My Strategy - Any Good:)?

I would buy properties that generate surplus cash flow . Sorry, I stand corrected...I DO that already.

 

Buying properties you can develop, and sell some, keep some.

 

Hi Realist,

You could also balance your portfolio by investing in higher yielding asset classes such as shares. Then you could sell down two IP's, keep one fully paid off to supplement your income. Or sell all three and invest the proceeds into shares.

I'm not convinced that holding multiple resi properties long term (ie into retirement) is the most efficient use of capital. Not to mention the upkeep, and general management of the portfolio. Life is too short!!

 

If you can show me where I can get 15% fully franked dividends using long term I/O lending at 90% LVR that is not at call, Im sold. Otherwise, you cant get close to the returns NRAS offers.

I can deploy as little as 60-70K of equity towards an NRAS purchase. It covers 12% + stamp duty + a cash buffer, and the asset generates @ 10K CF+ per annum.

Viewed as a fully franked dividend, thats 10K returned from 60-70K. ie @ 15%

 

Hi Euro,

I'm not intending to have any debt on my portfolio when I retire, so for my purposes, a combination of resi and shares will get me where I want to go.

Have you worked out your return from a NRAS property when interest rates rise?

 

Yes, exactly this.. Retain and build type projects will help you accumulate and reduce debt simultaneously... Buy a property with land, build 1 or 2 homes behind it, sell 1 or 2, pay back loan to reduce debt, be well and truly CF+ and then go again. You should also see a nice equity gain also if done right

 

That depends on the interest rate, and the price of the property. For a 400K property getting $400 per week market rent, you'd still be looking at 8K CF+ on rates of 5%. Thats going to be @ 13.3% return on 60K equity or cash invested for 12% + stamp duty . Against 6% rates, thats going to mean @ 6.5K, or @ 10.8% return on 60K equity of cash invested .

But on cheaper property the returns would be superior . On dearer properties, inferior...

But its the reinvestment of the dividends which leads to a larger passive income over time. Take my own portfolio as an example. I have net debt of 3.5 Million against a 7.5 million portfolio value. I earned @ 320K tax free this past year, after accounting for wages , neg gearing and NRAS credits. Across the next 8 or 9 years I can reasonably expect to pay down the majority of the debt, leaving me with no debt and over a dozen unencumbered properties that earn a passive income. Right now my total rental income is @ 230K per annum after applying 20% discount for NRAS. That will cease in the next 8 or 9 years, leaving todays market rent closer to 275K. With no debt in 8 or 9 years time, and just 3% rental inflation per annum, that will reach 375K + in 8 or 9 years. After allowing for expenses, which sit at @ 65K per annum now, and after 3% inflation would sit at @ 80- 85K per annum in 8 or 9 years , that should result in rental income after all expenses, of somewhere around 290K per annum.

That's obviously going to be taxable, and it also assumes I do nothing more across the next decade or so to add to that in any way... and I accept that if , at the time, we are in a higher rate environment and some assets currenly offering 2 or 3% are offering 6 or 7%, I may be well served to sell and reinvest profits in those assets... but it should also be remembered that I contributed an average of 10% + stamp duty to the NRAS deals, so @ 60K per property. I own 12 NRAS and 3 non NRAS. The 3 non NRAS required much smaller contributions as I bought them several years back at low prices.... so lets say my total contribution to my portfolio sits at around $ 1million. 290K return on $1Million cash invested is still 29% before tax, under this scenario... Thats all without any capital growth being accounted for. Thats just the cash flow side of the equation.

 

I've been doing this for a long time now. You are right.....when we started the credit environment was different....but that doesn't mean there were no hurdles. There were plenty. I think the best anyone can do is to START, regardless of what is happening with government regulations & policies, because things change. What is a hurdle today, may not be a hurdle tomorrow. What is plain sailing today, may be a huge issue tomorrow.

Euro has set himself up nicely. He's one of the few that I've seen on a large income, buying quite expensive properties, that will be able to retire on a very large income from property alone.

We have retired from property, having quite a large portfolio. We sold down some of them & still hold a lot, however our income is more modest, but so is our background. We have done this on a low income, buying whatever we could afford, when we could afford it. Like Euro, our strategy was always cashflow, but unlike Euro, we did not buy expensive properties (we just could not afford it). We bought the cheapies in some less than desirable places (according to many). Those cheapies have done us well, and have had some stellar growth over the years.

Like I said previously, I've been here for a while & seen quite a few retire from their investing, but the ones who stand out (to me, anyway), are the ones who bought heaps of cheap cf+ properties. Some retired....some didn't & went on to greater wealth.

The best advice that I can give is to keep an eye on the cashflow. Cashflow is KING.

 

I only hold a few "expensive" properties. 2/3 of what I have purchased was sub 400. I bought to a very specific plan, as 4 years ago I had become self employed and wasnt able to borrow right away. So when I had sufficient financials to borrow, I concentrated on purchasing sub 400K NRAS - in some cases quite a bit below 400K - with the aim being to use minimum seed funds and debt to generate maximum cash flow ... and then pay down my PPOR. NRAS allows me to view a property portfolio just like a dividend reinvestment plan without at call margin lending. The NRAS credit works just likle franking credits - as its completely tax free. The advantages are much higher LVRs are available and the debt isnt at call.

