Positive cash flow - goal to earn 30k a year.

Just to be clear I don't intend to just sit at home doing nothing if I get enough income to pay for expenses. I'm a software developer so I would probably pursue development of my own apps or websites with a bit more time and financial security to back it up to further increase my passive income streams. I'd also be able to do things like contracting for 6 months which pay almost a full years salary then you can do your own thing for the rest of the year, and not have to worry as much about job security and being forced to work for someone else permanently.

Actually I'd probably keep a job or contracting at least 10-15 years after I achieved barebones financial independence as it would help me acquire more assets and retirement and not to mention with serviceability.

15k per year investment positive cash flow and I'm able to cover my expenses
30k per year and I'm able to cover my ppor home loan and expenses or alternatively id be able to add in luxuries if id paid of my ppor
60-100k per year and I'm basically laughing, and then yea id consider quitting if got fed up of the rat race or having extended breaks from work if I felt like it

The point for me is I don't like being a slave to the system. I want to be a free person.

 

The aim is retirement in 10 years.

Assumptions:
1. $220k purchase - lowest you stated.
2. $320k sales price - assuming your 5% yield.
3. $0 maintenance - nothing breaks down, and rent actually covers all expenses (unlikely with QLD high rates, vacancies, and the ages of the house, likely actually slightly negative geared).

Purchase $220*1.05 (stamps, legals, etc) = $231k.
Sales Price $320k - $16k (5% for sales fee, legals, etc) = $304k.

$304k - $231k = $73k.
$73k - $11k Capital gains tax (50% exempt) = $62k.

Sound great for 5 years... but like... it's been 5 years. Is it going to do that again? Soon? Unless you timed it perfectly and purchased several with an abundant pool of cash at the start, this strategy will not yield the desired results in 10 years. Unlikely even 20.

So back to original point, unless you wish to retire at a later age with an ok 'passive income' this is not the right strategy. In fact, I would highly not recommend it if you are already in your late 40's or 50's, unless you're doing it for your grand kids.

 

Not a fan of this guy per se, however it truly resonated with my experiences having taken over a year from work after first hitting a 6 figure non PayG income. Worth a listen.


"Just because it's passive doesn't mean it's permanent."
"Don't aim for financial freedom, aim for financial confidence."

 

The teacher was always there standing in front of them. The student couldn't see them because they weren't ready to see them.

 

I don't think you'd have the borrowing capacity to buy a cash cow, unless you can find a 310-320K property generating @ $800 per week ( $41,600 per annum)

I specialise in this space so I ran some quick numbers using the Firstmac and Pepper calcs- which are both at the sharp end for borrowing power - see below

here's the hypothetical - if you refinanced your 250K and pulled out 135K using firstmac, for a total of loan of 385K, that would JUST squeeze through - assuming your gross income is 76K and there are no credit cards, car loans, personal loans, HELP debt or anything else you havent disclosed. I even used P&I for all the lending, instead of IO for the 135K to try and mile a little more out

Then, with that debt in place you could get another 200K from Pepper, but only IF you were generating $800 per week of rent ( $41,600 per annum).

So you'd have a total of 135K available from Firstmac and 200K available from Pepper- 335K in total. This is why I suggested @ 310-320K was the maximum possible purchase price, because you need to allow for stamp duty and legals etc...

But unless you can also get $800 per week - forget about it . Even if these numbers are a little loose ( you didn't give enough detail so I have made some calculated assumptions) what seems clear is that you'd need something with miraculous levels of yield to even possibly, maybe, kinda sorta be able to do anything resembling purchasing a resi cash cow at the moment . Basically, you cant do anything right now.





Instead - just keep attacking the 250K mortgage. You are going gangbusters. Keep it up. If you keep making extra repayments of say 2K per month ( 24K per annum) from the money you save each year, you should see that mortgage GONE in @ 7 years and 8 months . You'll own your PPOR outright.... then you can start getting sorted on the cash cow side of things

Your borrowing capacity will be a very different story when that 250K mortgage is gone.
With the 250K gone, you could start considering the types of cash cows I work with - just as an example. 575-585K Dual occ. $675 per week rental income. With the 250K gone, you would qualify ( JUST) for 575K with Pepper- based on today's figures/today's calcs and 5 years IO.




