Property Investment Advice

I'm 33 and have just recently jumped into a much higher paygrade for me ($120k) and wondering what I should do with the potential.

- I have an investment property in Ringwood area (Vic) that's a front house of a subdivide and is probably worth $650-700k based on comparisons.
- I have a loan on this property for $250k. Repayments are met by rent.
- I have $130k in cash effectively.
- I really enjoy restructuring floor plans and value-adding through design and reusable materials. Spatial problem solving is fun for me.
- I would like to not feel the pressure to work for a high salary in 12 years time.

Options I've thought about:
- Search Australia for safe city properties with growth potential (ones that need minimal maintenance) and hang on to them until their suburb finishes a boom.
- Search Australia for high-yield properties (that require minimal maintenance) and never plan to sell them.
- Buy a place to live in as my residence and renovate it myself over a couple years and upgrade locations over time.
- Flip investment properties (outsource works as expense, pay tax on profits).
- Buy unique holiday properties (in cheaper locations than cities), upgrade them and put on AirBNB.

Which is the best strategy for increasing wealth? Is there a combination of these that I should consider?

 

Hey and welcome

Your first step is to check in with a good mortgage broker.

Once you know your borrowing capacity, you'll be able to see how far you can stretch your resources and think about how each purchase will specifically get to your goals.

 

Hi Jess,

Thank you! I'm currently in the US and was hoping to do this when I return from work here in November, is there any online resources for sorting out borrowing capacity besides the calculators? The calculators suggest $1.2m at 4%, not sure if accurate though. That would include releasing equity from current IP to make it to the 20% deposit.

Cheers

 

Right! Will your income remain that high once you're back?

A broker is the way to go - online calcs are junk

 

Yes it's an Australian employer, I'm just working remotely right now.

Can you organise a broker remotely? Otherwise will wait until I get back.

 

Yes definitely - the joy of the internet!

 

You're in a great position with a good income and decent equity. As mentioned above speak to a broker, but I can outline some general advice points below:

• $120k income + $13k rent is very good - higher than most Aussies
• When someone's pay is increasing, provided they keep their spending the same, they will have more saving potential (without impacting their current lifestyle).
• An asset base of $400k equity + $150k is excellent at 33...
• ...BUT, $550k by retiring standards is poor.
• To build an asset base investors focus on growth property / assets
• In property to speed up growth, it's possible to value add (i.e. reno, subdivision, development, rezoning, etc.)
• Flipping (paying tax) kills growth, and it is a business in itself.
• Many of the strategies mentioned are cashflow focused (Airbnb/high yield)
• Cashflow assets come later in investor's journey once they're transitioning from an asset base into generating income returns (replacing their wages).

This is general advice, speak to a planner and DYOR on growth / value add strategies in this forum.

 

A goal of mine is to move from my job with this salary and be in a position where I can work on a startup. So it's really pushing for yield so I can get to that point when I start taking risk while maintaining funds for family.

However, it would be interesting to see if I can take a capital growth approach and build up yield to the level required so I can work on other things.

Flipping is a business itself, my interest would be in reconfiguring awkward properties to be ideal for the demand in the area. But you think it might be more sensible to do the reconfiguring and then hold/rent for capital growth?

 

For most investors, it's a 2 part process. Build up an asset base and then transition into income-producing assets. A cashflow only strategy (without a focus on capital growth) leads to being trapped on deposit for future purchases. Whereas a growth only focus results in being caught from a solvency perspective (being able to service the debt). It's a balance between the two, but early on (with a good income) you MAY* get better results from skewing your investments towards growth.

*results are never guaranteed.

P.S. there is no shortcut, start early and be ready for a 10+ year journey.

 

Oh I see, I get it now. That does seem like the most sensible strategy, thanks Kent!

Though I disagree with the last part, I consider taking good advice to be a shortcut.

 

this video might help... Focus on the Methodology, I know this guy might have a bad wrap in here. But you can pick up some strategies in his videos. This is only one of many strategies. Begin with the end in mind A $3.8M property portfolio encumbered can give you around $3k per week rent income ( if my memory serve me correct ) watch the video anyway to see what I mean.
Also in your case based on those numbers, you might wanna think of your purchase like 1 Capital Growth property, 2 Cash Flow positive property, etc.