How to build a 10 property portfolio in 3 – 5 years realistically on $50,000pa.

I have recently had people say its impossible to build a property portfolio of large size starting out. Also heard many other negative connotations.

I was lazing around today and thought I would make the following blog below which I posted on my site. It is insightful knowledge and practicle step by step ways around the typical thinking and I am not suggesting people buy 10 properties a year. Investors can be as passive or active as they wish to be. The big important keys are lined out below.

Enjoy the reading!



How can you go from a small savings to owning 10 x properties on a $50,000pa income?

Before we devulge into specifics, understand that this is an example and does not constitute as financial advice. One should seek industry professionals such as solicitors, accountants and finance representatives.

Now lets take an example scenario where we have a single person call them Sarah for the exercise and Sarah earns $50,000pa as a office support (Pretty consistant salary in the market). Sarah has $30,000 saved up and doesnt know whether to buy a new car outright, go overseas for a year or…. buy a property (HOW CAN SHE BUY 10?)

Well it all comes down to having the foundations right and having the correct strategy. Sarah gets wind of different properties and specific companys which all say to negative gear because its good and she will save tax. However the drama is Sarah doesnt pay all that much tax and the property will be eating into her lifestyle of $10,000pa or $200pw. She cannot get her head around what all these spruikers are on about with $10,000 expenses it seems absurd. and to be frankly it is! Negative gearing is a term spruikers use quite commonly to justify losing money. For an investment strategy you must understand why your investing and how your investing can get you twards your end goal.

Sarah decided she would develop a property investing strategy which would work for her and she used the same methods as B Invested uses which is buying properties below market value so she will have instant equity to help her into the next one and a buffer of safety incase she needs to sell at a fire sale she wont be losing her money. The second principal being that it must be as close to cashflow positive as possible so she doesnt lose her lifestyle she currently holds and the ability to continue to sip on a chi latte with her girlfriends. The third prinicpal is she buys bread an butter not, not only because it serves with a solid exit strategy having more buyers but that it also has great potential of going up in value because of its low starting point ensuring capital growth in the future.

10 properties is around 3 per year for Sarah and how can she do that?

Well each property she is setting out to purchase is around $200,000 and renting around $300pw. The reason of this is to keep her portfolio relatively neutral geared. Some are slightly negative and some may be slightly positive such as regionals etc…

If she has a deposit of $30,000 and buys property # 1 using 10% deposit and $10,000 for closing costs she has acheived 10% of her goals.

She then either needs to save up some funds from work, get a second job, or…. because she bought well with the first property she can extract her capital back out.

This will look like this…
Purchase price $200,000
Revaluation price $240,000
Top up loan 90% or $40,000 = $36,000.

Therefore she has even more money and she can repeat the process again.

After that she has property # 2.

Repeat the process over and over again.

What now? She has 10 x properties and wants to retire 5-10 years after her first purchase.

Sarah has a couple of options.
Firstly, her properties have doubled in value and she had $2,000,000 purchase prices ($200k x 10) and now they are worth $4,000,000 or 10 x ($400,000). She can sell down half pay off all her debt and be owning 5 x properties outright

Seconly she could increase her rents by $100pw (remember rents should double or go up $300pw) each and this will be $100 x 10 = $1000pw positive cashflow as her expenses stay relatively similar. So she has still made $2,000,000 equity and also an income stream of $52,000pa.

Thirdly, she could sell down a couple renovate a few, add a granny flat or manufacture extra growth.

There are multiple options availible however without getting the strategy down right first it would be impossible to get the right porftfolio which will get her closer to financial independance and improve her lifestyle instead of getting her more enslaved into her job.

There are multiple ways of making money in real estate but firstly start treating your investing like a business. McDonalds, Bunnings, Wollies, Coles, etc… They dont go and open a new store to go and lose money do they? They spend time researching, and understanding their markets and the figures before taking a stake and setting up a store. Why wouldnt you as an investor take the time and research to ensure you are making the correct decision.

Goodluck!

© B Invested.

http://binvested.com.au/?p=982
 
Thanks Col.

I just thought I would break it down so people can see it is simple.

Your on the right track mate, keep it up!
 
Good post mate.

Exactly how I started off. Bought my first one under value and bought two more from the revalue 12 months later. In the process of releasing some more funds and looking for another project. Man I love this game :D
 
Hi Nathan,


Your example demonstrates what can be achieved over time.

I agree with your views on NG. May be fine initially, but I think the ideal is maintaining a neutral to positive portfolio. (Mine is still -ve).

Regards Jason.
 
Hi Nathan.
Looks like a good post.

Can you please elaborate on the following section "because she bought well with the first property she can extract her capital back out."
When the revaluation occurs and her property goes from 200K to 240K
How does she use that money?
I assume the money will be used for the deposit?
 
Sorry,

To clarify further, the property is valued in this example by the bank at a $40,000 increase and then 90% of this or $36,000 is redrawn so the investor gets their capital back to use for the purchase of the next property.
 