Once that was done, and all non deductible debt was retired, I started buying a 2nd tranche, which included some more expensive stuff like Elanora Heights and Castle Hill, but they also continued to offer strong cash flow. I bought those because the retirnemnt of PPOR debt was already done, and they allowed me to build some aggressive growth into the portfolio value as well. But If I'd started with them, I'd still have PPOR debt because I'd have been able to purchase fewer properties and generate less cash flow to retire it. The flow on effect would be that I'd have a smaller portfolio and far less cash flow. But I am still injecting additional cash flow. 2 of my most recent NRAS purchases were at 260K each... and they will generated well over 10K each, tax free per annum. Not bad for 40K invested per property. 25% returns tax free!

I have several clients who only want the metro, dearer stuff though. They refuse to consider less expensive, higher yielding regional stock. They believe property investment can only be approached for CG. I think its a mistake. They may well end up with better growth per property, although thats increasingly questionable as the credit environment changes continue to take effect over the coming years... but they'll certainly end up with far fewer properties and far less cash flow. In the end, they will only be able to retire if they get great growth and if they sell, and then, even if that works out, they are relying on reinvesting the profits in some other asset that delivers enough income to live on... but we are in a very low rate environment and may well be for years and years - ask yourself where you can invest $1Million in cash today to earn 290K, without extreme capital risk. Ive generated that income with less than $1Million invested, using NRAS. My capital risk is very low. My passive income probability is very high. Just doesnt make sense to me to look at it any other way.

Yet, I'll be launching dual occ in regional areas next year and I know to expect some resistance to the idea from some of my clients, simply because they arent metro...but my clients trust me and ultimately the majority are now seeing large tax cheques from their NRAS , they trust me and in the end they will come around to the logic.

Why regional dual occ? The exact same reason as NRAS. cash flow, which facilitates debt reduction. I am deliberately targeting price points that are A - affordable , meaning people can actually qualify for loans - and this has to be a factor because of the new credit environment , and B - result in less debt per $ of yield, and C - allow for more rapid accumulation. 2 properties @ 500K is better than 1 property @ for $1Million, because 2 x 8-10K surpluses from the regional dual occs versus 1 x 5K surplus from the metro dual occ stock means more rapid debt reduction can be achieved.

You can argue the metro will grow more...but again, even if that happens and you make a million, we are in a very low rate environment and may well be for years and years - so ask yourself where you can invest $1Million in cash to earn 290K, without extreme capital risk. You certainly cant put it anywhere really safe like online savers and get better than 3% for 4 months . That would be 30K income per $1Million...

In the end, as skater has said - there arent many who have retired on CG alone. Its cash flow not equity that pays for life. And like I said- NRAS and Dual Occ are high yielding dividend reinvestment plans. Eventually, when you keep reinvesting the surpluses, you find yourself sitting on large pools of income....

 

If I was on a high income I would avoid apartments period. I would do the opposite and by a house close to the CBD as your PPOR to reap the capital gains and minimise tax on exit and purchase the apartment ( prefer house ) as an IP to offset your tax.

Land.........they don't make it anymore.

 

Is there a source I can refer to to learn more about NRAS?

 

Read any of @euro73's posts. You can also do a search using the search button.

 

$400k? I've never spent anywhere near $400k! Most of mine has been sub 200.

I am also a fan of dual occ's. My ex-PPOR is a dual occ. 2 x 3brm houses on one block, which we picked up for a fraction more than a standard 3 bedder at the time. We keep thinking about putting a GF on another....but still haven't done it.

Of course, you are presuming that the investor actually does re-invest the surplus, and not take a holiday, buy a boat, update the car, etc. There is a lot of high income earners that spend everything they earn.

Hehe, Euro is the resident NRAS specialist. There's not a lot of them around anymore. NRAS, not specialists.

 

I dont think there were many "specialists" even when NRAS was prevalent

 

True, but unless they give me irrevocable Power Of Attorney to manage their finances, I can only structure their loans and purchase them the properties that set them on the path to a passive income and early retirement. If they **** it away, that's on them....

 

If you're talking about using a term deposit as security for the 1st IP, you can't touch that cash until you either:
A) replace the cash with some other form of security, or
B) see a big enough value increase in your IP that you can use the equity in your IP as security (to replace the cash)

 

Hehe, I'm thinking that even if they DID that, that you wouldn't want to be burdened with it anyway.

 

if it was as simple as giving me a one time access code to their account for 30 seconds so I could log in once, transfer the ATO payment directly onto their mortgage, then log out and be unable to access the account again for a year, I'd do it. But thats never going to happen, so I have to leave them to their own devices and hope they dont **** it all away.

 

If you were starting out now with the same deposit but no NRAS and the current APRA regulations, how different would the specific plan be?

 

Same plan; pay down debt as fast as possible to improve the ability to grow a large portfolio that will enable retirement from passive income.
I'd use regional dual occupancy instead of NRAS. Wish I could use metro, but it would eat up way too much borrowing capacity. I would have to be resigned to the fact I couldn't get as far, as fast, post APRA. So while the speed at which I could grow the portfolio would be slowed, it would still be the fastest way post APRA and ASIC to build a passive income using resi property, because no other resi asset can match dual occ for yield - except NRAS

ie its the same concept but in comfort mode rather than sport mode.

 

My borrowing capacity was 500k plus, but after my recent purchase I'm on 330-360k borrowing capacity at the moment. Would the NRAS/dual occupancy strategy you suggest be possible? Or would I need to sell the first property. First property is on 4.2% yield at the moment and is 12 km away from Brisbane CBD. Hoping to hold on to for CG, but after hearing the APRA change not so sure what to do at the moment. Thanks for any advice!

 

Never too late to do what you can. Rather than sell IP1, I'd look at holding it as long as possible and selling it when you can borrow no more and it had given you some gain to help reduce and PPOR debt (or use as further deposit for the next one. )