The Interview #11

[Ruby]

Welcome to the Interview #11

keithj’s extremely popular “How I got from just a PPOR to multi millionaire retiree in 5 years using only OPM” thread, is what prompted this month’s interview. I’ve had several requests from members to hear more about keith’s strategy and his views on property in general. So I’m pleased keith agreed to be this month’s interviewee and I thank him for giving us his time.

Enjoy everyone!

http://www.somersoft.com/forums/showthread.php?p=309025#post309025

 

[jrc]

Thanks Ruby for putting these interviews together. Thanks for sharing your philosophy too Keith. Nice and simple, relatively low risk. Just take the courage to get started.

 

[austini]

Hey Ruby,

Thanks for arranging that. That thread by Keith is one of the best I have ever seen on Sommersoft.

Cheers - Gordon

 

[anrke]

Fantastic knowledge in that interview. Thanks Ruby, and especially thanks to keithj for sharing your experiences

 

[ani]

Thanks Keith

a very inspiring read

 

[yadreamin]

Thanks for sharing your experiances keithj. I enjoyed the diversity of your growth in such a very short period of time.
Quess you were just lucky hey?
In todays climate of Ips and shares and interest rates, could you see someone doing this in the next 6years with a similar outcome to yours?

Thanks Ruby for another great Interview.
cheera yadreamin

 

[Shadow]

Excellent interview and great advice Keith, my aim is to be in a similar position to you, in 10 years time, following a very similar strategy!

Two questions...

1. When you got into shares, did you do much research or get financial advice - i.e. how did you decide what shares to buy... can you recommend any books etc? I like the idea of sticking to safe Blue Chip stocks with good dividends.

2. Say you're living on equity (assume overall negative cash flow), and you go to the bank to increase your loan... how do they calculate serviceability if you have no net income... (not saying this is your current position as you now have plenty of income from shares) but for example, if you say to the bank that you plan to service the loan by capitalising interest and LOE... are they cool with that, or do they expect you to have 'real' income for their serviceability calculations?

Thanks to Ruby also BTW.

Cheers, Shadow.

 

[Phil_H]

Thanks Ruby for another fantastic interview

And thank you Keith for sharing that with us, a great insight into how diversifying your investments can payoff big time when done well.

Cheers

Phil

 

[Joe D]

Great effort Ruby and Keith.

Very inspiring!

Keith,

I would be very interested in seeing the format of "the spreadsheet" you refer to. ie perhaps a copy with your numbers/personal details blanked or changed.

Once again, thanks for sharing.

 

[ledd]

Thank you for sharing your experiences and knowledge!

 

[The Y-man]

Nice one Keith!


Cheers,

The Y-man

 

[keithj]

Thanks for sharing your experiances keithj. I enjoyed the diversity of your growth in such a very short period of time.
Quess you were just lucky hey?
In todays climate of Ips and shares and interest rates, could you see someone doing this in the next 6years with a similar outcome to yours?

Hi yadreamin,

It was a short period of time. However, you've just read chapter 2. Chapter 1 covered the previous 10 years where I completely failed to make any money except from a job. But I did learn a lot about what didn't work for me. Of course, Ch 1 wasn't nearly as interesting.

I chose to be lucky - according to the census 30% of Australians households have an unencumbered PPOR - they could have chosen to be lucky too.

I don't currently see good value in either shares or IP ATM. I'd guess that in a couple of years, IRs will be up a little, rents up a lot, prices still mostly flat with the share market in bubble territory. They would probably be conditions that indicated good value in IP. So starting now is unlikely to give the same results within 6 yrs. But if you wait for good value to appear before investing, then 6 yrs is achievable. Also bear in mind that I missed the 1st 2 years of the last IP boom, I missed all the WA IP boom, I missed the 1st 2 yrs of the resources boom.

Cheers Keith

 

[BDM]

Hi there,

Best thread ever !!!!!!

Thanks heaps and piles and lots Keith and Ruby !!!!!

BDM

 

[FrankGrimes]

Love your work, thanks for taking the time to write up such a detailed explanation and reasoning for everything. I have learned alot from your posts.

