$100k in passive income

I am aiming to do turnover deals through value-add to build up a capital base, then invest in commercial real estate to provide passive income.

For an income of $100k p.a., and using average commercial yield around 8%, you’d need to have min $1.25mil cash to purchase commercial property.

that’s my strategy for now…

Thats not really “Passive” income.

Definition: Passive income is an income received on a regular basis, with little effort required to maintain it.

Examples of Pasive Income are:
* Bank interest.
* Rent.
* Dividends.

There must be little to no involvement by you to earn the income.

In your case there is work invovled with acquiring, renovating and refinancing the properties (Active). The only passive income in this circumstance is the rent.

You moderate your goals .. you attain your goals.

Then you reset your goals and aim for the next attainable level.

Then you reach that .. and try again.

How you reach your goals is the creative part. And at each level it becomes just a little easier.

Thanks for your post Xdrew

If you don't mind me asking, could you elaborate on the part about buying with an intended 1 year turnover?

I was thinking about using the Renovation strategy to build up my piggy bank, and some of the questions that came to mind were:

• Does the costs (50% CGT) saved from holding a renovated property for +1 year, outweigh the holding (interest) costs?
• Is it feasible to get early access to a property, renovate it, and then sell it to another person (via 'And/or nominee' clause), so that you can save costs associated to stamp duty and maybe split this saving 50/50? Alternatively, could you use an 'options' contract, and would the cost associated with having the option written up by a lawyer, outweigh the costs saved from stamp duty?
• Since I am just beginning should I buy the properties I intend to renovate and resell in my own individual name, or would it be best to setup the right structure in the first place E.g. maybe a company that is held in a discretionary trust with corporate trustee?

Admitedly it is not easy but i was lucky enough to buy at the right time in the right place and the right price.

When i first purchased an Australian IP in 1994 in Albany Creek, Brisbane i paid $61,000 for the land and $121,000 to build it.Property is now worth around $520,000 and rents for $420 / week some 17 years later.

Then went on to buy a further 39 properties which we stilll hold with a healthy passive income.

Times change and you need to adapt as you will not find a block of 24 units in-line for sale for $80,000 each 4 Km's out of Brisbane CBD but in 2001 you could do so and I did.

Buying under value properties is key now as much as it was when i started back in the mid 90's the only difference being is the initial entry price.Make sure the maintenance is kept upto date and you comminicate in a hard but fair manner with the tenant to ensure they make regular rental payment and longevity of tenure. I have many a Tenant that has been in the property for 5 years + and each time the rent has increased we are at pains to explain to them the reasons why.

Set your structure up correctly from day 1 and it will happen.

Good luck and keep us all posted.

Cheers

Yours in Finance

As Richard implies, putting the rent up is essential.  If you don't, you will never pay the property off.  Ultimately the tenant will find that there is no point trying to move since there is nothing cheaper available in the town anyway, and there is hassle and cost associated with moving.  There is nothing wrong with putting the rent up such that it matches what similar properties in the area are renting for.

Each year your bills go up in price (insurance, council rates, water rates, tradespeople fees and in some cases, mortgage interest…) so that cost needs to be passed onto the tenant.  If a tenant complains that the rent doesn't go down if mortgage interest goes down, a tidy way of explaining why is to point out that you cannot put the rent up mid-lease, and yet the mortgage interest rate can indeed go up mid lease, and you have to wait till the end of the lease year before you can do anything about it.  So to balance out the rocky ride, things are handled simply by putting the rent up by a small increment each year.

I've got a block of units mostly tenanted by lower-income single guys, and they have been very clear in communicating that they are perfectly happy with their brown 70s kitchens.  To them a sparkling new kitchen is not priority.  The most important things to them are peace and quiet, relatively-affordable rent, and most importantly, feeling secure in the knowledge that the landlord is taking care of them and won't kick them out in the cold with 2 seconds notice.  It is very easy to build that trust.  My mum bakes cupcakes which I take along any time I have to go over there to attend to anything.  Their units are always referred to as their homes, and they are always greeted with a smile and a handshake.  These guys pay on time everytime, and give me absolutely no trouble whatsoever.  Quite the opposite – they help out with gardening on the grounds and so forth.  Understand who your tenants are and what their needs are and it is easy to have long-term tenants.  And to find out what their needs are, just ask!  I'll keep these boys as tenants for ages, and slowly renovate the units one by one as they leave later on due to changes in life circumstance.  This works for me as I am a stress-head.  I would absolutely hate having a high turnover.  I would lose too much sleep.  I need boring stability.

As an alternative to refinancing, you could instead simply take out a second mortgage against one of the existing properties when you go to buy your next property.  Richard can explain in more detail if you're not across this method.

Hi Engelo,
Geez mate, you've had a busy few months – well done!