Where to now? Kinda ran out of ideas

Not sure what's happened in the past year, but i've kinda ran out of ideas and currently doing all i can to build up my cash reserves which is offsetting against my investment property loans. I'm feeling slightly dissapointed, i had goals to buy 5 properties by 30 (i'm 26 now).....but now can't even fathom buying a 3rd any time soon.

Looking for someone to inject some ideas or thoughts into my siutation.

Here's my position:

1st Property - Bank Valuation earlier in the year of around $550k (though i think if i get my own valuation down it would be above $600k and possibly even nudge $700k in today's markets). The Loan against this property is $415k interest only with offset of which approximately $175k is on the house itself, the rest of the proceeds have been funding my share investments and deposit for the 2nd property.

2nd Property - Bought last year for $500k, a bank valuation earlier in the year was around $530k. The loan against this property is 80%, so $400k interest only with offset.

* The total amount of cash i have left to offset both groups of loans is around $15k now.
* The property and loans are all held under my own name

Shares - I have around $200k invested directly into shares under my own name (mixture of shares though slightly weighted towards small/mid-caps and growth stocks).

Managed Funds - I have about $50k in managed funds which i've stopped topping up as I'm thinking i'm getting better returns investing directly myself and they haven't really increased at all in a span of 2 or so years.

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I've been saving every cent and have tried to keep spending to an absolute minimum. Taking into account the interest and revenue streams each month (from work and the rental properties), i think i can save about $1500-$2k a month. All of which is going back to the offset account.

I'm currently living with my parents, but don't want to continue like this forever. I definately want to move out by 30 and actually live in my own home, a decent one which at today's prices would be at least $600k.

My original goal was to purchase a property a year for the next 5 years and owning 5 properties by 30, i think i have scrapped this plan because i just can't think how i could build a deposit and take on that much leverage....even if i'm saving every cent as i'm doing now.

My revised plan was to hold property #2 for 5 years and sell, releasing any gains to fund my own home; however, i'm starting to feel that this in a way will make me move backwards because i'll still be only holding 2 properties, and will be locked in paying the PPOR and won't have much money to invest elsewhere.

I've kinda ran out of ideas, quite aimless at the momment and don't know how to proceed. The things which i need some direction on are:

* Do I have the right structure to fund future investment property purchases? To fully maximise it?
* How do I own my own home, yet still hold at least 2 investment properties and perhaps purchase a 3rd. Assume $600k for both PPOR and house
* I don't want to sell down all of my share portfolio to fund the property purchases. I want to leave at least $100-$150k for future growth.

I'm hoping that the market improves and that my share portfolio increases, though at this rate, it's probably not going anywhere up fast. I read articles with people owning 5+ properties and doing extremely well in today's market. I'm stuck on just 2 and in some ways have lost the appetite....how do i get it back. Hoping someone can inject some life back into me and my quest for that next property.

 

I think you have the concept right, just not the execution.
Without knowing you details or income, it seems as if you have purchased IP's at a higher value than you should have, I am not saying you paid too much, just that they are the wrong type of properties for your overall strategy.
If you goal is to have 5 IP's in 5 years, then the next purchase needs to be such that you can obtain finance for the one after that.

IP's at $600k are probably too expensive to start your portfolio with, you pay too high a deposit and costs for these generally and it eats your available equity. Holding costs are probably higher than you need as well. If you are running into servicing difficulties, then your income is not high enough either where you needed to have purchased IP's with a higher rent yield.

Look at refinancing one or both of your IP's to close to 90% as you can, set up a LOC and that becomes your base for deposit and costs for the next IP. Consider IP's with low entry costs, lower value (ie regional or 1 beds), consider OTP with no or minimal stamp duty, leverage as high as you can go to near 90% again to minimise the use of your own funds. Work out what type of IP you need to be able to show you can obtain finance to purchase another IP. For some clients they need capital growth, others need income.

IO loans are fine, I am not sure why you would want to have 2 offsets, 1 is enough.
Good luck, don't stop now. You need to hold an IP for at least 5 to 7 years before you see real benefits.

I have no problem selling an IP in 5 or so years and use the equity/funds you then have to invest in a PPOR.

Greg

 

Thanks for that, i am concious of the fact that i may have aimed for properties which are in some ways blue-chip close to the city with good rentals.....and that most of the articles i've seen are of people buying houses around the $200-300k mark.

I'm not comfortable investing too far away from the city and have no real interest in going too close to the bush. I kinda like suburbs with hubs or shopping centres. In Victoria, where i am, i not sure if you can get anything decent for less than $400k that still has good access to public transport. Am i just not looking hard enough?

My property emphasis has been more towards growth (as such i tend to go for houses/townhouses moreso than apartments) though not at the complete expense of rentals as it still needs to be managebale (albeit negative gear)...i would hate for the situation where i'm funding a lemon which doesn't bring growth....but again, there will always be that level of risk.

What are your views on structure?

 

5 years ago the emphasis was on buying capital growth properties as you could easily revalue and refinance and obtain a low doc loan for the next purchase. It is far more difficult to do that now, so investors need to more conscious of what they need to purchase to be able to obtain the next loan.

The difficulty with properties in that price range is to manage the holding costs. Generally rent yields are low so you have a double whammy, higher holding costs and reduced ability to borrow again.

I don't necessarily advocate the bush but investors should consider regional towns like Geelong and Ballarat. I would also consider properties in Tasmania and parts of Qld. Once you have one or two growth properties, consider balancing your portfolio to boost your income.

As to structure, I prefer simple to complicated as do lenders. However it depends on your circumstances, if there is a risk of being personally sued, consider using a trust. If not, negative geared properties in the name of the highest tax payer, income positive (or soon) in the name of the lowest tax payer. Once you have utilised the tax benefits or reduced you marginal tax to say 15%, consider using a trust then.
If I can help, let me know
Good luck
Greg