Target: $200k income in 12years! Possible?

It's possible to acheive but I've only seen a few people do it through property investment, and they certainly weren't passive about it.

I can think of other ways of achieving $200k income in far less than 12 years through business.

I like this post :)

Definitely encourage being active rather than passive, be in control rather than be controlled - by the market.
Business is a great way to fund property accumulations, worked for us.
 
Hi,

You can def do it, good to see you have a goal and timeline for it.

It depends if you want to take prop route or want to try prop/business

As someone mentioned (PT_Bear) that business route would fastrack your progress, I totally agree with him.

All the best
 
I think people should go into business first , make it work , make more income , then hit the property market.

Cash flow is king, once you have solid good cash flow
 
PT would you mind sharing some examples? Is this achievable for someone who doesn't have a business background?

First of all I don't believe there is any such thing as a 'business background' that is so magical. If you've worked in an office or a factory or a shopping center you've worked in a 'business'. Even property investing should be considered a business in my opinion. Additional skills that would be required are to do book-keeping or employ or sub-contract someone to do it for you. Many other business skills can also be outsourced. The one thing I would say that is critical is the ability to sell.

Like it or not, at some level, we're all in sales. Even finding a partner is sales.

Most people with an idea to deliver a product or service in a manner that will make money can start a business. If a business is still around after 12 years, I would expect it to be generating at least this kind of income, otherwise it's just a hobby.

Owning a business can be one of the best returns to equity that there is. A healthy business should consistently grow in value and should deliver positive cash flow as well. My own business has delivered far more cash-flow and growth than my investment portfolio. The only thing my properties do better is leverage debt (and that's only because it's a private company not a public one).

Creating your own business required an obscene amount of hard work. The business becomes your mistress of whom your wife complains you spend the majority of your time with. It's also highly risky. You can put years of your life on the line, not to mention large sums of money, only for the business to fail and leave you with nothing but debt. The saying that 80% of businesses fail in the first few years is very true.

I'll also admit that my own business has been around less than 12 years and its income is substantially more than $200k per year. I also work very hard, have had times in the past where I was wondering if I'd be able to pay the mortgage next month and let's just say that I probably cope with stress better than most people.
 
Thanks PT

Yes I have heard there is a high fail rate. Is it becasue people don't do enough homework, planning and costing?

Earlier in the year my work offered voluntary redundancies and I didn't put my hand up. There is rumour that there will be another cull in the next year or two. So I am starting to think of what I could do if I did leave. I am also not good at selling myself or a product.

Any suggestions for recommended reading?
 
Here's another option.

Take out an 80% LVR loan against your 700K PPOR. That gives you 560K

Set up 5 x 100K splits. and 1 x 60 K split - a total of 560K

Purchase 6 x NRAS properties at or below 350K.

Split 1 - The 60K split against your PPOR will provide a 10% deposit for the first NRAS property, and will provide stamp duty to 15K and a cash buffer to 10K to cover Year 1 holding costs. Do this loan first

Splits 2-6 - The 5 x 100K splits against your PPOR will provide a 20% deposit for the 2nd,3rd, 4th, 5th and 6th NRAS property, and will provide stamp duty to 15K and a cash buffer to 10K to cover Year 1 Holding costs. Do these deals after the first loan settles, and use Adelaide Bank or Firstmac so that you can take advantage of their NRAS borrowing capacity policy,which allows for the use of the NRAS Tax incentives up to 80% LVR. Using their products you will be able to get the borrowing capacity necessary to accumulate a 6 x 350K NRAS properties based on just rental income and the NRAS incentives.

You would end up with a 560 K loan against your PPOR, and 1 loan for 315K (90% LVR) and 5 for 280K ( 80% LVR) So a total debt of 2.275Mil and a property portfolio of 2.1 million. All debt would be fully deductible.

Each NRAS property will provide you with approximately 15-20K of deductible losses, when you factor in interest costs, property management fees, rates, insurance, strata, NRAS compliance fees and depreciation. This would mean you have between 90-120K of deductible losses to offset against your existing taxable income each year for the next 10 years. If that results in your taxable income falling below 18,600 you will essentially be earning a tax free income for each of the next 10 years.

