All Topics / Help Needed! / Investment strategy for acquisition phase.

Viewing 10 posts - 1 through 10 (of 10 total)
  • Profile photo of Cal012Cal012
    Participant
    @cal012
    Join Date: 2013
    Post Count: 1

    Hi everyone,

    My name is cal and i'm new to the forum and hopefully soon new to the PI scene.

    I would like to run my strategy past everyone and hopefully obtain some feedback, good or bad.

    26 years old, runs a small plumbing company with an average gross income of 200k, own my own house 30km east of Melbourne and my goal is to build a property portfolio of 10 buy & hold properties in the next 10 years. this goal may change over the years but 10 in 10 yrs sounds like a nice rounded figure for an acquisition phase of my investing and i believe is achievable.

    My strategy consists of the following:

    – Off the plan units in developments of 10 or less.

    My business consumes alot of my time (all of it actually) so i believe new properties will suit me better as i don't have the time to renovate or do constant maintenance.

    Better quality tenant, i know i would prefer new over old.

    Saves on stamp duty.

    Possible CG during construction.

    – Interest only loans with offset accounts attached.

    Interest only may turn properties into CF+ as a purchase price of 400k, loan of 300k, annual rent of 22.5k, loan repayments of 17.2k may leave a CF+ of around 2.5k per year. (to be injected into offset account)

    Interest only may free up cash in the short term, allowing me to obtain more in a shorter period of time.

    – Deposit bonds.

    Frees up cash over construction period.

    If CG is achieved over construction period then upon settlement instant gains will be made on a very small outlay.

    Any feedback will be greatly appreciated, good or bad.

    Thanks for your time.

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Right and now for the cons of OTP:

    1. Valuation could come back lower upon completion which means you are stuffed

    2. Strata is going to kill you and it will only increase

    3. Quality of worksmanship is unknown until the unit is complete which in most cases is too late

    4. In many years time you new property is not different to the property next door which is about 4 years older than yours

    5. Most are overpriced to begin with

    Your strategy isn't bad but you need to be wary of the bad (not just the good) when looking at OTP.

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Be very wary of off the plan.

    Also generally only 1 offset account is needed, unless your cash will exceed the loan amount. Or maybe the properties are going to be in different names.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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

    Would avoid off the plan like the plague.

    Sure interest only might reduce your repayments but probably wont increase your serviceability.

    If you intend to remain in the current property for the foreseeable future and are trying to build an income stream long term you can always look to pay down debt or certainly look at going interest only with a 100% offset account.

    Personally i have nearly paid down all of the investment debt on my 41 properties over the last 15 years and am down to the last $1.15M which should be knocked off in the next 18 months but i admit everyone;s situation is different.

    Sounds like you are a very busy individual so why not engage someone to careful source the properties for you.

    Possible capital growth is great but what happens if it doesn't come at the speed you expected.

    You can't retire off capital growth alone. At least with a good yielding property you can accelerate your acquisition phase.

    With the limited details you have provided i think the future looks rosy with the right property selection.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Cal

    I saw your post the other day and was scratching my head a bit trying to understand why your strategy wasn't as follows:  "Make money". 

    Deciding on the property type and then praying it fits with your goals is a bit like saying right-oh, I'm going to eat some Coco-Pops, and pray to the heavens they contains vitamin C because that's the nutrient I need right now.  You want to do it the other way around.  You say right, I need vitamin C.  You find out what kind of foods have vitamin C and you set about locating such foods.  Same deal with property investing.  You define your end goal and then figure out what type of properties will get you there.

    As has already been mentioned, if the hoped-for capital growth doesn't happen in the timeframe you are hoping for, you want to be clear on what that would mean for your financial position and how it would affect the progress of your goals.

    You've got yourself a great salary there – choose wisely and make it count.  Get it right and your life will look very different a few years from now.  Get it wrong and, well, let's just remember it's quite unlikely there will be a pension when we're old, so getting it wrong is just not an option.  It's extremely important to set yourself up a funding base for your twilight years.

