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Strategy Help

Discussion in 'General Property Chat' started by B-Mac, 20th Oct, 2015.

  1. B-Mac

    B-Mac Well-Known Member

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    Guys,


    What is the best way to accumulate an asset base returning $500,000 in p.a. (today's $) in passive income within the next 15 years (why not aim high huh?)


    Based on my calcs, aggressively buying mid-high growth IP’s over the next 10 years should get me between $3-5mil net worth (excluding PPOR). Assuming I sold & paid down debt this would mean portfolio net worth around $2.25 - $3.75mil (after CG taxes).


    Adjusting for inflation this reflects a Net Worth in todays $ of between $1.35mil - $2.35mil, which reflects a passive income (assuming gross 5.00% yield) of between $67-117k.


    Basically, I’m only 20% there….


    What can I do to help me reach my goal quicker? Ideas floating around my head are:


    Ø Buy & Reno’s

    Ø Invest in a business

    Ø Learn about developments & play in this space as soon as I am able to

    Ø Learn about commercial property


    @Steven Ryan I've real a lot of your posts and like your mindset...Any thoughts/advice on the process involved to get to that magic number by the time i hit 40?
     
  2. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Some sort of business or windfall profit from an invention or similar.
     
  3. D.T.

    D.T. Adelaide Property Manager Business Member

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    Its not a mindset question its a doing question, so scrap that.

    Assuming you have the serviceability side of the equation down (high paying job or own business), the real mission here will be to acquire enough deposits to buy the amount of properties to get there.

    So, where do deposits come from? Equity or selling. Selling sucks because then you lose the rental income from that property as well as sales agent fees, stamp duty, LMI etc.

    So it really comes down to where equity might come from - renovating, developing, BMV buying etc. You can't wait around for growth with the timeframe you have - it takes too long.

    Need to maximise equity (by using as LVR as possible and using banks that allow cashouts) and continually plough it back into the market in a repeatable way. Once you're pulling enough equity out, change to investing in Commercial IPs (You'll probably need to by then anyway due to lending walls) which have far greater income, thus arriving you at your goal.
     
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    $500,000 income

    at 4% yield, after expenses, this would mean $12,500,000 in fully paid off property at today's value.

    This equates to 36 properties valued at $350,000 each.
     
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  5. srirang

    srirang Well-Known Member

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    Spot on. Exactly how I'd look at it.
     
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  6. B-Mac

    B-Mac Well-Known Member

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    Thanks @D.T. that's an excellent way to look at it. I understand i will need to diversify into other asset classes later on to maximize cash flow.
     
  7. B-Mac

    B-Mac Well-Known Member

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    Yep, and those numbers make it look impossible, hence the reason for this post.....

    i'm sure its been done before!
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There is no magic that can break the laws of mathematics. You might get some good growth which can speed things up and/or some luck with easing of serviceability calculations but you are going to find it extremely difficult to get to that level of income with buy and hold property.

    Developing can speed things up - if it is done successfully.
     
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  9. Omnidragon

    Omnidragon Well-Known Member

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    Basically your returns are too slow. You're talking about 4-5% return. If you think about it, that's only marginally above risk-free rate. With a moderate amount of risk, you could grow your money by 10-12%.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you could get a 12% return that would mean unencumbered assets of just $4,166,666 could generate $500k pa

    Reduce the $500k to say $100,000 pa and keep the 12% and you would only need $833,333 in unencumbered assets!
     
  11. Omnidragon

    Omnidragon Well-Known Member

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    Correct. Because if you were putting in so much effort and taking risk to only make 4-5%, I'd suggest just putting it in the bank.
     
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  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    Someone who has the motivation, know how and experience to seek out 12% returns is not the person who'd want to stop at 800k in assets.
     
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  13. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    You're 25 years old and already 20% of the way there, you can smash this easy.

