What do people think of this portfolio?

Wondering what the experts think about this:

Been trying to formulate an investment strategy, so reading a fair bit. Borrowed a magazine about investment property. In it was an article about a guy with a $3 million portfolio built from nothing in 10 years. Heres the portfolio as described in the mag:
#1 purchased 2004 for $270K current value $435K equity $120K - rent $380wk
#2 bought 2009 and sold 2013 (profit of $55K toward #5)
#3 $250K now $340K equity $80K - rent $440 wk
#4 $300K now $320K equity $50K - rent $320 wk
#5 $600K still $600K (land/build)- doing a duplex development on this land.
#6 785K now $1M equity $50K - PPOR
#7 395K still $395K (OTP to be completed in 2015)

Total value just under $3.1M. He started in 2004, used an inheritance towards purchasing his PPOR in 2011. No mention of what he and his wife earn, he's a music teacher/musician.

So am I reading this right and this fellow has a $3 million portfolio (can #7 be counted as he would have only paid a deposit at this stage) with $200K equity?

I calculate $400K equity and LVR 85% over the 6 properties, and I guess #1 and 3 are positively geared. How is he able to borrow $1.8M (PPOR/#5/#7) - is it due to the cash flow positive properties and equity?

Nattl3s said:

How is he able to borrow $1.8M (PPOR/#5/#7) - is it due to the cash flow positive properties and equity?

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Who knows, but their combined income maybe over 200k+ pa, it might have something to do with it...

Could have a good Broker/strategy. Going hard early with the right lenders at 95%, then progressing lender by serviceability allowance, then 90% lends etc.

If you do it right from the start, and have a decent run, your portfolio can be say double what it is if you don't put the right measures in place ie sole lender at 80% each purchase etc.


pinkboy

With a good income, discipline and focus this is quite easy to achieve over a 10 year time frame. Understanding your figures and constantly reviewing them helps a lot.

In many respects the key is constant focus. A lot of people would have stopped at property 2 or 3. These things tend to start slow at first and gain momentum if you can keep working on it.

If you think this portfolio is impressive, what these people might achieve over the next 5-10 years will blow you away.

pinkboy said:

Could have a good Broker/strategy. Going hard early with the right lenders at 95%, then progressing lender by serviceability allowance, then 90% lends etc.

If you do it right from the start, and have a decent run, your portfolio can be say double what it is if you don't put the right measures in place ie sole lender at 80% each purchase etc.

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Hmm, this is exactly the structure I have in place at the moment....

Hi Peter,

Could you please elaborate further on the last sentence in your post.

It is a fairly high LVR currently - but I guess no risk no reward ...

Nattl3s said:

Wondering what the experts think about this:

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I'm NOT an expert - but think about this.

$400k equity over a 10 year period........

If 2 people earn $70k each
That's $140k pa
Less tax, say $100k a year.
If you can live on $60k per year (i.e. just over one person's pay), you save $40k pa.

After 10 years you have $400k right? And that's without investing or anything....

Just another perspective for you.

The Y-man

SWS said:

Could you please elaborate further on the last sentence in your post.

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It's no secret that people access equity to fund further purchases. Likely that's what's occurred to build this portfolio as well. 7 properties in 10 years implied they've purchased a property about every 17 months.

Initially they would have bought 1 or 2 properties, then run out of cash for deposits. They would have likely waited a couple of years then bought another 1 or 2, then waited again.

By year 10 however, their overall portfolio is getting to the size where they look at the markets and see equity in lots of different places in their portfolio. It's almost as if the equity just 'appears' when they need it. This trend will continue and even increase over the next decade.

The same will be happening with cash flow. Looking at the figures I'd say they're about neutrally geared overall when you consider holding costs outside of the loan. Their rents will be increasing across the board. Their portfolio is of a size where there'll almost always be a rent increase happening somewhere.

I've got clients who have build a portfolio twice this size within the same time frame. Some years they were only able to buy one property or even none. In the last few years these clients have been in a position to buy a property every 3 months. It seems to be a constant cycle of access equity, increase rents, buy another property. Of course they're not topping up all their loans, but with 14+ properties there always seems to be another property available to get more equity or rental income out of when you need it.

