Hi everyone,
My partner and I have set a long term goal of earning $200k/year in passive income. My question is what do you think a good strategy would be to achieve this? We currently dont have any property yet but are planning to buy our first one soon.
Ultimately to achieve this I would like to own several debt free commercial property because of the high rental yields, the issue I have is deciding what is the best strategy to use to get started on our property investing journey.
Any comments on this would be much appreciated.
Cheers,
Daniel.Now work out on a yield of X% what level of property you need to hold.
eg. at 10% pa yield you would need $200,000/0.1 = $2,000,000 in unencumbered property.
At $500,000 per property you would need 4 properties.
Thats the easy bit, now you have to work out how to acheive it. It might mean buying 8 properties now and then selling 4 in 10 years when the have doubled and using the proceeds to pay off the loans.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Obviously the Yield is one thing but you also need to remember owning property even ununcumbered property will still incur costs, Rates, Insurance Land Tax etc (some of course might be reduced if the lessor is paying the costs).
You also need to accept that you need to put a fair amount of your own capital for each purchase.
For a $500,000 Com property you are probably going to need a deposit of around 175K to cover deposit and acquisition costs.
This of course will vary depending on what style of Commercial you end up buying.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for your comments guys, it is much appreciated. I think I now have a clearer understanding of what is required to achieve this goal. I'll just take baby steps and learn as much as I can along the way from books and this forum and other people I know and then I believe we can reach our destination!
Cheers,
Daniel.Here are some tips how you develop a good investment plan:
1. Make a budget
Everyone has to make a budget to achieve some goals in their life. A budget is an overview of your expected income and expenses and shows how much money you can set aside to save and to invest. Investing a fixed amount monthly is often the best investment strategy because you don’t buy always on peak price.
2. Determine your investment profile
It is important you determine your investment profile because you may never take more risk than you can afford. The investment strategy of a defensive investor will be different for someone with a defensive, a balanced or an aggressive investor. For example, a defensive investor will invest for 25% in stocks and 75% in bonds while an aggressive investor invests for 75% in stocks and 25% in bonds. A balanced investor will invest 50% in bonds and 50% in shares.
3. Your age and your income
People between 20 and 40 can afford to take more risk than people who are near retirement. Income and age are two important factors to determine your investment profile. Younger people will often more invest in stocks or equity funds than older people because these investments require a longer time horizon.
Thanks
One of the big challenges for most people is saving up the required deposit/purchase costs for each property.
Say you were buying a $300,000 in QLD on a 5% deposit. It would cost you approx. $33,000 (inc, government costs, lender costs and building & pest inspections). Work out how much you can save per year to get a rough estimate of how many properties you can afford in your first couple of years.
CF+ properties will assist in your savings so it will get easier. Although you will need quite a few properties to make this positive cash-flow a substantial income (probably less than $150 pre-tax profit per week, per property. For properties under $500k on 5% deposits).
I am in the process of purchasing a property that settles on the 19th of Dec 2011 which has a rental yield of 11.6%, after all expenses it should generate around $7,200 pre-tax income per year. So they are definitely still out there!
Good luck!
Cheers guys, all this information is a lot to get my head around but It will slowly sink in lol. I have had a bit of a play around in the stock market but my shares are currently trading at a loss, I think it is more the confidence of the market rather then the actual performance of the company which is keeping the price down atm. I'm not too to keep trading shares for the time being, I am very ineterested and passionate about property
Thanks,
DanielHi APWPG, sorry I am in Perth, WA.
Thanks anyway,
Daniel.Hi Daniel,
$200K/annum passive income can be done in residential property with four properties and ten years. The key is to get the initial steps right and be prepared to take some developers risks. We are doing this with some clients atm.
Commercial property will through a few curve balls at you in terms of financing (lower LVRs) and potential for periods of time without a tenant. Vacancies can be minimised with good property selection – getting your first leg into commercial will probably be a signifciant hurdle given the lower lvrs banks offer and thsi is where getting the initial high levels of saving/equity up will be to your advantage.
It is a big aspiration you have but you have to start somewhere and if you are truly committed to achieving your goal it will be done.
Make sure all of the steps you take are measured and carefully considered.
Best of luck with it. .
Derek wrote:Hi Daniel,$200K/annum passive income can be done in residential property with four properties and ten years. The key is to get the initial steps right and be prepared to take some developers risks. We are doing this with some clients atm.
Commercial property will through a few curve balls at you in terms of financing (lower LVRs) and potential for periods of time without a tenant. Vacancies can be minimised with good property selection – getting your first leg into commercial will probably be a signifciant hurdle given the lower lvrs banks offer and thsi is where getting the initial high levels of saving/equity up will be to your advantage.
It is a big aspiration you have but you have to start somewhere and if you are truly committed to achieving your goal it will be done.
Make sure all of the steps you take are measured and carefully considered.
Best of luck with it. .
Hi Derek, thanks for your feedback, do you suggest I aim for 4 properties in 10 years first and then look into commercial property after reaching this point?
Thanks,
Daniel.Hi Daniel,
In asnwer to your question – $200K could be done in 10 yrs with four properties (using todays figures) and allowing for mortgages to be paid off by excess renatl income.
The point of the comment was to highlight that $200K passive can also be done through residential property too.
But as to which is right for you?
Would really need to know all sorts of things about you before any sort of realistic strategy could be developed.
There are so many variables and considerations that come into play and which need to be placed on the table so informed conversations could be had.
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