only modest 3 or 4 property portfolio's, running very modest amounts of debt ( comparatively speaking ) and neutral to slightly positive CF (after tax) - due only to the unusually low interest rate environment , are going to offer you advice.

In order to retire, you need to identify an income that will allow it. If that's 100K per annum, you will need to own 10 properties outright generating 10K after all expenses, or 8 generating 12.5K income after all expenses, or 5 generating 20K outright after all expenses, or 2 generating 50K outright after expenses, or some combination of all of the above....

In order to own 10 x 10K income producing properties outright, or 8, or 5, or 2 , or any other combination, you either need to buy twice that number , then wait for them to increase in value by 122.5% , sell half of them, pay the 22.5% CGT on the profit, then take the after tax profit and pay off the others, or you need to pay them off some other way...or you need to do a bit of both....

Unfortunately, you will find a significant number of forum members offering you advice aren't remotely able to speak from an position of authority on this, because they havent done it, and will not be able to explain to you or coach you or guide you through a borrowing capacity management strategy to get you there . And those that are able to speak about it from a position of authority seem largely oblivious to the new, significantly less expansionary credit environment . ie they havent had to do it with the speed humps you will be burdened with.

Your plan really must be built around simultaneous accumulation and debt reduction. In the end , its the only sensible, safe way to get there. Anything else will require enormous amounts of luck and speculation.

 

Lol, so true.

 

See
Tax Tip 61: How to borrow 105% on your first purchase

Spousal loans may be an additional strategy.

 

Not sure why this would be the case.

 

That would allow me to own my home and live in it without any (ND) debt. I wouldn't have to rent either. Does that make sense?

 

Yes, but it doesn't mean you have to buy that one first.

 

Ok, I got it. So use a term deposit to get a 105% loan for 1st IP. Then I but PPOR whenever I feel like it using the money in the term deposit.

 

@euro73 thats right mate. Lots of experts around here! Wise man once said "only take advice off those who have what it is you want"

 

Hey mate, thanks for your comments, always useful.

However, my goals are pretty modest to be honest. I'm of the opinion that owning any IP's is better than not having any. So if I have 2-3 IP's, and I made some decent profit on them - I would be very pleased.

If I get to have 10 of them like you said and they allow me to become financially independent - even better! But playing it slowly, safe and steady are my main goals.

I think you are right about the cashflow being critical along the journey. But why can't this be managed with the balanced approach of having some +ve geared properties in your portfolio?

Cheers!

 

no need for a term deposit.

 

Very informative post. How would you simultaneously accumulate while reducing debt?