This alone should in turn create so much tax free income that you should be able to pay down the initial 560K debt against your PPOR pretty aggressively, but this is not the extent of the income you will have available. Remember that each NRAS property will not just produce 15-20K losses each year to potentially give you a completely tax free income, they will also produce approximately 6-8K CF+ Tax Free each year, and that figure increases each year, in line with rental CPI ( it has averaged 5.69% each year for the past 5 years) for the entire 10 years, so realistically you can expect that by years 5,6 and beyond, each NRAS property will be producing 11-12K CF+ per year tax free.

So you'd have a low or non existent taxable income AND 36-48K of extra tax free income available to you during the first 4 or 5 years. Use the income from the first 6 plus your tax free income and pay down the initial 560K loan on your PPOR by year 4 or 5. Then it starts to really get interesting!

Then you can repeat. Draw the 560K out again ( or more if there's additional equity from growth) and purchase another 6 x NRAS. ( or more if you are able to) You would now own 12 x NRAS properties. the first 6 would still have 5 years to run. The new 6 would have 10 years to run. With 12 properties this would mean you would running deductible lossses of about 240K per year on your taxable income, AND be receiving at least 130-140K in extra Tax Free income from the NRAS incentives. ( they'd each be producing 11-12K tax free per year by year 5)

Now it starts to really snowball. This amount of income, PLUS the tax free income you're earning should allow you to very quickly pay down the 560K debt for a second time, and certainly before year 10.

Fast forward to year 10. You've made it here, paid little or no tax for 10 years , paid off 2 x 560K mortgages against your PPOR and accumulated a dozen properties, and its all been achieved with absolutely ZERO out of pocket costs!

By year 10, the first 6 NRAS properties will be rolling out of their 10 year NRAS tax entitlements and reverting to full market rental. So what now? Starting with a 350K property that generates $350 per week in rent in Year 1 ( $280 under NRAS) even a modest 5% increase to rental income each year should result in those first 6 properties now producing approximately 30K in rental income per year, each. That's 180K per year in income, but its taxable and your losses/deductions are getting less now, as the depreciation is starting to fade by year 10...

But you'll still be offsetting that 180K in rental income PLUS your taxable income, for a further 5 years, because each of the second batch of 6 NRAS properties you purchased in 2016 will still have 5 years to run in the NRAS, so will be continuing to generate 15-20K losses per year AND dont forget that the first 6 will still be generating some decent deductible losses for property management, rates, water, strata, insurance, depreciation etc. So you should still be able to find significant losses to cancel out a good chunk of your taxable income. And dont forget, the 2nd batch of 6 NRAS that you bought in year 5 will now be generating 12-14K Tax free income for the remaining 5 years they are in the NRAS.

So really, for years 10-15 you should still be enjoying significant tax deductions on your salary plus the 180K of rental income you're now receiving, and be generating an additional 70-85K tax free from the NRAS incentives. This should in turn allow you to then pay down at least one or two of the 280K NRAS loans that you have in place for each of your 12 investment properties, or start pumping money into SMSF.

Your PPOR would have already had the the 560K paid down (twice) along the way, by year 5 and again by year 10. ( You used your tax free income PLUS the 6 x NRAS tax incentives to pay it off in 5 years. You repeated the process to pay it off a second time with 12 X NRAS by year 10) You'd also have paid off at least 2 of the NRAS, so that's 60K of income and X amount of property value right there that doesnt have any debt against it. The 4 remaining NRAS properties from the first batch, plus the 6 remaining NRAS properties from the 2nd batch, would still have debt against them totaling 2.8 million, but as the 2nd batch rolls out of NRAS in year 15 ( remember you bought the second batch in year 5. The first 6 were purchased in year 1 ) the rent from the properties would be more than covering repayments ( By year 15, a 5% average annual increase to $350 market rent per year will result in rental income of $727.62 per week. That represents annual rental income of $37,836.28 or a yield of 13.51% for a 280K loan)

So you'd end up with - an unencumbered PPOR worth ??
2 x unencumbered investment properties worth ?? and producing almost 38K of income each.
10 x investment properties with 2,8 mil of debt, but producing almost 380K of income between them

So you'd have a range of choices at this stage - but here's a simple option.
You could sell 6 of the NRAS. Let's assume they're worth 630K by Year 15. That's based on 4% annual capital growth over 15 years, which is a reasonable and conservative (and probably pretty accurate?) estimate I believe. So selling 6 would gross you 3.78 Million. After paying back the loans ( 6 x 280K = 1.68 Million - you would already have paid off the balance of the loan - ie the 20% deposits you used from equity on your PPOR) you'd also have to pay some CGT on your gross profit.

