Sydney Based Growth Portfolio

John you had a lovely run in Syd recently riding that boom...good for you

 

Kudo for acknowledging wife and the out-laws.

 

Great story, start young and keep going!

 

Surprised ????
What do you mean?

 

1: Is the yields net yields after expenses ?
2: When you say growth do you mean income growth or asset growth ?
3: is the reason why you say the growth is in the second ten years due to the ten year rent rent reviews?
4: At 8pc net yield at 4pc cost .Fifty percent of the net rent is profit

 

That is awesome John.
I heard the podcast a few days ago, inspirational stuff and you sound like a top bloke.
Best of luck with the business

 

Thanks Beano,

1. Yield is gross.

2. I mean both asset growth and income growth. The beauty of growth assets is that the rent doubles every 10 years or so as well. This is an often missed part of the "growth" story - it is the growing income stream that is just as compelling as the growing capital gain. This is why I said on the podcast, that growth assets become yielding assets if you hold on to them.

3. The arithmetic on growth assets means that they go exponential the longer you hold them. It is true that there is some pain in the first two years of every purchase that we have made, particularly in the early years. However it becomes easier the longer we hold them. The second 10 years is when the money is made, based on the magic of compounding.

4. True, but zero income on our PPR of course.

 

Thank you TapTap. Appreciated.

 

Thanks Inertia, great question.

The economics of good buy and hold property investing hasn't really changed. What has changed is the APRA regulation (which you correctly point out).

For someone starting out now, the aim would still be to buy as much capital city property as possible, as quickly as your servicing will allow.

My suggestion would be to focus on middle-ring capital city properties, and then when servicing starts to get difficult, either a) wait it out, or b) blend in some yield.

In my experience, yield is just for portfolio re-balancing, not for wealth creation (with some exceptions with respect to commercial property).

Note: everyone's circumstances are different, and everyone starts their property journey at a different age. I acknowledge that older investors starting out may require a yield bias, and this is a perfectly sound strategy.

In many ways, the speed in which you accumulate properties is just as important as the properties that you select. I see lots of investors either (a) procrastinate, or conversely (b) tinker with their portfolios too much.

Just my opinion.

 

1: so net on the investment properties would average 4pc (8+4=average 6 less 2% cost would be 4% net)
4: So the $10m includes your PPR eg $9.5m investment $.5m PPR

 

500k Sydney ppor? He don't look like the mount druitt type

 

Definitely won't be surprised . Most property investors in Australia will never get close to a 10m asset base.

 

Seems we have alot of wealth, wealthy people among us. Actually surprised how much

not a good example but some idea.

 

Hi John,
Would you mind explaining a little about what you mean by the real money is made in the second 10yr period?

 

Hi @KinG3o0o , I was just refering to the percentage of real estate investors in Australia who have a 10m asset base compared to those who don't. I'm pretty certain the number is quite small for those with 10m and above .

 

Thanks Anthony.

As we know, property investing is about compounding. Property in most of the capital cities tends to double every 7-10 years. So the reason why the second 10 year period is the most important, is because the growth is compounding off a base that has already doubled. The growth in your wealth begins to go exponential in this time period.

The other reason why this is such a profitable time in the "hold" period, is: again, because the base has doubled already, periods of low % growth can still provide substantial $ returns during this time.

Hope this helps, and please don't hesitate to let me know if you would like me to expand on anything further.

Kind regards,
John

 

Personally I feel its a mistake to calculate yield on purchase price, instead of current asset value. It masks opportunity cost.

 

I calculate two yields, one based on original purchase price and all related expenses for cash flow, the other based on the current market value for investment quality assessment or opportunity cost. For the latter one, if you consider selling it and buy another one, then selling cost including CGT need to be taken into account.

 

I tend to agree. My very first property has a yield of ~3% when looking at today's value VS ~5.5% if compared to original purchase price in 2009.