    You need to squint those eyes of yours and think hard.  Direct your cash only into things that will take you forward.  A bit like an episode of The Voice, but for property investing.  You're waiting not to hear a nice singing voice, but to see a property with numbers that stack up.  When you see something that has numbers that make sense, you smash that red button hard and welcome the beautiful-numbers-property onto your team.  Such properties are not always pretty and shiny.  Quite often they are just ugly and sturdy trojans.  But they do their job.  They earn money, which is the whole point of the exercise.

    Hope this helps!  (Proudly sponsored by Coco-Pops).  cheeky

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

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

    Jac M has made a valid point and i must enjoyed i did chuckle when i read it.

    When i first talk to a client about their investing goals most investors think if they do their research capital growth is guaranteed.

    I usually say to them buying a property with this attitude is like gardening.

    You can prepare the ground, check the acidity of the soil, buy the right plants and fertilize and water them.

    Before you got this far you read the best gardening annual and attended a dozen gardening conferences.

    Then some outside elements come along and your plant doesn't grow as tall as you expected.

    Your neighbour is not a gardening guru so he engages the services of a local landscaper who specialised in multiple plant growth.

    You pay him to come along and he says to you don't go for the highest tree in the street let us see if we can't plant a dozen smaller ones that give us richer fruit we might get one or two that prove to be real winners.

    As the trees bear fruit one of them takes off and grows out of control and now you have the best of both worlds.

    The man with the tall tree finds that a change in circumstances means he misses out because he has to sell the house and move on but the man who went for a smaller portfolio of trees and spread his risk to attract a bigger yielding tree wins out.

    Sometimes you have to accept that engaging the help of a professional can help.

    I mean i can change my own tap fitting but i don't. I prefer to engage the services of a plumber.

    Exactly the same as the non gardener.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Also remember, capital growth cannot provide serviceability on additional loans – but suitable rental yield can wink

    You can go to the bank and say hey, i have a trillion dollars of equity because this cracker property I have went up in value.  Trouble is it has rubbish rental yield because sadly people don't feel like paying 4 million dollars a week in rent.  So I need more income and to achieve this, I want to buy more houses.  And the bank says to you "That's nice.  How do you propose to make the repayments on the additional houses?"  If you can't, it's no deal.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

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

    Very true Jac

    I see it all the time with clients and this becomes more of a problem the older the investor gets as often they are looking to reduce their working hours and live off some of the property income.

    This is only possible if they sell the asset and the market is right.

    With a good yielding property you can live of the rent and come back when the market recovers.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of JT7JT7
    Member
    @jt7
    Join Date: 2010
    Post Count: 286

    Hi Cal…..

    It’s great to see you have set yourself some goals and are working on a strategy to achieve those goals.

    When we began our investing journey, we had no goals or no ‘road map’ to get us to those goals so you are ahead of the game already. Since those early days we have developed our strategies to achieve our goals and we constantly look at ways of expediting the process.

    I agree with Richard and Jacqui, cashflow is to your business what blood is to your body. We invest for cashflow and select areas that have those growth drivers to support capital growth. I whole heartedly agree with Richard, I would stay well clear of off-the-plan especially in Melbourne at the moment.

    I found that as I progressed along the road the more inspired I became to achieve my goals.  The more inspired and focused I became the more I appeared to attract ‘things’ into my life to support me and drive me towards my goals. It’s an incredibly rewarding and exciting experience to meet and get to know people who…I think see the fire burning in you and support you in achieving your dreams.

    All the very best mate,

    Jack 

    Profile photo of callmelescallmeles
    Participant
    @callmeles
    Join Date: 2007
    Post Count: 29

    Hi Cal

    You're only 26 and looking at a strategy to set up a portfolio of ten properties within the next ten years.

    Instead of one strategy why don't you enrol in Steve's Property Apprenticeship Cert IV?

    You'll end up with  an unbelievable amount of knowledge, like minded contacts and more strategies then you can point a stick at.

    For an apprenticeship which only takes 16 months and delivers all of the above benefits, plus some, you'd be mad not to invest a few bucks into educating yourself.

    I'd be really surprised if you still pursued you buy off the plan strategy.

    Maybe you should look at the NRAS properties available in Gladstone? 

    On top of full depreciation claimable on the new house fixture and fittings, the Government pays you $99K as a rebate over the first ten years that you hold this property. 

    Regards

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