Your GROSS profit would be 1.68Million. (done as a rough figure- 280K profit on each property x 6) Because you owned the properties for more than 12 months you are entitled to a 50% CGT discount, so 1.68 Million x 50% = 840K CGT assessable.

840K would be added to your taxable income for that year, so it would push you to the highest rate of 45%, so you'd be forking out 378K in CGT from your profit of 1.68 Million. That would leave you with a NET profit of 1,302,000.

So, now you'd have an unencumbered PPOR worth ??
You'd have 2 unencumbered investment properties worth 630K each, generating @ 75K (taxable) rental income by year 15.
You'd have another 4 investment properties generating @ 75K (taxable) rental income each, but they'd still be carrying 280K debt each (1.12million)
And you'd have 1.3 million in tax free profit to play with.

You could just stop there- you'd have 6 x 75K in taxable income (450K ) from your investment properties
You'd have millions in equity across the 6 properties and the PPOR. And you could use the 1.3 million to pay down all the remaining debt on the other 4 investment properties. So you'd be debt free with a PPOR and 6 investment properties generating 475K of taxable income- more than sufficient to produce 200K after tax. In fact, at today's tax rates you'd be clearing $273,950 after tax.

Or, I can show you a strategy that would allow you to go well beyond this and also/simultaneously accumulate a few NRAS properties through your SMSF whilst still accumulating the 12 in your own name, and generate another chunk of tax free income through your super - you wont be able to do it as aggressively inside SMSF though because the neg gearing is much weaker due to the lower marginal tax rate of 15%. But even one or two accumulated in super and paid down will add 75K of additional tax free income.

So yes, a very simple plan built around using equity, NRAS and only 4% growth per annum for the next 15 years to produce @ 275K tax free per year for you within 15 years.... much more than you'd hoped for....and all done with ZERO out of pocket costs :) You're in a unique position because of your equity, to take advantage of what NRAS can do for you.

Just my 2 cents.... but it really is that powerful if you digest the numbers.

I'll wait for all the baggers now lol
 
As someone mentioned (PT_Bear) that business route would fastrack your progress, I totally agree with him.
Assuming the business was successful


Earlier in the year my work offered voluntary redundancies and I didn't put my hand up. There is rumour that there will be another cull in the next year or two. So I am starting to think of what I could do if I did leave. I am also not good at selling myself or a product.

Any suggestions for recommended reading?
Based on this; Seek.com.au

But seriously, formulate a strategy, you already have the goal in sight.

If you aim for the stars and hit the tree-tops, you might end up with a passive income of more than $50k and not have to get out of bed to earn it. That would signify winning the money game at that point.
 
Thanks for the great comments and suggestions, it certainly gives me lots to think about and is a great way to ask those questions of myself that i havent raised yet.

Hopefully others can benefit from this thread aswell!
 
THANKS euro73 !!!

That was one amazing post, thanks for detailing your strategy, shared ideas such as this is much appreciated!
 
Wow, just wow euro73. Wish I had the OP's situation :)

His situation allows for a a "wow" approach, but anyone with enough equity ( ie 60K) to get just one NRAS property right now, can get started on a strategy that should still allow them to build a 3 or 4 property CF+ portfolio quite easily.

The secret is very simple. Four things ;
1. greater deductible losses generated by the reduced rental income and NRAS compliance fee assist you with reducing your taxable income- which means more cash is made available to pay down your PPOR immediately. Combined with falling rates, it's pretty potent!
2, Extra Tax free income generated by the NRAS incentive, which also means more cash available to pay down your PPOR immediately. Combined with falling rates, it's pretty potent!
3. The result is more equity available to repeat with a 2nd NRASproperty, sooner.
4. Acting sooner rather than later. NRAS properties will only be coming to market until 2016. That's 4 years to get your hands on as many of these cash cows as possible, and each one will run in the scheme for 10 years from the date you settle on it and rent it to an eligible tenant. The longer people dilly dally, the fewer cash cows they can accumulate.

There has really never been a better interest rate environment with which to make use of all the cash flow/tax benefits to quickly achieve debt reduction and create equity to go again.

The ONLY way to match this strategy relies on your existing property producing double digit Capital Growth or it relies on you securing a very significant increase to income, and that's a strategy relying on luck/good fortune. NRAS is a strategy relying on two things only - 60K of equity, and securing a tenant. And when you are offering a property at 20% below market rate that shouldn't present too great a challenge :)
 
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