Hi all, name is Scott and I’ve just finished reading Steve’s book 0 to 130 and have just purchased 0 to 260 though yet to start on this one. I’ve been reading through these forums like mad piecing together as much information as I can, since reading this book I have become massively inspired as I related 100% with Steve and how he was feeling when he got started – if you see this Steve, your book has inspired me in a way that I have not felt in over 10 years, thank you.
Setting the scene
I turn 35 next month, my wife and I have just bought our first 2/2/2 unit in Canberra utilising the first home buyers 5% deposit deal. Our loan amount is $380,000, interest is 2.8% (roughly) so repayments are about $1500 per month over 30 years. I have for the last year been just absolutely sick of work (in general, I don’t mind my job just thinking about what next? do I do this forever? kind of thing). Now we find ourselves in the luxurious position of being young and earning really good money, I work in IT and my Wife is a Property Manager, we each earn $90,000 per year before tax. We have a car loan with about $15k remaining, a credit card $6k we are paying off and other than that no other debt with quite low living costs. We have the ability to save (very comfortably) $1,000 per week.
Our Original Plan
When we originally purchased this place our idea was to just dump my wage onto repayments and have this paid off in full within 7 years. Then we would rent this unit out and purchase a larger place (likely 3 bedroom townhouse with a little yard space) using my wage plus the income from our now rental we would pay this larger townhouse off in a similar time frame before then buying our ‘dream home’ (some land, 4 bedroom house somewhere) using the same strategy to pay it down too. So then once the ‘dream home’ is paid off utilising the two rentals and my income we’d then look to retire having 2 rentals providing income with no major debt – kids moved out from home etc.
Change of thoughts / Setting a goal
Now that we’re in here I’ve been stuck thinking about our original plan and realise – I don’t want to be working for the next 30 years. This prompted me to think surely there’s a better way and this eventually lead me to the book which completely cleared my thoughts. So my new “Goal” is to be self funded retired at the age of 50 (15 years time). Breaking it down a littler further I have set the goal of $1,000 per week in passive income with no debt. I want to spend more time doing the things I love doing in life before I get too old to do them!
The Current Plan (This is what I really want some feedback on)
So given the goal this is the plan I’ve come up with. My strategy will be Buy and Hold (indefinite). I’m looking to purchase our first investment property a 1 bedroom unit/apartment for between $100,000 and $150,000. With a 20% deposit and then making repayments of $1,000 per week my calculations are that we would own it outright in roughly 2 years time. The unit rented would be returning us positive cashflow of between $100 and $150 per week which will then go straight into investing in a second similar property. Rinsing and repeating until we hit the magic $1,000 per week income mark. Then we will pay off our own ‘dream home’ at that point. Given each property paid off will accelerate the rate that we could pay it off the next I have estimated we would have 10 properties bought and paid for by around the 12 – 13 year mark leaving us with 2 – 3 years remaining of working and paying off our own home before retiring at that 15 year mark.
So in regards to feedback I’m looking for is first up does this look like a reasonable realistic strategy to hit the end goal I have given? (Note – I am NOT a risk taker, this strategy / plan to me feels very safe in my mind, I’d love to hear feedback in regards to thoughts on if it sounds like a safe bet or not)
I’d also LOVE to hear how others might approach this or look to reach this goal.
Are there other ways that we might be able to retire sooner given our situation? (I’m definitely open to this one lol)
Thanking you all for taking the time to read and looking forward to some feedback on this. We are looking to kick things off before the end of the year, we anticipate having about $40,000 saved ready to plonk into our first investment somewhere around Aug / Sep this year.HomeBuyerLouisianaParticipant@homebuyerlouisianaJoin Date: 2020Post Count: 17
It sounds like you are in a good position to invest and your plan sounds reasonable. If you feel comfortable with that I would start on the path. As you progress you might start to see more options but don’t spend all your time looking at that now. You could be more aggressive and use the equity you are building. When you pay off the property and then but a new one with a new loan and cash you are leaving all that equity in your old house. You could actually refinance that out as a deposit on a new home much earlier and build a bigger portfolio. There is more risk in this but more upside. Like I said don’t stress about that now, just start with the conservative plan and as you start going down that path you can always get more aggressive.
HomeBuyerLouisiana | Home Buyer Louisiana
Aussie entrepreneur investing in New Orleans housesRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Scott, you do sound like you are on the right path.
Feel free to shoot me an email and i can send you an article i did with the API magazine and how i built my property empire.
