How does the property portfolio one day lead to dream PPoR?

The fact is, you can only invest or build a business or whatever based on your background, luck and skills.

Not everyone will end up with the nice PPOR. Some will end up with a waterfront mansion. Some will end up with a small outer suburb house. Some will make fatal financial mistakes.

Investing gives you a better chance, that's all. But, if you look at someone who starts early, has a decent income and invests consistently and uses leverage, the chances are good.

 

One way is.... You use leverage to accelerate your return on capital (and borrowing capacity) ahead of the growth that the dream PPOR can deliver, and either live in something humble from a rentvest perspective or multiple PPORs which you can add value to and create additional tax free capital gains.

Depending on how the numbers go you may need to sell down some of the IP portfolio to make it work.

 

Yes, hard to disagree with that. By consistently building your skills around investing and business generally, you are going to have a much better chance. Most people make some mistakes too.

 

I'm an old girl now & moved into the current PPOR about 18mths ago. Burleigh Waters on waterfront. Nice home, but original, currently renovating it. But my story started long ago.

After losing our home to a failed business we bought a cheap property in Lethbridge Park (Mt Druitt....look it up). It wasn't a great house, and it wasn't a great area either, but it was afordable, and gave enough room so we could keep investing. About 11 years later we bought another property as PPOR in a better area. A much better home as well. Fast forward again, and we have moved into this home, which was more expensive and better again.

Over the years we have bought and sold many properties and still have a few up our sleeves. On each new PPOR purchase we were in a position to keep the previous one. This last one we paid cash for. When we started we were on a low income, but over time wages increase, the equity in the properties increase and with each and every boom your net wealth gets larger, so long as you haven't sold too soon.

I'd suggest buying a PPOR. Something afordable. It doesn't need to be in the best area, and it doesn't need to be flash, just something that you can call home. Learn to do some basic maintenance. Painting is cheap, and will give an instant lift, but only if you do a quality job. If/when you sell, you won't pay CGT, which you will have to pay for an IP. If you keep and move elsewhere, like we did, then yes there will be some to pay, but usually a smaller amount than you'd have to otherwise.

Just take small bites whenever you can. Be flexible. The investing market today will be different in a couple of years. Learn to move with the times. Learn to budget. Don't give up.

At the end of the day, we will all have different results due to income, expenses, priorities, risk profile, etc. BUT if you start today, you will be hands above all those that thought it's all too hard.

Where are we now.....well Hubby retired early & we've been living off of our investments for a few years now. You're young, just take it step by step and don't be swayed by noise......especially from those who know nothing about property.

 

I have had a few clients who have sold multiple properties just to buy the dream main residence. CGT is painful but at most it would be less than 25% of any gain so its not too bad.

 

Well, the property I linked to was in Malvern East, so Malvern, Camberwell, Armadale, Elwood etc....

 

Thank you very much for that write up.
I think taking one step at a time is a good idea, getting to caught up in the too distant future is daunting and not always useful. I'm sure from your story tha when I (hopefully) meet a life partner, takling together makes it much more achievable. Although buying affordaby in a more regional local is attractive, unfortunately my work is quite city centric. However, I'm sure my path will reveal itself as I go along.

 

Use this:

https://www.realestate.com.au/buy/w...cePage=map&sourceElement=location-tile-search

You can set the price to the max $$ you have and search the whole of the Melbourne area in one go.

 

I wouldnt be maxing out super that would be the worst thing you could do at 20 years old and destroy any wealth building prospects . You would spend the majority of your life with the arse out of your pants. Or even all of it if you dont make it to 70 and if you do make it to 60 you will find yourself in a high tax enviroment because you have exceeded TBC. Just need to put a couple of grand p/a in to have a handy balance by 60 that you can boost up to max by maxing out then. CGT discount is less in super and you may pay more tax , on top of a contributions tax ,on top of reduced leverage on top of 50 years of lost compounding.

 

@Ali the Investor Life is long, big changes will happen along the way especially you're only 20. It's good question to ask no doubt.

Lots of great answers before already, the main thing to focus on is to invest in something, and focus on building wealth - which for most is via income increases or building a business.

Time is on your side, so whether you start with a modest PPOR, pull equity out and buy IPs, or start with accruing quality IPs and sell down to buy PPOR, you'll do well given enough time.

Keep in mind life changes like a significant other, kids, career developments, health issues, inheritances etc can make what you want now quite different to say 10 or 20 years later.

From a lending perspective, have you worked out it'll look like starting with a PPOR vs investment properties?

Least that'll give you somewhere solid to start.

 

For this strategy to work, does it matter what type of property the first PPOR is? For example, apartment over standalone house.
I am 24 years old, still have not bought a property with a pre-approval of investment loan up to $600k. Up to now I have only looked at investment properties, which after having bought I would then very soon be moving out of parents' and renting. Would a PPOR as a first purchase make more sense given a flat melbourne market??
In other words, what should i be looking out for in first PPOR purchase?

