All Topics / General Property / How to build a 10 property portfolio in 3 – 5 years realistically on $50,000pa.

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  • Profile photo of Nathan BirchNathan Birch
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    @nathan-birch
    Join Date: 2004
    Post Count: 189

    People quiet often ask me "Nathan, how can you build such a portfolio with a low income when you first started investing? How can you save deposits? How does the bank keep lending you more money?" so I decided to write a blog as a scenario which is one way to look at your investing. Remember this is one way to do it, there are many! http://binvested.com.au/?p=982
    How can you go from a small savings to owning 10 x properties on a $50,000pa income?
    Before we devulge into specifics, understand that this is an example and does not constitute as financial advice. One should seek industry professionals such as solicitors, accountants and finance representatives.
    Now lets take an example scenario where we have a single person call them Sarah for the exercise and Sarah earns $50,000pa as a office support (Pretty consistant salary in the market). Sarah has $30,000 saved up and doesnt know whether to buy a new car outright, go overseas for a year or…. buy a property (HOW CAN SHE BUY 10?)
    Well it all comes down to having the foundations right and having the correct strategy. Sarah gets wind of different properties and specific companies which all say to negative gear because its good and she will save tax. However the drama is Sarah doesn’t pay all that much tax and the property will be eating into her lifestyle of $10,000pa or $200pw. She cannot get her head around what all these spruikers are on about with $10,000 expenses it seems absurd. and to be frankly it is! Negative gearing is a term spruikers use quite commonly to justify losing money. For an investment strategy you must understand why your investing and how your investing can get you towards your end goal.
    Sarah decided she would develop a property investing strategy which would work for her and she used the same methods as B Invested uses which is buying properties below market value so she will have instant equity to help her into the next one and a buffer of safety in case she needs to sell at a fire sale she wont be losing her money. The second principal being that it must be as close to cashflow positive as possible so she doesn’t lose her lifestyle she currently holds and the ability to continue to sip on a chi latte with her girlfriends. The third principal is she buys bread an butter not, not only because it serves with a solid exit  strategy having more buyers but that it also has great potential of going up in value because of its low starting point ensuring capital growth in the future.
    10 properties is around 3 per year for Sarah and how can she do that?
    Well each property she is setting out to purchase is around $200,000 and renting around $300pw. The reason of this is to keep her portfolio relatively neutral geared. Some are slightly negative and some may be slightly positive such as regionals etc…
    If she has a deposit of $30,000 and buys property # 1 using 10% deposit and $10,000 for closing costs she has achieved 10% of her goals.
    She then either needs to save up some funds from work, get a second job, or…. because she bought well with the first property she can extract her capital back out.
    This will look like this…Purchase price $200,000 Revaluation price $240,000Top up loan 90% or $40,000 = $36,000.
    Therefore she has even more money and she can repeat the process again.
    After that she has property # 2.
    Repeat the process over and over again.
    What now? She has 10 x properties and wants to retire 5-10 years after her first purchase.
    Sarah has a couple of options.Firstly, her properties have doubled in value and she had $2,000,000 purchase prices ($200k x 10) and now they are worth $4,000,000 or 10 x ($400,000). She can sell down half pay off all her debt and be owning 5 x properties outright
    Secondly she could increase her rents by $100pw (remember rents should double or go up $300pw) each and this will be $100 x 10 = $1000pw positive cashflow as her expenses stay relatively similar. So she has still made $2,000,000 equity and also an income stream of $52,000pa.
    Thirdly, she could sell down a couple renovate a few, add a granny flat or manufacture extra growth.
    There are multiple options available however without getting the strategy down right first it would be impossible to get the right portfolio which will get her closer to financial independence and improve her lifestyle instead of getting her more enslaved into her job.
    There are multiple ways of making money in real estate but firstly start treating your investing like a business. McDonalds, Bunnings, Wollies, Coles, etc… They dont go and open a new store to go and lose money do they? They spend time researching, and understanding their markets and the figures before taking a stake and setting up a store. Why wouldnt you as an investor take the time and research to ensure you are making the correct decision.
    Goodluck!
    © Nathan Birch.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Good post Nath and welcome to the darkside :)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Nathan BirchNathan Birch
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    @nathan-birch
    Join Date: 2004
    Post Count: 189

    Thanks Jamie,

    Little bit friendlier here :)

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Yep we have so much luv to share round in PI.com

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Marie123Marie123
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    @marie123
    Join Date: 2009
    Post Count: 176

    I wish there were more places around where I live for $200000. They are very hard to come by!

    Thanks for your post.

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 574

    Hi Nathan,

    I saw the Today Tonight piece. Wasn’t quite what I was expecting tho. It seemed to be about some of the more standard deals you have done, rather than what I have known you for, i.e. buying heavily damaged property and doing it up or other creative deals, like very cheap land

    Profile photo of Nathan BirchNathan Birch
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    @nathan-birch
    Join Date: 2004
    Post Count: 189

    Thanks for comments.

    The deals are certainly still around in Sydney.

    Funny enough my initial portfolio was made on that. The burnt n kicked in stuff is just for fun. I wi start recording my boring stuff too soon. I have a couple of plain deals in my blogs etc I do.

