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18 JULY 2013 yourinvestmentpropertymag.com.au

GAME PLAN | HOW TO GET $90K INCOME

GameThere are plenty of strategies an investor could use to get on track to some clever property purchases, but how do you get there without working two jobs or skimping by on Vegemite on toast every evening? We enlisted the help of Australia’s top property strategists and found out

How to achieve $90,000 a year passive income by 2020 No ifs, No buts,

No miNiNg towNs

your



19JULY 2013 yourinvestmentpropertymag.com.au

How to achieve$90,000 a yearpassive incomeby 2020

If only we could all have been that disciplined.

In hindsight, we would have saved up our meagre wages working at McDonald’s as a teenager and bought our first investment property the day we turned 18. We would then have slept every night on the steps outside the Salvation Army to save on accommodation costs, pumping all our money from working three jobs into properties. That way, we’d have retired before turning 30.

But let’s be honest, few of us are that disciplined.

In all likelihood, you’ve probably got some expenses that you wouldn’t want to skimp on. You might like to enjoy a drink every now and then, and we’re guessing you’ve got a hobby that might steal away some of your income every month. You probably haven’t been that prudent in saving either. You’ve got a little stashed away, but it’s nothing they could write on the giant cardboard cheques they give out at golf days.

In your case, how can you build a property portfolio big enough to retire on? How do you get your hands on a passive income that you can use to comfortably replace or supplement your existing income?

This is the question we asked two different experts in the property industry. These are seasoned investors who are doers, not just theorists. They’ve made big money in property and have personally used a multitude of different strategies for obtaining wealth through property.

The premise we put forward to them was this: how can an average Australian on an average income, with limited savings, establish a passive income stream of $90,000 before the end of 2020?

Knowing that there are some great, albeit highly risky, opportunities to make money in some of Australia’s mining towns, we set our experts a

condition. Mining towns or other high-risk, high-reward areas were not an option. Any strategy they came up with for creating wealth would need to be foolproof. No special considerations could be applied: the strategy would need to work in any market. Conservative estimates would be better than highly optimistic ones.

These are the parameters we set: Our investor, who we’ll call Joshua,

has an annual income of $70,000 He has $30,000 in savings He is willing to invest in any low-risk

housing market around Australia He is willing to use any strategy, so

long as it does not incorporate: buying in a mining town changing jobs for the sake

of strategy living in a different city

Joshua currently owns no properties He is a renter paying $350 per week He has no dependants and no debt

The property investment experts who were set the task of putting together strategies included RESULTS Mentoring’s Brendan Kelly and the Empower Wealth Team.

The following is what they came up with...

Any strategy they came up with for

creating wealth would need to be foolproof. It would need to work in any market




The realists

StrategyInvestor purchases five properties over a four-year period, making sure the cash flow on each purchase is good enough to allow him to hold the properties on his modest salary. He takes loans with high LVRs and purchases properties that are likely to outperform the average capital growth rates of their suburbs. This will get the investor to his target in 17 years, not seven, but he will have done it relatively risk free.

The realists

Cate BakosCate Bakos is an experienced property investor with a portfolio of 20 properties. She is the head of Empower

Wealth’s property advisory division and regularly aids everyday Aussies in making skilled investment decisions. She is also a qualified real estate agent and mortgage broker.

Michael PopeMichael Pope is Empower Wealth’s Money and Wealth Planner, being an expert in financial modelling.

He holds an MBA and a Diploma of Financial Services as well as a Bachelor of Engineering. Pope’s analytical expertise allows him to help others understand their financial position to achieve better financial outcomes.

TacticsSolve problem of

investor’s limited savings by buying property with loans at 95% of each property’s value

Sold Sold



The game plan

Based on our model, a stable purchasing

strategy, when combined with limitations to our investor’s ability to borrow more money, means that Joshua won’t be able to reach his passive income goal as quickly as he would like. Seven years is too short. The good news is that it is still possible. If he is willing to wait until 2029 instead of 2020, he will have reached his passive income target. More importantly, he will have done it without going into high-risk mining towns or other speculative areas.

Joshua has $30,000 in savings, so we have planned for him to purchase a total of five properties over a period between August 2013 and 2017. We would like to see him purchase one property for each of those years, which we believe will be a rate he can sustain if he is willing to dedicate himself to his goal.

