Strategy

I’ve started a new thread in response to Lily House’s request from the ACA thread. Lily’s asked if I’d share my strategy. So here it is: Firstly, a little bit about myself. I’m a newbie to the forum. I’m 33, employed full-time, moved to Melb from Syd 5 and a half years ago to be with my partner. My ambition since being in my early 20’s was to retire early with a portfolio of properties. Whilst I was in my 20’s, dreaming about such a thing, it wasn’t until my 30’s that I really decided to do something about it. So where am I now.

- I have one Melb, South Eastern, 3bdrm property (currently owner-occupied) in the process of being on the rental market.
- Settlement pending on another Melb, South Eastern, 3bdrm property for owner-occupier with my partner. (settlement is 3 days away).
- My partner has an unencumbered, very large block with a 2 bdrm cottage also in the South East of Melb. Parents are living in this one.

Our Aim
- For both of us to be out of the workforce and not rely on employers income. (just like everybody else)
- To be financially free
- To have properties around the world
- To be successful
- To go where-ever we want to go without 2nd thoughts

Our Adventure
Firstly we ‘brainstormed’ for a couple of years what we wanted for our future. I always knew, for me, property was going to be the stepping stone to my financial freedom. My partner was more interested in shares. So we needed to overcome these differences by investigating both areas. Over time, the tables turned, my partner became interested in property and I became interested in shares. So we’ve concluded that both property and shares will play contributing factors to our future success. Because we already have invested interests in property and most of our studying has been in this area, we’ve decided for property to be our vehicle for the time being and will introduce shares later.

Our Strategy
We ‘brainstormed’ again, what how are we going to create our success. There are 5 key points that’s driving our strategy.
- To build our own capital
- To build and invest our superannuation (on our terms)
- To build our positive cash flow (or passive income)
- Not to rely on banks to finance our venture
- Determination
From this brainstorming session, we got all our magazines and cut out pictures that inspired us to be where we want to be and created a collage. This helps us to keep focused. Some pictures are of our mentors are Jan Somers, Robert Kiyosaki and Dolf De Roos.

Our Plan
- We set up our own DIY superfund and rolled over what we could from our Employers fund. This fund is sitting there waiting for us to invest on our terms.
- The current owner-occupied house is on the rental market ready for positive gearing.
I’m not an advocate of negative gearing. Perhaps there might be a need for it during our venture but not right now. I don’t fancy going to my grave with millions of $$ in debt and nor do I agree you can leave the workforce with negatively geared property. During our early days of research, it’s been said you can leave the workforce after 7-10 negatively geared properties. I don’t believe this has been proven. Some of these people own in excess of 10 properties and still working. Why is that? They love to work? I don’t think so. They can’t afford to leave!! How can the loan(s) be serviced?
- The pending settlement for our owner-occupied place will be purely for renovation. Our plan is to buy/renovate and sell with a 3-4 month turnaround. Selling for a profit of course. If we can’t make the profit we’re after, then we don’t sell until we do. One of us will be renovating full-time while the other is working full-time to service the loan.
- With these 3 points working for us at the same time, here’s how it’s planning out:
Starts our positive cash flow from rental property
The renovated property. Using hyperthetical figures.
Property 1: Purchase Price $200K
Purchasing Costs $15K
Renovation Costs$20K
Spent $235K
Sell $290K
Less selling costs $5K
Profit $50K
This profit of $50K can either be capital growth and/or uncontributed funds to the superfund.
Property 2: Same scenario as property 1
Property 3: Same scenario as property 1
This can only be achieved providing none of the variables have changed. But still profit $30-$50K with each renovated property.
- Whilst this may be hard work, we’re building up enough profit and combining that with our superfund, purchasing properties without the finance from the banks.
- Each time a property is sold, return the funds back to super + interest. (At least more than what the banks are giving you and not losing any in shares)
- So what we’ve done is:
1 is out of the workforce
Building our capital
Building our super (dependant on profits and equity purchase more rental properties)
Creating our positive cash flow
And then we won’t have to rely on banks for financing
How long will this take us? We’re not sure as the variables will change. My guesstimation will be 2-3yrs before both of us can be out of the workforce. I’m sure there is going to be holes and gaps in this strategy as we are still fine tuning. As time goes on, things change and so to does the strategy.

Our Ultimate Plan
To be sitting anywhere in the world whilst without a worry, trading shares (pulling money out of the share market) and investing in properties. Hmmmmm!!!

Just changed the subject name so that those searching can find it - Les
 
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G'day Aphro,

Just a thought that struck me while reading your plans - and that is, you seem to be planning to put your gains into "super". Doesn't this then limit you to not "regaining access" to those funds until you're in your mid-50's? Or am I missing something here?

Or is there something about "uncontributed funds" that allows this to be redrawn??????

Regards,
 
Hi Aphro,

Thanks for taking the time to reply. I always enjoy hearing how people are planning for their future.

