Developing an Investment Strategy

Thanks everyone, very helpful. Anyone in a similar situation/constraint as mine? Keen to hear your stories.

Summary so far:
* Passive buy and hold
* Start with new-ish inner city townhouses/villa and claim depreciation
* Progress to small development if work situation changes

Any other alternative strategy to consider?

In my scenario, should I consider the right holding structures from the get go? Will the cost to setup and maintain a trust outweigh the benefit? All I'm looking for is tax arbitrage and efficient wealth transfer to my children.

I think you are jumping ahead? no?
Go back to TerryW's first post, where he says start at the end and work backwards.
Figure out WHAT you need to reach your goal first.
THEN figure out the best way to achieve it.

Once you know that you can discuss with an accountant the best structure to reach your goal.

There are many ways to skin a cat.
 
Thanks Terry. I've assumed, perhaps incorrectly, that these structures you've listed will not allow discretionary routing of investment income for tax arbitrage?

Try not to use too many fancy sounding but actually meaningless or worse, confusing terms.
 
Your partner?

Ramssss, you mentioned that you were time poor (working long hours and weekends). Would your partner be in the same position?

If he/she has some capacity, they might be able to assist in a) identifying areas or properties for investment), or even help coordinate any property developments. I know of some stay at home mums who've done exactly that (hubby draws the income from the daily grind and DW manages investments or the build process).

Just something to think about.
 
.Thanks MTR, I've been reading a lot of your post on these future dev sites. Having grown up in Perth, the strategy seems comparable with investing in Balga in the late 90 and early 00s? Where do you think Perth is in the cycle? Assuming you're still working fulltime, how do you manage your time between work and managing your projects?


I am a full-time investor/developer, gave up the day job 8 years ago.
The hardest part with developing for me is sourcing the right property where the numbers stack up and securing finance. Once you have a good builder/draftee on board then its really about managing cash flow, I really don't see it as that hard. If you have a day job then you do less, start with 1 development pa when you are ready.

How to set up the right structure? I have posted what my accountant has recommended specific to developments. Seek professional help for this, as its critical you get the right advice for your specific scenario.

Perth market, still good buying, however some pockets now going sideways with more stock hitting the market.

MTR:)
 
You're relatively young, have a load of equity in your PPOR, and no investments. You're most likely going to be borrowing 100% for investments. i.e. you're unlikely to have any positive taxable income to distribute anyway. Losses in a family trust cannot be distributed.

At the same time, having assets in your own name will be beneficial because you can offset losses against your personal (high) income.

You're more than likely to buy multiple assets over time anyway, so you really have to ask yourself whether it makes sense to start with structures for the purpose of streaming income, when there might not be any income to stream for a long time, versus being able to offset losses against your own income in the short to medium term.
Thanks Alex, I've never thought about it this way, the last paragraph answers my question.

I think you are jumping ahead? no?
Go back to TerryW's first post, where he says start at the end and work backwards.
Figure out WHAT you need to reach your goal first.
THEN figure out the best way to achieve it.

Once you know that you can discuss with an accountant the best structure to reach your goal.

There are many ways to skin a cat.
Hi Blacky, I might be missing something here, since a few posters have highlighted this point now.

Doesn't the objective (80k pa passive income in 20 years time) automatically implies that, assuming residential property yields, I will need an equivalent of 1.6m worth of IP paid off? To me it already answer the WHAT? I might be missing something here.

The HOW dictates how many property, what type, location, market segment, etc. It could be 1 IP or 12 IP, fully or partially paid off. The different ways to skin the cat, that might be suitable in my scenario, is what I'm hoping this thread will throw at me to think about and research

Ramssss, you mentioned that you were time poor (working long hours and weekends). Would your partner be in the same position?

If he/she has some capacity, they might be able to assist in a) identifying areas or properties for investment), or even help coordinate any property developments. I know of some stay at home mums who've done exactly that (hubby draws the income from the daily grind and DW manages investments or the build process).

Just something to think about.
Thanks Finrod, I am hoping DW could help me out at some point. But at the moment caring for two toddlers means she's prob working harder than I am. Deep down though I know she does not have the same interest/passion in property, or investment in general. I might have to continue carrying that responsibility in the short-medium term. If the kids are older, who know, hopefully she can do the project management work.
 
. Deep down though I know she does not have the same interest/passion in property, or investment in general.


And thank god for that.