But if you took the loan P&I from day 1 ( and you should) you would qualify reasonably easily ( again, this is a hypothetical because you have not disclosed a lot of detail about your financial position) ) but assuming the numbers are accurate for a moment , here is what could be achieved.




before going further, its important to understand that the Dual Occ would run @ CF neutral from day 1 , if you ran it P&I. It starts going CF+ as the rents slowly mature and as the debt slowly reduces..... but from day 1 the rents would basically cover all the outgoings ( mortgage, rates, property management, insurances) so you would then take the 14K you USED to spend on your PPOR mortgageas mandatory repayments, + the 24K you USED to spend on your PPOR mortgage as extra repayments , and that entire 38K would be used to make extra repayments on the 575K of P&I debt . using this approach you'd pay the Dual Occ off in full, within @ 9 years and 10 months - see below




So.... PPOR gone in @ 7 years and 8 months

Dual Occ repaid in @ 9 years and 10 months

Call it the 17.5 year plan.

And if rents have doubled by then, you'd have @ 70K Gross coming in at that time

If your wife returns to work and a 2nd income comes into the equation - everything outlined here changes obviously ... you can quite likely achieve quite a bit more. But I do this stuff all day every day - and this is really the reality of what can be done with 1 x 76K income , starting out with a 250K mortgage - borrowing capacity wise.

You will read lots of lovely , inspirational sounding comments about equity and that's all very nice, but I would point out that none of those people are able explain how you can solve the borrowing power issue . They made their money pre APRA and they are not starting from a 76K income with a 250K P&I PPOR mortgage , in a post APRA era with HEM's and sensitised assessment rates. I put it to you they are completely out of touch . There is no short cut or work around - the need for debt reduction outweighs any "growth" advice - in very blunt terms you cant buy anything if you dont pay off debt .

So keep doing what you are doing . Kill that 250K mortgage as fast as you can. If your wife goes back to work or if you get a large pay rise you might be able to do something earlier - but if your current circumstances stay as they are , and especially if you have another child - you really just need to get rid of that 250K if you want any decent amount of borrowing capacity to be available to you whatsoever ...

 

Responses in blue.
Before you read that, I want you to know I love you, and want to give you a hug.

 

Holy wow!!! That's amazing thank you so so so much. Absolute legend!

 

Fastest way to move forward is to increase income or reduce debt. Or better still, do both at the same time. Its that simple.

 

No problem. Keeps me sharp. Took 17 minutes start to finish.

I do these sorts of scenarios for people quite a lot.... it cuts straight to the chase. I dont find it helpful to talk in fanciful generalisations. I much prefer to demonstrate mathematical facts.

If you are going to learn one lesson it should be this ; everything starts and ends with understanding the massive changes that the post APRA credit era has brought to the market.

1. To Borrowing power
2. To Holding power

Borrowing Power is critical because the ability to buy depends on it. The ability to harvest equity depends on it. The ability to renovate depends on it. The ability to value add depends on it. So when you read posts about "buy below market value" or "add value" or "subdivide and add value" or "renovate and add value" - they may sound like exciting concepts but always top and ask " where do I get the money from? "

Holding Power is equally important. Buying, renovating or adding value to properties is all well and good ( if you can get the $$$) but if you cant hold on to them for longer than 5 years because your loans re-set to P&I and your cash flow isnt sufficient to deal with the 50% increase in repayments that comes with the P&I re-set.... well ...


All roads lead to the need for debt reduction .

 

Truth.

"Business can buy many properties, a property can't buy many businesses".

The reality is as much as I love real-estate, I purchased all my properties in 2011-2012, and not once since. If you invested the way I invested back then now, you'd be bankrupt. The real strength of my portfolio comes from business in the area of real-estate.