We do something very similar to you..but in canada.
The basics are the same.
Buy undervalue, or at least so the rent pays the bills.
Buy as often as possible, using equity.
Look for the vendors who have no idea what their property is worth.
Develope a property to maximize CF
 
Thanks for the post, it spells it out clearly for anyone not so familair, and reinforces that a good strategy is not exactly rocket science to people like me.....

I've sent a copy of it to 3 mates.. one ins an invstor, but not so much on property, one is a younger guy keen to start, and another is a good friend of mine who is a little sceptical that all this stuff works... be interesting to see the repsonses...if any...
 
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10 properties is around 3 per year for Sarah and how can she do that?

Well each property she is setting out to purchase is around $200,000 and renting around $300pw. The reason of this is to keep her portfolio relatively neutral geared. Some are slightly negative and some may be slightly positive such as regionals etc…


Great post as always Nathan!

Im pretty sure many of the Victorianites are sitting there thinking, "yeah right".

maybe im just not as good as everyone else on this forum but I know of a few people who no matter how hard they try are struggling to find something even remotely close to $200k purchase with a $300 per week rent without rennovating, I'll be bold and state that many of us are struggling to find properties that you could get for $200k, do a complete paintjob, and a good old elbow grease clean and achieve $300 per week.

Would you mind enlightening us on how we would do it down here!

thanks
 
.

Would you mind enlightening us on how we would do it down here!

thanks

Easy! Don't buy down there.

The good thing about property is that it is located in all States, even all towns, large and small. YOu are not confined to purchase something on your doorstep, so if there is nothing near where you live that makes a good investment, look elsewhere.
 
See for me, it sort of comes down to (besides not beig dissciplined enough to make up my mind and follow the decision through, so hav enot inested that much time on it yet), not being usre wheer and how to start looing ascertaining the value / risk / potential, in particular in areas I'm unfamiliar with. so the first thing that comes to mind is it would make a bit of that value / risk assessment / potential bit a little easier. I'm half guessing Propoerty Meister was thinking similarly, ergo, I am unsure that such properties DON'Texist near me... so where / how do we start ?!
 
Sorry,

To clarify further, the property is valued in this example by the bank at a $40,000 increase and then 90% of this or $36,000 is redrawn so the investor gets their capital back to use for the purchase of the next property.

This is my issue with these sort of "scenarios"....they simply toss in and then gloss over some pretty key assumptions to make the whole thing work that are, of themselves, at the low end of probability. Here we have (a) 80% of current salary sitting in cash and (b) instant equity courtesy of the magic of buying "under market".

Which, of course, reminds me of the old joke:

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Let's smash the can open with a rock." The chemist says, "Let's build a fire and heat the can first." The economist says, "Let's assume that we have a can-opener...
 
good post nathan!

A lot of investor don't factor in renovation into their strategy.

I see some relatives of mine just buy 10 years ago and say yeah i did it.

Eitherway in this new era, i feel it helps to have knowledge in as much as you in the property cycle of investing

End to End (From acquisition (analysis of the suburb), financial structures for property, depreciation, management, renovation to the end of the cycle (sale of the property - which is marketing). All these involves understanding of accounting, finance, building, marketing etc. I get up everyday to listen to the financial news and read the Aus Financial review. Everything has to be a calculated risk decision.
 
Nathan,

The part I don't quite understand is when you talk about the bank re-valuing at the "true value".

It sounds like there are a few people buying below value in western Sydney and Cairns (your friends and other forumites), so wouldn't the bank be including these values in the comparable sales?

I'm thinking your purchase price might be closer to the "true value"... or are your lenders being very generous?
 
This is my issue with these sort of "scenarios"....they simply toss in and then gloss over some pretty key assumptions to make the whole thing work that are, of themselves, at the low end of probability. Here we have (a) 80% of current salary sitting in cash and (b) instant equity courtesy of the magic of buying "under market".

..

While it might not be the norm for a young person to have a large amount of cash sitting in the bank, those that want to achieve something quite often will. Point in case is my daughter. Here we have a 21yr old with more in the bank than the example that Nathan gave and on a much lower salary. In fact I believe her deposit is more than her salary.

The part I don't quite understand is when you talk about the bank re-valuing at the "true value".

It sounds like there are a few people buying below value in western Sydney and Cairns (your friends and other forumites), so wouldn't the bank be including these values in the comparable sales?

I'm thinking your purchase price might be closer to the "true value"... or are your lenders being very generous?

While I can't vouch for the Cairns market, I can certainly say that Nathan is on the money in Western Sydney. There are experienced investors who are buying well under what the market is paying. These sales, however, are much less than what everyone else is paying, especially FHO's. Add a bit of a touch up and voila! Instant equity.:D
 
Skater,

Using Western Sydney as an example
purchase price $180,000 renovation $6000 rent $300+pw and reval around $240k.

Now others can say there was a recent sale or couple in the surrounding streets thats because I helped a few mates get into these ones at these levels also.
You, me and my mate who I helped buy next door recently thats three properties in a row

In doing the re-val, won't these purchases have the greatest influence? i.e. the real value is what has just been paid..

Further to that, unless FHO's are doing no research at all, they'll see these recent sales come up and be crazy to offer anything more.
 
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