Our selections of areas to invest in have been contingent on our investor being able to sustain the cash flows on his modest salary while also generating adequate equity growth so he can continue unveiling the rest of his strategy. For the purpose of our model, our investor lives by himself

Aid investor’s limited ability toservice multiple loans on $70,000salary by purchasing propertieswith strong cash flow potential, aswell as promise of capital growth

Investor should seek to limit hisexpenses by moving in with hisparents (if possible), or scale hisaccommodation choices downby renting something cheaper

With each purchase, investoruses a combination of savingsand equity to put together5% deposits on properties

Strategy relies on our investorhaving a keen eye for findingoutperforming properties. Someof the yields necessary to supportthis strategy will not be possiblein ‘safe’ urban areas, unless theinvestor looks for truly exceptionalinvestment properties

Wealth projection

Years

Years

Rent vs management and repair costs

0$0

$1,400,000

$1,000,000

$1,200,000

$800,000

$400,000

$600,000

$200,000

5 10

Rental income Total costs

20 3025 35 4015

0

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$05 10

Property value Loan amount

20 3025 35 4015

Property Value vs Debt

$35,000,000

0 4 8 12 16 20 24 28 32 36 40

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$5,000,000

$0

Home value Investment property

Superannuation Total debt

Years




and pays $350 per week in rent. We’ve based his outgoings on the Westpac servicing calculator’s lifestyle outgoings for a single person.

Still, our investor has some serious limitations. These severely impact on how he can achieve his passive income goal. The more critical ones include:1 He does not have adequate savings to buy a large number

of cash flow positive properties in a short space of time, based on lending requirements.

2 His income limits him from accruing higher growth (and hence higher negative cash flow) properties.

Things that could improve Joshua’s situation would be if he was able to live at home with his parents or, if that is not an option, pay considerably less rent. In a major capital city, he could potentially live in a house share or select a cheaper one-bedroom unit to bring his rental payments down. He could also seek to earn a higher income, either through a variation to his role or by seeking out a second job. There is also always the option of partnering with another income earner in his investment.

yield. This growth target is slightly higher than the 37-year historical valuer general growth targets for units in this area (8.3%), so the onus will be on our investor to make sure he buys a well-located and boutique-block villa to achieve a result that will outperform the long-term average.

We’ve selected West Footscray for a couple of reasons. For starters, it is in close proximity to the CBD ( just 9km) and excellent value for money in terms of what $300,000 can buy. Melbourne’s inner north and west are also delivering higher yields, compared to many other inner-city areas, and, most importantly, the area is undergoing some rapid changes. Barkly Street is abuzz with little coffee shops, cafes and delis, while a recent rail upgrade will further enhance travel times on the nearby train line.

Property 2 – August 2014

By August 2014, the investor should be in a position to purchase his second property. This time we would like to see him purchase a two-bedroom apartment with balcony in Brisbane’s inner eastern pocket of Morningside.

The unit purchase price is $350,000, which requires some equity from the West Footscray unit to complete the 95% LVR purchase.

The growth prospects are calculated based on historical growth averages and typical yields for units of this type in

The purchases


The first property we would like our investor to buy is a villa unit in Melbourne’s inner western pocket of West Footscray. He will do this in August 2013.

The unit purchase price is $300,000, with the loan financed at 95% LVR, given our investor’s tight savings pool.

The growth prospects are calculated based on historical long-term growth averages and typical yields for units of this type in the area. Our targets are 9% growth and 4.5%

We chose a house in Ballarat because the city has enjoyed

consistent long-term growth and remains tightly held by tenants




the area; our targets are 7% growth and 5% yield. We selected Morningside because of its proximity to

employment in the city centre, the changing demographic, rate of development and current tenant demand in the area, as well as its connectivity with rail and bus services in and around the city.


By August 2015, the third property will need to be purchased. We would like to see our investor purchase a house in Victoria’s regional city of Ballarat. This particular purchase is deliberate as a yield purchase because our investor will be seeing negative cash flow on his first two properties. We need to be mindful of balancing his capacity to save and the provision for holding multiple properties.

The house purchase price is $200,000, and the growth prospects are calculated based on historical long-term growth averages and harder- but possible-to-find yields for houses of this type in the area. Our targets are 6% growth and 7% yield.

By the time Joshua purchases this property, however, he will have saved more income to put towards it ($6,000), and we can rely on equity also being released from his first purchase to complete the 95% LVR loan and purchase.

We chose a house in Ballarat because the city has enjoyed consistent long-term growth and remains tightly held by

tenants. The city is home to almost 100,000 people and has plenty of employment drivers, namely government services that are decentralising from Melbourne, a university and a hospital. Most importantly, Ballarat is a commuter suburb for many Melbourne workers who are happy to travel the 64-minute train trip into Southern Cross Station.




