I am very very new to investing in property and have so much to learn. One question that was recently asked of me was how do you intend to structure your portfolio? My initial thought was, woah there fella, I thought I just bought a house, rented it hopefully cash flow positive and when you could release the equity to do it again, you did it again.
Begs the question though, is there a way that portfolios should be structured? If this is important, why is it important?
I have been listening to a couple of audio books in the car recently. First one was Rich Dad Poor Dad which was brilliant and now I am listening to Rich Dads Guide to Investing. In the second book he describes that you should have three plans in place, one to be comfortable, I forget the second one off hand and the third was to be rich. It sounds like he is explaining that your investment portfolio should have a good foundation to grow from and this makes sense. My question is, if that is a common form of investment strategy, what is to be considered a good foundation. How should it be structured so the investor can relax and know that the risk is minimized?
I may be way off base here but is that how you guys with 80+ properties plan?
Finance structure is hugely important. The wrong structure can ended up costing you – both in monetary terms and in lost opportunities.
Lender selection is important. When investing, you want to use lenders that aren't too difficult to deal with when it comes to equity releases.
You also need to choose the right lenders at the right time so you don't burn your borrowing capacity too early.
Access to upfront valuations is important too – especially if tapping into equity. That way you will be able to find out exactly how much equity you have available to you before submitting an application.
Whether you set up the loan as principle and interest or interest only also has important ramifications. Generally speaking, my preference is interest only on all loans with an offset linked to one – and that's usually the owner occupied loan if there is one.
This article I wrote explains the concept in more detail.
All in all, if you get a good finance person on board – they'll explain all of this to you and ensure that your structure is set up correctly now and into the future.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I think above everything in investing.
That goes Above finance, structure, loans, estate planning. Is that your investing should make money.
If your not making money, either in lump sums through renovations and developments or via blue chip properties, positive cashflow, rent to buys, upvaluing then the everything else goes out the window (althought those structures and knowledge can help you lose the least amount of money if you do happen to lose money)
What rich dad was explaining was that the 1st plan is to be comfortable the 2nd is to financially free and then 3rd is to be filthy rich.
He tried to break that down into a cashflow position per year.
If you can pay for all your food water rent petrol and some entertainment then you are comfortable for the average Australia that would mean having a net passive income of between 50-100k
2nd was over 200k – 250k
and 3rd was 1 million net per year.
Its also not about the number of properties though because i know people that have sold their entire residential portfolio when they retired and bought 1 – 10 million dollar warehouse that had a net rent of 11% on a 15-15-15 year lease. That investment needed one property manager and that is it.
residential property is a good base. Because its familiar with almost everyone. You can get the highest LVR's and people understand residential property Over commercial property.
I'm comfortable with investing in domestic property even though I do not know the very best way of structuring it. I have a good idea on the best way, ie having an offset account so you are ready to take the money back out whenever you like and ensuring that you have at least a cash flow neutral property. I know I need to buy in an area which will move to give me captial growth, I know I need to try us much as possible to buy under market value to give me a buffer and as much instant equity as possible and I know that doing renovations can increase my cashflow. As yet I don't know the very best way to gain all the benefits of tax laws and what is deductable and as yet I do not have advisors in place apart from you guys and you tube. I know that buying in the right part of town is wise to give good access to schools and stations etc.
What bothers me the most is that I keep reading, like above, that its good, in fact essential to set things up correctly from the start. Thing is, how do I know when I have set things up correctly. My first very simple goal is to get my own house paid off as quickly as possible so I can relax a lot. I wont have to be afraid of speaking my mind at work and be scared of what is going on at work etc etc. Living like that and being worried about being out of work is a horrible situation to be in so that is my first goal. If I only acheive that in ten years I will be happy. Being filthy rich would be great and I have screen savers whetting my appitite with sunseeker yaughts to keep me going but more important than the money is having free time to spend with my kids hence the menial goal. I am a FIFO worker so I am earning good money and I want to do smart things with it rather than squander it. I know that I lack education in finance as highlighted by Rich Dad books and I am happy to learn. What I could really use is a mentor. I am going to see a financial advisor with my wife so we are all on the same page and see what they have to say.
Another thing I have going on is a small business with my wife. She loves dogs so at the moment she has a small business walking dogs and has started pushing into boarding dogs to earn money. I am also looking into renting out a couple of the spare rooms in my house as I live in Mandurah in WA which is quite a tourist town in the summer. I think we can do quite well from a summer B and B and turn my liability into an asset.
Hi Patteerson00,
You are thinking things through and asking the right questions which is more than most.
Think and Grow Rich speaks about building a mastermind team. That is finding advisors in specialty areas that are smarter than you to do just that, give advice.
Another good question you have asked is how do I know what is good and bad advice. That one comes with time and experience but you need to have at least enough knowledge on a chosen subject to be able to pick bad from good. Hard to quantify that but also comes with experience.
Jamie summed up the basics when it comes to finance which is the foundation of wealth creation and a principle aka using OPM (other peoples money) to leverage on what you already may have.
Speak to as many different people a you can and over time your BS meter will become finely tuned.
All the best and happy to assist in any way.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Hi Paterson,
It is lucky you've taken note of the importance of structuring your portfolio. Most of us don't bother untill it is too late and by then it can cost you thousands, or the alternative is a stunted portfolio. We made that mistake and I would not want anyone to make the same mistake, specially as this advise does not cost you anything
Ok and thanks again for your advice. So I guess my next question is what are common mistakes that are made? I know that rushing in is silly and a fools game. Research is critical and knowledge is power. Would any of you be happy to highlight some of the mistakes you have made or point me in the direction of somewhere I could find those stories?
Thanks again,
Paul
Just keep reading, with a critical eye, and you will learn.
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
A big mistake is to pay off a property loan (as opposed to just pile spare money into an offset account).
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:A big mistake is to pay off a property loan (as opposed to just pile spare money into an offset account).Amen to that one JacM !! And especially as you mentioned Offset account – they cure so many possible "diseases" !!
Benny
Jamie M wrote:Generally speaking, my preference is interest only on all loans with an offset linked to one – and that's usually the owner occupied loan if there is one.
Jamie
HI Jamie,
What is the tax benefit with LOC setup?
MI
Hi Melbinvestar
I don't quite understand the question?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
MelbInvester wrote:HI Jamie,
What is the tax benefit with LOC setup?
MI
What is LOC set up?
Line of credit.
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
LOC has the same benifits as an SVR (standard variable rate) from my understanding.
Only difference I can think of is the ability to capitilise interest. You would want to get specialist tax advice from an accountant if you where to consider this.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
FMS wrote:LOC has the same benifits as an SVR (standard variable rate) from my understanding. Only difference I can think of is the ability to capitilise interest. You would want to get specialist tax advice from an accountant if you where to consider this.Colin, one major difference is the ability to have a cheque book on the loan account. This enables money to be borrowed and applied directly avoiding potential contamination issues.
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
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