Building a Property Portfolio - Mid 20's

[Cash Flows]

Thanks for all of the replies so far.

So the general consensus here is that I should focus on strong cash flow properties. I will keep focused on this and re evaluate if/when my income goes up.

Whats everyone thoughts on me purchasing another property given my current position? I will have approx $15k as a buffer after purchase and at the moment I have approx $500 per month in spare cash after ALL expenses.

Thanks again for all the replies and please keep them coming!!

Cash Flows

 

[Brady]

I would go again only if it was a really good deal. You will only have $15k buffer afterwards, this is manageable... But the $500p/m after doesn't give you much room cash flow wise if you were to have any issues. And would mean you would be on the sidelines for a while rebuilding cash.

Again I say go for it again, but be selective. Look for something that you can add value either now or not too distant future. So small Reno or possible retain/hold division

 

[Cash Flows]

Cheers Brady.

I am stating $500 as the absolute minimum left over at the end of the month.

After having a really good look at my financial position I would prefer to keep building a sufficient buffer so I have $25k as a buffer after the next purchase.

What do other people see as a minimum to have as a buffer?

Cheers

Cash Flows

 

[Brady]

I like to have 6 months, in saying that last purchase left me with just over 1month but was a great buy IMO so didn't want to miss out by waiting.

 

[Alex P Keaton]

Cheers Brady.

I am stating $500 as the absolute minimum left over at the end of the month.

After having a really good look at my financial position I would prefer to keep building a sufficient buffer so I have $25k as a buffer after the next purchase.

What do other people see as a minimum to have as a buffer?

Cheers

Cash Flows

edited to say: ooops edited to say, i didnt read correctly - you already have $30 k savings. Well, I still think save another $10 k before investing.



I'm following this thread with interest! I'm in a similar position to you and earn the same amount of money, although i'm around 15 years older than you & plan to fully retire when I hit 60.

Anyhow well done on starting your investing so early! You have less pressure as you have 25 years till when you want to retire. If i were you imo I'd wait some time and build your cash buffer some more as you are already quite NG for someone on your salary. Maybe save another $7 - $10 k first, then the next one you buy make sure you get a loan that covers every cost including stamps, settlement, building reports, pest inspections (absolutely everything) so that you dont have to fork out anything from your pocket. You will also need to budget for things like accountant fees etc.

See thing is what happens if all of a sudden you have to replace a roof on your ip, and 1 of your ips becomes untenanted, you were to lose your job, other unexpected property expenses or non property (life expenses come up like having to buy another car, repair a car, buy a new washing machine, medical bill etc) Make sure you have landlord insurance, income protection insurance etc. I agree with you wait till you have at least $25 k or even $30 k in the bank and then be careful in what you buy so its not too NG. Also by the time you have saved the $30 k in your bank your rents would have gone up and your 2 ips will be closer to neutral.

My ip is close to neutral and I had $35 k in my bank and was all set to buy ip number 2 but then my car died and I bought a 2 year old sportswagon for $18 k. My plans have changed a bit now as I only have $15 k atm. I'm trying to decide now whether to invest when i have $20 k in the bank or wait till I have $25 k in my bank. Its a fine line. If I wait till I have $25 k it will be another 9 months before I can invest though. I'm visiting my accountant to work some cashflow examples to see what the best type of property for me to buy is, to see just how out of pocket the property type will be. Then I'll know what propertys to visit when i go to home opens.

I want to be reasonably aggressive with my investing yet conservative too in that I dont want to be forced to have to sell out and I want a reasonable balance in life too in that I dont want to have sacrifice crazily so that I dont enjoy my life in the interim.

Good luck with it all and I hope you continue to post here as I'd like to see how your experience unfolds. I agree that next time you should go for something that has value add potential but make sure it is not too NG that you struggle with the cashflow. Also listen to your gut make. Something is telling you its important to wait till you've saved some more, so do it. Sometimes its best to do no investing at all.

 

[mikezen]

Thanks for all of the replies so far.

So the general consensus here is that I should focus on strong cash flow properties. I will keep focused on this and re evaluate if/when my income goes up.

Whats everyone thoughts on me purchasing another property given my current position? I will have approx $15k as a buffer after purchase and at the moment I have approx $500 per month in spare cash after ALL expenses.

Thanks again for all the replies and please keep them coming!!