Much of my work is around the psychology of "investing"....... and while its common to see "goal alignment" of spouses toward an end goal, the ideas and risk profiles often need some alignment for there to be harmony around the dinner table.

ta
rolf
 
Welcome to SS! You asked if anyone has similar constraint/resources to you. (Do you work in economics or finance or any chance? You seem to speak a familiar language) We are in a similar boat to you (similar household income, also time-poor, and demanding toddlers!) but have been investing since 2010, thought I'd share a few pointers I've learnt on this forum :)

- go for a mix of high capital growth (CG) and cashflow positive (CF+) properties. Paired up in the right way, you can keep buying as the CF+ property supports the CG ones. We started off investing on significantly lower incomes so focused on CF+ IPs, but now focusing on CG, negatively geared properties. all the CF+ properties were bought 99:1 in my favour (I am the lower income earner) and high CG, NG properties in my husband's favour (99:1). Just beware if you ever come to sell but the properties are 99:1 in your name, you'll be up for a lot of CGT (in our case we don't plan to sell so that's ok)
- enlist a good buyers agent if you are time poor and suffer from analysis paralysis as I do (I work in data analytics so I really struggle from this).
- if you have lots of spare cash (given your income) DO NOT use cash as deposit for your IP. Find a great mortgage broker who also invests and will set all your loans up right. We had a surplus of cash and kept using them as IP deposit... bye bye tax deductibility of that 20%
- will you upgrade your PPOR at any point, and rent out your old PPOR? Best to make the loan IO if so and have an offset account anyway.
- beware of OTP

This post is excellent for motivation
http://somersoft.com/forums/showpost.php?p=1178109&postcount=8

An old thread of mine. http://somersoft.com/forums/showthread.php?t=61430
I thought you might be interested in tweaking the numbers to your situation. With the exception of a blip for health reasons we have managed to buy an IP approximately once every year, and I consider our efforts mediocre at best.

Happy investing!
 
I suspect many property investors do not factor in:
- the carry cost of accumulated cash flow losses (at minimum of required rate of return of say 6-7%) for cash flow negative properties. Most properties in capital cities are cash flow negative on full 105% LVR.
- capital gains tax escalation as the CG can get into higher income tax brackets (unless in SMSF - but does not benefit from negative gearing tax benefits in the early years)
- the more cash one puts into a property (smaller LVR)-> lower return on equity (often investors do not factor in the required return on the cash invested to reduce the LVR).*

I calculate with net yield of about 3.6% - need capital growth of minimum of about 4% p.a. to break even with a return of 6% on your equity. This can be difficult in a flat market with the carry cost of accumulated losses reducing future returns.

Pay off your home loan, then consider dollar cost averaging into growth shares (Australian banks, Telstra, WES, WOW) with borrowed money against your home loan.
 
And thank god for that.

Much of my work is around the psychology of "investing"....... and while its common to see "goal alignment" of spouses toward an end goal, the ideas and risk profiles often need some alignment for there to be harmony around the dinner table.

ta
rolf
I guess it can be a blessing to have the ability make unilateral investment decisions. But Rolf, wouldn't dinner table harmony gets disturbed anyway in case those decisions goes pear-shaped?

Welcome to SS! You asked if anyone has similar constraint/resources to you. (Do you work in economics or finance or any chance? You seem to speak a familiar language) We are in a similar boat to you (similar household income, also time-poor, and demanding toddlers!) but have been investing since 2010, thought I'd share a few pointers I've learnt on this forum :)...

This post is excellent for motivation
http://somersoft.com/forums/showpost.php?p=1178109&postcount=8

Thanks Tess, those pointers are very helpful. I remember reading through your thread a few years ago, how did year 2-3 went in your plan? Did you end up funding IP#2 & #3 as planned? Did you had to use savings or equity?

I'm work in IT actually. Ironically, my day job is to help large corporation with their technology strategy. Being analytical by nature, I tend to fall into analysis paralysis when it comes to my own money.

I suspect many property investors do not factor in:
- the carry cost of accumulated cash flow losses (at minimum of required rate of return of say 6-7%) for cash flow negative properties. Most properties in capital cities are cash flow negative on full 105% LVR.
- capital gains tax escalation as the CG can get into higher income tax brackets (unless in SMSF - but does not benefit from negative gearing tax benefits in the early years)
- the more cash one puts into a property (smaller LVR)-> lower return on equity (often investors do not factor in the required return on the cash invested to reduce the LVR).*

I calculate with net yield of about 3.6% - need capital growth of minimum of about 4% p.a. to break even with a return of 6% on your equity. This can be difficult in a flat market with the carry cost of accumulated losses reducing future returns.
I agree in a flat market, negative geared properties will hurt the overall ROE. But at least these accumulated cash flow losses can be offset by reducing my taxable income in the short/medium term. In my situation, my short term priority is growing capital/equity.

Pay off your home loan, then consider dollar cost averaging into growth shares (Australian banks, Telstra, WES, WOW) with borrowed money against your home loan.
Are those considered growth stock? In my scenario, wouldn't this make more sense towards the end of the journey? Once enough capital/equity have been accumulated, high yield fully franked dividends will be my best friend.
 
Top