What would you do in 2020?

Hi Everyone,

First time poster - I have been reading a lot on this forum. Would appreciate some guidance on my personal situation:

1. 43 years old (my wife is the same age). Our combined income is $350k per annum (including super), before tax.
2. Have two kids - 3 years old and 12 months old (both in childcare 3 days a week)
3. PPOR - 1.5m in value with 900K loan and 500K sitting in offset - p&i
4. Investment property worth 800k with 200k in loan - IO - positively gearing

We are paying a lot of tax (not the primary focus though).

Our goals:
We would like a $7m portfolio by the age of 65 which is when we plan to retire. This may be ambitious but our goal nevertheless. We have considered the growth of our current assets in coming up with this figure.

We have been thinking about buying a property of around $1.2m with a focus on capital growth to get closer to our goal. We know that property development is potentially a faster way of getting there but we are time poor and this strategy will not work for us (for other reasons too). We can hold the property till we retire.

This will not consume all of our borrowing capacity (sitting at 1.9m).

We were thinking about buying multiple properties - but think that buying one good property can provide a good foundation for us and maximise capital growth - instead of multiple cheaper properties. We would also like to extend our PPOR at some stage (not a priority right now).

Wanted to check if our thinking is flawed/whether there are other options we may not have thought about.

Thanks.

 

Does the 7m include ppor? Unless you sell it or borrow against it, the ppor doesnt produce income.

 

You seem to be on track and know where you're heading. That's the most important part which a lot of new investors tend to miss.

Having the right team (broker, planner, lawyer, consultant etc) also plays a very important role to make sure you don't lose your momentum.

Strategy wise, I find all investors have different strategies. There's no right or wrong, it's just that everyone's goals and risk appetite are different. I like diversifying the portfolio with "cheaper" properties as they give better return and easier to lease.

 

I better get in before some regular idiots on here ask the cringe worthy question where you want to be or something silly like that?

I was where you were .. I have just pulled the plug in my early fifties...with a 8 figure property portfolio.

You have a great income to build wealth...I reckon if you and your wife are focused you can achieve $7m (including PPOR) by 55.

Here is what I would do:

1. Target quality properties around the 600k mark in Sydney, Melbourne/Geelong, Perth, Brisbane. I reckon you will need another 5-6 properties.
2. If you can be active and by simply buying cheap and let the market move and put a new house you can build some decent equity.
3. Max out super. This will be your second tax free income from 60 onwards
4. Build a portfolio of ETF/LICs via Dollar Cost Averaging small amounts.

In about 13 years...you should be at your goal or exceed it!

Good luck!

 

$7M portfolio by 65.

Assuming all investment:
@ 4% ROI = $280k
@ 5% ROI = $350k

Reverse those figures for inflation.
65 (retirement age) - 43 (current age) = 22 years
2020 - 22 years = 1998

$280k (2020) = $161,500 (1998)
$161,500 in 1998 → 2020 | Australia Inflation Calculator

$350k (2020) = $202k (1998)
$202,000 in 1998 → 2020 | Australia Inflation Calculator

Those figures are pre-tax, pre-maintenance, assuming it is all IP. Doesn't include super, or other income streams.

If you're including a PPOR in that $7M, that income would be much less.

Was that the sort of retirement income you were after?

 

Hi - No the $7m does not include PPOR - hence we feel that the plan may be ambitious.

 

Hi NHG, I had not included the PPOR in the $7m as it would not be income generating. I am sorry - I did not understand which figure I would need to be looking at above. I had not taken inflation into account.

 

Welcome Rodd
You are in a great financial position
It is time for you to seek professional advice
You really need to look at the ownership structure first off, then to diversify as having all your eggs in property isn't for some, then look at finances, all before looking for another IP.
@Terry_w has heaps of tax tips and other information (if you follow the link below his profile) many hoirs of reading awaits
This will help you with questions to ask when obtaining paid advice

 

Thank you all for your guidance. I will continue reading and educating myself.

 

With your income I think it’s possible.
I definitely wouldn’t be targeting a single property though, that’s a risky strategy putting all your eggs in one basket.
I understand the concept (less headaches) but what happens if something happens in that specific market when your planning to exit??

Instead of purchasing say 1.2 in a single property, I would aim for 2 * 600k. And I would ALWAYS buy something with a land component. I know you don’t care much for developing but when it comes time to exit then developers will.

Oh and you should plan to exit. Resi is a mugs game for income. All the wealthy I know are in commercial and shares in retirement after enjoying the CG of resi.

 

Thanks albanga. Would the capital growth of 2*$600k properties be higher than 1*1.2m. Or is this more a yield play which gets us closer to our retirement income goals? I was of the understanding that one good property with maximised land component in the right suburb could accelerate our asset build. Completely agree with the risk profile though.

 

It all really boils down to due diligence, one great property in a great location is better then 1 great IP and 1 dud IP. This can go either way, the purchases have to be well researched in any scenario to gain the maximum benefit.

If you can afford $1.2M with possibly development potential, then that would always be better than two $600k properties with only value add potential.

BTW I know OP said not interested in development, but having the potential there will be a great driver of capital growth come time to sell.

 

Well that totally depends on that growth of each property

If you purchase 1 property for 1.2mil and it has 10% growth you make 120k.
If you purchase 2 properties at 600k and they each have 10% growth then you make 120k.
So it’s no difference.

However what happens if you buy 1 property and it has 1% growth? You may own one of your two properties in that suburb as well but maybe the other one has 5% growth in which case you are in front.

Understandably the same thing could happen in reverse and the single property has 10% growth whereas one of your 2 properties has 1%.

But it’s all about spreading the risk.

Then we move into yield and your likely going to do much better with 2 cheaper properties as opposed to 1. Also throw in the ease of rental compared to a more expensive property..

 

As I said in my original post though, if I was spreading the risk into two properties my prerequisite would still be ensuring a significant land component in each.

 

It's a different perspective, but I would suggest one property worth $1.2m is better than 2 x $600k properties (though I appreciate the diversification argument).

I would give two reasons:

1) The higher price likely means that you are (a) buying in a better area, and/or (b) are buying more land content. Ultimately, better quality assets are going ride out the ups and downs better than inferior properties over longer periods of time.

2) Less complexity: a single asset ultimately means fewer moving parts - ie one oven, fewer appliances, one lease agreement, one renovation, a cheaper tax return etc.

Overall, less complexity and higher quality.

Now, it is not a choice everyone can make. And a lower price point often comes with a slightly higher yield. However for longer time horizons, this is where I line up.

 

You are doing so
Well.


Maybe think about how much time you have? Would you do commercial early?

 

Theres definitely pros and cons to each.

Honestly, the biggest reasoning for me would be finance & land tax.
Land tax is not linear, so you will pay a lot less for 2 x $600k rather than 1 x $1.2M.

Which comes back to finance, if you can afford the $1.2M property and can afford to keep it, most likely it will have more potential for the future (bigger land component, better area etc...) at the cost of lower yield and more land tax.