IP portfolio that performs regardless of market movements!

[sash]

Thanks...with the rate cut today...I will have to move at a 100 miles an hour again!!

Geez....just when I thought I could rest for Xmas.

Well done, Sash! And thanks for sharing. This will inspire many budding property investors. And make many more jealous (including me). Good to see someone breaking the mould and thinking differently.

 

[silverx]

thanks mate, that inspires me

hope i can achieve even half of your achievement and i would be happy

 

[sash]

Thanks...now is a good time as any....next year will offer some really good opportunities in Brissie, Perth, Sydney and Adelaide.

thanks mate, that inspires me

hope i can achieve even half of your achievement and i would be happy

 

[JWR]

Hi Sash,

Do you think the rate cut was good or bad news?

I think its bad news as there will likely be stronger demand for property as it costs less to service - so I may have more competition when trying to find my next deal!

 

[silverx]

Hi Sash,

Do you think the rate cut was good or bad news?

I think its bad news as there will likely be stronger demand for property as it costs less to service - so I may have more competition when trying to find my next deal!

sorry to butt in with my worthless 2 cents
i think opportunities exist anytime and anywhere. it's how we are looking at them. rate cuts to me is saying economy is doing it bad, so the house prices might still go down even more, however with lower interest rate, not only it will save some money but also opens up a little serviceability doors. no use to have good deals lying around but we cant get loan approval.

if you saw an opportunity, grab it. but just dont get pressured by competitions, there is always another deal another time. I learned that lesson by thinking i was going to miss out and overpaid for an IP just to find out few months later there is another better deal which i could have secured for lesser price.

stick with your calculations, walkaway if it doesnt match, active in the market or else you wouldnt be able to spot the opportunities and never involve your feelings in the deal and remember tomorrow is better day and more opportunities will be out there

but of course this is what i have learnt in these 4 years so it might not be right because i only manage to have 2 IPs in that time, and i am still learning from all the gurus here

 

[travelbug]

sorry to butt in with my worthless 2 cents
i think opportunities exist anytime and anywhere. it's how we are looking at them. rate cuts to me is saying economy is doing it bad, so the house prices might still go down even more, however with lower interest rate, not only it will save some money but also opens up a little serviceability doors. no use to have good deals lying around but we cant get loan approval.

if you saw an opportunity, grab it. but just dont get pressured by competitions, there is always another deal another time. I learned that lesson by thinking i was going to miss out and overpaid for an IP just to find out few months later there is another better deal which i could have secured for lesser price.

stick with your calculations, walkaway if it doesnt match, active in the market or else you wouldnt be able to spot the opportunities and never involve your feelings in the deal and remember tomorrow is better day and more opportunities will be out there

but of course this is what i have learnt in these 4 years so it might not be right because i only manage to have 2 IPs in that time, and i am still learning from all the gurus here

We all started with 1 property. It's where you go from there.
I think you've made some very good points which will put you in good stead for the future..
Onward and upward!!!

 

[silverx]

We all started with 1 property. It's where you go from there.
I think you've made some very good points which will put you in good stead for the future..
Onward and upward!!!

cheers to that

 

[sash]

Not if you get in the next 2-3 months.

The herd take while to figure this out. The newspapers have to start singing about a property boom first.

Can't see this happening till early next year!

I think we will hit rock bottom on interest rates by mid next year (aorund April/May)...then steady from there for about six months. And rate will head up around late next year ...early 2013.

Hi Sash,

Do you think the rate cut was good or bad news?

I think its bad news as there will likely be stronger demand for property as it costs less to service - so I may have more competition when trying to find my next deal!

 

[Rickardo]

hi sash,

Great post. If you'd care to share, in your opinion what are suburbs you think investors should be targeting within each state that currently meet your criteria?

