Do you have an IP Financial Plan to get you to retirement?

[grossreal]

hi all
here is my financial plan the figure are not real as I don't like to post those but this is a shortened version.
one duplex first year
sale value 500k ( own out right as part of development)
equity lend 80% 400k
new commercial lend at 30% 1.3 mil
6 months in second construct
use different lender for construction loan using forst construction for reference and backed by 1.8 mil in assetts
construction takes 8 months
and again keep one and mirror the above senario.
you are growing your portfolio by 2.7 mil per year and keep doing it.
thats my financial retirement plan.
in my case don't do just duplexs, do unit developments,town houses, 19 units and hotels and and stagger the time frames so you can keep up with them all.
do this for 5 years using the single duplex and you have 13.5 mil and 2% of your assett is 270k and I think it would be very difficult to get this little truck to turn backwards.
this is not big business this is small business just leveraged.
so in simple words do I have a financial plan yes I do.

 

[AUSPROP.]

"one duplex first year
sale value 500k ( own out right as part of development)
equity lend 80% 400k"

so at this point you are quite neg geared right?


"new commercial lend at 30% 1.3 mil
6 months in second construct"

presume this is CF+ to cover your first neg?

do you line tenants up b4 you construct?

 

[grossreal]

hi
no
one duplex first year
sale value 500k ( own out right as part of development)
equity lend 80% 400k working backwards 500 less gst 450 less stamp duty and sellers margin is 440 less 20% profit margin your cost is say 352 thats your build and land value now your other side of the duplex that you sold (using the same figures gives you 98k profit throw that into this side that gives you a cost base of 254k that at 7.4% a cost of 18,798 per year with out all the other fees(council etc that would b covered by a 360.00 per wekk rental"

so at this point you are quite neg geared right no close to or infront depending on where its is if in sydney it would be a posi or very close to it?


"new commercial lend at 30% 1.3 mil
6 months in second construct"

presume this is CF+ to cover your first neg yes

do you line tenants up b4 you construct no need if in the right area of high demand the duplex you want to put in a high growth or potential growth area as this is the one that you want to grow the comm doesn't grow anywhere near the same as resi because of the leveraging factor the first one mario has done with me is two sets of duplex running at the same time keep one each ?
Today 05:17 PM

 

[Keen]

Cabo Wabo,

Well done.

How my life has changed too in the last 3 years.

2003
PPOR MV = $230k
HOME LOAN=$130k
EQUITY=$100K

Oct 2006 (after sale of 1st IP expected 5/10/06)
PPOR MV = $450k
HOME LOAN= NIL

2 remaining x IP's = $695k
LOANS = $444k

Overall Equity = $701k

If you had told me I would have had my Home Loan paid of in three years I would have laughed at you back in 2003. And yet I will shortly have no non-deductible debt (generating an extra $800 a month), $701k in equity and to top this off I started my new job today with a whopping $20k (gross) pay increase!

With an extra $900 a fortnight (net) and a strong equity position I'm keen to learn and try something a bit more "adventurous" like a subdivision etc.

So many of us guys in WA have really had our lives turned on its head through the enormous growth the market has had of late. It has put me so far ahead compared to if I had been non-IP literate in 2003 and done nothing.

I'm glad I got in when I did, and feel sorry for those poor young kids trying to get a PPOR these days.

Regards

Keen

 

[yadreamin]

Thanks for putting the numbers down keen.
I have been thinking the last year that l am not doing enough[been beating myself up over it actually] but l too have just written my numbers down for the last 5 years, quess what l didnt have to do anything it was growing at a faster pace than l could ever have imagined.
Now if l could just find the courage to go interstate and repeat
cheers yadreamin

 

[grossreal]

hi yadreamin
its great to look over the fence and think I wish I could go over there
it always looks greener on the other side but usually isn't.
work at doing what your good at
in wa currently its a hot market that will change but make hay while the sun shines
you have alot of areas that for me will perform very well over the next couple of years
I would consolidate and invest in the areas you currently invest in or the guys over there are investing in.
I have been to wa and karratha and its the same for me as stay and invests where you know you can get the returns and then maybe take a little risk here or there
but remember core business must be the number one aim.
my .002

 

[cabo wabo]

Thanks guys, i appreciate the response. Wasn't sure if i'd get hammered for being so "enthusiastic" and potentially "big headed" for someone who's just joined this forum....been a member of Propertyinvesting.com for a while now.

