澳洲Australia property Newbie investor! Investment Strategy? | S

在澳大利亚Property Investment




Hello somersoft & everybody. This is my first post so apologies for any mistakes I may make! I will start with a brief rundown of my situation. I look forward to being an active member & expanding my investing knowledge.

I am 23 years old, bought my first investment property at the age of 21 after saving money throughout my apprenticeship. I purchased a unit in Boronia, vic in January 2011 when confidence in the property market seemed high. I paid $370,000 for a 4 year old 3 bedroom, 1 bathroom, single garage, single storey unit which seemed the going rate.

I bought the unit purely as an investment with no intention to move in. It is currently leased for $340pw. The tennants seem happy and I've had no problems in that regard. I had a decent amount saved prior to purchase to minimize the amount I had to borrow and avoid paying mortgage insurance. I currently owe $290,000 with roughly $45k in offset. My IO repayments are sitting at about $1240 per month. last financial year I received $6500 back at tax time which after all expenses worked out to be positive cash flow by a small amount. I am living at home therefor don't have many expenses in my day to day life which helps. (gotta milk it for as long as I can hey?);)

I am currently looking for some form of direction or investment strategy which will best suit me as when I bought my unit I didn't really have much guidance or strategy in mind other than pay it off as soon as possible. I am currently earning $60k but will be climbing to $70-80k within 6 months and am thinking of purchasing another but unsure how I will go financing another place..

I apologize for the long post, trying to best explain my situation as short as possible isn't easy & I'm sure there is plenty I'm missing! Thanks in advance for anyone willing to throw a few ideas or questions at me!

Regards,

Dan  

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What do you think of the growth in the value of your property since you purchased it? Has it gone up? If so, part of your investing strategy would be to extract some equity from it (getting a loan increase from your current lender) and use that extra money to put towards the new purchase.

As to what to purchase? Who knows but something like what you currently have are quite resilient in the current climate. Have you worked out your next budget?  

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Hi Aaron, thanks for the reply! I haven't had the unit properly valued which I am planning on doing in the new year but going off recent sales in the area I don't think it has had a great deal of growth which will be limiting my options fairly heavily. I spoke to a local agent who did a rough valuation saying he was confident they could sell it for roughly $400k-420k which I thought unlikely. I guess my only option is to get it properly valued to see if I can unlock some equity (if any). What implications would I be faced with if the valuation comes back at say $350k? I'm guessing that will put a major halt in a near future 2nd investment!  

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Dan,

Which lender are you with? Lots of lenders allow valuations upfront without a full application, which eliminates a low valuation risk. To answer your question though, if the valuation did come back at $350,000 (and you had to do a full application) then you would have to put money in or pay LMI to keep the LVR below 80%. So be careful how you do it.  

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Ah thanks for that advice, I wasn't aware of that but I will keep that in mind now! I am currently with Westpac and have a rocket investment account with offset feature. I am planning on booking in with my mortgage broker or directly with westpac to find out what my options are in terms of buying another property. From there I guess I will have more of an idea as to what my limitations are.  

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Your broker can order a valuation upfront with Westpac to see what equity you have (if any). In the meantime you should get a sense of what you can afford etc and go from there.  

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dan_89 said: ↑
I am currently looking for some form of direction or investment strategy which will best suit me as when I bought my unit I didn't really have much guidance or strategy in mind other than pay it off as soon as possible.Click to expand...
Dan, this is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

I've basically been purchasing an IP per year. To date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the link to this "We've Done it" thread I started some time back.

If you require any clarifications just ask.

I hope this provides some food for thought & helps.  

评论
Hi Rick
This is a very interesting stragety I like the idea of a tax free income!!
Was just wondering (hope you dont mind me asking) how you guys went about building the depoists for each purchase, was it savings or did you have to refinance and use equity, which im thinking would leave you with a bit less when you get to year 10 ready to live off equity.
Thanks
Jamie  

评论
Rixter said: ↑
Dan, this is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

I've basically been purchasing an IP per year. To date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the link to this "We've Done it" thread I started some time back.

If you require any clarifications just ask.

I hope this provides some food for thought & helps.Click to expand...
Rix, I like many features of your CGA plan. Some questions.

1. What happens if over a ten year period, there is a period of house price collapse American style?

2. What happens if the growth over a ten year period is averaging way under 7% p.a. like 3% p.a. like parts of Sydney?

3. If you lose your income in the first five years, does the whole plan fail?

4. Can the whole process be simplified if at year 1, we buy a 1 mil IP and then hope that it is worth 2 mil in ten years?

I would greatly appreciate your thoughts.  

评论
Hi Rix,

Thanks for the advice, I am shocked at how helpful and informative this forum can be! As for your strategy all sounds good in a perfect world although I am also rather curious on a respone to China's questions. Greatly appreciate the response and time taken to explain your strategy though. Cheers  

评论
Hi Rixter.

Excellent systematic post! well thought out strategy - kudos to you!

My strategy is very simliar to Rixter's one, with a bit of a twist/variety.
My mantis/vision for property investing is two folds;

1. Buy a good older style foundation property every 5 years ( houses or townhouses) for Capital growth

*Areas in demand
* Undergoing gentrification
* Fridge suburbs within 3-4 km
* Renovations potential
* close to transport
* close to good schools

Why?