 

[sash]

No hard and fast rules but this is what my criteria is:

1. Low end suburbs with prices under 350k for houses and under 300k for units in Sydney, Perth, Adelaide, and Brisbane

2. Need returns of at least 7% to make it work. Willing to take a minimum of 6.5% return if the property is brand new and offers alot of depreciation - i.e. more than $7k in the first year

3. Ensure that the rental demand is healthy - i.e. vacancy is less than 2.5%

4. Strong valuation allow 30-50k upside in equity when market upturns. I am finding some deals where if you build it is cheaper then buying existing stock as land prices have dropped significantly to 2 years ago (via arebates) and because you can push builders to complete by adding things like landscapping, painting, antennas, light fittings, mailbox and clothes line to the package.

hi sash,

Great post. If you'd care to share, in your opinion what are suburbs you think investors should be targeting within each state that currently meet your criteria?

 

[hysterical]

Thanks...now is a good time as any....next year will offer some really good opportunities in Brissie, Perth, Sydney and Adelaide.

Hi Sash

In your view out of Brissie, Perth, Sydney and Adelaide, which will be your main focus ?

Also, as a newbie, can i ask what tools you used for your search ?

Thank you

 

[sash]

My personal opinion, the order in terms of better market to invest

Sydney
Perth
Brissie
Adelaide
Melbourne

I use the following for me research:

www.realestate.com.au

www.somersoft.com.au

www.hotspotting.com.au

API (Australian Property Magazine) and Your Investment Property Magazines

Google earth and search

Council websites

www.onthehouse.com.au

Hi Sash

In your view out of Brissie, Perth, Sydney and Adelaide, which will be your main focus ?

Also, as a newbie, can i ask what tools you used for your search ?

Thank you

 

[MIW]

Sash, what's your suggestion?

My personal opinion, the order in terms of better market to invest

Sydney
Perth
Brissie
Adelaide
Melbourne

I use the following for me research:

www.realestate.com.au

www.somersoft.com.au

www.hotspotting.com.au

API (Australian Property Magazine) and Your Investment Property Magazines

Google earth and search

Council websites

www.onthehouse.com.au

Sash, thanks for the story and the info. above. I can see you like figures and numbers probably because of your industry background...and your analytical mind likes the research....
I was wondering what was your equity gain (capital growth) either as % or $ in the period you invested (six years?)? Or what the net return would be on these IPs?
I am a little bit confused as some strategists suggested that they would choose capital growth over yield growth in the long term....say 3 cycles (so 7-10 years would be 21-30 years).
I understand that your strategy is great to acquire many, especially when you start, and perhaps keeping the properties neutral, so that permits you to add more and reduce your cash flow via offset, renovation, and especially development (a number of startegies that you use).
My strategy was different but gained equity of $2.3M over ten years (started in Year 2000 and last property added in 2008 - so 8 years or so).
I would just like to do some calculations for myself to see whether a combination of these strategies would work. What I mean by that is perhaps like in Monopoly where you buy few affordable houses first and then you convert them to a hotel (say after 4 houses you buy a 1 that's more expensive). What's your opinion?
I am about your age, hold about $8M portfolio, all 13 houses, with 27% LVR, under 3 entities (Joint names with hubby, Trust, Super), pay combined $3K in land tax, and have only 3.5% yield.
1. I am just wondering how that would compare if I sat on these figures and say your figures for the next 1 or 2 cycles as I never plan to sell (or would I have to continue to buy?) At such low LVR all properties maintain themselves and 9 were built, 3 were a year old so I had great depreciations too.....and still have on the buildings (total of 40 years, right?)
2. I have $1M sitting in cash in Superfund, generating $70K gross rental (from 3 properties), contributions $50K each year ($25K each max. allowed), $170K gold/silver investment, small share portfolio at the moment, IPO $120K, IPO land development $50K. How would you invest $1M of that Super money?
Since most Super products require about 30% deposit, how many properties would you buy. I have about 15 years to retirement and hubby 9 years....
Your opinion is greatly appreciated....
And thanks for sharing your inspirational story I will save it.....