Think of pushing a tractor tyre, big and heavy:
1. First you struggle to pick it up and put it on its side. This is getting started with property number 1.
2. Then you start to push it a bit. It's rolling but doesn't do anything you have to put some muscle into it. This is property number 2.
3. You've picked up a little speed and hit a bump. The big wheel struggles to get over it and does so with a little input from you. This is property number 3.
4. You've picked up some speed, hit a bump and bounce right through it. Property number 4.
5. You come to a hill which slows you right down. Your momentum slows right down and you have to push the wheel up the last bit. There's no property here, that was the GFC.
6. You roll down the hill, picking up speed slowly but getting faster and faster after the previous struggle. You smash straight through properties 5 & 6. This is the GFC recovery period of 2009.
7. Now you get into a flat period. You've been lax for a while because things were a bit easy there. You're still rolling but you've lost some of that speed. There's a few minor ups and downs on the road so you didn't do much. This is 2010-2012.
8. You've decided to get moving again. Bought property 7 in 2013 and you're pushing that wheel. The great thing is all those other properties have transformed into an engine to drive the wheel. You can still push but it pretty much maintains it's own momentum, you're just giving it direction. Future hills will slow you down a bit, but they're not big enough to stop you given every property you collect on the way just adds to the size of your engine.

The first decade had ups and downs and took a fair amount of effort. Now the portfolio is pushing itself along and will crush anything that comes along.

Edit: Here's some secrets behind getting your wheel running fast.
1. Pick it up - get started, it doesn't have to be perfect, but you need to get started to get anywhere.
2. Start pushing - sometimes it will be easy, sometimes it will be hard, you have to put some energy into to build momentum, you've got to keep working at it.
3. Don't drop it - if you sell everything for a quick gain or because it gets too hard, you've got to start from scratch again.
4. Give it time - even if nothing is happening for a while and you're not picking up speed, you're still moving forwards. You can still start pushing again.

Nattl3s said:

Wondering what the experts think about this:

Been trying to formulate an investment strategy, so reading a fair bit. Borrowed a magazine about investment property. In it was an article about a guy with a $3 million portfolio built from nothing in 10 years. Heres the portfolio as described in the mag:
#1 purchased 2004 for $270K current value $435K equity $120K - rent $380wk
#2 bought 2009 and sold 2013 (profit of $55K toward #5)
#3 $250K now $340K equity $80K - rent $440 wk
#4 $300K now $320K equity $50K - rent $320 wk
#5 $600K still $600K (land/build)- doing a duplex development on this land.
#6 785K now $1M equity $50K - PPOR
#7 395K still $395K (OTP to be completed in 2015)

Total value just under $3.1M. He started in 2004, used an inheritance towards purchasing his PPOR in 2011. No mention of what he and his wife earn, he's a music teacher/musician.

So am I reading this right and this fellow has a $3 million portfolio (can #7 be counted as he would have only paid a deposit at this stage) with $200K equity?

I calculate $400K equity and LVR 85% over the 6 properties, and I guess #1 and 3 are positively geared. How is he able to borrow $1.8M (PPOR/#5/#7) - is it due to the cash flow positive properties and equity?

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That PPOR has really put the brakes on the IP accumulation, unless you consider the subsequent OTP punt....
Considering an inheritance was used to purchase the PPOR with high level of non-deductible debt, (relative to the portfolio), and very low overall equity position, it's a weak portfolio for 10 years of effort.

Actually not that great.

If you wana record it the way he did it above... Mine's about $278,500 profit in 3 years on 3 properties.

No inheritance. Started with money saved from working at Subway in Dec 2011 (I was spending all the money I made in my professional job at that point in my life)

I would consider my efforts sub-par. I know many investors my age who have done much better in that time.

I stopped buying those magazines. The figures there seem pretty average. I read on here once it was because the magazines wanted property investing to seem accessible to the masses. (aka believable).

$400k equity in 10 years seems a very dismal performance in my opinion.

That can easily be achieved with just one $400k good quality well located purchase then wait & do nothing for the following 10 years.

Rixter said:

$400k equity in 10 years seems a very dismal performance in my opinion.

That can easily be achieved with just one $400k good quality well located purchase then wait & do nothing for the following 10 years.

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That's a very good point. I purchased my PPOR in 2004 for $311k. Land value is now about $650k. In retrospect, I think we paid too much, but we did buy in a good area.

Simply saving 400k cash in 10 years would be a moderate achievement, however, they were gifted a certain unknown amount to purchase their PPOR, so real earned/gained equity would be less.
This pretty much shows the portfolio has not performed well.

Property 5 is a bit unclear, this could make a huge difference:
#5 $600K still $600K (land/build)- doing a duplex development on this land.
Money owing or fully paid?
Once developed, this could add a few hundred k or more to the equity levels.
Who knows if funds have already been contributed to the development.

All figures and details shown are not accurate/complete enough to make a confident judgement for overall performance.

