20properties20years

[Blair007]

So i thought i would post a picture of my property plan/goals '20properties20years' its basic but can show people that dont understand the benefits of buying and holding and the effects that compound capital growth and rental increases have.

I have allowed for 4% growth each year and 4% rental increases per year, which i think are fair assumptions. I have allowed for average interest repayments of 7.5% which is also inclusive of property management fees and repairs, also fair assumption.

There are alot of interesting threads that show peoples plans and progress for individual projects but not so many that show peoples long term goals. I'll try keep this updated with my thoughts, changes i make, questions i have and general progress.

The first project i have undertaken is a retain and build which will hopefully be complete this time next year. I have had the benefit of having a good deposit to help with this due to current income from FIFO work and previous savings.

I have used as a rough guide, 250000 for property purchase price and 6% yield.
This is flexible but atleast the minimum. Ideally whilst i dont have many commitments and a strong income i would like to get ahead and maybe do a few more development projects and possibly a couple of purchases per year.

If cashflow ever does become an issue i plan on LOE and using a LOC to cover rental shorts. At the moment i am Focusing on understanding the Tax and Structuring aspects of Investing.

I'll keep this updated when new things happen or i think of something else to say.
Please share your thoughts, any advice appreciated!

----------------------------
The Picture above i have done from an excel spreadsheet with formulas i nplace so people can change house prices, rents, repayments etc as they wish. I'll upload a link when i figure out how, there are probally a few similar to this already on the forums but another wont hurt

 

[HD_ACE]

This will be an excellent way to keep track of progress over the next 20 yrs

after a couple of mid priced ip's is there a reason youve started again at the lower end of the scale?

And i see your strategy is LOE which is great but have you looked at LOR? As i see your starting to develop which is a good way to increase yeild and turn it into positive cashflow as well as recycling equity for the next project?

just out of interest

cheers

 

[westminster]

Hi Blair,
I think you should allow 10-12% for property management, rates and repairs and possibly only allow for 48 weeks of your property being tenanted.
4% CG would be nice but for the past 3 years we haven't seen that in Perth BUT in a long term plan like this it might even out to that.
But it's a very nice visual description and gives great incentive Make a magnet and put it on the fridge.

 

[nhg]

Nice! I should do something similar

I would go 2% growtb. Anything more is a bonus. In the current market 4% may be somewhat optimistic for forecasting purposes.

 

[Blair007]

Hi Blair,
I think you should allow 10-12% for property management, rates and repairs and possibly only allow for 48 weeks of your property being tenanted.
4% CG would be nice but for the past 3 years we haven't seen that in Perth BUT in a long term plan like this it might even out to that.
But it's a very nice visual description and gives great incentive Make a magnet and put it on the fridge.

I made a typo on the spreadsheet, instead of interest @ 7% it should read interest at 7.5% thats what the numbers have been calculated at. So maybe 8.5% average interest rate would be more realistic (allowing for prop management, vacancies and maintenance)

This will be an excellent way to keep track of progress over the next 20 yrs

after a couple of mid priced ip's is there a reason youve started again at the lower end of the scale?

And i see your strategy is LOE which is great but have you looked at LOR? As i see your starting to develop which is a good way to increase yeild and turn it into positive cashflow as well as recycling equity for the next project?

just out of interest

cheers

I figured i would have more opportunities finding higher yielding properties at this value. I would like to do more developments and carry on down that path, but for now i have set myself this goal as i know i can comfortably achieve it without much hardship.

Nice! I should do something similar

I would go 2% growtb. Anything more is a bonus. In the current market 4% may be somewhat optimistic for forecasting purposes.

Surely when for the last several decades people have always said property prices double every 7-10years it would be safe to assume a 40% growth over a 10year period?

 

[D.T.]

Nice! I should do something similar

I would go 2% growtb. Anything more is a bonus. In the current market 4% may be somewhat optimistic for forecasting purposes.

If you think you'll average 2% pa over 20 years, maybe you should consider another asset class?