Cash Flows

If you have 30k then you can get something under 300

Or something for 240 with some reno money

http://www.realestate.com.au/116221275

Have you had the toowomba one valued? There might be some money In that the market has moved a lot in the lower end over the last 6 months

A good broker on here could extract some cash out of it for you

I think toowomba market still has a bit to go (house not unit) rents are super tight and seem to still be rising which aids cash flow , congrats on that purchase there, if that's in toowomba city that's super cheap!

A highset in Logan, Ipswich or red bank plains with a upstairs and downstairs conversion will bring in good yield, though I think these deals are now finally drying up, but possibly wouldn't be too hard to manage if your based on the goldy

 

[Cash Flows]

edited to say: ooops edited to say, i didnt read correctly - you already have $30 k savings. Well, I still think save another $10 k before investing.



I'm following this thread with interest! I'm in a similar position to you and earn the same amount of money, although i'm around 15 years older than you & plan to fully retire when I hit 60.

Anyhow well done on starting your investing so early! You have less pressure as you have 25 years till when you want to retire. If i were you imo I'd wait some time and build your cash buffer some more as you are already quite NG for someone on your salary. Maybe save another $7 - $10 k first, then the next one you buy make sure you get a loan that covers every cost including stamps, settlement, building reports, pest inspections (absolutely everything) so that you dont have to fork out anything from your pocket. You will also need to budget for things like accountant fees etc.

See thing is what happens if all of a sudden you have to replace a roof on your ip, and 1 of your ips becomes untenanted, you were to lose your job, other unexpected property expenses or non property (life expenses come up like having to buy another car, repair a car, buy a new washing machine, medical bill etc) Make sure you have landlord insurance, income protection insurance etc. I agree with you wait till you have at least $25 k or even $30 k in the bank and then be careful in what you buy so its not too NG. Also by the time you have saved the $30 k in your bank your rents would have gone up and your 2 ips will be closer to neutral.

My ip is close to neutral and I had $35 k in my bank and was all set to buy ip number 2 but then my car died and I bought a 2 year old sportswagon for $18 k. My plans have changed a bit now as I only have $15 k atm. I'm trying to decide now whether to invest when i have $20 k in the bank or wait till I have $25 k in my bank. Its a fine line. If I wait till I have $25 k it will be another 9 months before I can invest though. I'm visiting my accountant to work some cashflow examples to see what the best type of property for me to buy is, to see just how out of pocket the property type will be. Then I'll know what propertys to visit when i go to home opens.

I want to be reasonably aggressive with my investing yet conservative too in that I dont want to be forced to have to sell out and I want a reasonable balance in life too in that I dont want to have sacrifice crazily so that I dont enjoy my life in the interim.

Good luck with it all and I hope you continue to post here as I'd like to see how your experience unfolds. I agree that next time you should go for something that has value add potential but make sure it is not too NG that you struggle with the cashflow. Also listen to your gut make. Something is telling you its important to wait till you've saved some more, so do it. Sometimes its best to do no investing at all.

Great post Alex and I hope you also achieve your goal of retiring at 60.

I will be updating this thread as things start to progress but as previously mentioned, my gut feeling with this is to save up a more substantial buffer (something around $25k of funds AFTER all purchase costs).

 

[Cash Flows]

If you have 30k then you can get something under 300

Or something for 240 with some reno money

http://www.realestate.com.au/116221275

Have you had the toowomba one valued? There might be some money In that the market has moved a lot in the lower end over the last 6 months

A good broker on here could extract some cash out of it for you

I think toowomba market still has a bit to go (house not unit) rents are super tight and seem to still be rising which aids cash flow , congrats on that purchase there, if that's in toowomba city that's super cheap!

A highset in Logan, Ipswich or red bank plains with a upstairs and downstairs conversion will bring in good yield, though I think these deals are now finally drying up, but possibly wouldn't be too hard to manage if your based on the goldy

Hi Mikezen,

I haven't had Toowoomba revalued but it is tempting. I bought early last year. It is a 2 bedroom cottage in Newtown in the mixed housing zoned area. Rent has increased from $250 to $260 and generally quite happy with how the investment has gone so far.

I have heard that a lot of units are coming onto the market in the next 18 months so I will be watching the market with interest.

 

[Alex P Keaton]

Great post Alex and I hope you also achieve your goal of retiring at 60.

I will be updating this thread as things start to progress but as previously mentioned, my gut feeling with this is to save up a more substantial buffer (something around $25k of funds AFTER all purchase costs).