Hi everyone

Thanks for the input. Especially Peter for that epic post.
I didn't think the results were that impressive when you look at the figures, but I did think the fact he has managed to borrow $3million with $400K (or $200K if you read the mag) equity is impressive (Maybe not for regular posters here, but little old me)

The Y-man said:

After 10 years you have $400k right? And that's without investing or anything....

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Yes, thats what I was thinking Y-man.


[/QUOTE] Property 5 is a bit unclear, this could make a huge difference:
#5 $600K still $600K (land/build)- doing a duplex development on this land.
Money owing or fully paid? [/QUOTE]

He still owes $600K for duplex building and the land purchase. He used the $55K profit from the sale of #2 to fund this purchase.

nhg said:

Actually not that great.
If you wana record it the way he did it above... Mine's about $278,500 profit in 3 years on 3. I stopped buying those magazines. The figures there seem pretty average. I read on here once it was because the magazines wanted property investing to seem accessible to the masses. (aka believable).

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Close to $300K in 3 years is very impressive NHG (imo). In 7 years I have made $60 profit/equity (1 PPOR/ 2 IP) i believe from your previous posts you said you had achieved this by adding value. Yes, the mag was pretty average and very heavy with advertising. Don't think I will be subscribing.

Cheers, nat

Great post Peter

20% of $1.8mil is $360k.

There's your deposit - pure equity.

Portfolio looks to be generating good cashflow. Add dual incomes and that'd be your servicing. They'd be borrowing under $1.5m.

I have to say, Rixter nailed it. $400k equity over a decade is abysmal. Yes, $400k is nothing to scoff at but with an inheritance to boot, that is not a great result.

There could be a lot more to this than meets the eye. Certainly the inheritance injection does open up some questions, but this result after 10 years can also be explained by an ongoing series of top ups.

Say you purchased an initial property with a 90% or even 95% LVR. Perhaps the inheritance was only $20k which they used to get into the market.

At this point they could have simply stopped, with a property that might have been worth $200k at purchase. Over 10 years this property could have doubled or even tripled in value, which might put them in a $400k equity position today.

Not a bad result for a $20k outlay.

Alternately it's possible to continually increase the mortgage as the equity presents itself. You then pump this money into more investment properties. You keep that property and subsequent properties leveraged to the hilt. After a decade you don't have a lot of net assets, but you do control a lot of assets.

I know one guy who's leveraged at about 85% LVR across his portfolio which is worth about $5M. That means he's worth about $750k. Respectable but really not that much given he's got $5M of property. The portfolio is cash flow focused so it puts about $300 per week in his pocket after all costs (not just interest).

Consider what happens if it grows at the same rate over the next decade as it has in the last decade. If he doesn't borrow more and his properties grow at 7%pa, that $750k becomes $5.75M.

The point I've tried to make previously is that this couple have spent a decade setting themselves up. Now is when they really start to make some money.

BTW: I'm not entirely impressed by the makeup of the portfolio, the figures and some of the profile suggest they haven't really figured it out yet. They'll probably do well be default, simply because the put the effort in over the long term. I suspect this is a good example of being able to achieve some decent results over the long term with mediocre decisions. I've seen people make great decisions and get a lot further, faster.

Nattl3s said:

Close to $300K in 3 years is very impressive NHG (imo). In 7 years I have made $60 profit/equity (1 PPOR/ 2 IP) i believe from your previous posts you said you had achieved this by adding value. Yes, the mag was pretty average and very heavy with advertising. Don't think I will be subscribing.

Cheers, nat

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I used bank valuations. Not market value in my calcs. My granny flat wasn't included in the profit. Nor in the cost to build it as banks don't count it.

Essentially that is bank val on the original property unchanged.

Point being. In the right market you can do much better with less effort. If I had bought where I purchased my last place from the start I would be breaking almost $500k profit in that time.

They were sub $200k at the time and $250k when I purchased mine. Even though it was my last purchase, it performed the best growth and has best cashflow with no renovations.

Also most potential to further develop.

nhg said:

Point being. In the right market you can do much better with less effort. If I had bought where I purchased my last place from the start I would be breaking almost $500k profit.

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Ive been looking at my position quite critically of late. I think the main issue for me has been market timing. I started during the property boom with my PPOR and so far the QLD market has been flat for me - almost no increase in equity apart from my own savings. I am in for the long term though. This forum has been opening my eyes to many possibilities. We all have to start at some point and move forward, you may have made more profit buying your last place from the start but at least you got in and made a good profit regardless Cheers, nat.

meh, I think if he was more aggresive, his portoflio sizr would have been much mroe appealing