Which option would you choose to deliver on our strategy?

Discussion in 'Investment Strategy' started by Harriet, 26th Feb, 2020.

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  1. Harriet

    Harriet Member

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    Hello! Newbie here although I've been reading and learning from the forum on and off for a few years.

    Hoping someone can help me nut out our strategy.

    My situation: married; me 38, working PT. Husband 42, working FT. 2 kids (3 & 1).
    No properties.
    $90k deposit, with a $50k gift coming.
    Incomes: $216k gross (we can salary pkg $35kpa each - nfp workers)
    Lending capacity up to $750k but we're more comfortable with around $400k for reasons I can explain later.

    Long term goals: (a) buy 4bed PPOR in melb (likely bayside so prob looking $1.5-2M); (b) passive retirement income of around $100kpa in 20yrs time

    We have an interest in renovation (I'm also heavily interested in interior design and have a love of mid century housing so hence the desire for a PPOR at some point). We are happy to rent around our desired PPOR area so kids are growing up/schooling where we would eventually like to settle until in position to buy. That could be 5-10 years down the track, that's fine. It would be jumping on a unique property whenever it became available as opposed to choosing from whatever stock was on market in price range when ready to buy. We will never save the cash deposit for this purchase ourselves, hence our strategy below.

    Strategy: To buy growth IPs and complete cosmetic renovations to quickly build equity. Eventually aiming to build to at least $500k(+?) equity to use as PPOR deposit. Once PPOR purchased we would move towards yield IP to bolster the passive retirement income

    Im looking at 2 ways to achieve this growth and can't determine what is best for us. I'm getting caught up in short term and longer term growth prospects.
    1. We buy unrenovated IP around $400k. Considering Ballarat or Bendigo if horse has bolted in ballarat
    2. We borrow more and buy on Melb metro fringe. I don't think we could reno then (we'd max out our cash).

    Option 1 could give us quicker short term equity but lower growth over long term. We don't necessarily need the yield of a regional buy however a bigger loan (Melb) is more scary for us. With option 2 I feel we may get higher growth over the long term which is great but will take us longer to get into PPOR. We could do option 1 first, then look at metro Melb for future IPs but surely buying into Melb now would be better than in 2-3 years, especially given we may look for PPOR in Melb in 3-7 years


    Few other explanations:
    Were looking regional VIC because I'd like to project manage the reno and close to home is more convenient, esp with young children. I have lots of long service leave I would use during reno to cover my wage. We could look Adelaide or Brisbane as we have family there but feel regional VIC could be just as good as these with less hassle
    We didn't want to max our borrowing capacity as we need to upgrade car, and also want some our cash to cover reno project costs
    Were comfortable with slight neg gearing but would feel safer with a cash buffer in this case. This makes the Melb metro option less attractive since it would likely be neg geared but also take all our cash '

    If you've made it this far, thank you! Thoughts, feedback and constructive criticism all welcome.
     
  2. Trainee

    Trainee Well-Known Member

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    How much can you realistically save at the moment?
     
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  3. Harriet

    Harriet Member

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    At the moment we're not saving, we're spending everything we earn but only because we have no debt but no goals (up until now). We have 2 kids in childcare plus rent and that makes up a big chunk of our spending. That said, I think we could save $2k per month if we knuckle down
     
  4. mikey7

    mikey7 Well-Known Member

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    You can salary sacrifice $35kpa EACH or TOTAL?
    I was under the impression it was about $15k each.
     
  5. Harriet

    Harriet Member

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    Sorry I'm thinking the grossed up value. Can package $15,900 each, plus $2550 venue/meals each
     
  6. Trainee

    Trainee Well-Known Member

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    Usually the way to get to a 1.5-2m ppor is to buy a cheaper ppor then upgrade every 7-10 years. And get to the dream ppor with the second upgrade. That might be 3-4m by then and still with a mortgage.

    Plus you want 2m in 20 years, say 3m with inflation.

    So you are aiming for 6-7m total net assets. Net of debt.

    This would require a lot of exposure to growth assets. Which your salary might give you a good start with, but your deposits wont be enough.

    your choice of lifestyle, but 2k a month probably wont get you there.

    what is your actual experience with renos? Doing renos and selling may be one option if you can do it.
     
    Last edited: 26th Feb, 2020
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  7. Trainee

    Trainee Well-Known Member

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    your after tax is 12k a month at least.

    you have to make a choice about how much to sacrifice.
     
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  8. MWI

    MWI Well-Known Member

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    I would concentrate first on whether you want PPOR and where to live and then consider investment strategy, especially having young children who soon may commence schooling, few years will go very quickly by...
    I would start with SAVING first as I mentioned before to become financially wealthy you need to do three things:
    1. SAVE more than you SPEND (make the aim to save at least 15% of your income throughout your life time and make it automatic - the moment your pays arrive in the bank account set up another accounts where that % amount is automatically directed).
    2. INVEST the money saved (once obtained deposit save either for PPOR or IP)
    3. Keep repeating and re-investing and let TIME do it's thing (CG).
    Start small with one property first then slowly add IPs and renovations into the mix.
     
