Hello all, time for an update.

I ended up purchasing 3 units in the over 55’s complex in total. Each of them cost me $86K, rented for $220 each (all positive geared).

Fast forward to August 2022 and I have commenced selling all 3 units.

The reason for the sale is related to issues with the on site manager/caretaker (he has a lease for the management rights). Long story short, the manager’s behavior is leading to large costs incurred by the owners.

Fortunately the value of the units has appreciated, selling for $150K.

Therefore I am looking at realising a $64K increase for each unit, a 74% return (ownership of between 5 – 3 years).

I am upset to have to sell the units as I really enjoyed the relationships with the tenants and the cashflow was neat as well.

So, learnings:

1. The over 55’s were a great cashflow generator at a purchase price of $86K
2. The tenants were the best we have ever had, they paid on time and valued the secure housing
3. The capital appreciation was a great bonus
4. The issues between the caretaker and body corporate/owners really sucks. It is due to this issue that I will focus on non-body corporate real estate options in the future.

Thanks guys, I hope the update was interesting.

Hey Julian, if you are referring to the book “Creating Real Wealth by Michael Kemp” you may be right, I don’t know the author.

My personal story is factual, and as an update 2020/2021 has been an interesting journey.

I manage my share investments based on the theories of Austin Donnelly (https://www.bookdepository.com/Sensible-Share-Investing-Austin-Donnelly/9781875857159).

Mr Donnelly passed away in 2007, but his work in the area of share market analysis is simply amazing.

Based on his writings I had 90% of my share portfolio in cash at the end of 2019, and in March 2020 the COVID crash occurred. Again following Mr Donnelly’s zone methodology I switched to 90% shares in April, not at the bottom of the crash, but well below the peak.

In the twelve months since my net worth has increased $135K, an average of $369 per day (note I invest the majority of my share portfolio in managed funds/super, so my gains are not due to a ‘hot tip’ or ‘one off investment’).

My advice:

– read widely and take what works for you from each resource

– focus on the advice which helps you achieve your goals

– don’t focus on the information which seems unlikely or unreal

– it all comes down to goal setting

– set your goals and then learn what you need to learn to achieve them.

Hey guys, for those following this post I have written another post analysing a real estate deal. You can read it here – https://www.propertyinvesting.com/topic/5056137-analysing-the-deal-2/

Thanks Ian, having now purchased 2 of these units (over 55’s), a 3 bedroom house and a 2 bedroom unit (in a little complex of 12 units) over the past 2 years, I think it is important to diversify one’s real estate portfolio. The over 55’s get a higher rental yield, and these older tenants pay on time and are really the best tenants, they really value the units and the lifestyle they get. The 3 bedroom house is rented to a single lady with three kids, and she occasionally finds it hard to get the rent paid on time, but so far she’s been good for it, and she always lets us know what is going on (late payments etc).

When it comes to capital appreciation, well time will tell. I believe a good over 55’s complex (one with no management business ‘stealing’ from owners with ridiculous contracts etc will have significant demand over the coming 20 years as the baby boomers start to reach over the age of 75, so I think these little 1 bedder’s may be good little capital earners as well, we’ll just have to wait and see.

I have outlined my process of analysing an deal in the following discussion https://www.propertyinvesting.com/topic/5054913-analysing-the-deal/

Awesome, thanks for the additional info.

Firstly congratulations on setting yourself up so well to start investing, having no major debt is a great achievement. Having completed a balance sheet, cash flow statement and knowing your net worth means you are already ahead of the pack… well done.

My first bit of advice to everyone who is interested in investing is to read John Burley’s 7 levels of investors. You can read a PDF version here – http://belnapfamily.net/teach/7Levels.pdf

From what you have told us already you are a level 3 investor. My first goal was to become a level 4 investor within 1 month of reading this document (for me that was 18 years ago). Becoming a level 4 (automatic investor) will guarantee that you will become wealthy, and you won’t even have to invest in real estate.

Quoting from the document, the 7 money steps:
• Paying Yourself First
• Re-investing Your Investment Returns
• Receiving Level Four Automatic Investor Rates of Return
• Knowing What Your Money is Doing
• Adopting the Automatic Money System
• Financial Competence (Intelligence and Responsibility)
• Avoiding Debt and Living Debt-Free

You can use super to create the core strength of your finances. I do this by investing a minimum of 10% of my wage (gross) into super via salary sacrifice. Using salary sacrifice means I make an automatic return of 17.5% (the difference between my marginal rate of 32.5 and and the 15% super rate). Now I challenge anyone to show me an investment which is as low risk as this that returns 17.5%!!!