 

[dredfern]

Sash, thanks for the story and the info. above. I can see you like figures and numbers probably because of your industry background...and your analytical mind likes the research....
I was wondering what was your equity gain (capital growth) either as % or $ in the period you invested (six years?)? Or what the net return would be on these IPs?
I am a little bit confused as some strategists suggested that they would choose capital growth over yield growth in the long term....say 3 cycles (so 7-10 years would be 21-30 years).
I understand that your strategy is great to acquire many, especially when you start, and perhaps keeping the properties neutral, so that permits you to add more and reduce your cash flow via offset, renovation, and especially development (a number of startegies that you use).
My strategy was different but gained equity of $2.3M over ten years (started in Year 2000 and last property added in 2008 - so 8 years or so).
I would just like to do some calculations for myself to see whether a combination of these strategies would work. What I mean by that is perhaps like in Monopoly where you buy few affordable houses first and then you convert them to a hotel (say after 4 houses you buy a 1 that's more expensive). What's your opinion?
I am about your age, hold about $8M portfolio, all 13 houses, with 27% LVR, under 3 entities (Joint names with hubby, Trust, Super), pay combined $3K in land tax, and have only 3.5% yield.
1. I am just wondering how that would compare if I sat on these figures and say your figures for the next 1 or 2 cycles as I never plan to sell (or would I have to continue to buy?) At such low LVR all properties maintain themselves and 9 were built, 3 were a year old so I had great depreciations too.....and still have on the buildings (total of 40 years, right?)
2. I have $1M sitting in cash in Superfund, generating $70K gross rental (from 3 properties), contributions $50K each year ($25K each max. allowed), $170K gold/silver investment, small share portfolio at the moment, IPO $120K, IPO land development $50K. How would you invest $1M of that Super money?
Since most Super products require about 30% deposit, how many properties would you buy. I have about 15 years to retirement and hubby 9 years....
Your opinion is greatly appreciated....
And thanks for sharing your inspirational story I will save it.....

WOW MIW, those are some impressive numbers. Well done!
Can I ask for my own knowledge, with the above portfolio, is there any reason why someone couldn't retire TODAY on well over a 6 figure income if they chose to?

 

[MIW]

Keep on learning and investing!

WOW MIW, those are some impressive numbers. Well done!
Can I ask for my own knowledge, with the above portfolio, is there any reason why someone couldn't retire TODAY on well over a 6 figure income if they chose to?

Yes you are right, however we still have 2 kids at private high schools and boy do they cost a lot... Also, what we do now is of choice not because we have to, we like to give and help too... and we still like to invest because it became our passion.
As I quoted under my name ‘Riches are not an end of life, but an instrument of life’ by Henry Ward Beech.....
And one more quote which I like by Abraham Lincoln is,
‘You cannot strengthen the weak by weakening the strong,
You cannot help the small…by tearing down the big,
You cannot help the poor by destroying the rich,
You cannot lift the wage earner by pulling down the wage payer,
You cannot keep out of trouble by spending more than your income,
You cannot further the brotherhood of man by inciting class hatreds,
You cannot build character and courage
By taking away initiative and independence,
You cannot help people permanently by doing for them
What they could, and should, do for themselves.’
It's everybodies choice what journey they wish to travel in their life, right?

 

[sash]

Hi MIW

It looks like you have had done really well...congratulations!

A couple of questions....you indicated that you have an $8m portfolio with 27% LVR which means you have about $6m in equity....but you mentioned that the growth has been $2.3m in equity. Did save the other $3.7m in equity....that would be very impressive! Or are you saying that you have $8m in properties with $5.7m in borrowings.

As for your questions:

1. I was wondering what was your equity gain (capital growth) either as % or $ in the period you invested (six years?)? Or what the net return would be on these IPs In six year my gross portfolio has mutliplied by 5 times and my networth by 4 times (note some of this was also loan pay down. As for the growth rate the recent purchases have grown anywhere from 4% per annum upto 30% per annum. The yield across my porfolio is about 5.1% on the current value. On the purchase price it is more likely be somewhere beween 10-11%...don't know exactly on this one.

2. I am a little bit confused as some strategists suggested that they would choose capital growth over yield growth. I did not say that I use a balanced approach with getting a high return without compromising growth. I target the sweet spot of 7% growth with 7% yield.

3. Buying one house expensive house after 3 houses can be okay but poor yields are a killer. Also, hard to selldown large houses with large capital gains as you will pay lots of taxes...not an issue if you are buying in a super fund.


