Are there any Millionaires who can help me to invest $450,000 in real estate?

[tl899]

Do you have a job Tom? Stable income? Any experience or skills in business or trades?

We can all give advice based on our situation and experience but it's a bit hard when we don't know anything about your situation and capabilities.

Hi rockstar,

I'm 24, in a stable job, 6 figures, partnered not married, no children, no significant debt. I've always wanted to be an investor primarily. I have not yet purchased any property yet however have been fortunate enough to have been given a head start.

Is that a reasonable and relevant outline?

Warm regards,
Tom

 

[Rockstar]

Is that a reasonable and relevant outline?

Reasonably brief mate.

You are indeed in a fortunate position Tom. And good to be grateful. Hope you choose the right investment vehicle to benefit yourself and family.

 

[foxyleemoo]

Tom,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve..

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

We've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with courtyards of 30% or greater land area thereby eliminating multi story units / high rise apartments with balcony's, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cash flow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. In fact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the links to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

Hi Rixster,

I just read your CGA Strategy and found it very informative. Well done and congratulations on your success. Also thanks for sharing some of your knowledge and experience on this public forum.
I am trying to build a portfolio, using a strategy which seems similar to yours, however I seem to change my strategy each time I'm ready to buy, basically trying to evolve and develop as I go, as well as trying to buy where and what looks to have the best prospect for gains in the near future.
I found since I decided to start investing outside of my own backyard (Adelaide) a few years ago and look nation wide,,, the hardest part of my search, is to decide, where to start searching in the first place.
So my question to you is, how did/do you decide where to buy each time? Did/do you buy in different states/areas at specific times?

Thanks in advance

Dave

 

[Moon91]

Tom,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve..

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

We've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with courtyards of 30% or greater land area thereby eliminating multi story units / high rise apartments with balcony's, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cash flow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. In fact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the links to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

Hi,

I have read this post a couple of weeks ago and found it amazing. It looks very simple based on long term statistic which are not easy to fight.

Since then, i had a double thought and wondering how do you take the CPI or CG in your equation. Let's say you draw 250k from IP1, this 250k in 10 years will only "worth" half of it, isn't it? Not too bad for lifestyle though, but... Then if you want to re-invest, as the other real estate have also double in price, your equity only provide you half of a similar property, isn't it?

One last thing, is it a "given" that you will be able to draw from your loan based on equity? Maybe the law or bank policy will not let that happening. I can tell you that in some country, that scheme is not allowed at all.


Thank you sharing!

 

[investor2009]

To the original poster, Applaud you on your mindset and eagerness because that's all you really need, the rest follows naturally but there is no real straight answer for you unfortunately. You're going to have to decide whats best for you (be it CF neutral, negative, positive property, 1x $1M property or 5x $200k properties in regional Australia, buying your own home, how much time you have to execute this from start to finish etc)

I'm now 32 and have been investing for 9 years now. Started out exactly the same as you, same age, same mindset but wayyyyy less money. (which is a good head-start for you! )

I remember speaking with my favourite property Author at the time who also ran an investment buyers agency and remember how I felt when he practically laughed at me saying "Sorry mate, I can't help you" because I didn't have enough money to start with, and hung up the phone.

I personally began buying a unit I liked while renting cheap. Then, a few years later the value had climbed 15% so I used the equity to buy another. I then did the same, this time buying a house while renting a house myself.. Then bought another house interstate. By this time I thought I was killing the pig. It was then we moved in-to one of the houses we'd purchased earlier to receive the FHBG and stamp duty concessions. We then sold one of the units for a profit and bought the home we currently live in which is also our most expensive and best performing asset to date. And we've been holding ever since, unable to purchase more because of tight cashflow issues while slowly watching the capital values climb.

I originally envisioned that we would live off equity. An ever increasing debt cycle like a giant credit card but this one supposedly goes up in value (not unlike a Willy Wonka gobstopper) but there came a time (only quite recently) that I finally found out that all these properties are the sole reason I'm forced to go to work every day. And not only me, my Wife also has to do the same. So we now realise that we really must pay off the mortgage so that we can be free of work. It's actually not the laid back lifestyle of simply withdrawing money every year while we go off on holidays and drink pina collada on the beach and probably would take another 20 years to be. It's all about reducing debt, but having a large asset base for this leg of the trip. All our goal from the beginning was and has been to be financially free. All that means is to have no debts and somewhere to live with equity behind us, pretty simple really but hard work to get to that point for most. Robert Kiyosaki describes financially free as this: income exceeds your expenditure. We'd still have expenditure of $25k but thats just 3 months full time work for one of us, let alone 2 years in just one year (the two of us working now for the same amount of money we actually get to see, the Bank makes the rest) And a smart pos cashflow property or two could net us this money. Or, we choose to work a few years and pay off property so the cash flow is ours. Not hard in your 30's