The following assumptions have been used in preparing this analysis and in our projections and forecasts, except where other values have been specified in information provided:

The market value of property investment assets is assumed to increase at the rate of 7% per year

Costs incurred in the purchase of any new properties (stamp duty, conveyancing fees, etc.) are assumed to be 5% of the purchase price

Rental income from property assets is assumed to be 4% of the estimated market value of the property, and is assumed to increase in line with the market value of the property

Properties are assumed to be occupied and providing rental income 90% of the time (with an occupancy rate of 90%)

Property management fees are assumed to be 7.7% of the gross rental income (including GST)

Costs associated with the property (including rates, insurance, maintenance, etc.) are assumed to be 1.5% of the estimated market value of the property at the time of purchase, and are assumed to increase at a rate of 3% per year

Any new loans required to fund the purchase of a property are assumed to be interest only, and the interest rate is assumed to be 7.25%pa**

No allowance has been made for the cost of Lender’s Mortgage Insurance

No allowance has been included for any potential tax deductions that may be available for depreciation expenses

Unless specified otherwise, it is assumed that the costs of investing in property (including the interest on any money borrowed to fund the purchase) are deductible against other taxable income and will be applied at the investor’s marginal tax rate

** In the model for this article, we have used specific assumptions for growth and yield for each property, we have specifically included Lender's Mortgage Insurance for each new loan, and we have set the interest rate for loans for Properties 2 through 5 at 6.50% instead of our standard 7.25%.


A year later, once again the next property should be a unit in NSW’s second largest city, Newcastle. This east coast city is an exciting choice because of strong yields, tight vacancies, and excellent growth prospects.


The final purchase, completed in August 2017, is within Queensland’s inland community of Ipswich. We’ve selected Ipswich’s eastern suburb Bundamba for affordability and its proximity to rail and arterial connections direct to Brisbane, and for the strong yields currently on offer.

The property is a detached house, purchased for $250,000 with the help of more equity accessed from the above properties. The LVR at this

This particular purchase is deliberate as a combination of historical long-term growth and yield to balance up the investor’s overall cash flow and help diversify his portfolio.

The purchase price is $300,000, and the property will be purchased at 90% LVR for the first time. Our target is 8% growth and 6% yield.

stage is still above 80 but finally below 90%. Our target is 6% capital growth and 6% yield, based on average yields for houses of this type in the area.

Newcastle is an exciting choice

because of strong yields, tight vacancies, and excellent growth prospects




The optimistBrendan Kelly is an active property investor, RESULTS mentor and property author. He has coached over 600

property investors from all walks of life, sharing his experiences of being able to quit his day job thanks to property.

TacticsLive in every property

purchased to reduce rental expenses and holding costs

Renovate first property and sell it fora profit

Use enlarged funds to purchase a larger property and sell for a profit once again after a cheap cosmetic renovation

Initiate a third project, this timerenovating a house on a large block, while subdividing the property. Sell renovated house and newly split block for a profit

Repeat process for fourth, fifth, sixthand seventh properties, adding the construction of units to the subdivision process to increase profits

With close to $1.5m in the bank,use considerable pool of funds to purchase blue-chip real estate with high yields

Quit job and live off substantial passive income

Strategy Increase the investor’s bank balance with a series of quick-renovation, subdivision and building projects. Once these properties have all been sold, the investor can use a now sizeable pool of investment capital to purchase high-yield, quality properties that will deliver the $90,000 passive income every year.

The optimist



up to $3,183.34 he can spend on mortgages, whether for investment or for putting a roof over his head. Of course, any more than this amount will definitely put him under mortgage stress.

Borrowing capacityWhen trying to calculate how much we can borrow, one of the most critical numbers in the equation is the rate of interest we need to pay.

It is possible to pay as little as 5% at the moment, but this is unlikely to be the case for the next seven years. Being conservative, history suggests that about 8%pa represents a fair and reasonable average long-term interest rate.

On the premise that banks believe that a person can comfortably afford 30% of their gross income on mortgage repayments, our investor can comfortably afford $1,750 per calendar month.

If we consider the rate of interest he is likely to pay is in the order of 8%, then he can borrow (relative to bank fees and charges and whether he chooses interest-only payments):

Of course, inflation is a factor and, if you consider that his salary will likely track inflation of 3.5% over the next seven years, we’ll see our investor able to borrow slightly more each year.

Salary increases by inflation

Year Salary Borrowing capacity

0–1 $70,000 $262,500

1–2 $72,450 $271,687

2–3 $74,985 $281,196

3–4 $77,610 $291,038

4–5 $80,326 $301,224

5–6 $83,138 $311,767

6–7 $86,047 $322,679

7–8 $89,059 $333,973

The game plan

Financial freedom is entirely possible over a relatively short

period of time if you’re using property to build wealth.