1/ Draw on equity once every 2-3 years ...enough deposit to fund the below rental yield ( positive gearing) strategy

2/ Usually these type of properties are negative geared; however the "damage" are absorb by investing in positive gearing property to balance out the lost.

3/ Property range of $450,000- $750,000

4/ I prefer older style property, as it's much easier to buy under the market and if your willing to get your hands dirty and carry out some cosmetic renovations = sweat equity!

5/ Preference for torrent title townhouses - cheaper entry level, if bought correctly it will experience the same amount of capital growth then a standard house in the same area.


2. Buy or develop block of units ( block of 3-10) OR single units under $300,000 every 2-3 years for rental yield, to fund the above capital growth strategy ( affordability wise).

*Block of units under one title only ( save on council rates , stamp duty etc...)
*If the block is more then 3hrs drive away, buy a small block of 3-4 units only - less hassle with tenants and repairs.
* Land value/ No strata
* Aim for a minimum yield of 8.0% ( single units)
* Aim for a minimum yield of 7.0% ( block of units)

Why

1/ This strategy has 2 key beneift; it supports my above capital growth strategy in terms of "financial lost and stability" - as Rixter mentioned "The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market".

2/ Self sustaining

3/ I have a preference for block of units, some of the key benefits
- Lower holding cost
- No strata
- Multiple rent
-Easier to increase rent ( lower increase spread across multiple tenants = magnified end result)
- Hold land value, potential for capital growth and development


My strategy is considered "slow ", however it suits my lifestyle and the pace im currently at..will most likely change when i get married, apparently it always changes when you get hitched! :rolleyes:

Regards
Michael  

评论
Jamieb said: ↑
Hi Rick
This is a very interesting stragety I like the idea of a tax free income!!
Was just wondering (hope you dont mind me asking) how you guys went about building the depoists for each purchase, was it savings or did you have to refinance and use equity, which im thinking would leave you with a bit less when you get to year 10 ready to live off equity.
Thanks
JamieClick to expand...
Jamie,

In the early days for the first few IP's, we borrowed 106% of the IP purchase price secured against our PPOR initially & subsequent IP/s.

The breakdown of the 106% is as follows - 100% IP purchase price, plus 5% purchasing costs, plus 1% extra surplus funds as a buffer should there be any vacancy period between settlement & finding the first tenant, and/or any unexpected maintenance.

As our IP's grew in value over the short-mid term (due to my area due diligence and macro selection criteria) the bank's need for our ppor as security was no longer required and was released after our application to do so.

With our later purchases we've set up investment LOC's secured against existing IP's for the required 20% deposits & 5% purchasing costs associated with each new subsequent purchase..the remaining 80% balance of funds required for settlement to take place was financed with another bank/lender secured against the new purchase.

I hope this helps.  

评论
china said: ↑
Rix, I like many features of your CGA plan. Some questions.

1. What happens if over a ten year period, there is a period of house price collapse American style?

2. What happens if the growth over a ten year period is averaging way under 7% p.a. like 3% p.a. like parts of Sydney?

3. If you lose your income in the first five years, does the whole plan fail?

4. Can the whole process be simplified if at year 1, we buy a 1 mil IP and then hope that it is worth 2 mil in ten years?

I would greatly appreciate your thoughts.Click to expand...
dan_89 said: ↑
Hi Rix,

Thanks for the advice, I am shocked at how helpful and informative this forum can be! As for your strategy all sounds good in a perfect world although I am also rather curious on a respone to China's questions. Greatly appreciate the response and time taken to explain your strategy though. CheersClick to expand...
China,

1/ Playing devils advocate should house prices collapse aka USA style then one would have the same issues as anyone else who had a mortgage, however in your favour you also have rental income & tax advantages available for lifestyle & expenses.

2/ Diversifying portfolio holdings across multiple markets to minimise market over exposures and having a purchasing criteria for identify areas of rising CG is extremely important. However playing devils advocate again and you did purchase a lemon then I would strongly recommend offloading and cutting it loose from the flock.

3/ No matter what asset class you invest in one should always work towards maximising cash flows & minimising risks where ever possible along the way. As such I would strongly recommend income protection insurance should you lose income or be in between employment in the early acquisition years of building your portfolio.

4/ The idea is to build ones asset base as fast & efficiently as you possibly can whilst you reap the rising CG over time. To do so and taking into account the relevant area due diligences accordingly I again strongly recommend multiple IP's within ones portfolio so as to increase & maximise ones rental income/yields from the cash flow perspective.

Using your $1Million example I would look to be purchasing 3 IP's compared to just the 1IP as you've asked. From my experience you will generate a higher yield within individual properties that compounds incoming cash flows across ones portfolio.

Just as importantly it also works as a tool towards minimising risks especially in the early foundation years of portfolio construction. Should a vacancy period come into play and ones $1million asset base consists of 3 IPs then you've only lost 33% of your rental income compared to losing 100% of your total portfolio income having only held the 1 investment property.