Eg: We currently have around $2M assets growing at around 5%p/a. Have to come up with about $50k a year to hold on-to them so make about $100k a year but pay out $40k after tax, so a profit of around $60k really.
We are now going to sell our property investments off strategically to avoid large CGT bills and pay off our mortgage. That means weekly repayments instead of $1,200 will be reduced to $0.. (oh god that sounds good) and we have equity of around $800k through the paid out mortgage. This can now go off to work on a new property portfolio and be 100% tax deductible. Although this time around I think we will be choosing to only purchase cash-flow positive property because the goal is to be financially free and the way we are now, we're doing the opposite but in the long run it pays off because we'd only used less than half the purchase price on our actual mortgage, not double the purchase price you'd normally end up paying over a 30 year loan term. And I think to pay the mortgage off on a decent loan amount before age 40 you're doing well and have the ability to start a new portfolio.

As it stands now to give you an idea, I started with $30k savings (took me two years..) and now have $450k equity, the same as you have cash so you're in a very good position here.

I hope this helps a little.

 

[Truly Exotic]

well done investor2009,

you started small at a young age and have cemented your position in your goals,

let me guess, all your friends say stuff like "you are so lucky" "I wish I was as lucky as you" "why dont I have X Ips"

 

[BayView]

An easy and boring method would be to use the cash to fund 50% of some property.

Assuming you are beginning with a pos cashflow position (you should be able to do it with 50% gearing), you then collect the nett rent, pump it all straight back into the existing loans until you are in a postion to do so all over again.....

Then repeat.

But that's too boring.

 

[china]

I think the challenge is to find cashflow positive property yielding a positive return on 100% of the purchase price. This property will probably be commercial rather than residential. This way, the OP's initial 450k can be used in offset and used for further opportunities.

 

[Rixter]

Hi Rixster,

I just read your CGA Strategy and found it very informative. Well done and congratulations on your success. Also thanks for sharing some of your knowledge and experience on this public forum.
I am trying to build a portfolio, using a strategy which seems similar to yours, however I seem to change my strategy each time I'm ready to buy, basically trying to evolve and develop as I go, as well as trying to buy where and what looks to have the best prospect for gains in the near future.
I found since I decided to start investing outside of my own backyard (Adelaide) a few years ago and look nation wide,,, the hardest part of my search, is to decide, where to start searching in the first place.
So my question to you is, how did/do you decide where to buy each time? Did/do you buy in different states/areas at specific times?

Thanks in advance

Dave

Dave, what and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. The strategy is how you intend to drive that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be - all based around your personal risk profile.

So ask yourself what is your chosen investment strategy?

I hope this provides some food for thought.

In relation to your purchasing interstate question...

I fly interstate, hire a car and stay in motels usually for a week to 10 days. I make these bookings online usually 4-6 weeks prior to traveling.

A mobile phone, digital camera & a notebook/laptop with internet access are mandatory tools to take with you.

In that time I get out & about in my chosen areas identified by my previous Macro DD. Then inspect everything that meets my purchasing criteria at the Micro DD level.

If I see a property that exceptional I will put in an offer there and then, otherwise I will bring all my micro & inspection notes back to Perth, then over the next weeks pick the best of the crop and make an offer remotely from here.

The offer/contract process I conduct by phone, fax, email & registered express post. Once an offer is accepted a signed contract copy is forwarded to my mortgage broker to get the loans process under way. We have a number of brokers we use. Last purchase we used our broker here in Perth but on other occasions we have used our Brisbane based broker. Geographically it doesn't matter where your broker is based. I have no loyalty to any one lender - preferring to spread lenders.

I also immediately forward a copy of the signed contract to our Solicitor to start their side of the conveyancing process. We always use a Solicitor / Conveyancer that is located locally the state the property purchase is in because they are familiar with the settlement process system for that locality.

I then organise the relevent contractors / agencies required in relation to fulfilling our contract conditions / requirements , such as independent valuers, building inspections, pest inspections etc etc. Once these requirements have been met satisfactory to myself I then notify my solicitor of such and the solicitor liases with my mortgage broker to take the contract through to settlement.

Over the years we have found the whole process to run fairly smoothly. With each subsequent purchase you learn from the previous ones so you can fine tune the way you do things along the way. This kind of stuff you dont learn form text books. Its hands on practical experience where the nuts & bolts learning is really acquired.