Rixter, first one was in Parkwood, then Ellenbrook, then Orelia, then Kenwick.
My life will never be the same. It never ceases to spin me out.

ASDF, "no" i don't think i can consistently achieve the same results once the boom finishes over here in the west. Thats why i reckon 10 cents in the theoretical dollar is a better bet.

Gross, you are "on the money" when it comes to the over-riding importance of leverage. Here's something to think about.

If i take 1.4mil dollars (value of my portfolio), apply only 3% appreciation to it over a period of 30 years, and consistently apply a 60% LVR (leverage) on every dollar of yearly appreciation it makes, then by year 10 (aged 40) my portfolio would be worth $18.38M, by year 20 (aged 50) it would be $1720M (thats 1.7 bill), and by year 30 (60 years old) it would be worth $169.4 billion dollars. At 10% appreciation , it would be 5.08 trillion dollars. DEVASTATING ISN'T IT? ....in theory.

Einstein said the most powerful force in the world was that of compound interest. He was right! Imagine if the poor theorist had also applied leverage? His head and crazy hairdo would have simply exploded under the pressure. That way he'd have beaten Steven Hawkin to the theory of the 'big bang' (chuckle chuckle).

Anyway, now if you only apply 50% LVR at 3% appreciation, then by year 10 it would be only $4.4M (thats 4.5 times less due to dropping from 60% to 50%!) By year 20 it would be $24M (71.6 times less) and by the time i'm 60 it would be $136M (1245 times less).

What did i get out of this? Well apart from seeing how many characters are in the number $5,808,925,714,972, it tells me the following:

1) Applying leverage makes high levels of appreciation almost irrelevant because at only 3% appreciation, a company would be very hard pressed to structurally grow fast enough to sustain the required increased borrowings.

2) If 3% appreciation gives me so much equity that it is almost impossible to sustain the debt, then the most important factor becomes a sustainable income to meet the repayments of ever increasing borrowings.

3) This means that i need 1 thing above all others. Assets that create an income so that i can fund my increased borrowings. A mixture of +ve cash flow "keeper" properties, and high appreciation "flipping" properties and developments.

4) IF I AM TO ACHIEVE MY MINIMUM GOAL OF $100M, THEN I MUST ASSUME THE AVAILABILITY OF EQUITY (TO BE LEVERED AGAINST) IS A GIVEN AS ALL I NEED IS LESS THAN 3% APPRECIATION FOR THAT. I MUST CONCENTRATE ALL MY EFFORTS ON ENSURING I HAVE THE ABILITY, YEAR IN, YEAR OUT, TO FOOT THE INCREASED BORROWINGS TO MEET MY TARGETED LVR! …..its not impossible….. in theory..

Crikey, am i full of crap or what?

Cabo Wabo

 

[WillG]

If i take 1.4mil dollars (value of my portfolio), apply only 3% appreciation to it over a period of 30 years, and consistently apply a 60% LVR (leverage) on every dollar of yearly appreciation it makes, then by year 10 (aged 40) my portfolio would be worth $18.38M, by year 20 (aged 50) it would be $1720M (thats 1.7 bill), and by year 30 (60 years old) it would be worth $169.4 billion dollars. At 10% appreciation , it would be 5.08 trillion dollars. DEVASTATING ISN'T IT? ....in theory.

[/COLOR]

I'd be interested to see how you calculated your portfolio worth

 

[redwing]

Great Work Cabo..

Do you mind posting some of the figures and your strategy that enabled that?

have these just been Buy N Hold?