    Here's our story if interested, not the only way but it worked for us.
    This is how we do:

    Started a business primarily to fund property investing - 10 years ago.
    During this time built the business so that it generated good cash flow.
    Have bought 3 residential properties in that time, existing homes on develop able blocks.
    Developed each block in succession over a period of about 5 years, duplex, 5 TH and 6TH in that order, all held as investments.
    Business provided funds and cash flow to allow this, often acting as the bank to our developments.
    Also upgraded PPOR substantially in this time too.
    At this point we are 2/3rds of the way to 500k passive from resi rents if we manipulate current assets and liabilities.
    Won't have to do much from this point to reach your target goal in 5 more years, will be 45 years old.

    One thing to note is that most of our wealth has NOT come from property investing so far.
    My desire to invest in property was the motivation to grow my business.
    It's almost like P&I on a PPOR, i.e. forced savings.
    Soon will be time to switch it up and let property take over as the business has done it's job.
    The caterpillar will soon become a butterfly.
     
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  14. Greyghost

    Greyghost Well-Known Member

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    Hence the need to either - create equity via development/value add or increase rental yields..
     
  15. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    It's possible without, but I'd say to get that level of income through property (or otherwise), you will need a business (or multiple) as a significant part of the plan.

    Business can cashflow investments/developments to fast track things or itself/themselves provide the cashflow you require. Another option is to build a biz and sell down the track.

    There's unlimited ways to make this happen but it's going to be a big ask on a salary, even an enormous one.
     
  16. BKRinvesting

    BKRinvesting Well-Known Member

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    *subscribed*
    This is almost the same questioning/thought process I have been on. I am also 25.

    Except my goals were a little different, $70-90k in 5-6 years.
    Mine almost seem more attainable in comparison to this thread now.
    Seems I need to dream bigger!

    Thanks for detailing that out. Couple of questions:
    1) was this business on the side of an standard salary or was it your entire income. Did this impact your ability to access finance?
    2) what was the business? (if you don't mind me asking)
     
  17. B-Mac

    B-Mac Well-Known Member

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    Great discussion here guys.

    Seems the general consensus to reach this level of income is to:
    1. Establish/create an asset & add value to it (e.g. a business or invention)
    2. Use cash flows from the business to buy existing assets (e.g. property) & add value to it (e.g. developments)
    Looks like it's time to pull my finger out & focus on my business!
     
  18. MTR

    MTR Well-Known Member Premium Member

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    I started investing 14 years ago, with the idea of buy and hold strategy/forever and just continue accumulating, in the main they were all highly negatively geared. Problem with this was lifestyle is stuffed and servicing loans remains ongoing issue. Only getting harder today.

    Kept tweaking the strategy and accumulating properties during 6 boom cycles, however I also started selling down some of my stock prior to the peak, this reduced risk and improved cash flow and ability to service loans.

    More tweaking, buying overseas USA/NZ, boom cycles, sold NZ and kept US properties for cash flow.

    More tweaking 3 years ago started development and set up a Trust where I purchase development sites (Australia wide, depending on cycles), set up a project management company and am now on to my 5th project.

    I sell some keep some. Developing provides an income somewhere around $200-300K net pa dependent on what I am doing/selling, this is ploughed back into my business, I don't touch this money I just buy more.

    My passive income is around $160K pa, but my goal is around $200K pa, slowly, slowly with this one, otherwise too much pressure.

    If your goal is $500K great, but it may be easier to establish what you need to live off to pursue your goal if that makes sense, and what you can do to increase your income and be your own boss. Networking, tweaking, strategizing, managing debt is how you get there, but it wont happen overnight.

    I think goals are great, but I also know from my own experience is you also need to smell the roses today and reward yourself along the way.

    All the best.

    MTR:)
     
    Last edited: 21st Oct, 2015
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  19. sash

    sash Well-Known Member

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    To have a $500k passive income from property....you will need about $14.3m in fully paid off property assets. I am being reasonably conservative as property unlike shares have high on going costs.

    As to how to get there...I will let you know when I get there....15 years in...and still have not attained that yet. $200k is much easier in about $15-20 years.

     
  20. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    For those seriously looking a long term residual income, leveraging off your property portfolio and diversifying into different asset classes will get you leagues ahead of just buying 50+ properties. Plenty of reliable assets and vehicles you can invest in which had double, triple, quadruple the spin off yields of your standard Resi property.

    Food for thought.
     
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