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  9. Harriet

    Harriet Member

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    Yes buying in the outer suburbs first where we could afford makes sense. The reason we haven't done that is because we had a growing family and I've had 2 years off on maternity leave in past 4 years (we've been sitting on our deposit that long) so didn't want to commit to a mortgage. We then didn't want to go too far out due to commute times with small children. We work outskirts cbd (bayside way) so the commute is generally into town then back out on tram. We can't go west or north where its cheaper but closer as we know nobody out that way. My mum babysits 1 day per week and comes up from Frankston way to do this so moving to an affordable suburb on other side of melb won't work. We could look around langwarrin, Cranbourne etc, sure, but we'd prefer the rentvest option so we can establish ourselves in a suburb where we would like to stay long term, and while kids are young and we juggle daycare routines we don't want 1.5hr commutes each way.

    I'll be the first to admit our living expenses are off the chart and absolutely could be reigned in. If we save more of a deposit, what do we do? Still buy in metro melb?

    We have no reno experience. Hubby was a landscaper once upon a time so has outside experience, which obvs doesn't lend itself to inside abilities, but we have the interest. Hence why we figured a small cosmetic reno close to home would be a safe option.

    Our goals are lofty, and I think we're quite risk averse which doesn't help. We both grew up with minimal money so our mindsets are stuck on preserving our money and giving our kids (and ourselves) a lifestyle we didn't have. We can sacrifice though. It's just a question of where are we directing our money..
     
  10. Harriet

    Harriet Member

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    Thanks - pre kids we were very diligent and saved $100k in a year after saving and paying for wedding (well, elopement really) and honeymoon and paid out car loans. Post kids and its all just halted. So we need a goal to kick up back into savings mode. When you say 2. INVEST the money saved - what are you suggesting? We did see a financial planner pre saving that deposit and his advise was nothing too risky as we'll want to use it for our property purchase. And this is where we are at now.. Which option do we invest in?
     
  11. Trainee

    Trainee Well-Known Member

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    Can you spreadsheet any scenario where you will actually hit your goal? What sort of returns would you need? How much gearing? How much saving? Get a handle on that first.
     
  12. Mumbai

    Mumbai Well-Known Member

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    A few peeps from the forum are planning to meetup on Friday in the city. See if you can make it to discuss your strategy in person.
     
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  13. Harriet

    Harriet Member

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    @Trainee - ok thanks, I will attempt to do. That's logical. I had started some scenarios but everything got so hypothetical I gave up and was considering using a property planning type place to help me draw up something that seemed feasible. That was also before we spoke to a broker and really analysed our expenses so I'm probably in a more knowledgeable position now

    @Mumbai - This Friday? I'd love to but am interstate on Friday. I'll keep an eye for a future one though
     
  14. Danyool

    Danyool Well-Known Member

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    Are you currently doing this? Missing out on tax savings if not.
     
  15. Harriet

    Harriet Member

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    Absolutely. Have been there for 15 years and doing it the whole time
     
  16. Trainee

    Trainee Well-Known Member

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    Op, do you see the disconnect between your goal and your stated strategy?

    Out of curiosity, whats your rent?
     
    Last edited: 26th Feb, 2020
  17. Harriet

    Harriet Member

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    I want a PPOR but am planning to buy IPs?
     
  18. Harriet

    Harriet Member

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    @Trainee our rent is $675pw for a 3 bedroom place. It's at the lower end of the median rent around here as the 3rd bedroom is just a loft room and we have no garage/driveway. We're happy to move a little bit further out for cheaper rent, not sure how much cheaper we'd get though. With 2 kids we need the 3rd bedroom
     
  19. Danyool

    Danyool Well-Known Member

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    Ok great. I don't know the areas or anything, but just thought I'd check on that part.

    If you want a PPOR you *may* want to investigate the Super First Home saver. It's not the easiest thing to understand, but *could* save you some tax.

    But perhaps you'd get better results investing - but I think you need to work on your budgeting to figure out where your money is currently going and what you can cut out/cut back on to get the savings rolling.

    (Notwithstanding you have saved $90k, which is great, but on your incomes, and not saving now, something's going on!)
     
  20. Harriet

    Harriet Member

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    We're not eligible sadly. Hubby has owned a property before.
    But yes, we absolutely should be saving. I've only just returned to work from 12 months maternity leave, and we've bailed out a family member recently (don't ask) so there was $100k there but a period where we were on 1 income so savings became zero. We put literally all our expenses on a credit card and pay in full each fortnight so we have very accurate history of where we are spending. And I know, that's a red flag given it means we don't know if we are overspending day to day until we balance the card after the fact. It's worked for about 5-6 years though if we've had a budget and regular savings plan established. I'll sit down next and pick through what needs to reduce so we can recommence our savings.