China & Dan I hope this helps..  

评论
Thanks Rixter. This helps a lot and I appreciate your detailed response.

You mentioned that when you started out, you borrowed 106% of cost of IP using home equity.

This sounds like a very bold move wherein if there were adverse circumstances such as loss of job, rental vacancy, interest rate surge, there would be a lot of anxiety.

A few more questions if you don't mind.

1. Do you advocate targeting cash flow positive properties with your IP selection? It seems like your strategy would work even better with less stress if more CP positive?

2. Secondly, I note that you advocate purchasing multiple IPs to spread risk and multiply your income. Lets say that I am starting with using 500k home equity on unencumbered 750k PPOR to start my IP journey - would you leverage to the max and use the 500k as deposit on say two or three IPs and then borrow another 1.5mil secured against the IPs ?

Or would you recommend for beginners to have a smaller portfolio e.g. use only 250k home equity and buy only one IP to learn the ropes?

3. Did you have a new LOC with a new lender everytime you bought a new IP?

4. With your very first IP using home equity as deposit, what loan structure did you use or would recommend?

Many thanks in advance.  

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china said: ↑
You mentioned that when you started out, you borrowed 106% of cost of IP using home equity.

This sounds like a very bold move wherein if there were adverse circumstances such as loss of job, rental vacancy, interest rate surge, there would be a lot of anxiety.
/QUOTE]


Exactly what you are looking to do as well : )

you are borrowing 100 % of the purchase price Plus costs

ta
rolfClick to expand...
 

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Thanks Rixter & Mike C for your detailed response. I had similar plan as Rixter explained but scaled down version. Somewhere between Rixter & Mike C.
- instead of buying 10 in 10 years I'm aiming 5 in ten years over 20 years period.
- instead of new strata type property or older house I'm aiming for relatively newer house with land.
- aiming for about 400k -500k properties

My reasons are:
-don't want to deal with too many tenants
- two years in between gives enough time to sort out issues with existing properties and research new IP.
- 2 years gives enough time sort out deposit issues

Having said that, I'm only a beginner and reached only 50% of our goal. Others are much more experienced :)  

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devank said: ↑
My reasons are:
-don't want to deal with too many tenantsClick to expand...
I've been actively investing since 2000. Over that time I have never dealt with any tenants. That's my property managers job that I employ them to do.  

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china said: ↑
You mentioned that when you started out, you borrowed 106% of cost of IP using home equity.

This sounds like a very bold move wherein if there were adverse circumstances such as loss of job, rental vacancy, interest rate surge, there would be a lot of anxiety.Click to expand...
Its pretty much standard practice to use other peoples money ( borrowed funds from bank) for the 20% deposit, 80% of the purchase price plus the purchasing costs.. Why use your money when you dont have to.

We've already addressed/minimised risks in relation to job loss, vacancies and interest rate increases via insurances and fixing rate interest periods.


china said: ↑
1. Do you advocate targeting cash flow positive properties with your IP selection? It seems like your strategy would work even better with less stress if more CP positive?Click to expand...
In the first few years I targeted CF neutral IP. I looked for a minumum yield of 6.5%. I did this via a very quick calculation - Weekly rent attainable X 800 = Top purchase price paid.

With later purchases I relaxed this yield criteria back to 5.2% as my portfolio had already generated substantial equity and provided me a nice buffer of available funds within my investment LOC's to utilise should the need ever arise.

china said: ↑
2. Secondly, I note that you advocate purchasing multiple IPs to spread risk and multiply your income. Lets say that I am starting with using 500k home equity on unencumbered 750k PPOR to start my IP journey - would you leverage to the max and use the 500k as deposit on say two or three IPs and then borrow another 1.5mil secured against the IPs ?

Or would you recommend for beginners to have a smaller portfolio e.g. use only 250k home equity and buy only one IP to learn the ropes?Click to expand...
All depends on one's personal risk profile. We are all different with different tolerances. Going by your past posts it appears you are very risk adverse. I would suggest buying one to start with to learn from and then once you've found your feet ramp it up to what you feel more comfortable with.

There is no right or wrong, just what best suits you because like I said we are all different when it comes to learning speeds and growing as an investor.

Me personally I basically purchased and IP per year over the course of a decade. Some people might think that's fast and some may think its slow. I guess it really depends on the knowledge level and where that person is themselves on their own investment journey when it comes to making comparisons.

china said: ↑
3. Did you have a new LOC with a new lender everytime you bought a new IP?Click to expand...
In the beginning I had no investment LOC's. Like I mentioned earlier I borrowed 106% secured against my PPOR.

Now days we have 3 investment LOC's and with later purchases drew the deposits & purchasing costs from the LOC's and financed the remaining 80% of the purchase prices need to complete settlement from another lender. Today our portfolio loans are spread across 3 different bank/lenders so as to miminise our exposure risks with them also.

china said: ↑
4. With your very first IP using home equity as deposit, what loan structure did you use or would recommend?Click to expand...
As per my answer to Q3 above.

I hope this helps.  

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Rixter said: ↑
As per my answer to Q3 above.

I hope this helps.Click to expand...
It helps a lot, thank you very much.  
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