How is this possible? Well, If I invested after tax I would pay 32.5% on my income first, and then I would invest. Through salary sacrifice I pay only 15%. So, if I had $1,000 to invest, if I did this after tax I would only have $675 left to invest after paying my marginal tax (1000-325 = 675), using salary sacrifice I would have $850 to invest (1000-150 = 850).

Using the power of salary sacrifice I have increased my net worth by over $250,000, debt free!

Have a read of the 7 levels of investor and share your thoughts/questions.

A little update on the over 55’s investment. We have now purchased a 2nd unit, again for $86k, it is also tenanted for $220/w. Both of our tenants are very happy with the complex.

On the topic of tenants, both units have tenants over the age of 80 in them (a single in one unit and a couple in the other).

At this age the expected tenancy period is 3 years (according to the productivity report – https://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians.pdf)

This report has been very interesting and helped me further develop a business plan for this type of investment, for example:
– The primary reason people 65-79 move is to get a smaller/less expensive place
– Older home owners are more likely to move into less expensive accommodation (our single tenant sold his home and moved into our unit – he is ‘rightsizing’ for his life (and moving closer to his kids).
– Average tenure post the age of 80 is 3 years (the next move is either aged care facility or the funeral home!)
– Around 10% of over 75 year old’s rent (my earlier analysis found that if only 3% of the population (over the age of 55) in this area required rentals that would be over 500 individuals.
– The use of residential aged care is declining (This is very interesting, as the aged population is increasing. This suggests that older Aussies are staying healthy… leading to a demand for appropriate housing)
– An increasing proportion of older Australians are choosing to move into age-specific housing (music to my investment ears)
– A substantial proportion of older Australians are in the private market
– 4.5% of older Australians live in Retirement villages and 7.3% in private rental

And the biggest contributor to our investment confidence…
– Older Australians who rent have low security of tenure
– We offer 100% security of tenure, we are not going to move into the units (I’m only 40, so I am 15 years off even being able to move in!)

This tenure issue is huge for our tenants, it is their number one question when they move in “Can we stay here for the rest of our lives?”

My checklist for investment in over 55’s is based on findings like the following…

As people age, their housing needs and preferences may change, both in respect to a
dwelling’s location and its amenity. Generally, older people require dwellings that are suitable
for their changing physical needs, with even surfaces, passages wide enough for wheelchairs,
and appropriately designed bathrooms, toilets and kitchens. It is also important for the dwelling
to be located close to services and facilities, such as medical clinics and public spaces, to allow
residents to continue to participate actively in their community. Older people, particularly those
living alone, are often concerned for their safety, and look for dwellings and communities that
offer them a sense of security.

My checklist is:
– Hobless shower
– No steps
– Mixer tap at all sinks
– Wheelchair accessable
– Located near doctors
– Located near shops
– Surrounded by wide public pathways
– No pool (I don’t want the extra cost)
– Self contained
– Well maintained and appointed common room (for family gatherings)

On a side note, we have settled on a traditional 3 bedroom investment house this week ($230K – rents for 340/week), so we are getting some diversification in the portfolio.

It is a great market at the moment, and we have purchased 3 investment properties in the past 18 months.

I am looking at another opportunity at lunch today (3 bedroom – $200K – rents for 260/w), lots of opportunities.

I think the couple are doing a great job too, maxing out one’s lending capacity is quite a popular investing methodology.

My investment goals differ somewhat (not better or more right, just different), but if all goes to plan for the couple in the show they will end up much richer than I, and I think they deserve to rewards.

The topic of the level of debt to equity that forum members feel comfortable with, and the way we go about out analysis I find really fascinating.

I found this explanation of how pensions are indexed:

Indexation
Base pensions are indexed twice a year, in March and September, to reflect changes in pensioners’ cost of living and wages. The pension is increased to reflect growth in the Consumer Price Index and the Pensioner and Beneficiary Living Cost Index, whichever is higher. When wages grow more quickly than prices, the pension is increased to the wages benchmark. The wages benchmark sets the combined couple rate of pension at 41.76 per cent of Male Total Average Weekly Earnings. The single rate of pension is two thirds of the couple rate.

Source – https://www.dss.gov.au/our-responsibilities/seniors/benefits-payments/pension-rates

This explanation suggests that while pension incomes are low, they are pretty much guaranteed to increase, twice a year.

This should allow for periodic rental increases, supported by the historical rental increases I was able to identify at 1.6% per annum over the past 5 years.