What's your Exit Strategy

Discussion in 'Investment Strategy' started by eng, 10th Feb, 2016.

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  1. mcarthur

    mcarthur Well-Known Member

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    If you're starting now and have a 10yr aim (like me :)), then I don't see how this will work without a lot of extremely good purchases (and luck).

    I'd need $2.5m fully paid off I can see.
    Buying 5x$450k @ 88% LVR is probably just barely possible for me in today's serviceability climate, but I haven't seen much for that money that is better than neutrally geared and much of it is negative.
    However, assuming every one is neutral at least, and then assuming every single one of them gets 7% annual CG (OMG) then in 10yrs each would have doubled and I'd have 5x$900k properties in the portfolio.
    I would have to keep 3 of them to get near the $2.5m needed (3x900=$2.7m), so would need to sell the remaining 2 of them getting $450k gross profit each from CG = $900k gross profit.
    Selling one a year, the CGT would remove about $130k leaving $770k nett profit. That only (barely) pays off 2 of the remaining keepers meaning it's not really a $2.7m fully paid off portfolio, only $1.8m with 1 remaining property hopefully returning enough rent - even at an average 2.5% annual increase - to make up some of the shortfall.

    So in 10yrs, to get the $100k LOR at 5% return, I:
    - must get 5x$450k or so properties immediately, so I'd better be able to pass serviceability on 5 @ 88% LVR (need to be aggressive, so pay the LMI)
    - each of them must be almost neutrally geared or so at the start
    - each of them must average 7% CG or more over 10 years
    - even then, at 10 years, I must get more CG than the 7% average on at least 1 of the properties to reach the $100k @ 5%.

    I find $100k is a pretty good number to aim at because it is the equivalent in 10yrs time of $80k income today (@2.5% inflation).

    Does that add up MsAli?
     
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  2. Steven Ryan

    Steven Ryan Well-Known Member

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    My exit strategy is to not need one by setting up multiple, passive income streams ad infinitum.

    Property is just part of the equation.
     
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  3. mike8t1

    mike8t1 Active Member

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    @Steven Ryan Are you referring shares or businesses? Are there other avenues you are pursuing?
    Cheers
    Michael
     
  4. Steven Ryan

    Steven Ryan Well-Known Member

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    @mike8t1, mid term, it'll be predominantly made up of multiple businesses, cf+ property (mostly stuff I've developed, not purchased) and other bits and pieces including shares.

    I'm on a mission to create as many streams of passive income as I can, which all flow into an unstoppable river.

    Property will form my equity warchest for "impact investing" - stuff that can change the world and is high risk, high reward.

    Some of the less expected stuff I already have in place to varying degrees includes advertising revenue and a network marketing biz.
     
  5. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    @mcarthur - I was referring to those who can get 5 x $450k. Not everybody can when starting out. As per general consensus, the better the demographics and the greater likelihood of consistent capital growth. Hence in 10 years depends on when you buy there is a likelihood of the properties gaining significant growth.

    Some on the forum have done quite well with buying in the cheaper areas.

    With cheaper areas though, a high return was similarly important. Time will tell how this "high" 7% return turns into 14%...then you don't really need to sell? Or if you sell, you sell some and pay down partly and LOR....

    Agree with you on the servicing changes have changed the game for long term property acquisition. Don't let it deter you. Things have always been "difficult" in the present....hasn't that always been the case? Now is a good time. When you have the intention, you are going to find a way regardless of the changes.
     
    Last edited by a moderator: 12th Feb, 2016
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  6. euro73

    euro73 Well-Known Member Business Member

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    You should have targeted @ 3 NRAS in that 5 property portfolio - you'd reach 100K passive income much much much more easily.

    But back to your post - you're dead right - your numbers demonstrate for all to see that you need an awful lot of luck , or an awful long time , to get to 100K passive these days. Debt reduction really is important now. In this post APRA environment, it's become critical if you want to get ahead of the curve. Otherwise you'll just be stuck in the mud, limited by servicing ceilings , 7.5% assessment rates and increased HEM's. Anyone making claims to the contrary is either on a very high income , has had a large windfall or lottery win or just hasnt a clue what they are saying ;)

    All the smart property picking and equity creation in the world will still see you struggling to get there if you run out of puff with the banks. Those believing equity equals capacity to grow need to think deeply about the mathematical reality of the new regulated lending environment.

    Because sadly, servicing constraints are going to make it just about impossible to replicate those very successful strategies of old... ie harvest growth- go again...harvest growth, go again... so even if the big growth does come , what use is a bucket load of equity if you cant harvest it or go again because you are tapped out for borrowing capacity ?

    The new lending regime appears certain to be with us for many years . It would be nice to be wrong, but if the "return of the actuals" never eventuates, the cold reality is that like it or not, those who ignore debt reduction within their portfolio won't be able to expand it like they have been able to in the past, so...they'll finish with a smaller footprint achieved than they had hoped , and an even smaller footprint after selling to clear debt, which will ultimately result in much less passive income than had been planned for.
     
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