Hi all,
I’m newbie to investing and would gladly accept some direction on investing strategies. I own my home and have $300,000 to invest into property as not sure an investment fund has the same returns. The question I need the answer for is do I purchase just one property and have a positive geared investment or buy 2 and negative gear it? I haven’t a large sum of residual cash flow from my wages to prop up a large IP loan?
At the moment I’m considering buying one property and some shares with the rest for diversification purposes.
It’s a tough question to answer without knowing more about your situation.
I’d take it back a step and begin with educating yourself about property investing. There’s no need to jump straight in – take some time getting clued up on all facets of it. By that point, you’ll have a better understanding of what your goals are and what you need to do to get there.
It’s not so much a matter of buying a positive or negative cashflow IP – it’s about purchasing the right IP (or IPs) that fit with your overall strategy.
$300k is a lot to play with – and if used correctly could achieve some good results.
Thanks Jamie, basically I have about $800,000 in equity in my home but only earn about $750 a week in wages so just want to start building a portfolio in property for when I retire in 14 years time as my super is quite low?
As a general statement, if your income is relatively low and you’re wanting to grow a portfolio you’ll need to look at positive (or neutrally) geared IPs. A negative IP or two will be a real burden on your cashflow.
It’s all about getting the correct finance structure in place and investing wisely – anythings possible, even on a small income.
You would be surprised how many forum clients we get in the same position to yourself.
Building a sustainable long term property portfolio is more about structuring the loan correctly and then selecting the appropriate property to allow you to keep investing.
We are having more and more clients wanting us to source properties that meet this criteria and done properly there is no reason why you can’t have a healthy income come retirement.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you for the responses. Would I be correct that when I search for a property it’s best to look at ones that over a 5 year period have shown minimal growth against one that is currently achieving a high 23℅ growth?
I think a common goal of all investors is to make money, but few ever really stop to think ‘how’, ‘when’, and ‘why’.
So let me ask some questions, with your answers then providing guidance on what direction is best for you in respect to the property and strategy to adopt:
1. What profit do you want: income or growth (pick one)?
2. How will this profit be made (market or investor driven)?
3. How active do you want to be with your investing? Specifically, how many hours a week can you allocate?
4. How would you rate your risk tolerance: low, medium or high?
5. What time frame do you expect your profit to be made in?
Have a go at answering those points and I will reply back with further thoughts, time permitting.
In response to the questions.
I’m trying to achieve a supplement income as I head to retirement. Not a huge income at present but hopefully in 10 years I might be able to achieve a reasonable amount. Hopefully the profit will be market driven. I can allocate one day a week to achieving my outcomes. My risk tolerance I would say is medium at present, and hopefully as mentioned I hope to achieve this in 10 years.
I also can allocate more hours to this if or when it becomes productive. Any feedback is appreciated.
Here’s the problem… back when I started investing in 1999 you could acquire positive cash flow properties with a small capital base.
For instance, buying $40k to $50k houses in Ballarat / La Trobe Valley meant that with $500k of capital and 80% financing, you could pick up 8 to 10 positive cash flow properties and pocket net cash flow of about $8k to $10k per month.
As you know though, prices have increased substantially, and in excess of rent increases.
For a while it was very hard to buy positive cash flow at all (when interest rates were >7%), but as interest rates have fallen (and with them interest costs), positive cash flow property opportunities have re-emerged, but at a higher price point.
So, unless you have significant capital (now $1m+), buying incremental positive cash flow residential property can take a long time.
That’s why I recommend a new approach, which as I explained in ‘From 0 To Financial Freedom’, broadly follows this path:
1. In the first instance, concentrate on value add residential property to build your capital base
2. Supplement your income with an income accelerator
3. Once you hit your required capital base, migrate out of residential into commercial property where there are higher yields.
If you’d like to know more then pick up a copy of the book from the store. From memory it is less than $20.
You have to find your own path though. I have had some success with shares (doing it the old fashioned way – Buy, it went up, I Sell!) and am now looking for cashflow positive property deals.
I have bought in Gold Coast and NZ in the past 24 months and the most expensive home I purchased was less than $140k.
The houses I’ve bought are all standalone or in a small block for the QLD case. I’ve avoided high rise with their OC fees that really eat into your income.
Also consider getting some coaching or training. You have a real opportunity to put your nest egg to use.
I was in a similar situation 10 years ago and made a few big stuff-ups that cost me. Buy Steve’s book, go to his seminar. Don’t be afraid to invest in yourself a little before you try to find a “vehicle” to make your money.
Hi Ollie
Firstly well done in being in the position you are in :), also it’s good to see you are looking out for your own future. Before rushing just sit down and look at what is your overall goal.
There are so many ways to kick a soccer and au many ways to create wealth
Thank you all for the knowledge and advice. I have decided to purchase my first IP instead of the managed fund option. I have placed an offer on a unit in a small complex which I believe has good capital growth. The rental yield after body corporate fees is in the low 4 % which I’m ok with as it is the capital and the chance to borrow against for IP 2. But have to start reading on how to do it correctly before anymore purchases.
Sorry Ollie don’t want to appear negative but did you say the yield post body corporate, insurance and Council Rates was in the low 4% and you were happy with that !!!!
I will assume your kidding as you get a similar amount in a Term deposit.
What happens when interest rates increase and the Body Corporate fees go up which of course they will.
I have to say we would never buy a unit for a client ( there are the odd exceptions of course ) and would focus on freehold property that generates 5.5% +.
You are never going to be able to retire on a rental income that starts that low and going forward financing number 2 will get harder.
Seriously if it is not too late review your investment decision and buy something else as you cannot live off capital growth alone.
Cheers
Yours in Finance
This reply was modified 10 years, 5 months ago by Richard Taylor.
Richard Taylor | Australia's leading private lender
Thanks for the rethink Richard. Went back over my calculations to get my net yield and had made a small error but only increased the outcome slightly to 5.1%. But your comments have me wondering if the other property in a less then desirable street with a yield of 7.3% would be better? I’m yet to sign anything so not too late to re-evaluate. Will give me something to do on Sunday.
Thanks once again and value the feedback.