 

Yes i believe that I satisfy all the criteria.

 

i made this mistake (of sorts), I put way too much into sal-sac super as DINKs when it first came out and now we are maxed with IP and PPoR so that money would be real nice right now.. oh well !

i went the cheapies into a villa and now with kids seems our only option is to sell everything , but not sure i want to give the taxman and friends all that

plan b : is now continue to pay down ppor , should have no debt on it in a 1 or two years and then our option is to use redraw funds to buy land , somehow get money to build a dream place and then sell old ppor tax free, hopefully keeping cheap cash flowing IPs into retirement . i have no idea if this will work but seems our only option in this lending environment.. plan may change in a year or two, who knows

 

keep in mind that dreams change as your life chugs along. you might find in 20 years that 2.5m PPOR is no longer your dream, so I wouldn't dedicate your whole life to that particular goal, and look at building wealth in general so that you have more choices when you're older.

we're already on our second "forever home", and started thinking about third one before we even finished building the current one, but decided to shelve those plans for a few years.

 

Hey @Ali the Investor, good on you for thinking/planning your long term strategy. You don't say how old you are and personal situation. I'm assuming younger (20s).

We have 2 sons, 28 and 22, who have heard us talk about investing around the dinner table a lot of their lives. They've watched us buy, reno, rent out, sell, upgrade, etc. We're now preparing for retirement, at the stage of selling down to invest in indexes to support lifestyle. I can only share with you what we have shared with our sons, and hope some of it resonates. Here are some of the strategies we have discussed with them.

At some point, serviceability (how much banks will lend you) will become a limiting factor, so getting as good and reliable a cashflow early will help. Not sure what your work situation is. They're in their last year at Uni, working part time jobs, sharing with friends to save money. We've advised them to save as much as possible, live frugally and start proving credit rating. They have high 5 figure amounts saved in ETFs with dividend reinvestment for compounding, and have saved enough, with a bit of help from us, for a deposit with 1st home buyer for their first property next year.

Next year (year 0), when they start working and have income to show, we'll start helping them make their first purchase with the help of 1st home buyer and a leg-up. We've suggested a duplex home in original condition near a rail line (unless a free-standing homes can come in for that in Sydney: https://www.realestate.com.au/sold/property-house-nsw-colyton-143820932?sourcePage=rea:sold:srp-map&sourceElement=listing-tile) as their PPOR $5-600k. We'll help them add value (bathroom, kitchen, floorboards/carpets, paint, landscaping, etc.), probably nothing structural.

Then options come in. After 12 months, they can move out (first home buyer requires living in property for at least 12 months, otherwise 6 months if not 1st home buyer), and rent the property for up to 6 years and not pay CGT (do a search on forum for "6 year rule") and rent where they want to live instead. Or stay in it and wait for it to appreciate to the point that the banks will lend them enough against the capital gain as a deposit for another one wherever the market in Australia says the greatest capital growth will be - different parts of Australia grow at different times- lately it's been Perth, could be anywhere by the time you're ready to buy your 2nd one - (and maybe even rent out some rooms (won't get into tax implications here)). Reno, rent out. Now they've got 2 - 1 CGT free, 1 not. Don't worry too much about CGT. Paying $1m in CGT means you've made about $6m in capital gain. Would that be so bad?

Next round of capital appreciation (the number of years will depend on what cycle each property is in, let's say 5), they do the same again - now they've got 4. One of them can be the next upgraded PPOR and rent out the first one. The portion they lived in it will be CGT free (not advice. Get a great broker who understands and supports your strategy and tax adviser for structuring and tax minimisation).

You can keep doing this until your serviceability runs out. I've suggested to them they keep developing skills in their industry in demand, and change jobs whenever someone will pay them a bucketload more money. Their loyalty should be to their future selves (still deliver value in their work). If they keep doing the above, after 10 years they've got 8 and upgraded the PPOR again, after 20 years they've got 16 and living wherever they want in the world. Or a lot of options that open up once you've got a few. Get into small developments. Add granny flats and rent them out separately. Sell some and get into commercial. Sell them all, pay the CGT, put it into ETFs and live off the dividends for the rest of your life (depending on if you've got 3 kids in private schools or not) And many more.

It all starts from your serviceability, and choosing somewhere for your first PPOR you can add value to borrow against again as soon as possible. Do s4!tloads of research. The people on this forum are the best I've come across to learn from. Read EVERYTHING you can. Be careful of spruikers trying to sell you that they're experts and charge you for it. Bad decisions can set you back many years.

Hope some of that helps. Good luck.

 

I disagree with this as a blanket statement.