Please help - $150K cash, first time investor

Discussion in 'Investment Strategy' started by Anne Kay, 6th Aug, 2017.

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  1. Anne Kay

    Anne Kay New Member

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    Hi all,

    I am new to property investing and have been really inspired by this forum to use property as a vehicle to reach our financial goals sooner. As a bit of background, my husband and I are 31. We did the 9-5 grind for 7 years and realised we didn't want to be chained to our desks for the rest of our lives.

    Along the way we started our own business. At first, this business was a way to make some side income but it eventually became profitable enough for us to leave our jobs and work on it full time. It has been 3 years since we left our day jobs and the business has grown steadily since then.

    Last year I gave birth to our first child. The income from the business is enough to comfortably support the three of us and we have some left over to reinvest back into the business. We are now at a point where we want to use some of the money we have made to invest outside of our business. We have a financial goal in mind and I wanted to seek advice on this forum on whether this would be achievable with property given our constraints outlined below.

    The Goal: in 10 years own our PPOR ($2m, minimal debt) and generate $100K cash flow per year from investment properties (minimal debt)

    The Facts:
    • Married (both 31 years old) with a child (1 year old)
    • Self employed and paying ourselves 37k each from our company
    • Business makes around 125k after paying ourselves (pre tax)
    • Renting in Sydney for 2500 per month (company pays half as company runs from home)
    • No property
    • Debt free
    • We don't qualify as first home owners as I have previously owned and since sold

    Cash Situation:
    • 150k cash to invest
    • $1,000/month to top up the loan if needed

    Risk Tolerance:
    We are pretty risk adverse and have never been fans of debt. However, we understand with property we will need to accept that debt is just part of the equation. In saying that, if we can reach our goal using as little debt as possible along the way that would be ideal. We never want to be in a position where we are struggling to make the monthly repayments or required to put our business at risk. As stated above, $1,000 per month is what we have allocated to top up our loan if needed.

    The Question: is our goal achievable given our requirements? If so, I'd love to hear your view on a strategy you think would best work to suit our needs.

    Or if you could recommend someone that I can speak to that is willing to understand our situation and advise accordingly that would be great. Even better if they are experts at coming up with tax effective strategies that work in harmony with our business situation :)
     
  2. BKRinvesting

    BKRinvesting Well-Known Member

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    Not to be discouraging but they are certainly ambitious goals given the timeframe and level of risk you have indicated.
    Some quick thoughts:
    - Required capital needed at end of 10 years to meet your goals: $2M (PPOR) plus approx $2.5M to supply the $100k income (4% yield)
    - Input about $1k/month - that's approx $120k over the 10 years,
    - the required computing rate from 150k to 4.5M is approx 40% p/a (ignoring the additional inputs)

    I guess what I'm getting at is hang around this forum for a while and read a lot of the recommended reading to get a feel from it.
    Your best bet - based on the numbers above -
    You will either have to ramp up your risk profile (property development) or continue to dramatically ramp up your business.

    Good luck :)
     
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  3. Anne Kay

    Anne Kay New Member

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    Appreciate the insight @BKRinvesting :) Given our current risk profile and requirements - in your opinion, what would be a more realistic achievable equity number in 10 years time? Thanks in advance.
     
  4. BKRinvesting

    BKRinvesting Well-Known Member

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    Hi,
    Difficult to determine - but let's assume 88% lend on 150k that gets you to around 1.25M in assets,
    Assume a doubling in value, plus some paydown in debt - say 1.3-1.4M in equity in that timeframe.
    But that's entirely ball park and making very broad assumptions.
    Ultimately - make your goals then find a way to get there.
    I never said the first weren't impossible - just unlikely through buy and hold property.
    Pretty sure @Ace in the Hole achieved way higher figures in a similar time frame.
     
    Anne Kay likes this.
  5. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I agree with BKR - you will be unlikely to get there without some major changes in your situation - you'll need to dramatically increase your income to enable you to borrow enough to purchase and reduce debt on that amount of property.

    I would consider property as one option to get to your goal but also focus on growing your business as quickly as possible. This will give you more options to borrow.

    Also don't discount shares as an income producing option - on low incomes fully franked dividends can be a good way to create cashflow in the times when buying property may not be possible.
     
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  6. Ace in the Hole

    Ace in the Hole Well-Known Member

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    As a comparison, our achievements in the past 10 years starting from a similar base have been approx 3 times what your goals are, give and take for slight differences.

    The main differences in the 2 situations I see are that we were high risk during that acquisition phase and developed multiple properties during this time, but the main difference was that our personal and business incomes were about 5 times what yours are.

    Sure you can do it on your incomes, but you will have to go high risk for high reward if you want to do it in 10.
    I believe you can make money much faster in business than investments, so that's where I'd be focused on getting the results primarily, then bankroll the profits into property.
     
  7. Sackie

    Sackie Well-Known Member

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    If you're pretty risk averse and don't like debt, with the goals you mentioned and 10 year timeframe, frankly speaking you got extremely slim to zero chance of achieving it though residential real estate unless you change your risk profile and approach.

    Just my 2 cents.
     
    Last edited: 7th Aug, 2017
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  8. KinG3o0o

    KinG3o0o Well-Known Member

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    only way i can see it is invest in your business and/or stock market in companies that you know well. if you are in business you should know how they work in the deep end and know whats good value to invest in. stock scales much faster than properties.
     
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  9. CROMAX

    CROMAX Active Member

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    Pump the 150k into the business and come back to property! Cash flow is king.
     
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  10. skater

    skater Well-Known Member

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    Like others have said, that's a very ambitious goal to get there in that timeframe. First step would be to read, read, read, then read some more. Read about Business. Read about property.

    Can your Business be upscalled? Can you get more income out of it?
     
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  11. Anne Kay

    Anne Kay New Member

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    Hey all,

    Thanks for all your replies.

    @skater We are continuously looking for ways to upscale our business - we are creating new products all the time and have experienced decent growth year on year. I was just looking to see if real estate would be a good way to make use of our cash - we have quite a bit just sitting there earning 0% interest.

    Given our risk profile it seems that real estate investing probably isn't the answer (for now). If we were to use it as a tool to reach our financial goals I would want to invest a lot of more time into it as I would want to add value (reno/devloping etc) rather than simply holding onto the stock and hoping.. which would ultimately take time away from our core business.

    For the time being, I am going to research other asset classes to see if we can park our dormant cash there (anything is better than 0% interest...) and continue to grow our core business. Once we are at an income level where we are comfortable taking more risk then I will consider real estate again. I've started reading about LICs and will move onto ETFs.. could be something there that we could utilise.
     
  12. CROMAX

    CROMAX Active Member

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    How come you are reluctant to reinvest the cash back into the business? I feel you could be more aggressive with the business....in the end it won't matter if you have invested in any asset classes if the business has sky rocketed.
     
    Jess Peletier likes this.

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