Hey Pro's, I've been stalking the forums for a while and guess many of you are baby-boomers, if there's anyone out there in their late 30s that was a late bloomer and played catch up, I'd be very interested in hearing from you as well. I'm looking for your read on the current environment if you were just starting out today. Also, I'm not the kind of guy who asks for help, so I don't have mentors in my life, but i'm starting to realise you need to open up. I've read some basics like Richest Man In Babylon and have learnt how to save much later in my life than I should have. Brief background: Mid 30s no kids, stable income ($120k+) in a capital in a major industry (not going anywhere). Australian citizen with a good credit rating. Moderate expenses to be expected of a capital city. $250k cash in the bank and saving just over $700 p/w, drive a nice car so have a salary sacrificed lease. No other investments other than cash, no other loans. 15 year goal (50yo) is to have had one child that lives an upper middle class lifestyle, good school, and to own a very nice home outright (3-4m) in a capital city - don't mind if i'm still working doing something I like. Not expecting a future partner to bring much to the party, just pay for themselves. My thoughts, tell me where I'm wrong, I want to do the following: Leverage a 1.5m equity base for growth: $900k PPOR + $600k IP at LVR 90%. (PPOR LVR 87, IP LVR 95). Entry cost will be $235k Both properties in CG areas with potential to add value. IP to be established home, costing me up to $150 a week after all expenses before deductions (includes $1500 p/y for maintenance and full landlord insurance). PPOR to cost up to additional $300 a week for the mortgage after all costs considered. Remaining cash: Put $10k in offset and invest $5k in LIC. Split the remaining savings down the middle between LIC and offset ($13k per year each) Is this strategy too 'old school', 'bread and butter', 'mum and dad' type of planning. Is it unlikely to be the way to go for the future? Any traps? Understand advice is general in nature. Thanks for your insights.
You may find that this partner will not be "paying for themselves" if you plan to have Unless your partner goes back to work after maternity leave finishes and she also agrees to have an only child.
Hi TheStiller, Have you checked out your borrowing capacity for your plan above? What is the rental return on the ip? I wonder if you’ve underestimated the holding costs? Regards Jason
@Jingo hit the nail on the head - you should confirm you can service the proposed $1.5m debt you have in mind. There are only two resources you need in property investing. You've covered your deposit but would be worth sitting down with a broker to discuss in detail about your financial position and confirm the serviceability and loan structuring side of equations before jumping too deep into the detailed plan. Also, $1500 per year for maintenance and full landlord insurance is too low. If you're buying a house you would also want to cover building insurance, and that with landlord insurance alone could cost you somewhere between $1200 to $1500 per year depending on how much building sum is. Depending on the age of the house I would ballpark another $1500 to $2000 on top (minimum) for any other repairs. Cheers, David
I don't want to be a debbie-downer, but I don't think your end goal is super realistic unless you're going to make some big changes. Status: 35 years old $250k net worth (decent) $120k approx pre-tax income Goal: have had one child that lives an upper middle class lifestyle good school own a very nice home outright (3-4m) in a capital city So you want a $3-4m home & to raise a kid in a rich kid's lifestyle, which I assume would also mean you & your partner are going to live a nice lifestyle (you're not going to take them to their music tutor's house by bus). By my rough math, we're talking $6-7m to achieve this all up. The way I achieve this number is: $3.5m sunk into a house $1m sunk into investments to generate approx $40kpa indefinitely to cover insurance, rates, maintenance & associated costs that go along with a house in that price range $1m sunk into investments to generate approx $40kpa to cover your kid's posh upbringing. I know there are a bunch of private schools in Australia who now charge that sort of money just in fees, but I'm assuming regular upper-middle class, not NYTimes "we're upper middle class, after the brownstone, cook, cleaner, nannies, etc we barely have any money left from our 7 figure incomes" nonsense rich people who won't admit they are rich "upper middle class". Once the kiddo is independent, this funds your added retirement spend, health issues, etc. $1m sunk into investments to generate $40kpa to cover your lifestyle $1m sunk into investments to generate $40kpa to cover your partner's lifestyle That's a $7m target. Now assuming you want to retire at 60, before we add in inflation or promotions, you're on track to clear $4.2m pre-tax. if I'm being generous, that's $2.95m post tax. If we double it because you're a rock star, that's $5.8m post tax. We're still way off the target & that's without factoring in inflation. Also personally, if I was going to live in a $3-4m PPOR, I'd want a net worth more like $10m+ so I wasn't "house rich, cash poor", but I also get the "my home is my castle" types who are happy to have most of their wealth sunk into a nice home. There's no nice way to say this, so I'm just going to say it. It's taken you 10-15 years to get a decent $120k-ish income & a $250k nest egg. That's a great effort. But you're realistically not a trajectory to afford a $3-4m home. That's 25 - 33 x your yearly income. Think about how long it's taken to get $250k together. Compounding will definitely help, but you're talking about 12x that, sunk into a non revenue generating asset that is likely going to have very expensive holding costs. As far as a 15 year goal goes, if you could invest that $250,000, you would then need to also invest 100% of every cent you earn post tax (approx $7,200 a month?) to get your $3m in 15 years. it's just not realistic. Realistically as I see it, your options are: 1. Figure out a way to make more money. 