Long Term Objective?

yieldmatters said:

I'm not sure how you could get to hundreds of properties unless you have an enormous income to fund them. On interest only lets say it takes 5 years of rent rises to send your property cashflow positive (that is being generous in today's market). Lets say you could only hold no more than 3 negatively geared property at one time due to income constraints. That means you could get 3 every 5 years at the absolutem maximum. So over 20 years that would be 12.

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A very niave statement indeed!

Have you never heard of properties that are cashflow positive from day 1. For example, I bought one property for $25k, which rented for $140pw. How many properties like that could you hold in your portfolio, even if paying P&I? The answer is unlimited. Properties like that usually don't have high CG, but they make up for it in yield. Obviously that particular property is no longer available, but there are still properties that yield a high return out there. You just need to look in the right places, know what to look for, or know how to change the use to make it work for you.

In the space of 3 years I bought 9 houses & a block of 4 units. They are not all regional properties like the above house, in fact 6 of the houses were Sydney properties. Granted they are not McMansions, & they needed a little tidying up. One of those is my PPOR & the others are all tenanted.

Do a search & read about Brenda Irwin. Go to the library & find one of Steve McKnight's books. Granted times have changed slightly, properties have increased in price, but that doesn't mean that what these people have achieved is not possible. Rents are moving upwards & it won't be long before those kind of deals will be widely available once again.

Steveadl:

hmmmm may have to as well, bookshop doesn't have it.

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Steve, there are some interesting sites that can have (some difficult to get paws on) books, music etc for sale relatively cheaply:

http://www.amazon.com/Number-Completely-Different-Think-About/dp/0743270312

Some of the reviews are interesting too.

Ebay, I guess, would be another.

our obsession said:

Steveadl:

Steve, there are some interesting sites that can have (some difficult to get paws on) books, music etc for sale relatively cheaply:

http://www.amazon.com/Number-Completely-Different-Think-About/dp/0743270312

Some of the reviews are interesting too.

Ebay, I guess, would be another.

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Thanks for that. I love Amazon - get all my DVD's from them (anyone else prefer US box sets to the Aussie one's or am I the only one that sad? ), so have put the book on my wishlist for the next time I order.

In terms of setting an objective, I simply picked a number that represents how much I would like to live off per year in retirement, as a minimum. For me, that number is $150,000 per year. I also set the requirement that my PPOR would be paid out. Thus, I figured I would need $3 million in cashflow generating assets. Both figures are in 2005 dollars - obviously the nominal numbers will grow with inflation.

The next thing is to convert your objective into a series of steps needed to achieve said objective. For me, this is a 3 step process:
Step 1) Accumulate $3M worth of IPs (initial approach is 10 properties at an average of $300k each). At a rate of 1 IP per year, I should be done by about age 38. I also have some shares, and some cash savings.
Step 2) Allow the equity to grow, and pay down own PPOR.
Step 3) Borrow against equity in IPs to build a portfolio of blue chip shares that yield about 5% pa, hopefully with some franking credits attached.

Thus, the equity in the IPs is used to grow the shares portfolio, which then generates my desired income. Of course, over time both the property and shares portfolios will grow in underlying value, which leads to an increase in incoming cashflow. This is a nice benefit, that over a few decades will add up to a substantial amount. And because I won't have consumed my investment equity, I'll have something worth leaving to my son when my wife and I pass away. I'd also like to provide some meaningful support to charities and church.

In order to help me on my way, I've used a few ideas:
1) I pay P&I loans on all my properties, so even moderate growth will result in plenty of equity down the track.
2) My properties yield well, and the portfolio is cashflow positive after tax, making it easy to continue to grow the portfolio.
3) Live well below my means, and save into my PPOR loan offset account. Having a strong cash position is good for a number of reasons.

Now, I may not achieve the objective in the end, but as long as I stick to the basics, and don't get sidetracked, I reckon I can't be hurting myself. Of course, if I find a new idea that will work for me, I'll change the plan!

Thanks BerlinaV8, that makes a lot of sense to me, as we previously just couldn't quite figure out how to get tax effective 'spending money' from properties as living off equity meant having loans that were not all tax deductible and living off property income meant a lot of cashflow positive properties where the income would be taxed.

The way i always describe it to my friends, is that I could sit on one property and let it become cashflow positive. I could not retire of this return.

I could leverage my assets, using equity, to build up an asset base of say for example 20 properties, and then stop leveraging and allow these assets to turn into positive cashflow, and i could definitely retire of this return.