What would you do in 2020?

Discussion in 'Investment Strategy' started by Rodd, 28th Jan, 2020.

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  1. Rodd

    Rodd Member

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    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.
     
  2. Trainee

    Trainee Well-Known Member

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

    David R Sutantyo Active Member

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    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.
     
  4. sash

    sash Well-Known Member

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    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!

     
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  5. NHG

    NHG Well-Known Member

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    $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?
     
  6. Rodd

    Rodd Member

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

    Rodd Member

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    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.
     
  8. Stoffo

    Stoffo Well-Known Member

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    Welcome Rodd
    You are in a great financial position :cool:
    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 :D
    This will help you with questions to ask when obtaining paid advice:rolleyes:
     
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  9. The Y-man

    The Y-man Moderator Staff Member

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    Congrats, you:
    1. are younger than me and have more combined income than us
    2. have two more kids than we do
    3. have a ppor worth more than ours
    4. have a +ve CF IP portfolio compared to our negative one
    What could go wrong? :D:D:D:D

    FYI - as posts above have said, maybe consider what income you would target than the asset value alone. And even then, may be work on net asset value than gross asset val....

    The Y-man
     
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  10. Rodd

    Rodd Member

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

    albanga Well-Known Member

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    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.
     
  12. Rodd

    Rodd Member

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    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.
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    Risk management - geographically into 2 different markets (suburbs or even cities), cash flow risk (you can have half your portfolio empty rather than your whole portfolio vacant), liquidity (if you need to sell urgently, can sell one - you can't split a 1.2m prop and sell half in an emergency, not only that how many people can afford the 1.2m) etc

    The Y-man
     
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  14. croseks

    croseks Well-Known Member

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    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.
     
  15. albanga

    albanga Well-Known Member

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    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..
     
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  16. albanga

    albanga Well-Known Member

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    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.
     
  17. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent

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    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.
     
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  18. The lucky duck

    The lucky duck Well-Known Member

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    You are doing so
    Well.


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

    wylie Moderator Staff Member

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    The beauty of two properties instead of one more expensive one is the ability to sell them in different tax years.

    We have two IPs that a developer wanted to buy. The capital gain on both sold together was eye-watering but the ability to split that gain over two tax years makes it less painful. And large land content gives further ability to split each block down further and sell over more than two tax years.

    We did some homework on selling one block in June and the other in July to a developer, but were told the taxman can see through that and would treat the two sales as one transaction. We didn't ever check that further, because we weren't interested in selling them to a developer.
     
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  20. croseks

    croseks Well-Known Member

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    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.
     
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