Good afternoon everyone,
After a lot of research and thinking of personal goals etc, I'm wondering if the following strategy is feasible and the best way to make use of a large inheritance I received.
I'm still divided between looking for CG or +ive CF so decided a mix of both might yield great results. For the +ive CF I'll be looking to buy undervalued properties and renovate them in order to achieve better CF and decent equity gain. It seems fairly common that a good $10k reno will generate $30-$40k in equity. I will also try my hand at 'flipping' in order to make some cash along the way (although it will pain me to surrender half the profits in the form of CGT! Aside from PPOR situations, is there any way around paying so much?).
The inheritance was for $200k which I put in a term deposit for a year whilst I educated myself in property investing through reading, forums etc. It matures late Dec so hopefully it'll still be a 'buyers market' then.
With the knowledge attained so far, I have come up with the following strategy- Buy 4 undervalued houses for around $200k each using LMI for 10% deposit so that'll be 4x$20k. Each house will receive a $10k reno to attain +ive CF and equity. I will use this equity to buy more IP's, reno and repeat in order to build a large portfolio relatively quickly.
Next, I will buy 2 houses for around $400k primarily for CG with an I/O mortgage (best option?). Using LMI again for 10% for both, that'll be $40k deposit. I'll be aiming to get as close to neutral/+ive CF as possible or even use the $'s from the +ive CF IP's to cover the loss (what would the tax implications be for this method?)
I hope to flip at least 4 properties in a year for around $20k profit each so I can spend more time looking for IP's. I intend to get a mining job for the $100k wage in order to improve servicibilty and buy many more IP's.
Short term goals are to improve my networking, continue improving my knowledge of RE investing through actual experience and channel all my energy into building an excellent portfolio. Medium term goal for 5-7 years time is to be receiving $70-$100k in passive income from a mix of residential and commercial IP's and have paid down some mortgages in full. Long term goals are to enjoy an early and very comfortable retirement, travel the globe and of course help those in less fortunate circumstances. I really do believe these are attainable goals and after reading Think and Grow Rich, I will most definitely achieve them!
So just a few questions- is this a generally good strategy to build a portfolio that will help achieve my goals? Am I relying on LMI too much or can I avoid it altogether by getting piggyback loans? I know LMI is tax deductible so I'm thinking it can't be too bad using it for all IP's. What would be the tax implications of a high income and owning both -ive and +ive geared IP's?
… and that's all! I was hoping to be more succinct but at the same time, it's best to give as much info as possible. I will of course be seeking professional advice and looking to build a great team to help maximize my wealth creation strategy but would still like some advice, opinions and guidance from those with the experience.
Thanks for taking the time to read this and look forward to the responses
Kind regards,
DerekPs, anybody in the Sydney CBD area willing to be a mentor?
WOW!!! I admire your research. Sounds like you have a good idea of where you want to go and that's a BIG thing.
Are the 4 flip properties in addition to the initial 4 plus the 2 houses? What time frame are you talking? That's a lot of property to buy. It takes time to research and then find properties. I've been buying 2 a year (but this year I've already bought my 2 so maybe 3 this year and it takes a lot of hours (plus I reno them). I don't sell. But will later (after Sydney has it's next boom)
Having a mix of CF+ and CF- will balance out so overall you may be CF neutral and in that case your wage would not be affected.
I haven't used LMI but I don't have an equity issue. I have friends that always use it, even if they have a low LVR. Everyone has different opinions. As you said it is tax deductible but my thinking is why pay it if you don't need the extra 10%. In your case I guess the extra 10% on each will add up to extra equity to allow you to build your portfolio quicker. But still there's a limit to your overall borrowing and having all your loans at 90% is outside my risk profile.
Do you have any areas in mind? West Sydney? Regional?
I'm in Sydney if you want to come along to some meetups. It's great to chat with like minded people. There's one in Parra in 2 weeks if you are interested. Have you heard of Nathan Birch? He's a guest speaker. Google him. His methodology may suit you.