The biggest obstacle that needs to be conquered in your own thinking. Basically its the having the courage to over come the fear of stepping out of your comfort zone to things that are all new and foreign to you. Are you doing things right, what do you need to do next and the fear of losing are all thoughts you will have to move through to succeed.

At the end of the day once you have moved through these barriers that stop the majority of people you will think to yourself that it wasnt as bad as you thought it was going to be. Chances are you will be revved up wanting to do it all again - I know I was.

As per my signature - You dont have to get it right you just have to get it going!

Hope this helps.

 

[Rixter]

Hi,

I have read this post a couple of weeks ago and found it amazing. It looks very simple based on long term statistic which are not easy to fight.

Since then, i had a double thought and wondering how do you take the CPI or CG in your equation. Let's say you draw 250k from IP1, this 250k in 10 years will only "worth" half of it, isn't it? Not too bad for lifestyle though, but... Then if you want to re-invest, as the other real estate have also double in price, your equity only provide you half of a similar property, isn't it?

A Good quality well located property outstrips the CPI cost of living. As such a well balanced portfolio will appreciate more in value than the cost of your lifestyle expenses.

Each subsequent property acquisition will steadily increase in purchase price as time goes by. Averages doubling every 7-10 years.

One last thing, is it a "given" that you will be able to draw from your loan based on equity? Maybe the law or bank policy will not let that happening. I can tell you that in some country, that scheme is not allowed at all.


Thank you sharing!

Banks/Lenders have two modules that you need to satisfy in order to loan funds. Those being LVR & DSR.

In relation to your DSR question, all your portfolio cash flow will be serviced via Wages in the property acquisition stage, increasing rental income, the Tax man, an LOC and/or manufactured income via a Cashbond structure, and any other forms of investment, business or disposable income you have available.

 

[MsAli]

I think the challenge is to find cashflow positive property yielding a positive return on 100% of the purchase price. This property will probably be commercial rather than residential. This way, the OP's initial 450k can be used in offset and used for further opportunities.

It's doable but

 

[foxyleemoo]

Dave, what and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. The strategy is how you intend to drive that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be - all based around your personal risk profile.

So ask yourself what is your chosen investment strategy?

I hope this provides some food for thought.

In relation to your purchasing interstate question...

I fly interstate, hire a car and stay in motels usually for a week to 10 days. I make these bookings online usually 4-6 weeks prior to traveling.

A mobile phone, digital camera & a notebook/laptop with internet access are mandatory tools to take with you.

In that time I get out & about in my chosen areas identified by my previous Macro DD. Then inspect everything that meets my purchasing criteria at the Micro DD level.

If I see a property that exceptional I will put in an offer there and then, otherwise I will bring all my micro & inspection notes back to Perth, then over the next weeks pick the best of the crop and make an offer remotely from here.

The offer/contract process I conduct by phone, fax, email & registered express post. Once an offer is accepted a signed contract copy is forwarded to my mortgage broker to get the loans process under way. We have a number of brokers we use. Last purchase we used our broker here in Perth but on other occasions we have used our Brisbane based broker. Geographically it doesn't matter where your broker is based. I have no loyalty to any one lender - preferring to spread lenders.

I also immediately forward a copy of the signed contract to our Solicitor to start their side of the conveyancing process. We always use a Solicitor / Conveyancer that is located locally the state the property purchase is in because they are familiar with the settlement process system for that locality.

I then organise the relevent contractors / agencies required in relation to fulfilling our contract conditions / requirements , such as independent valuers, building inspections, pest inspections etc etc. Once these requirements have been met satisfactory to myself I then notify my solicitor of such and the solicitor liases with my mortgage broker to take the contract through to settlement.

Over the years we have found the whole process to run fairly smoothly. With each subsequent purchase you learn from the previous ones so you can fine tune the way you do things along the way. This kind of stuff you dont learn form text books. Its hands on practical experience where the nuts & bolts learning is really acquired.

The biggest obstacle that needs to be conquered in your own thinking. Basically its the having the courage to over come the fear of stepping out of your comfort zone to things that are all new and foreign to you. Are you doing things right, what do you need to do next and the fear of losing are all thoughts you will have to move through to succeed.

At the end of the day once you have moved through these barriers that stop the majority of people you will think to yourself that it wasnt as bad as you thought it was going to be. Chances are you will be revved up wanting to do it all again - I know I was.

As per my signature - You dont have to get it right you just have to get it going!

Hope this helps.

Thanks for the reply Rixster!

