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My tortoise plan till 2030. is it doable?

Discussion in 'Property Finance' started by Veech, 27th Dec, 2015.

  1. Veech

    Veech Active Member

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    purchase Value 400k ish (300k loan +100K savings used for 20%+5%costs either equity release/debt recycling or use of cash deposit). Basically every time 100k saved, will be used as deposit to buy either @ 80 or 88% value depending on the deal.

    estimated rental 300/week
    Hope for CG, look for historical 7%+ locations.
    Gross rental yeild 4-5%.
    buy & hold

    Based on 175k single income for a PAYG contractor, Is this plan doable in changed Apra landscape? How long before serviceability wall reached based on 2 adult/2kids. I am thinking about 5 is the limit with this approach.

    The spreadsheet is a basic one, does not take in to account inflation, increased/stagnant/decreased property prices/income level, depreciation, tax benifits etc..
     

    Attached Files:

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  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Your serviceability will be much less than before the APRA changes. But you could probably borrow around $2mil. which would give you 5 properties. If there is a spouse involved then careful planning will stretch this further.
     
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  3. Hodor

    Hodor Well-Known Member

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    I like the purchasing property over the long term to build wealth approach.

    I had a brief look at your spreadsheet, one thing that it doesn't look at that it needs (IMO) is the effect of using equity for deposits and closing costs. You said you will be using a combination of equity and cash for deposits, if you use equity you are going to increase your borrowings by the entire amount of the purchase which will greatly change your serviceability long term. To some extent this may be countered by the lack of rent reviews in the spreadsheet.

    I also believe that 7% growth is too optimistic, yes it could happen, but your investment plans and strategy need to be viable in an environment with less than 7% growth.
     
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  4. Greyghost

    Greyghost Well-Known Member

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    I think you need to factor in price growth into your model, if you don't you will be getting pushed further and further out and your historical growth % will not be a valid assumption..

    In building a model, you cannot just create assumptions to suit your end game, they have to be real and factor in variables which you may not like or may not be favourable, because if you don't and you do not assess your plan on an annual basis, possibly over a 5 year period you will find yourself in a very different place than where you planed to be.
     
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  5. ellejay

    ellejay Well-Known Member

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    Yep 7% too optimistic.
     
  6. Blacky

    Blacky Well-Known Member

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    Im a bit confused by some numbers

    Your $90,000 "left over after expenses" does this include paying the -ve gearing of the portfolio? If not the $90k 'surplus' is not possible. Ie in the 2015 you have surplus $90k (meaning living + tax expense of $85k). Less $20,850k negative gearing. Leaves you only $69,150k for your next deposit.
    And thus you dont have $100k in your offset account by 2018 to make purchase 4 and by 2020 your offset is -ve. In addition you are spending more money than you are making by 2022.
    Using the same assumptions as you I get you to only 8 properties by 2030.

    Although the 7% is a bit optimistic as others have said. You should probably factor in some level of rental adjustments over the years? maybe 3%/pa.

    In saying all of this... I think the plan is actually incredibally conservative. Given your income levels of $175k I would think that 10+ property purchases in the next 15years should be reasonably straight forward.
    If you can maintain/cut your current spending levels, add back in a bit of tax deductions due to -ve portfolio and depreciation I see no reason why you cant at least double your expectation.

    Most people will over estimate what they can achieve in 1year and underestimate what they can achieve in 10. Flip the two expectations around and get after it.

    Blacky
     
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  7. mcarthur

    mcarthur Well-Known Member

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    Wow! I can't imagine your 8-10+ under APRA changes!
    I'd better have a look at the spreadsheet, because @Terry_w seems more on the money with topping out at $2m/5 (ignoring huge increases in wages, which anyway will probably be largely used up by the needs of the family as the kids age, and also ignoring PPOR debt)
     
  8. datto

    datto Well-Known Member

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    Slow and steady wins the race @Veech
     
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  9. sash

    sash Well-Known Member

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    My gut feel is serviceability is not going to be an issue as much as the the 12% deposit plus other costs.

    Based on your income today and using the old 40% maximum of gross income calculation you could probably use 70k towards loan repayments. That will borrow about $900k. Lets say you are buying $330k properties returning 370pw. That will probably give you another $154k income of which you can use $120k to service more debt or borrow another $1.5m.

    So based on a total of $2.5m in loans. Assuming you are putting down 22% deposits in properties averaging 330k...that is 290k in loans per property. You will probably hit the servicebility wall somewhere around 8 properties. The real unknown is where you will get the 50k per property deposit unless you save that every year.

    Hopefully this helps. Oh also...I have not counted any existing debt at this stage on IPs...which I am presuming you have. It also helps your borrowing cause if you use banks which factor in tax deductions.



     
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  10. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hello,
    There are a few other factors that you must consider when investing in property. There are so many variables that could change. EG GST increases, interest rates changes, increased cost in council rates and other changing cost that may apply.

    Also the key thing to look at when investing is that its not the number of properties that count but its the quality of properties you have.
     
  11. Veech

    Veech Active Member

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    Thanks @Blacky. You are right about leftover funds. It looked too easy when I was doing the spreadsheet. I will correct and post the new spreadsheet along with -ve gearing as well. Couple of drinks would do that:)

    Premise was when I was reading @MsAli strategy post and thought I would do the numbers on how many I could get to before banks cutoff funding with increased APRA/living expenses.

    Agree that 7% growth rate is too optimistic and my personal view is that we will not be seeing historical growth rates in coming years due to funding cutoff, hence I put it as HOPE for CG. I like @sash strategy of buying new H&L build but I may be looking @3.5-4% CG growth + depreciation benifits 1-2%. This is better than hoping for CG though. This gives about the same as land rich old houses strategy (4-5%rent+7%cg = 11-12%) vs new HL ( 3-4%CG+1-2%depreciation+6%rent = 10-12%) with less maintenance headaches and more cash flow each year.




    There is no end game/point in mind though other than to go easy aka retire in 2030 when I will be 55 and see how much income stream I could get if I invest all left over funds for next 15 years.
    Pretty sure life gets in the way and expenses increase as Kids go to college but the gist of it is to invest all left over funds.ie
    60k*15 vs 90K*15 = 900k-1.35Mil + reinvest all -ve gearing +tax benifits etc.


     
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  12. sash

    sash Well-Known Member

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    That will work...given you high income....the CG is a real bonus...

     
  13. Blacky

    Blacky Well-Known Member

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    Given your current position - I think this is certainly possible provided there is a plan, and the plan is implimented.

    I would argue this is the wrong way around. You should have your investment/saving plan... and spend what is left over.

    Be bold. Shoot for the stars...even if you miss you may just land on the moon.
    One of the greatest risks in life is not setting your goals/dreams too high, and failing to achive them...but setting them too small and reaching them.

    Blacky
     
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  14. mcarthur

    mcarthur Well-Known Member

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    Hey @sash, it must be my Xmas cheer lingering and me not thinking straight. Can you explain the above pls? I don't see where the $154k comes from...?
     
  15. Blacky

    Blacky Well-Known Member

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    8x new IPs renting at $370/week = $154k/pa
     
  16. sash

    sash Well-Known Member

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    See blacks answer he is correct $370pw x 52 x8 = 154k
     
  17. mcarthur

    mcarthur Well-Known Member

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    DoH. Thanks. Somehow I read 3x$330k properties and couldn't make $154k out of that!