Show notes – The Post-Development Predicament, How Many Properties Do You Really Need? Do I Buy 2 Cheaper Properties or 1 Higher Value?… & Retirement Planning (Ep. 211)

Previously known as “The Property Planner, Buyer and Professor”
 

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Market updates:

In our weekly market update, the Trio pour over the RBA meeting minutes and discuss the growing case for interest rate justification, emphasising the increased risk of inflation returning to the target. 

Cate surprises the listeners with her interlude on off-market transactions. She distinguishes between “situational” and “opportunistic” off-markets, shedding light on their pros and cons. Dave weighs in with his insights also and shares Cate’s concerns about buyer’s agents who purport to transact a heavy weighting of off-market sales. 

Listener Questions

1. When is the right time to sell?

I bought a rundown house in Hillcrest, SA for 550k with 440k debt November 2022. It’s in the process of getting subdivided to build two. my broker has just done a cba desk valuation and it’s 698k so there’s almost 120k equity which would help funding the build.

I am talking to a builder now and the build(167m2 each) cost would be less than 700k for 2 of them turnkey with different design as it’s a battle axe build (I went for this because the council will not support getting rid of the tree in front and I wanted to build ASAP and want less drama as this is not returning rental income and being my first development)

Rent projected to be atleast 650/week each.

If I sell it probably 800k+/ property (judging from the forsale around the area mostly not turnkey) being 3x2x2.

If you’re in my shoes what would be the best thing for me to do sell or keep? Im 27 years old with 3 other properties all positive cashflow lvr of 80%, all under my name, earning 120k/year before tax + rental income, still live with my parents as I work FIFO work 3/1.

The trio engages in an enthralling conversation, exploring our listeners options.  

Should he build, wait, or consider alternative strategies? The trio discuss considerations such as build costs, equity positions, long-term planning, land banking and selling with plans and permits. All options are on the table!

From a Property Planning perspective, given you are 27, already have 3 positive cash flow properties, and are building these two more that you mention, I would suggest – do all you can to attempt to hold onto them.

  1. Owning 5 properties could be enough to support you for a very happy retirement
  2. Plus your superannuation and any other investing you undertake.

The key question to ask yourself is –

  1. What is your retirement income goal?
  2. Retirement age goal?
  3. And your long term home goal?

You really need to look at these three questions from a Property Planning perspective, and then you might be in the enviable position, where you realise, for example:

  1. You do not need to purchase another investment property.
  2. You estimate these two properties when finished could be worth $1.6m
  3. Let’s assume your other three are valued collectively at $1.4m.
  4. This means you could have $3M of property and lets assume a 4% rental return means gross rental income of $120,000 less holding costs.
  5. This is the equivalent of your current full-time income.
  6. And you would be in rare air if you are able to retire with rental income equal to your existing personal income.

You could then focus on your retirement age and determine when your goal would be to extinguish all your debt by.

The other key consideration is what kind of long-term home you are after and the location, and potentially if one of your 4 or 5 investment properties could serve this purpose.

  1. This process could allow you to realise that all you need to do from now is focus on debt reduction.
  2. You always have the opportunity to sell down the track to purchase a home or free up cash flow, especially given your gross LVR is under 80%.
  3. However, if you have to sell one property, you should look at your entire portfolio and consider which property is the most appropriate to sell.
  4. It may not be one of the two new builds that you have to sell.
  5. And one of your other properties might not be of the same quality.
  6. Further, you may not need to sell a property worth $800k, and this could leave you with a greater valued portfolio and rental yield.
  7. All different considerations for you.

2. If I have a loan for $820 with an LVR or 80%, can I use that to buy two properties worth, and should I consider that option. Or can I only buy 1 property?

The trio dives into this commonly asked question and emphasise that the answer depends on our listener’s investment goals, whether she aims for capital growth or rental yield. Mike supports the idea of diversification, stressing the importance of understanding one’s investment objectives. 

Dave adds insights about the risks associated with price point selection, the power of compounding growth, the perils of procrastination and the impact on a future family home purchase. “Make sure you’ve got the big rock in the jar sorted out”, says Dave. 

Gold Nuggets:

Cate Bakos’ gold nugget: The winter market can be tough on the southern states, so for people who are contemplating shopping through the winter months, perhaps thinking about gearing up for spring is a good idea. Bear in mind supply and demand during winter months and don’t put pressure on yourselves.

Mike Mortlock’s gold nugget, (or black opal): Mike ponders the merit of having full context of our listener’s long term plan. We can’t just tell our listener’s to opt one way or the other… it all comes down to planning.

 

Resources:

Ep. 22 – Why the family home is often the biggest piece of the investment puzzle

Ep. 27 – How many properties do you need to retire wealthy?

Ep. 67 – Subdividing; the fundamentals for success

Ep. 92 – Property planning and your next purchase

Ep. 167 – Property planning case study: Announcing the property plan

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