2-3x what you make now 2. Find a spouse with a similar income level. It probably won't be quite the dream lifestyle, but if your spouse made similar money, you could put 100% of your income toward the massive house dream, live off their wage, once the house is paid for & hopefully fairly soon after the kid is gone, that gives you a few years to put as much cash into super as possible. I still suspect you're going to end up house rich & have to downsize in retirement 3. invest in something different. I just don't see resi prop (unless you become a developer, which comes with a whole lot of its own risks. nothing is guaranteed.) delivering the returns you would need, based on your income & time frame to achieve the goals you want 4. Set more realistic goals for your current trajectory, if you're happy with the path you're on. Do you really need a $3-4m house, or could you be 95% as happy with a $1m house a $400k holiday home, or a $900k house & $500k invested to give the family a $20,000+ holiday, every single year. I don't know you from a bar of soap and maybe for you, it really is all about the $3-4m mansion on the hill, but I think it's fair to say for most people, that's ego talking. In terms of happiness per dollar, there are far more efficient uses of money.
Assuming 35 (mid 30s) $120k income. As per Millionaire Next Door For your age and income to classify as a PAW (Prodigious Accumulator of Wealth): 35yrs x $120k / 10 = $420k savings. You have $250k. This indicates you have a high consumption lifestyle. So you won't be saving your way there even if the numbers did stack up as per the above example. The way to hit your goal will require chunk deals. Development, subdivisions, or a business that can he sold. I know a handful of people that have hit those numbers. All business. Insanely driven people.
Loving the feedback aimed at my goals and how you guys are puting it together, thanks for the replies this is the kind of stuff i need. At 24 I was living week to week with a credit card and a car loan realising there’s got to be some lessons I hadnt learnt - as I said I was a late bloomer, so i’ve paid down debt and built the cash over 10 years. Its not amazing but I agree with what some of you said about putting the accelerator on if I want to aim high. Also, point taken about heading down a road of being asset rich but cash poor, thanks that’s a good heads up. Regarding the replies about the figures for the investment property $600k purchase, $500-$550pw rent, all budgeted expenses came to $625pw including IO finance (the $1500 was just maintenance, mentioned insurance as a seperate note for risk mitigation). What i’m taking away so far is i need to not put the eggs in resi IP and spread the effort into maybe a higher risk/higher reward venture like business/other income stream. My plan is to earn 200k+ in the next three years by doing some self improvement (i post grad study ontop of my current job) to move sideways into higher paying industries.
haha exactly. Sorry, the class stuff is so subjective. You werent far off it in a guess, I meant an average private high school, yearly holiday, a european family car, sports/tutoring and $ for a decent hobby.
Great intro post, good job laying it all out. If I could these would be my suggestions to improve on your strategy. I don’t know where you live say I’ll just use Melbourne: Buy your first PPOR for 600k, utilize the FHB to save yourself and instant 30k (money for jam). I also believe this price bracket is the most resilient to market softening. Purchase at 80% LVR, I see no reason with your deposit why you would waste money on LMI. Value add! Your clearly keen for a nice PPOR but why pay for someone else’s work? Roll up your sleeves and do a decent reno = instant equity + you have a nice place to your style now. Take your newly created equity and remaining deposit (after reno costs) and purchase an IP at 90% capped. Your not going to get a 95% lend on IO and why would u anyway. Their is no point paying 20k in LMI when you don’t need to. Once you have your PPOR you also want to think about paying the rest of your deposit into the loan and creating a new loan with the deposit+equity to purchase the investment to make your next purchase 105%.
Some Rough Numbers: PPOR = 600k Deposit = 120k Loan = 480k Cash Remaining = 130k Reno = 50k PPOR = 700k (Assuming you do a decent job and market stays flat). Cash Remaining = 80k Loan = 480k You could then pay down your loan to 400k and create a new investment split back to 80% so 160k. Pending servicing you could even fit in 2 mid price ranged 500k IP’s at 90%. Obviously a number of other considerations left out in this that one of the brokers in here could fill the gaps. But the reality is your servicing is going to run out long before your deposit so I wouldn’t be wasting it on LMI.
