I am just starting out in the investing game and am keen to clarify some planning issues….
Currently I have about 40k cash and a good salary(about 100k per year). I have just bought my first property(settled today) in my own name for 390k, renting 400 per week in a good capital growth area(as per residex anyway).
I am happy to work in my current job for 5 years, then my salary should go up significantly(about 3 times initial). I plan to work for another 5 years in that second job – so the long term plan is the 10 year plan. I want to aggressively invest(but am a little time poor), happy with risk(single, no debt, good earning potential), and have good job security(income protection insurance, secure job). The 10 year plan then is for maximal property portfolio growth, with little need for cash from investments for the next 10 years. In 10 years I will reconsider….and may want to start to live off investments to some degree.
I have seen a financial advisor and they are sort of unhelpful, wanting me to buy some managed funds. I have seen an accountant too. Its seems that I need to be the director of my financial future so thought I would ask for some advice from the forum.
I am considering my next moves:
1) do I start a trust for further properties? I know about asset protection and tax issues, but my main concern is borrowing power. Would I have better borrowing capacity if I started a corporate trust and went guarantee?
2) what is the fastest way to grow my portfolio? I see that I could buy another property now with my cash and income, and am looking at cash flow positive ones in mining towns. This would then bring my overall position somewhat closer to neutral so serviceability issues shouldn't arise for further borrowing. I then plan to revalue my properties in about 6 months time and hopefully use the equity to fund another purchase – however how much cash will I need for each property thereafter? If I continue to buy around the 400k range, and get interest only, how much cash will I need to save up? I see that as my limiting factor – my salary is good but to save up 30-40k is no mean feat!
3)After 10 years of maximal portfolio growth I can see my wealth on paper being good but I also see that I would have heaps of debt with no cash flow to me. How would I start to live off my investments down the track?
Well I have many more questions but I don't want to overload everyone….so please give me some help to build the property empire!
BrentMooseheadMember@mooseheadJoin Date: 2006Post Count: 42
I found myself in a similar situation to you a couple years ago so I thought I'd offer my advice…
1) Trusts etc. I think for your first couple of IPs, there is nothing wrong with holding them personally. Especially when you are a high income earner and going for 'buy and hold' cashflow negative IPs, having them in your name lets you access all the tax benefits. Plus, getting loans is easy and there's no cost/stress to set up a trust/company. After the first couple IPs, I would recommend owning through a company/trust for the asset protection benefits and other advantages which become more important as your wealth grows.
2) Fastest way to grow a portfolio? Not sure I can offer anything other than pick one strategy and stick with it! If you are time poor, pay people to do the work for you and benefit from thier experience. Buy properties that you can improve immediately to give your equity a kick start. If you are after some income, I would suggest a margin loan for some commercial LPTs rather than buying IPs in a regional area. I know there's lots of people who swear by this strategy but personally I don't like it for a few reasons.
3) How to live off a portfolio with no cashflow? Simple answer is fund your lifestyle from a LOC secured against the properties. As long as your portfoliio's value is growing faster than your lifestyle costs (& interest) then you are home free. Obviously strict financial discipline is required plus a net worth of 2-3 million to be viable (from my estimates at least…)
Just my 2c
mooseRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,018
Your serviceability will certainly not be increased by buying in a Pty Lty Company and being Guarantor.
There is no difference in the amount you can borrow as the applicant as an individual or as a Corporate Trustee.
Thanks guys for your replies….
I have payed a buyers agent for the first property and he is currently sourcing a second in a mining town. The question about structure is one that brings many different views – I have plans for a larger property portfolio and I guess I really need to sit down with a good property accountant and nut out the 10 year plan…
Richard – thanks for that – so it is a myth as stated in previous posts. I bought "wealth creator" and they stated that lending could be increased by going through a trust system. I bought the product to access this information as hinted in steves book 260+ properties – have I just wasted my money I wonder?
Any other opinions out there – I know that I can get a second property and have the cash for it now- its the 3rd, 4th etc that I am trying to plan for, and what I have to do to get myself in the position to buy more in the shortest possible time.
BrentRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,018
I think Steve has clarified that statement in later press releases and accepts that you cannot increase your borrowing capacity by using a Trust or Company Structure as all liabilies need to be disclosed to the lender.
In saying this you would be suprised in the difference in borrowing capacity between lenders and a good mortgage broker should be able to map out a financial plan to help you move forward.blueheelerParticipant@blueheelerJoin Date: 2007Post Count: 45
Hi Brent, what type of portfolio are you looking at? Short term or Long term? Short term =positive gearing, i believe positive gearing is based on your rental income + depreciation servicing your morgage loan. Long term=capital growth, increase in value of your properties which will service your wealth. It's the asset that will provide your lifestyle, not the money. Let the money work for you and not you work for the money.
Richard – thanks again – I thought it sounded too good to be true.
Blueheeler – I am looking for long term – well the 10 year plan anyway. I am buying a combination of negative and positive property to help maintain serviceability whilst ensuring portfolio growth. At least thats the idea anyway…
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