One thing to watch our for in your plan - looks like you will avoid CGT by living in the houses you are renovating? (thus they will be your PPOR). If I have read your thread correctly, that means you will shifting 3-4 times each year. I wonder when the point arrives that the tax office will consider this to be carrying on a business (and thus want to hit you with tax). It might be worth running your ideas via an accountant to check things like this.

But good on you - I wish you, and your partner, much luck.

Lily
 
Andrew, Lily has answered your question for you. Because we will be living in the property, you only need to live in it for a minimum of 3 months to avoid CGT.

Lily, I will check with our accountant what you've pointed out. Thanks for that.

Les, 'super' is rather a complex topic and it was brave of us to be adding this into our strategy. Not all gains will go into super, maybe all or none at all. Depending on what's happening at the time will depend on what happens with the gain.

There is nothing special about "uncontributed" funds either. It justs means it's an amount that we have contributed rather than our employer. The employer's contribution is called "contributed" funds. On the other hand we have the "non-preserved" funds. They are the funds that your employer contributed and you have access to prior to super being compulsory back in the late 80's early 90's. Don't know exactly when it was.

"Regaining access" to what funds we add into the super is relatively easy providing you've set up your own DIY Fund. The funds are sitting in a 'superfund' bank account and you can draw on those funds to purchase your investment. With DIY funds you have total control as to where you want to invest. It can be anything, collectibles, vintage cars, property, I can be trading shares etc. At the sale of that item (you'd want to've made a gain), the funds go back into the 'superfund' bank account. The whole idea of super is to have growth. No, the money is not ours until the coming of age but we can still access it for investing. We have the cheque book. Keep in mind, the government will be watching us like a hawk as they do with DIY funds and the accountant MUST audit the account.

Hope this helps.
 
On the subject of super funds.

I regard my IP investment strategy as sufficient to provide for my own retirement- so far, so good.

But I have an amount in my super funds which is "locked up"- losing 5% to 10% pa in current climate. It's a substantial amount- about 6 months salary I guess- but not substantial enough to buy a property, and certainly not enough to retire on.

I regard that as my learning money.

I guess I will be putting a good part of that into Steve's fund. But I will also be using some of that to learn for myself- as I have already. And that will help me to learn something about shares, to help balance what I've already learnt about property.
 
There may be a bit of a contradiction there,
you said that the super fund will own the
property. That makes it an investment
subject to CGT.

You also said it would be your PPOR so
as to avoid CGT.

The tax office is going to see right through
that.

andy
 
Good plan Aphro and all the best with it, but here are some points i'd like to make:

- As Lily mentioned, you'd best check with your accountant about having lots of PPOR's in a short space of time. I've been told that 4 PPOR's in 7 years is pushing it and the ATO may decide you are a trader and tax you accordingly.
Moving house all the time would also be a real hassle.

- I'm sure you're also aware of this, but it may be better to hold longer than 3-4 months before selling in order to claim a 50% CGT exemption. As Andrew mentioned, you'll also need to clarify this matter with your SMSF.

- Perhaps you should consider a trust structure as the best vehicle for your IP's and to distribute income.

- I'm not sure if i'd want properties "all around the world" as i imagine the management would be a headache and i'm not sure what the real benefits would be - diversity and exchange rates?

- I hope you didn't destroy any good reference material in your magazines when you made your collage.

- Don't dismiss neg gearing entirely as it can be a really useful tool to get ahead and magnify your gains. You question the benefits of neg gearing and suggest that the debt cannot be serviced. A lot of investors who use this strategy will sell 1 or 2 IP's to reduce their debt when at retirement.
Also, wouldn't you agree that the person who owes $2m is wealthier than the person who owes $200k?

- I hope you can both be out of the workforce in 2-3 years but i doubt it.
 
Hi Aphro;

Thanks for the post.Great to see a couple with a plan!
My missus isn't even slightly interested in investment/renovating (bet she will be down the track when we are to afford things that are impt to us such as travel/decent house etc)

Like yourself my aim is to get out of the workforce and do something for myself.However, in the meantime, for me, negative gearing will provide me with the most growth while I am employed (I choose properties who's main feature is that i believe they will provide me with the highest capital growth).



'mentors are Jan Somers, Robert Kiyosaki and Dolf De Roos'

Jan Somers....fantastic..say no more!
Robert Kiyosaki...he maybe inspirational.....but he is US based....he knows nothing of the Australian Tax system!
Rolf De Roos.....properties in all countries of the world??Why would you do this?Its hard enough understanding Oz, let alone other countries as well!

Stick with Jan and this forum and you'll do well!

cheers

Sam
 
G'day dtraeger2k,

:
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Just changed the subject name so that those searching can find it - Les
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Perhaps if you spelt strategy correctly then ppl would be able to search for it

- Cheers

Dave

Yeah, Dave it didn't work too well. I had thought by changing the title in the first post it would've changed the thread name..... but struck out on that one. I tried, but this might be a job for Sim'

Regards,
 
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