Property Strategy along with business growth

Hey all,

Its been a while since I posted:

The last time I was here in 2020, I was starting a small business in healthcare, with an income of 80k, working 60-80 hours trying to grow the business.

Fast forward to today: I have aggressively grown and accumulated more businesses and my net cash flow is around 450k a year.

Real estate: A H&L package I bought in Perth for 440k, now valued at 530k(FOMO, would not purchase it in hindsight). Loan paid down to 350k.

I believe the way to grow my income is always going to be business now that I have seen how much it works and I truly enjoy being in business, learning and growing.

Having said that, I don't want all eggs to be in a basket, and I do look into real estate as a way to diversify and park my income. I have had a chat with my accountant but would like to hear the veterans here, people who may have been in my situation as well.

How would you go about it if you were in my shoes?

My initial thinking is :

1. Buy, renovate, rent, refinance for more equity, keep renting, and repeat gradually.

 

Sorry, but while that might be a good plan for someone else, I dare say, it would likely be a terrible plan for you.
Would I be correct in assuming that you still work well above a 40 hour week and are generally time poor?
Given that you've got an annual company profit of almost half a million dollars, I'm not sure it's time well spent. Especially since renovations take three times as long as you think they will.

If I was you, I'd first talk to a mortgage broker and then possibly consider a CIP.

But anyways start with the end in mind. What are you trying to achieve financially? Given you might be able to pump $250k/year+ into investing, as long as you have reasonably modest goals, you should be able to achieve them quite quickly.

By the way, as someone that's trying to run a small business, hat off to what you've accomplished!

 

Ha! That is a very accurate assumption. I have been busy automating my business (hiring an operations manager) and setting up systems so I can step away in the future.

The renovations will not be done by myself, I have tried and failed terribly at DIY. I also have contacts for builders if the purchase were to be in Perth.

My thoughts so far:
-I am not interested in development deals at this point as I don't know anything nor am I interested in it.
-I want to keep it simple
-I am happy to wait/ outsource most of the work for a higher price
- I don't want to hamstring my business plans (acquisition and expansion), and am not sure how banks will look at residential debt.

Will look into that, my experience with business and residential brokers haven't been the best so far. My ANZ bank manager actually gave me the best deals surprisingly.

End in mind: That's a tough one: I am quite comfortable with my lifestyle apart of the luxury car I just splurged on, there really is nothing I want. I see myself working 20 hours a week for as long as I can. End goal is to replicating and diversifying my income for worst care scenario (healthcare tend to be quite safe though), I really find it rewarding.

Thank you, very steep learning curve and its not for the faint hearted for sure, I was in dire straits from cash flow issues a year ago, have never resonated more with "cashflow is king". I hope your business is doing well.

 

make money in business and hold that money in property

 

Indeed Terry, I guess my question is which way should I skin the cat in the real estate area.

 

Always great to hear these success stories - congratulations

We started with building a passive portfolio of IPs which worked well over time, but found the most success with an active strategy of buy/renovate/sell (on various different scales from cosmetic renovations for OO properties, to multi-res development). There is a real time and capability commitment to this though so I'm not sure how well you're placed for that?

 

Thank you Morgs, much appreciated, still lots to do!

Hmm, active buy reno and sell is something I really have no knowledge in, it sounds like a lot of research and knowledge required. Would you say a small reno and hold for short term would be a safer bet while you dip your foot in the active strategy? I am sure the holding and closing cost will be substantial, along with taxes! Did you engage a developer or did you do it yourself?

 

I agree definitely best to start small.

If you go into the deep end with development without building the skills/knowledge/network that you need to make it successful then it may end up an expensive mistake. I know this from experience having made that exact mistake!

We have weathered that and have a development company now that we're doing active projects in.

 

As a strategy, developing makes sense for the wealth creating goal.
Good way to turn income into wealth during business growth phase.
Not easy to do well though, but likely the strategy to create wealth through property given you ability to access it.
Market may make it trickier at the moment to execute in some areas.
Passive strategies can work too, on longer time scales.

 

I have got REIT but it has been disappointing for me for the past 6-7 years.I like Commercial Prop Trusts, but cant leverage as much as I would like, banks like to lend for residential more compared to investing in trust. A few years back, I had loans for 400K business loans rejected with 170k income, meanwhile bank was happy to loan me 440k for a house with a 60k income, it doesn't make sense to me.

 

What do I need to do other than researching and leveraging a professional's experience for what I don't know to be successful in developing? I suppose finding the right person to work with is 90% of the work?

 

Hmm,still lots to learn. I will look into how to make myself attractive from a bank's point of view. If the bank likes me and find it easy to loan me money, I will do very well in my goals.

 

Thanks for the info Y man. I will lock in a broker and go from there!

 

I just realised what a CIP is: what attracts someone to a CIP? Longer leases? Isn’t it higher deposit required, longer potential vacancies, and similiar yield to residential?

 

First, the downsides and why many new investors don't want to deal with it: Higher deposit needed (as you mentioned), higher interest rates. Given you're netting half a mil, I thought that might not be that much of an issue.

The benefit of it is that it tends to be a lot more hands-off and that the yield is higher. Given your limited time, it's what I'd seriously consider.

 

Very well aware of that as a commercial tenant at multiple locations