Wonder what my IP's are worth, contacting WESTPAC as per Rixters post I got the "exact" figures for each IP that I had written as a "ballpark" figure for them...I was waiting untill DECEMBER to revalue, but now I'm just too curious ;o)

 

[cabo wabo]

If you like messin' around in excel:

A = Portfolio value in yr 0
B = Portfolio value in yr 1
C = Portfolio value in yr 2
D = Portfolio value in yr 3
E = 0.03 (3% apprec)
F = 1.5 (60% gearing) 1 is 50%, 1.5 is 60%, 2 is 66%, 3 is 75%, 4 is 80%

Then,

Year 0 (A) = 1,400,000
Year 1 (B ) = (A x (1+E))
Year 2 (C) = (B x (1+E)) + ((B-A) x F)
Year 3 (D) = (C x (1+E)) + ((C-B) x F)

etc etc

In excel, run that for 30 columns (30 yrs) and change the % appreciation by row if you want.

If i've mucked it up and have put my big foot in my mouth then by all means, please tell me.

 

[cabo wabo]

Oops, sorry Redwing, forgot to answer ur Q.

So far strategy has been cheap reno's which have been "held" so far.

First was my PPOR in Parkwood for 206.5K in mid 2004 (small 3x1)

Next was large (totally hammered) 3x2 foreclosure property in Ellenbrook in early 2005. Got it for...wait for it... 187K. A friend put me onto it.

Then an absolutely decimated ex drug house in Orelia for 180K in December 2005 (large 3x1). Really smashed.. i mean BAD. Will complete reno late this month.

I do 95% of all reno work myself.

Then 4x1 on 900sq in Kenwick for 285K 2 months ago. Needs reno but got it for the price of a 3x1 (cheap).

Will hold everthing for at least another 12 months. I won't rule out another property in ther next 12 months, but it would have to be GOOD for me to be interested in this market.

Hope that answers ur Q.

 

[cabo wabo]

Wait!!! Stop the press!!!

Ohh Darn, i've goofed up! I apologise....

I've been going over my calcs and reckon i've been including my yearly borrowings in the equity i've been borrowing against. In short, i've been doubling up.

It's had an exponential effect on the value of my percieved portfolio. In short... i AM full of crap. Don't listen to what i say... i warn u ... it could be dangerous!

Back to the drawing board..... oh well.....

My big fat 5.08 trillion at 10% over 30 years is now a measly 1.0 billion....

I can't get by on that.... i need more... more more more!

DOH!

 

[Keen]

Yadreamin,

Now if l could just find the courage to go interstate and repeat

Seems were on the same wave length.

Perhaps North Qld?

Regards

Keen

 

[redwing]

Hi Cabo

At $1.4M then that gives you an average of $350k per IP (4) I'm presuming that the PPoR has done better than this though, either way Great Effort in a short space of time.

Same with Keen,you guys make me look like I'm standing on the corner and watching the traffic go past

As Rixter said its great to see more Perth Investors here, the next get together should be good (maybe when GR arrives?)

 

[GIDDO]

Isn't it interesting how the s soft members from Perth come across so confident? (I didn't say smug)

The poor guys in Sydney have their bottom lip trembling.

I am in SE Qld so am somewhere in between!

 

[grossreal]

hi giddo
I'm in sydney and my bottom lip isn't quivering or trembling, I'm biting it

 

[cabo wabo]

Ouch! fair enough, i'll pull my head in...

 

[alexlee]

Personally, I prefer to read stories about people who have been through at least one full cycle. Myself, I only started investing in 2000 and have never bought in Sydney, so the worst I've seen is a flat market for my own IPs.

Weaknesses in portfolios (cashflow, etc) are most apparent in a bust scenario. IMHO it's the ability to survive those and build wealth for the long term that makes a true investor.
Alex

 

[bday]

Hi guys my first post
As far as financial plan goes I think it is essential to have some sort of plan to follow , Ive had one for years it gets adjusted over time but the framework stays the same .
I starded when I was 27 retired on 40 birthday now 47 and still building portfolio with exess investment income and equity buildup .

 

[Rixter]

Hi guys my first post
As far as financial plan goes I think it is essential to have some sort of plan to follow , Ive had one for years it gets adjusted over time but the framework stays the same .
I starded when I was 27 retired on 40 birthday now 47 and still building portfolio with exess investment income and equity buildup .

Hi Bday,

Welcome to the SS forum first up. Its always great to network with other Perthites.

Can you elaborate a bit more detail on your strategy and plan you used to self fund exiting the rat race?