If I where in your circumstances I would be using that 200k as a deposit for 1 big high return commercial property instead of half a dozen over priced houses that loose hundreds of dollars a week.
For the little return in houses, there are such massive costs in holding them, Where commercial property leases usually add on the costs (outgoings) to the tenant, Most agreements are CPI linked and leases can be locked in for many years at a time.
In my experience there are less things to "break" or "go wrong" in commercial while "stuff" in houses needs repairing/replacing all the time.
You can get better deals on property management too, a friend of mine recently bought a $2 500,000 property that netts about $5,000 a week with a 7% property management fee
I think you may have forgotten to take into consideration stamp duty in your plan. Flipping is good in theory, but I haven't seen anyone do it – actually one person I know did after a reno and maybe about $20k.
I am a solicitor and investor and exmortgage broker and live in the CBD if you want to meet up.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
and that $200k, consider gifting it to a discretionary trust.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Derek
You're doing great – well done on devising such a specific strategy.
A couple of comments that might help.
It doesn't look like you've incorporated the purchasing costs into your calculations (stamp duty, conveyancing, building/pest inspections, etc).
With flipping – unless you sell it yourself, there's going to be REA fees to consider. That coupled with CGT can erode profits quite quickly. Not saying it can't be done – but it's certainly not easy to make a buck from, particularly in the current flat/declining market.
With starting a new job. It might be difficult to get 90% loans if you haven't been in the same industry on an ongoing basis for at least two years.
Hope that helps.
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Terryw wrote:I am a solicitor and investor and exmortgage broker and live in the CBD if you want to meet up.I'd be taking Terry up on that.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Cheers for the replies guys, appreciate the fact you read through all that.
Catalyst- I've known for a long time that I didn't want to work for someone else and after reading books by Kiyosaki, McKnight etc, that was reaffirmed. By far the best type of lifestyle. The flip properties are not a definite, just something I'd like to try and see if it'd be a way of replacing normal income. For the other IP's, I'm hoping to have bought them within a year. I use my spare time wisely and during work can easily research properties there. Ideally I'll be looking within an hours drive from Sydney, although still trying to figure out which suburb(s) I'll focus on. West Syd is somewhere I've been looking as it seems to be marked for continued growth.
2 properties a year is nice progress. How long have you been investing? What's your strategy?
I've been following Nathan for the last year or so, very much in awe of what he does! I'll be talking to him tomorrow morning so looking forward to that and was thinking I would benefit greatly from his mentoring program. I will indeed be attending Parra meeting though sold my car so hoping public transport gets me there on time as I usually finish work around 6. I'll PM you nearer the date.hbbehrendorff- I have thought about commercial but think I'll be better off starting small and when I have more experience behind me, venture into that area. I wouldn't feel too comfortable with the higher vacancy rates that I've heard about. Although in saying that, ultimately I'd like a mix of both types and be in the position where the residential CF would cover any commercial vacancy.
TerryW- forgot to say the prices I'm thinking would be inclusive of stamp duty, closing costs etc. Would subdivision be a more lucrative method to generate some spare cash? Even $20k a few times a year would be a good income. Thanks for the offer, I would most certainly like to meet up some time. Reading your replies, you seem like a veritable fountain of knowledge on all aspects of investing.
Jamie- Would it still be hard to get the 90% loans even with the LMI and do banks mind if all the loans use this? Seeing as they're covered should anything bad happen, I thought they'd be pushing this product on anyone. Though maybe not so much in the current climate. Is it likely that the possibility of owning a few CF+ IP's plus some decent equity or the term deposit would replace the problem of the new job? I've been in the same job for 2 years but it's only been part time as I'm studying (finish in Sept) so don't think that will help much servicibilty wise.
Kind regards,
Derek
You must be logged in to reply to this topic. If you don't have an account, you can register here.