4. Personally, I would keep the Super in something like the Australian Retirement Fund to keep some level of diversification. My super is kept simple....it definitely not as large as yours.

5. It is a misnomer that higher priced property performs better.
Also, in my opinion newer property with some exceptions does not perform as well as there is a developer premium built in!

Finally assuming a 3.5% return on $8M you are getting aobut $280k in rent a year. On about $2.2m in borrowings you are paying about $150k in interest based on I/O assuming 6k in costs (insurance, strata, mgmt, council, etc.) for 13 properties you have about 85k in expenses. So you have about 45k positive income. Minus depreciation of say 5k per property which is 65 k. So you should have positive CF (assuming top marginal rate of 46.5%)...of about 57k. Not bad. The issue is with you high expenses now you are struck till yourt kids are off your hands or you sell down.

If you in fact have $6m in borrowings then you are totally reliant on income and if your income disappears it is going to get uncomfortable. Your have a negative cash flow of $90k per annum without depreciation and about $60k with depreciation.

Thanks for sharing your info....good to model it....

Sash, thanks for the story and the info. above. I can see you like figures and numbers probably because of your industry background...and your analytical mind likes the research....
I was wondering what was your equity gain (capital growth) either as % or $ in the period you invested (six years?)? Or what the net return would be on these IPs?
I am a little bit confused as some strategists suggested that they would choose capital growth over yield growth in the long term....say 3 cycles (so 7-10 years would be 21-30 years).
I understand that your strategy is great to acquire many, especially when you start, and perhaps keeping the properties neutral, so that permits you to add more and reduce your cash flow via offset, renovation, and especially development (a number of startegies that you use).
My strategy was different but gained equity of $2.3M over ten years (started in Year 2000 and last property added in 2008 - so 8 years or so).
I would just like to do some calculations for myself to see whether a combination of these strategies would work. What I mean by that is perhaps like in Monopoly where you buy few affordable houses first and then you convert them to a hotel (say after 4 houses you buy a 1 that's more expensive). What's your opinion?
I am about your age, hold about $8M portfolio, all 13 houses, with 27% LVR, under 3 entities (Joint names with hubby, Trust, Super), pay combined $3K in land tax, and have only 3.5% yield.
1. I am just wondering how that would compare if I sat on these figures and say your figures for the next 1 or 2 cycles as I never plan to sell (or would I have to continue to buy?) At such low LVR all properties maintain themselves and 9 were built, 3 were a year old so I had great depreciations too.....and still have on the buildings (total of 40 years, right?)
2. I have $1M sitting in cash in Superfund, generating $70K gross rental (from 3 properties), contributions $50K each year ($25K each max. allowed), $170K gold/silver investment, small share portfolio at the moment, IPO $120K, IPO land development $50K. How would you invest $1M of that Super money?
Since most Super products require about 30% deposit, how many properties would you buy. I have about 15 years to retirement and hubby 9 years....
Your opinion is greatly appreciated....
And thanks for sharing your inspirational story I will save it.....

 

[MIW]

Your numbers are mostly right...

A couple of questions....you indicated that you have an $8m portfolio with 27% LVR which means you have about $6m in equity....but you mentioned that the growth has been $2.3m in equity. Did save the other $3.7m in equity....that would be very impressive! Or are you saying that you have $8m in properties with $5.7m in borrowings. ....

Thank you for your reply. Yes, I have $6m equity, but $3.7m was made in various ways:
- Sold first PPOR made equity (had 14 houses previously)
- Major renovation for new PPOR so added equity there
- Bought/sold land made equity
- Bought shares under various entities and sold most at 30 times profit made heaps there.... and paid lots of tax there....
- Bought various businesses and sold them made equity there
Invested money made into property via 50% deposits on 2 IPs, then 20% on the next 7 IPs. PPOR house and 3 Super houses all paid off. So only 9 properties (7 in Joint Names, 2 in Trust) have loans.
In addition, have all that other extra investments in Super as mentioned before.