Thanks, and if I don't quite make it at 60 I'll be 62 hehe

Yeah good idea, I agree..... have the $25k after all purchase costs have been paid. Gives you SANF too

 

[Cash Flows]

Bump

Hi All

Just bumping this thread, I wanted to hear everyones opinion on my situation. I have found a house in Toowoomba that I am pretty keen on. It will put me at $150 per week negative cash flow using conservative figures (across all properties).

Based on my $850 per week take home pay, do you think that $150 per week is too much?

I will have other expenses such as rent approx $150 and other day to day expenses on top.

Thoughts please?!

 

[Asheam]

Hi Cashflows

Im a bit confused how this fits in with your strategy.

$150 per week is almost 8k pa negative geared. This will greatly reduce your borrowing capacity in the future and reduce further deposits that you can save.

Why have you selected this property over any other cashflow neutral / positive property?

Cheers

 

[Cash Flows]

Hi Asheam,

Thanks for your reply.

Basically, I have searched many large regional towns in which I am comfortable investing in but it is hard to find a true cash flow positive property.

I like Tooowoomba and believe the long term growth prospects are bright. In saying that, the property I have found is negative cash flow approx $2,000 a year based on conservative figures.

My strategy is to hold 5-6 properties that offer a good yield well into the future. This property is $215,000 and offers rent of $265 per week.

I know its not cash flow positive but believe it will be a good long term buy.

Cheers

 

[Blair007]

Hi Asheam,

Thanks for your reply.

Basically, I have searched many large regional towns in which I am comfortable investing in but it is hard to find a true cash flow positive property.

I like Tooowoomba and believe the long term growth prospects are bright. In saying that, the property I have found is negative cash flow approx $2,000 a year based on conservative figures.

My strategy is to hold 5-6 properties that offer a good yield well into the future. This property is $215,000 and offers rent of $265 per week.

I know its not cash flow positive but believe it will be a good long term buy.

Cheers

Hey cash flows,

Don't mean to come off the wrong way but just going off what you have posted I think it sounds like a pretty run of the mill deal. I think if you are going to hold a NG property then there needs to be a reason - eg. Development potential.
I think other peoples responses of searching for good cash flow properties would suit your strategy and you should stick with that.
If your struggling to find good properties then try thinking outside the box, looking interstate, renting individual rooms, granny flats etc could all be good possibilities.
You have to remeber that serviceability and structure are key points to set up a portfolio for early retirement. If you keep adding NG properties to your portfolio you will hit a road block.

Cheers

 

[Dazz]

Hi All

Just bumping this thread, I wanted to hear everyones opinion on my situation. I have found a house in Toowoomba that I am pretty keen on. It will put me at $150 per week negative cash flow using conservative figures (across all properties).

Based on my $850 per week take home pay, do you think that $150 per week is too much?

I will have other expenses such as rent approx $150 and other day to day expenses on top.

Thoughts please?!

The house in Toowoomba sounds rubbish.


This box here close to your home sounds much better. http://www.realcommercial.com.au/property-industrial+warehouse-qld-burleigh+heads-500978299

Purchase Price of $ 340K.

Nett rent of $ 28.6 K p.a. plus the Tenant pays for all of your outgoings and GST.

If you borrow 100% at 6% interest rates, the loan will cost you a whisker over $ 20K p.a., leaving you about $ 8,000 in your pocket, or about $ 150 per week better off.

With a brand new 3 year Lease and a further 3 year option, the Tenant is ready to go.

Choosing between a box that costs you $ 150 pw and one that puts $ 150 pw in your pocket separates you by a big $ 300 pw.

No bathroom, no kitchen and no laundry to look after either.

The quality of your initial choices will dictate how you end up playing this game of real estate we all play.

 

[Cash Flows]

Hey cash flows,

Don't mean to come off the wrong way but just going off what you have posted I think it sounds like a pretty run of the mill deal. I think if you are going to hold a NG property then there needs to be a reason - eg. Development potential.
I think other peoples responses of searching for good cash flow properties would suit your strategy and you should stick with that.
If your struggling to find good properties then try thinking outside the box, looking interstate, renting individual rooms, granny flats etc could all be good possibilities.
You have to remeber that serviceability and structure are key points to set up a portfolio for early retirement. If you keep adding NG properties to your portfolio you will hit a road block.

Cheers

Hi Blair,

The property is a little run down and has value add potential through renovation. It is the cheapest brick house in Toowoomba at the moment.

If I purchase this property I would not look to add another property for 3-4 years by which time I would like the whole portfolio to be cash flow neutral.

Can people advise on whether this is a good strategy?