Pay close attention, the same can be said for a great majority of those on here who are genuinely able to retire.

 

Awesome post there, euro, but you lost me at the first paragraph:

Forgive my noob math skills, but isn't that a 13% yield? Where do you pick up one of those?

 

I knoz dhat....but each to their ownz....

What all this luv business..... and hugging business......

 

You don’t . That was my point

 

One of the biggest hurdles you will have in this current climate is your income. Are there any ways that you can increase this, even if it's just a small amount. Is your wife able to get a job, or does she need to be home with the kids? Even if at home, there could be something that can be done, even if it's just Ebaying secondhand stuff. It goes without saying that every extra $ will help

I'm not across the granny flat rules in Perth, but could you look into putting a granny flat in your back yard? They don't cost that much to build & will give a permanent boost to the income from the first day it is rented out. If you get $200pw on top of expenses, there's an additional $10k per year without having to lift a finger. That's one third of your goal in one hit. A redraw from your current HL could be all you need to do this, but make sure you have the extra funds split into a second loan, so it become tax deductible. Focus on using the extra income to pay down, or offset the non-deductible part.

 

Thanks for your advice. Unfortunately wife cant work as I have a 9 month old who is heavily dependent on one of us being here. She might be able to work once the baby is of school age.

Yea definitely agree single income around 60k net a year is a big limiting factor even if I have a low outgoings (except the ppor loan which id like to get rid of).

 

But what if I buy 100 properties in 10 minutes and snort up those lines of credit. That what i learnt in the seminars

Seriously though, how do I find those calculators, i'd be interested in doing the math and modelling my goal out with different scenarios taking borrowing power into consideration. Sounds like debt reduction / finding a way to increase my income is the way to go.

EDIT: I've found the firstmac one, still unable to locate the peppermoney one

 

Please don't take this the wrong way, but maybe you have a few limiting beliefs. You can do anything if you want it bad enough, and although your situation is difficult & you will get a lot of people saying it can't be done, I think if you change your thinking, maybe it CAN be done. You are not after a lot of money after all. Anyway, here's part of my story early on. Please note, that these days we are retired, living off of rent and part of that success I truly believe was through the ground work we did in the early days, and the belief that we can do more than the average person, even if we had income well below the average person.

After we were married, I left work & had two babies. Then a recession rolled around & Hubby was retrenched & mortgage rates went up to 17.5%. We were able to scrape by, by the skin of our teeth & keep the house. Between us, we did any sort of work that we could get, be it one day, one week, poor pay......anything.....and had one of us at home with the bubs. Besides cutting our living costs to barely anything at all, we cleaned, we changed sani bins, sold insurance, sold tupperware, sold avon, did MLM, delivered pamplets, had a uni student stay with us.

When I sold avon, I had an area that was mine. I walked the streets delivering the pamplets & then did it all again picking them back up & collecting the orders. I took the babies in the pram with me. It was hard work, the pay wasn't stellar, but it was SOME pay. I worked long hours doing this & was able to meek out almost a (low) full time wage. BTW, housing commission areas are best for this. This is something your wife can do WITH THE KIDS. Your wife can sell on Ebay while she is at home with the kids. Don't put limits on what can be done because she has a child at home. It all depends on how badly she wants it & what she's willing to do to get it.

I have never held another full time job since I had the children, but I consider that I have done my share to pull in as large of an income in that time as I can.

Another avenue is your work. You say that you are a developer? Can you develop apps in your spare time? Even if the income is small, it's still income. Even if the income can't be used in servicing calculators (for loan applications) it can still be used to pay down debt. Never underestimate the power of small amounts used wisely.

 

Congrats on getting through that period and thanks for sharing your story. I definitely have the skills to build apps or websites in my spare time (probably weekends), to supplement income, so something for me to consider, perhaps that would lead me to my goal faster than housing / investing could also.

 

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