3. Buying one house expensive house after 3 houses can be okay but poor yields are a killer. Also, hard to selldown large houses with large capital gains as you will pay lots of taxes...not an issue if you are buying in a super fund.

I did not mean too expensive, say double the price for the strategy. Eg, if you buy at $350k then max would be $700k (not higher than that) but with a potential for 10-12% average capital growth. Also, you can guess, I never plan to sell (30 years down kids would hopefully redevelop if needed to).

4. Personally, I would keep the Super in something like the Australian Retirement Fund to keep some level of diversification. My super is kept simple....it definitely not as large as yours.

I have total control over my Super and since I programmed all those fees into Managed Funds while working for an insurance company many years ago, I refused to hand it over to someone else. While most people are in worse Super situation now, and perhaps since 1987, I have realised 2000% profit.... So my point being, that I like total control of it so I will not invest into Managed Funds.
My question is how many properties would you buy via Super with borrowed funds if you were in my situation?
$1m own Super money and $1m borrowed, so I can structure the Super properties to be neutral or slightly positive so they can pay each other off, especially when I have 3 IPs generating $70k gross rental already. I would then pay less tax and have a total of $10m in property in a portfolio with $3m debt and some IPs being paid off over next, say 10 years. Would you do that? How many would you buy for $2m in your Super (I would rather go for CG than yield as the structure works differently there - 15% tax on contributions and tax but none on CG unless you sell then about 10%). So in 10 years let's say $50k contributions x 10 years would pay down $500k of loan and rents from 7 Super IPs but equity may double to $4m? I'm thinking of buying around 4 properties (Max $500k each) around Sydney, Brisbane and Perth.

5. It is a misnomer that higher priced property performs better.
Also, in my opinion newer property with some exceptions does not perform as well as there is a developer premium built in!

I agree...

Finally assuming a 3.5% return on $8M you are getting aobut $280k in rent a year. On about $2.2m in borrowings you are paying about $150k in interest based on I/O assuming 6k in costs (insurance, strata, mgmt, council, etc.) for 13 properties you have about 85k in expenses. So you have about 45k positive income. Minus depreciation of say 5k per property which is 65 k. So you should have positive CF (assuming top marginal rate of 46.5%)...of about 57k. Not bad. The issue is with you high expenses now you are struck till yourt kids are off your hands or you sell down. ]

First sentence is right so is the second but for 12 IPs (1 is a PPOR house). Marginal tax rate is different as we are self-employed (can vary).
I do not plan to sell, perhaps in Super down the track or just to live off equity. Assume $10m will grow to $20m (or even $15m only) with $2m loan (since $1m would be paid off in Super like I mentioned above) then that's LVR of 10% (or 13.3%). Surely, banks may be giving us equity to draw down to live on. So even if I drew down $200k but portfolio grew by only 5% (that's $1m or $750K a year). Gee, so I could draw down even $400k a year, am I correct? Other option would be to sell PPOR and downsize as median price for the suburb I live in is about $1.7 now... Actually if I sold PPOR now I would pay off all my loans, but I do like where I live....

If you in fact have $6m in borrowings then you are totally reliant on income and if your income disappears it is going to get uncomfortable. Your have a negative cash flow of $90k per annum without depreciation and about $60k with depreciation. Thanks for sharing your info....good to model it....

Totally incorrect so don't worry, I believe I have choices in my life now and that's what investing does, allows one to be free to do what we want.
Thank you also for sharing your story...
I noticed you live close by so perhaps we see each other without knowing it -just a thought...

 

[sash]

Hi MIW

Very solid portfolio. You definitely don't need my advice....you are doing fine on your own.

The only caveat I would put in...is the following:

1. The real estate market is changing driven by demographics. Traditionally high growth suburbs like Inner West will now have longer growth due to affordability. The growth will be in the cheaper suburbs under 500k

2. I personally think we won't get the 10-12% growth over the next 10 years. I am working on growth of 5-7%.

3. Due to lower growth and potentially also lower rent growth....CG might not be as relevant.

Only my view.....happy to agree to disagree.

