WWYD: 1M cash and 2M borrowing capacity

Discussion in 'Investment Strategy' started by purkulator, 10th Jan, 2021.

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  1. purkulator

    purkulator Well-Known Member

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    Hi guys,

    I don't know too much about property. I know I will need to enter the market eventually.
    I had a few questions that I wanted to break down:
    1. I was trying to gauge generally what would be the best long term growth strategy for my situation.
    Also with grants and incentives for FHO's (FHOG, stamp duty exemption, builders grant), is it worth focussing on something small first and then add on additional properties later? i.e. something in the 600-700k range then get another property to maximise my borrowing capacity?
    Or is it best to focus on the best property I can afford right now and hold onto it long term.

    2. Currently living at home, don't need PPOR however may need one eventually so I can hold it as PPOR or IP - need some insight as to the tax implications regarding this if I had the choice

    3. Also considering the option of developments - is it worth considering in this sort of market or its too much of a hassle/risk?

    This is a wonderful community and thanks for your inputs
     
  2. HonestShiba

    HonestShiba Well-Known Member

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    Probably not worth chasing FHOG or stamp duty exemption with the amount of options you have available. They only apply if it's your first PPOR anyway.

    One thing to keep in mind is that FHOG/stamp duty exemption can still apply after you have purchased a property, provided you do not live in it. So you can buy an IP now, and worry about those exemptions later if that's an option you want to consider
     
  3. purkulator

    purkulator Well-Known Member

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    Cool, someone actually told me once I buy a property then I don't qualify for these grants anymore (IP or PPOR)
    I was also wondering how developments fall into the FHOG and stamp duty concession - as in if I buy a run down house for 1M and subdivide and build 3 townhouses each worth 750k and I own one of them as PPOR and the other 2 as IP, does that still qualify for FHOG and stamp duty exemption if I own the whole land but live in 1 of the town houses?
     
  4. twobobsworth

    twobobsworth Well-Known Member

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    What's your end game.
     
  5. purkulator

    purkulator Well-Known Member

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    I will eventually just need 1 PPOR and want a portfolio of properties with growth.
    If I can hold them all until retirement and pay them off to maintain a comfortable level of passive income from rent that would be the ultimate aim.
     
  6. Trainee

    Trainee Well-Known Member

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    How much passive income are you aiming for in how many years?
     
  7. purkulator

    purkulator Well-Known Member

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    100k after tax, 10 years - is this achievable?
     
  8. Piston_Broke

    Piston_Broke Well-Known Member

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    Working backwards that's 7 fully owned properties rented at $500wk.
    In the sydney area that equates to 5-5.5m net worth of RE, using current numbers.

    To get that you need your 3m porfolio to grow at about 7% pa.
    If you get a good run, can happen. If you dont may take 15-20 years.

    The big question is "can i increase the growth rate".

    edit as was first calculated gross income, not after tax
     
    Last edited: 10th Jan, 2021
  9. Trainee

    Trainee Well-Known Member

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    Too simplistic.

    100k after tax is spending money. You also need PPOR, and either it's paid off or you need additional assets to support repayments.

    Say you buy 3m in property now (your assumptions). Say it doubles in 10 years (pretty aggressive, not so much long term but in a short period such as 10 years. The 2010's was one such period for Sydney and Melbourne). That's 4m, but realistically 3.5m after all costs. If you then buy a 1m PPOR (which is the equivalent of a 500k property now), then you will have maybe 2.5m left. That will probably generate 100k after tax, just. Then you have to think about your family costs.

    But stop working 'young' and retiring with the minimum level of assets to generate your desired income has its risks. Because you do it for a while and you are unemployable. If that coincides with a market crash (temporary)....... a 'safer' way would be to overaccumulate over a longer time frame while keeping an eye on your career or business. That's up to you though.

    Don't know where you got the 1m cash and 2m borrowing capacity from, but your goals need work.

    You want someone to say 'buy this and you will reach your goal'? Not going to happen unless the person is selling you something.
     
    Last edited: 10th Jan, 2021
  10. purkulator

    purkulator Well-Known Member

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    Good advice...I am also considering the idea of doing some development on the side...if it is profitable I may do that instead of my day job. I know its not a walk in the park though

    From mortgage broker and banks based on my currently earning capacity.

    I'm mainly trying to gather ideas and see whether also my own ideas are feasible before looking into something more concrete
     
  11. purkulator

    purkulator Well-Known Member

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    So this assumes I make the portfolio with 3m and don't need to add anymore properties down the track? I know you just made an example but interesting this could play out in 15-20 years as you said for 3m. I was expecting more properties along the way
     
  12. Trainee

    Trainee Well-Known Member

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    You are starting with a lot more cash and borrowing capacity than most people, but relatively modest wants. And this assumes a boom right after you buy. And you only want 100k income. Not adjusted for inflation.

    In the example above, if you want a PPOR that's $2m now, that's basically all of your assets. For Syd / Mel that's just a good house.

    If property doesn't double in the next 10 years, your PPOR doesn't get more expensive, but you have less assets to generate income.
     
    Last edited: 11th Jan, 2021
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    is that 2 mill borrow cap with an aquisition plan done, or is that here u go, u can borrow 2 mill, come back when u have some properties pls

    ta
    rolf
     
  14. The Y-man

    The Y-man Moderator Staff Member

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    How much more $ can you pump into the portfolio during the 10 years?

    The Y-man
     
  15. Piston_Broke

    Piston_Broke Well-Known Member

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    That's always an option and you will have the choice, banks agreeing.
    Bottom line is that net assets generate income.
     

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