Cheers

Grimey

 

[keithj]

1. When you got into shares, did you do much research or get financial advice - i.e. how did you decide what shares to buy... can you recommend any books etc? I like the idea of sticking to safe Blue Chip stocks with good dividends.

Hi Shadow,

Mostly blue chip, balance of reasonable yield & growth prospects, mostly defensive. All have at least 60% (& mostly 75%) margin LVR. egs 5Banks, PPT, ORI, WOW, ALS, HIL, ASX, TAH, RIN, QBE, AMP, TLS, WES, BHP. Looking at their charts they all show steady consistent growth since 2003 (with a couple of exceptions TLS,WES). I also like old fashioned LICs eg MLT, AFI, ARG as they are vaguely countercyclical and less volatile and have shown fairly consistent 14% growth over extended periods.

2. Say you're living on equity (assume overall negative cash flow), and you go to the bank to increase your loan... how do they calculate serviceability if you have no net income... but for example, if you say to the bank that you plan to service the loan by capitalising interest and LOE... are they cool with that, or do they expect you to have 'real' income for their serviceability calculations?

No, the banks don't like it at all. I have large unrealised gains from shares, but a v. low income (my accountant worked some magic) & the banks just aren't interested. However, if I realised the gains and paid CGT then they'd be happy . So lo-doc is the way to go - the IRs are v. similar to full doc these days - see your friendly MB .

Cheers Keith

 

[Dazz]

Good info keith. Nice interview.

Well done.

Like JoeD, I'd be interested in seeing the format of your XLS.

 

[Kenster]

That's cool, Keith.

Thanks for sharing your story with us.

Looking forward to your continuing sharing for a long time to come.

 

[austini]

Hey Keith,

I was only re-reading your Millionaire post about a week ago - a truely outstanding story.

Given that you were loaning funds (including borrowed funds on IPs in own name) to your Disc Trust which I assume was paying you interest and then borrowing to purchase IPs and also buying shares on margin I would have thought in the early stages the trust may have gotten into in a negative cashflow position. Obviously it didn't otherwise franking credits would have been lost etc. Was this due to capitalising the interest? From memory you seem to have put as much effort into the legal (ie trust) and finance structuring as purchasing the assets. This is an area that I always find interesting.

Cheers - Gordon

 

[keithj]

Given that you were loaning funds (including borrowed funds on IPs in own name) to your Disc Trust which I assume was paying you interest and then borrowing to purchase IPs and also buying shares on margin I would have thought in the early stages the trust may have gotten into in a negative cashflow position. Obviously it didn't otherwise franking credits would have been lost etc. Was this due to capitalising the interest? From memory you seem to have put as much effort into the legal (ie trust) and finance structuring as purchasing the assets. This is an area that I always find interesting.

Hi Gordon,

Yes, structure is important, although I wouldn't go as far as to say interesting .

Yes I loaned funds to the DT, no it never paid me any interest, yes it borrowed to buy IPs & shares on margin. The shares & IP were good value when I bought and overall the portfolio was c/f +ve. So even if it had paid me interest I think it would have remained c/f +ve. It never really seemed to be an issue at the time.

According to my accountant, the capitalising of interest is viewed by the ATO as borrowing the funds and subsequently paying the interest. So although no transaction actually takes place, the ATO deems it that you asked to borrow $X and then paid that $X in interest. So (I believe) the capitalising of interest wouldn't affect the c/f or tax position.

Cheers Keith

 

[keithj]

I would be very interested in seeing the format of "the spreadsheet" you refer to. ie perhaps a copy with your numbers/personal details blanked or changed.

Like JoeD, I'd be interested in seeing the format of your XLS.

Hi guys,

The spreadsheet is overly complicated - it started simple & has grown in different directions over time. It wouldn't make any sense to anyone except me. It's also fairly specific to the structure I've set up for my LOE & the way I want to increase my income while still growing equity.

However, I have been meaning to simplify it.

What aspects are you interested in -

• LOE - capitalising interest on margin loan
• effects of simple compounding
• asset allocation between shares/IP/PPOR/LPTs
• effects of additional equity drawdowns & subsequent investment

It probably deserves a new thread.

Cheers Keith