Cheers
Sash

Thank you for your reply. Yes, I have $6m equity, but $3.7m was made in various ways:
- Sold first PPOR made equity (had 14 houses previously)
- Major renovation for new PPOR so added equity there
- Bought/sold land made equity
- Bought shares under various entities and sold most at 30 times profit made heaps there.... and paid lots of tax there....
- Bought various businesses and sold them made equity there
Invested money made into property via 50% deposits on 2 IPs, then 20% on the next 7 IPs. PPOR house and 3 Super houses all paid off. So only 9 properties (7 in Joint Names, 2 in Trust) have loans.
In addition, have all that other extra investments in Super as mentioned before.

I did not mean too expensive, say double the price for the strategy. Eg, if you buy at $350k then max would be $700k (not higher than that) but with a potential for 10-12% average capital growth. Also, you can guess, I never plan to sell (30 years down kids would hopefully redevelop if needed to).

I have total control over my Super and since I programmed all those fees into Managed Funds while working for an insurance company many years ago, I refused to hand it over to someone else. While most people are in worse Super situation now, and perhaps since 1987, I have realised 2000% profit.... So my point being, that I like total control of it so I will not invest into Managed Funds.
My question is how many properties would you buy via Super with borrowed funds if you were in my situation?
$1m own Super money and $1m borrowed, so I can structure the Super properties to be neutral or slightly positive so they can pay each other off, especially when I have 3 IPs generating $70k gross rental already. I would then pay less tax and have a total of $10m in property in a portfolio with $3m debt and some IPs being paid off over next, say 10 years. Would you do that? How many would you buy for $2m in your Super (I would rather go for CG than yield as the structure works differently there - 15% tax on contributions and tax but none on CG unless you sell then about 10%). So in 10 years let's say $50k contributions x 10 years would pay down $500k of loan and rents from 7 Super IPs but equity may double to $4m? I'm thinking of buying around 4 properties (Max $500k each) around Sydney, Brisbane and Perth.

I agree...

First sentence is right so is the second but for 12 IPs (1 is a PPOR house). Marginal tax rate is different as we are self-employed (can vary).
I do not plan to sell, perhaps in Super down the track or just to live off equity. Assume $10m will grow to $20m (or even $15m only) with $2m loan (since $1m would be paid off in Super like I mentioned above) then that's LVR of 10% (or 13.3%). Surely, banks may be giving us equity to draw down to live on. So even if I drew down $200k but portfolio grew by only 5% (that's $1m or $750K a year). Gee, so I could draw down even $400k a year, am I correct? Other option would be to sell PPOR and downsize as median price for the suburb I live in is about $1.7 now... Actually if I sold PPOR now I would pay off all my loans, but I do like where I live....

Totally incorrect so don't worry, I believe I have choices in my life now and that's what investing does, allows one to be free to do what we want.
Thank you also for sharing your story...
I noticed you live close by so perhaps we see each other without knowing it -just a thought...

 

[Token Funder]

Yes you are right, however we still have 2 kids at private high schools and boy do they cost a lot... Also, what we do now is of choice not because we have to, we like to give and help too... and we still like to invest because it became our passion.
As I quoted under my name ‘Riches are not an end of life, but an instrument of life’ by Henry Ward Beech.....
And one more quote which I like by Abraham Lincoln is,
‘You cannot strengthen the weak by weakening the strong,
You cannot help the small…by tearing down the big,
You cannot help the poor by destroying the rich,
You cannot lift the wage earner by pulling down the wage payer,
You cannot keep out of trouble by spending more than your income,
You cannot further the brotherhood of man by inciting class hatreds,
You cannot build character and courage
By taking away initiative and independence,
You cannot help people permanently by doing for them
What they could, and should, do for themselves.’
It's everybodies choice what journey they wish to travel in their life, right?

[Internet pedant]

Nice quotes but not Lincoln's I'm afraid.

[/Internet pedant]

 

[JamesGG]

[Internet pedant]

Nice quotes but not Lincoln's I'm afraid.

[/Internet pedant]

"The trouble with quotes on the internet is that it’s difficult to discern whether or not they are genuine."
-- Abraham Lincoln.