I think working out my strategy is the hard part,, it is always evolving as time goes on. I bought my first unit @21 in 2001. I have bought three houses since (just sold one and now looking for a replacement). So I have been investing for a little while, but I still don't really have set strategy. I was lucky to buy young and at the right time.. but I'm now trying to buy smart, and not just rely on my own suburb(s) and luck.

 

[Rixter]

Thanks for the reply Rixster!

I think working out my strategy is the hard part,, it is always evolving as time goes on. I bought my first unit @21 in 2001. I have bought three houses since (just sold one and now looking for a replacement). So I have been investing for a little while, but I still don't really have set strategy. I was lucky to buy young and at the right time.. but I'm now trying to buy smart, and not just rely on my own suburb(s) and luck.

Sounds good. If you want to network live give me a PM or Skype me. Glad to help.

 

[HiEquity]

Hi guys,

I'm not a millionaire, but I'd like to be. I'm looking for advice on how to invest $450,000 primarily in real estate. I know its enough to set me up for good. I'd like to know what the experienced professionals would do if they were in my shoes right now?

Any advice would be great!

Cheers guys,
Tom

Hi Tom

With this amount of capital to invest I would certainly be taking the time to learn about CIPs. If you make the right purchase/s there your progress will likely be a lot faster. Whenever I compare the risk with the return, a lot of the deals look a lot better than what is possible with RIPs.

 

[Luckyrooster]

An easy and boring method would be to use the cash to fund 50% of some property.

Assuming you are beginning with a pos cashflow position (you should be able to do it with 50% gearing), you then collect the nett rent, pump it all straight back into the existing loans until you are in a postion to do so all over again.....

Then repeat.

But that's too boring.

Personally, I like this idea. I'm leaning more towards 25% plus reno costs, then use it as a solid rent and hold strategy, waiting on rent increases and CG costs to help out. A fixed interest loan helps settle any nerves if you're close to neutral. And then you can purchase others using the equity when it has a positive cashflow.

 

[coral]

Tom,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve..

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

We've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with courtyards of 30% or greater land area thereby eliminating multi story units / high rise apartments with balcony's, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cash flow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. In fact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the links to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

Hi Rixter, thx for your insight..it's really good. Could you also suggest some potential areas in Vic/NSW that i can look atreplicating your model. I am ready for my 2nd 300k IP so appreciate if you can help me focus/zero in on some areas...thanks.

 

[rambada1]

Banks/Lenders have two modules that you need to satisfy in order to loan funds. Those being LVR & DSR.

Appreciate the post and Im a duplex lover myself. I've fallen off the property wagon and am about to hop back on board.

So understand your strategy for DSR but where do you get your deposits from w/o using equity on IP's?

I assume you use equity from the previous property in the 'chain' but wouldn't that raise your LVR to 80% across your portfolio? This then negates the equity access at 10yrs so I've got something wrong.

 

[Rixter]

So understand your strategy for DSR but where do you get your deposits from w/o using equity on IP's?

I borrowed against equity in PPOR & IP's for deposits. The growth across the portfolio asset base over a decade far outstrips the deposit borrowings. As such your total portfolio LVR over that time has sufficient equity at your disposal providing you have purchased good quality well located property for CG.

 

[Deltaberry]

I think the challenge is to find cashflow positive property yielding a positive return on 100% of the purchase price. This property will probably be commercial rather than residential. This way, the OP's initial 450k can be used in offset and used for further opportunities.

Not necesarilly. Some of my lowest yield properties have the most capital gains - and some are achieved over 3-4 months. Because they are very blue chip and in demand. Some of the higher yielding ones would never make the same capital growth perhaps even in 10 years.

 

[BlakeF]

Tom,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve..

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

We've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with courtyards of 30% or greater land area thereby eliminating multi story units / high rise apartments with balcony's, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cash flow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. In fact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that?s the Basic Big Picture of CGA. Once set up & structured correctly it?s a self perpetuating source of tax free income indexed for life!

For further information please follow the links to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

Hi Rixter,

Thanks for sharing your strategy.

Some of my questions have already been answered but one question I did want to ask was about the equity you begin to live off in year 11?

If I understand correctly you are drawing out a loan against the CG in order to fund living costs?

Eg: IP1 has grown from 250k to 500k at the same time the loan has remained at 200k. So the original LVR of 80% has now decreased to 40%.

Based on your strategy you could redraw 150k which would increase the loan to 400k and increase the LVR back up to 80%.

So you would now have 150k to live off until year 12. By doing this your repayments on the IP1 loan will increase and you will be liable to pay the increased repayments with the money you have withdrawn plus the rental income from IP1 which has also increased over time?

Is this correct?