 

[Rolf Latham]

as an aside, have you spent the same sort of planning and modelling to get the finance to achieve the portfolio ?

thats the one area where most people that we inherit "cut corners" and make assumptions..........

If you are looking to build a portfolio worth 8.5 mill in todays dollars "she wont be right mate" it needs some tender loving care and some

PS,this post isnt directed at you, nor the excellent information provided its a general broadside at the concept of that property investment "per se" is the key.......... its only one part, finance structure, risk management, asset protection are core complementaries of asset and stock selection.

ta

rolf

 

[ZachAnSel]

I'm afraid your negative cashflow will be your biggest obstacle. Unless you can maximise equity with higher return

 

[nhg]

If you think you'll average 2% pa over 20 years, maybe you should consider another asset class?

Higher growth via active investment methods. Also that is 2% on a leveraged amount so it is more like 20% growth on actual invested amount, and that is simple not compounded interest.

Anywho, ive always been conservative and any extra I see as icing on the cake. I dont believe the past will be a good indicator for the next decade and basing an entire strategy on high growth will hurt your overall strategy for the short to medium term.

 

[Blair007]

Higher growth via active investment methods. Also that is 2% on a leveraged amount so it is more like 20% growth on actual invested amount, and that is simple not compounded interest.

Anywho, ive always been conservative and any extra I see as icing on the cake. I dont believe the past will be a good indicator for the next decade and basing an entire strategy on high growth will hurt your overall strategy for the short to medium term.

As I said though the past decades have indicated that properties will double every 10 years so a 40% growth over the same period is resonable..

 

[Blair007]

as an aside, have you spent the same sort of planning and modelling to get the finance to achieve the portfolio ?

thats the one area where most people that we inherit "cut corners" and make assumptions..........

If you are looking to build a portfolio worth 8.5 mill in todays dollars "she wont be right mate" it needs some tender loving care and some

PS,this post isnt directed at you, nor the excellent information provided its a general broadside at the concept of that property investment "per se" is the key.......... its only one part, finance structure, risk management, asset protection are core complementaries of asset and stock selection.

ta

rolf

Thanks Rolf,

Yeh learning how to structure my portfolio is my next plan,
What I've learned so far is

-your assets need to be in different entity's (trusts, your name, spouses name)
For your protection and also for you to have more leverage over lenders.
Also I think you would need to find the right balance as to what properties you have in each entity. Eg negative geared properties would go under my name if I was on a high income to get tax breaks, and cashflow properties could go under my spouses name if she was not working or on a low income bracket.

-I/O accounts with offsets attached to them are basically the same as a P/I
Except you have easier access to your funds if need be

-keep your poor debt low and ip debt high as this can be claimed in tax

-depreciation schedules are a must to organise on each ip and you can get them done for the whole term of there depreciation period as opposed to yearly.

This last one is more a question...
-LOC accounts would I be better to set up a LOC for personal uses from equity in my poor only as this is non deductible debt. And for a LOC. for investment purposes it would not matter if it's linked to ppor or ip as it can be made deductible regardless. Also can credit cards be set up with LOC's?


Correct me if you think I have the wrong idea for any of this please.


Cheers

 

[investor2009]

Good point Rolf.

Blair, I was once like you and buying a property per year, all was going good and I was getting rich! But.. After the 4th one a few years back, I'm out of finance options. I could sell it and lose my stamp duty and government charges and maybe break even but that kinda defeats the purpose because I still have to pay it again if reinvested so thats a waste of $60k or so.

One pointer for you: Look for capital growth AND cashflow properties (props that offer both) and don't purchase if it does not meet you criterea. Simple.

If I'd done this myself I would have more free cash, work less, be wealthier and less stressed, with the ability to add more property and wealth to tghe portfoio. Thats the greatest thing I've learned in 10 years of investing. I still love my tax returns but that doesn't meet my goal of being financially free just yet, put it that way.. I now have changed plans and have a further 4 years or so before I feel like we've achieved what we're looking for.

 

[mikezen]

Good point Rolf.