Cheers and thanks for the replies so far it is challenging my train of thought!

 

[D.T.]

Whether its a good strategy or not depends on whether youre ok with the end result. Personally id hate to be able to not buy for 3-4 yrs or be neutral

 

[PDP]

First off congratulations on getting where you?re at now. Property investing isn't easy. Requires lots of research, good mindset and a focused goal.

You are currently in your acquisition stage of investment properties so you would want to keep cash flow readily available for subsequent purchases otherwise you will hit a road block when it comes to taking out another loan. Look for more neutral/positive geared properties with solid capital growth to balance out your portfolio. Maybe buy and sell a couple to achieve instant cash and service other loans. Be prepared to look at other markets all around Australia.

I am in sort of the same situation as you being 24 and owning 3 investment properties. I live at home which helps a lot. All my loans are P+I loans with around 20% of my $70K income going into mortgage repayments. I am also seeking advise on what my next purchase should be as it could set me back if I don?t make the right decision. I have talked to a few other investors and they agree I need to balance out my portfolio with more neutral/positive geared properties.

What are other peoples thought on this?

 

[Brady]

. All my loans are P+I loans with around 20% of my $70K income going into mortgage repayments. I am also seeking advise on what my next purchase should be as it could set me back if I don?t make the right decision. I have talked to a few other investors and they agree I need to balance out my portfolio with more neutral/positive geared properties.

What are other peoples thought on this?

I would suggest IO and putting the extra funds into the offset. You're currently at home but at a later stage be it 2 or 10 years you will likely eventually move out to purchase your own PPOR. It will allow you to have greater tax deductions in the future. Remember also it's always easier to get money when you don't need it, so although you may think P&I has less risk, I believe it's risker as if you have IO and you park the P in the offset you have the control

Your next purchase should be the best purchase you can make in your price braket.

If you can't see yourself making money from the property in the next two years don't buy it

The money could be made through CF+ or CG (possibly from reno or development)

 

[dafunk]

Great to hear!

I was alerted to this thread by a fellow "young" investor

Great to hear about other "young" investors out there and their stories

I say keep your chin up, I mean was it ever a reasonable expectation to have your first IP be the best buy ever? Of course not, you learn and build from it. Even if you are negative geared its still subsidized by a tenant. Can't be worse than a PPOR. Future rent increases, renovations and CG will sort it out. Just have a buffer in the mean time

I'm a few years from 30 myself and I can personally say it hasn't been easy taking this route.

It would be nicer to get a flash car, consume like crazy and go rent a loft in the city living pay check to pay check.

But living frugally and spending weekends looking at smelly ex housing commission houses, driving all over the place checking out new areas, helping others renovate buying books and attending seminars/courses is what I've ended up adopting instead

The amount of doom, gloom, dogma, exaggerated fears and downright negativity i hear associated with trying to build your own financial future is amazing. It's almost taboo to be an investor in some circles i've come across.

I picked up my first IP in Toowoomba last year for 215k did a whirlwind reno and rented it out for 280pw, the fact it was interstate was both a good and bad thing
Am currently exchanging contracts on my second IP and planning to turn it into a dual occ cash cow after some choice renovations

My only advice would be to seek out more knowledgeable people and dont stop learning. Buying an IP out of boredom and impatience is not that hard, signing a contract and hoping for CG to come is easy to do. The hard part is having enough patience and vision to understand the numbers and spotting a proper deal even if its not pretty or obvious at first glance.
When most people reach a dead end at 2 IP's and someone else has 20 under their belts, you quickly realise that all investors are not equal and you still have so much to learn.

The way i see it picking up 4 really good deals would set up a very strong foundation for any portfolio. So its worth waiting and finding them than to settle for something ordinary and hoping for more.

 

[Deltaberry]

Thanks for all of the replies so far.

So the general consensus here is that I should focus on strong cash flow properties. I will keep focused on this and re evaluate if/when my income goes up.

Whats everyone thoughts on me purchasing another property given my current position? I will have approx $15k as a buffer after purchase and at the moment I have approx $500 per month in spare cash after ALL expenses.

Thanks again for all the replies and please keep them coming!!

Cash Flows

Not true.

Strong capital growth is more important than strong cashflow. Ideally you get both. But if I had to choose one, I'd rather the property that gives me 200% of my equity back in a few years, than the one that makes 8% yield.

The difficulty of course is that cashflow is generally more certain than capital growth. To get capital growth requires skill, research, intelligence, luck, which is what sets rich investors apart.