    Profile photo of IP FreelyIP Freely
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    @ip-freely
    Join Date: 2008
    Post Count: 353

    I did a trawl last night and saw plenty of cheapies down in Launceston TAS. Good rentals, character homes etc. Not a bad little regional centre. Pay a little bit more and get water views. Development sites with DAs for subdivision running at less than $100k per site (comparable sales still reflected townhouses or standalones on small blocks selling for around $320k (the numbers definitely stacked up with 25% + returns)).

    Not to be too critical Nathan, but if you start investing now at $200k per house, over the 5-10 year period even those $200k houses that you are seeking out have doubled in price, so you will be purchasing some of them at $400k not $200k right through the cycle (or have I missed something, like reality)?

    Profile photo of Nathan BirchNathan Birch
    Participant
    @nathan-birch
    Join Date: 2004
    Post Count: 189

    Yep thats why its important to buy well and acquire in the early years as you have the portfolio for 5+ years as time does its thing. The first few years should be active accumulation and the later years consolidation phase where u sell at the higher level to pay down ur keepers.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Nathan Birch wrote:
    Thanks Jamie,

    Little bit friendlier here :)

    Tell me about it. You don’t have to worry about tall poppy syndrome here mate. Keep up the good work.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Tony FlemingTony Fleming
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    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Good work Nathan. It is definetly achievable I'm on $42,000 a year before tax and I'm 2 years in, with 4 properties and not going to stop any time soon.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    sashatheman
    Participant
    @sashatheman
    Join Date: 2009
    Post Count: 3
    tonyf387 wrote:

    Good work Nathan. It is definetly achievable I'm on $42,000 a year before tax and I'm 2 years in, with 4 properties and not going to stop any time soon.

    Oh nice.
    Can I ask what you are paying for the place you live at? Because my biggest expense is the mortgage for my PPoR.

    Profile photo of stever1stever1
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    @stever1
    Join Date: 2010
    Post Count: 8

    Hi Nathan,

    Great post! Currently my wife and I have a combined income of 100k pa and owe 360k on our ppor. I have one investment property at the moment (neg geared) and am looking to increase my portfolio. I have 180k to spend. i live in melbourne and trying to find some positive cashflow deals and a very hard task. My ultimate goal is to receive enough income from my investments so i can quit my job. What areas in melbourne should i be looking in or do i have to venture into other states?

    Cheers

    Steve

    Profile photo of thecrestthecrest
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    @thecrest
    Join Date: 2004
    Post Count: 992

    Hi Nathan
    Yes, welcome to the democratic side, no castles here, and there is hospitality.
    You mention $300 rent return on $200K = 7.5% gross rent return.
    What is the degree of difficulty or ease in finding these deals ?
    City, fringe or country ?
    Are you referring to a reno, facelift, weekend cleanup rental or what ?
    Some details along these lines may help to assess if this is seems workable.
    Thanks
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396
    sashatheman wrote:
    tonyf387 wrote:
    Good work Nathan. It is definetly achievable I'm on $42,000 a year before tax and I'm 2 years in, with 4 properties and not going to stop any time soon.

    Oh nice. Can I ask what you are paying for the place you live at? Because my biggest expense is the mortgage for my PPoR.

    Hey Sasha,                  

    I'm still living at home paying very little board. i want to get as many properties as i can and then consolidate and buy my own PPOR.     

    Tony 

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396
    sashatheman wrote:
    tonyf387 wrote:

    Good work Nathan. It is definetly achievable I'm on $42,000 a year before tax and I'm 2 years in, with 4 properties and not going to stop any time soon.

    Oh nice. Can I ask what you are paying for the place you live at? Because my biggest expense is the mortgage for my PPoR.

    Hey Sasha,
                      I'm still living at home paying very little board. i want to get as many properties as i can and then consolidate and buy my own PPOR. 
       
     Tony 

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Jake HJake H
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    @jake-h
    Join Date: 2011
    Post Count: 19

    Hi everyone,

    Thecrest you said

    You mention $300 rent return on $200K = 7.5% gross rent return.

    What’s the math equation to work this out. It’s got me beat as to how you did it. Thank you

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    Hi Jake
    I worked out $300 p.w. rent x 50 weeks = $15,000 rent income p.a. ,  allowing 2 weeks for costs of tenant in/out.
    $15,000p.a.  return on the property cost of $200,000 = 7.5% gross rent return on investment.
    It's 7.8% if you use a 52 week year.

    Is that what you mean ?

    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

    Profile photo of Jake HJake H
    Member
    @jake-h
    Join Date: 2011
    Post Count: 19

    Yep that’s exactly what I mean thanks heaps.

    Profile photo of Nathan BirchNathan Birch
    Participant
    @nathan-birch
    Join Date: 2004
    Post Count: 189

    Congrats Tony.

    Steve they are out there. I am in sydney but not all familiar with victoria market. I purchase mainly in NSW and some in QLD also.

    The crest those numbers are Sydney based for my regional purchases they are all in 10000 population towns and 100k give or take and 200pw or 10%

    Hope this helps

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