Blair, I was once like you and buying a property per year, all was going good and I was getting rich! But.. After the 4th one a few years back, I'm out of finance options. I could sell it and lose my stamp duty and government charges and maybe break even but that kinda defeats the purpose because I still have to pay it again if reinvested so thats a waste of $60k or so.

One pointer for you: Look for capital growth AND cashflow properties (props that offer both) and don't purchase if it does not meet you criterea. Simple.

If I'd done this myself I would have more free cash, work less, be wealthier and less stressed, with the ability to add more property and wealth to tghe portfoio. Thats the greatest thing I've learned in 10 years of investing. I still love my tax returns but that doesn't meet my goal of being financially free just yet, put it that way.. I now have changed plans and have a further 4 years or so before I feel like we've achieved what we're looking for.

good post...........i bet this is overlooked by many

 

[Roosterman]

Hi Blair,

I'm not sure what sort of properties you are considering but you may have underestimated your non-interest holding costs. I'm finding (here in Sydney) that my 2 bedroom units in lowrise blocks cost about $6,500 per year for strata, council rates, water, maintenance and PM fees.

You have used an interest rate of 7.5% which we are told is the long term average for interest rates, but I think you need to factor in 1.5% - 2% for non interest costs. And these costs will need to be indexed to inflation as well if you are looking so far out.

You'll run into Land Tax pretty quickly as well so you should work out the impact of this.

But your plan looks pretty good

 

[Ed Barton]

What happens in 2044?

 

[Jake D]

What happens in 2044?

Zombie Apocolypse

 

[nhg]

Hi Blair,


You'll run into Land Tax pretty quickly as well so you should work out the impact of this.

But your plan looks pretty good

And assuming asset protection, legal fees, trust structures, higher accounting costs etc.

 

[Terry_w]

This last one is more a question...
-LOC accounts would I be better to set up a LOC for personal uses from equity in my poor only as this is non deductible debt. And for a LOC. for investment purposes it would not matter if it's linked to ppor or ip as it can be made deductible regardless. Also can credit cards be set up with LOC's?

Why would you want a LOC for private expenses? Borrowing to buy items which won't be deductible may not be a good idea. I would stick to the cash in the offset account for this and use a LOC to borrow solely for investment expenses.

 

[MTR]

Good point Rolf.

Blair, I was once like you and buying a property per year, all was going good and I was getting rich! But.. After the 4th one a few years back, I'm out of finance options. I could sell it and lose my stamp duty and government charges and maybe break even but that kinda defeats the purpose because I still have to pay it again if reinvested so thats a waste of $60k or so.

One pointer for you: Look for capital growth AND cashflow properties (props that offer both) and don't purchase if it does not meet you criterea. Simple.

If I'd done this myself I would have more free cash, work less, be wealthier and less stressed, with the ability to add more property and wealth to tghe portfoio. Thats the greatest thing I've learned in 10 years of investing. I still love my tax returns but that doesn't meet my goal of being financially free just yet, put it that way.. I now have changed plans and have a further 4 years or so before I feel like we've achieved what we're looking for.

Hi investor2009

What I learnt from property investing over the last decade is that I needed to take the emotion out of holding properties and if that meant selling off property to move forward so be it, replacing negatively geared properties with cashflow, or a mix and also learning different skills to build equity.

Its never too late to change your strategy, "if you are caught between and rock and a hard place" then the sooner the better.

So my point is if you can no longer invest due to finance, then I would be looking at what needs to go, or how you can increase cashflow from current properties so you can continue to invest and then look at cashflow properties moving forward.


Cheers, MTR

 

[VaSSagO]

I like your spreadsheet. I have done up one for myself quite similar (increasing from 3 IPs to 8 IPs over the next 5 years) and also used 4% growth for rent & capital gains. The government appears to target ~3% for inflation, so if rents increase inline with inflation it just means slightly longer to retirement / semi-retirement.

I have based my costs for rentals currently at 6% interest (probably a bit low i think) plus $3.5k per property (increase at 4%pa) to cover rates, insurance etc (I manage the properties myself).