Some of the strategies may have changed over time but the concept is still the same.
The loan structure going forward is important in order to maximise your deductions.
Yours in Finance
Thanking you both for the feedback so far – this is what I was looking for – I didn’t even consider the equity route but now having thought about it – it gets you the property sooner = earning you the money sooner (rental income) so over time it would definitely be more beneficial to get properties sooner (though so long as they are paying themselves off via rental income so I’m not having to top them up).
Richard: Sending you an email now (coming from hotmail account)TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
As a general rule you should never pay a deposit on an investment property when you have non-deductible debt
Borrow against your main residence for the deposits
You should also try to shift the investment debt to owner occupied rates as well as investment debt generally has a higher rate.
Think of the sale of the main residence as a strategy too. It’s the only tax free appreciating asset that you can own so one strategy is to wait for some growth to kick in and then sell, tax free, and move into an investment property – which might have a small LVR by then, pay off the remaining loan and still have enough left over which you can store in offset accounts on the investments and slowly draw down on for some tax effective retirement.
Thanks Terry, I didn’t understand what you meant when I first read your reply – but have since read through all of the newbie posts that Benny provided to me plus more general forum reading and I think I understand now: Specifically the borrowing against the main residence – my understanding is that this is because my current residence is completely non-deductible, however if I draw on equity to purchase IP this then allows me to claim the interest. When compared to just saving and using cash for a deposit this makes sense as the cash is non deductible? (not to mention the time the cash is not against my current mortgage meaning mortgage interest is being charged at a higher rate than it would be had the cash been paid against the mortgage as I received it)JaxonParticipant@jaxonaJoin Date: 2014Post Count: 284
Good Day Scott,
Terry &Richard both are experienced and exceptional at what they do.
Your plan/strategy has merit although compared to other options & plans it may, however, be a slower process to reach your “end goal”.
the fact you are at this stage & understand a fairly good idea of where you would like to end up is massive,
now comes assessing the different options & truly understanding the pro’s con’s & unforeseen that may result in each different option and path.
So for me, it all comes down to the numbers behind the properties, meaning the Return on investment, the ability to add value to the property & the perceived growth likelihood.
I think the more you read & understand all the different views & potential outcomes it will really open & define what suits yourself.
wish you all the best & if you had a specific question always happy to chat.Steve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,763
Thanks for your post, and welcome to the forum. Thanks too for your encouraging words; I’m glad you liked the books.
It’s interesting to read through your logic. I agree you are in a good position, but to be honest I don’t like the idea of buying a 1Br anything. That is usually the bottom of the market – cheap to buy, cheap rent, cheap sales price.
What you seem to be doing is picking the investment first, and the profit second. I’d prefer to see you:
1. Work out the profit you want to earn (how much down, how much back, how much time, how much risk). I call this the ‘outputs’.
2. Work out the amount of money, time, risk and skill you have to contribute (I call this your ‘inputs’).
3. Find the property where the output is congruent (i.e. aligns) with the inputs.
Did you manage to join in the webinar I did last Saturday?
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
Success comes from doing things differently
Since posting this and reading through the replies and then reading through more posts / getting a better understanding I certainly have now shifted away from my original idea where I was looking at units (specifically for the cheap entry point and being close by).
I did watch your webinar on Saturday and it was awesome! I came away from that with a better understanding / more confidence around adding value to properties (took a photo of your floor plan upgrade of a 3 to 4 bedroom as an easy visual reminder of the topic). I also loved that spreadsheet – I have made my own spreadsheet that is VERY similar – had spent hours and hours over a couple of nights perfecting it for what I think I needed out of it; now seeing how close I was (only missing 2 or 3 things that yours has) really helped in adding confidence that I’m on the right track.
I was interested in joining your group for access to the virtual hookups and facebook page but I wasn’t sure if it would be suitable for me in my current position as it sounded like it might be more suitable for current investors – not someone still on the fence about entering the PI game (especially given the limited slots available).
Anyway thanks for replying, your points you mentioned here I did take those away from your webinar and noted them down, it made a lot of sense and was clearly explained and has allowed me to re-assess some ‘case study’ properties I’ve been looking at and realize that some of those aren’t actually suitable for what I want to achieve!
I’ve still got a way to go but with some more time and patience I’m sure I’ll get there and with all the assistance from here I feel confident that I’ll make this work!
Thanks Steve – really appreciate what you’re doing and it was great to see charitable contributions you and your family have made. Very inspirational stuff :)