While it is never safe to assume that market-driven growth on property is consistent every year, it is safe to assume that there will be some growth during the seven and a half years our investor will be buying property.

For the sake of simplicity, I’ll assume that each year will yield a growth rate of just 5% per annum. This is approximately half the rate of growth needed to satisfy the common perception that property prices double every seven to 10 years.

After this, we need to be very clear on where the investor is at today and what the destination looks like before we decide how they are going to get there.

Preliminary assumptions Our investor earns just $70,000 a year and clearly has a fantastic capacity to save. Knowing this, we can get a picture of what his lifestyle might have been like over the last 12 months. This will make it easier to forecast the next seven years, given that he will not be changing his personal situation over this period of time.

Living costs estimateYearly Monthly

Salary $70,000 $5,833

Tax + super

$21,650 $1,803

Rent $18,200 ($350 per week x 52 weeks)

$1,516

Savings $20,000 ($30,000 saved in 18 months)

$1,666

Living $10,150 $846 ($195 per week)

Since Joshua is already living a frugal lifestyle, any lender will easily see he is in great control of his spending habits. If we then combine his current rent with his saving capacity, he has

Creating passive incomeFor our investor to proceed with his goal, he’ll need to work out how passive income gets created. The answer to that is fairly simple. An investor needs to have a large amount of capital invested into an asset base that other people will pay to use. The more they are willing to pay, the better the return on investment.

Again, for the sake of conservatism we’ll assume an average rate of return of about 8% a year – whether this is through rent or any other income producing means. At this rate of return Joshua will need to have $1,125,000 invested in property in order to get $90,000 in passive income. This may seem like a random number, but $90,000 is exactly 8% of $1,125,000.

There are fundamentally two ways he can achieve that rate of return by owning property. One is through the income property generates via rent; the other is via the appreciation in value it can generate from the completion of added-value projects, or through market-driven demand.

If Joshua was to pursue the first option, purchasing cash flow positive properties on low loan-to-value ratios (LVRs), he would need to own many properties to be able to score $90,000 a year in net cash flow. Given his financial position and borrowing capacity, this simply wouldn’t be possible – certainly not in the timeframe of seven years.

For this reason, I’d recommend he explore opportunities to add value and see market-driven growth.

$70,000 x 30%

8%= $262,500


0 month 1 month 2 months 3 months 4 months 5 months 6 months 7 months 8 months 9 months 10 months 11 months 12 months

Activity Decide to build wealth

Searching for property

Still searching for property

Nearly there

Found property and signed contracts

Preparing for reno

Settle on purchase and move in

Reno underway

Reno underway

Reno done Listed for sale

Sold Pay out loan and receive profit

Savings $30,000 $31,666 $33,332 $34,998 $24,164 $25,830 $14,496 $10,095 $5,694 $1,293 $892 $1,491 $84,028

Investor timeline for Property 1

Property 1

Strategy: Buy unit to live in, renovate andthen sell

Starting funds: $30,000

For the investor to get a big start in his financial life on a small budget, there are few options better than cleverly renovating his home.

Doing this he combines a small sacrifice in lifestyle with the intent to make a profit in property. Meanwhile, his holding costs are reduced and tax breaks enable him to retain more cash for future deals.

Property 1 details

Type: 2–3-bedroom unit in capital cityinvestor lives in

Features: 1–2 bathrooms, part of a smallercomplex of 3–6 units

The numbersThese numbers may seem pie in the sky, but remember that the investor is living in the property, which significantly reduces his expenses. Because he only has $30,000 in savings but will have the ability to save an additional $1,666 a month and will not need all of the capital required for this project up front, he can manage the purchase and renovation expenses over the period of time that he holds the property.

Purchasing and renovating

Purchase price $250,000

Deposit (5%) $12,500

Buying costs $13,000

Holding costs $0*

Cosmetic reno budget

$21,000 (spent over four months)

Total cash required $46,500 (paid with $30,000 savings + additional savings while

holding property)

Total loan amount $237,500 (95% LVR, 8% interest rate)

SellingSale price $333,125 (purchase price +

market-driven value growth + value added through renovation)

Selling costs $9,750

Profit $39,375

Property 2

Strategy: Buy smallhouse, live in it,renovate and sell

Funds available:$84,028

The purchasesFor this buying strategy to work, our

investor has to be willing to get involved along the way. This means sacrificing some (non-financial) lifestyle conveniences.

*Given that it is the investor’s home, holding costs become part of his living costs

GAME PLAN | HOT TO GET $90K INCOME




The ideal next step for our investor is to move capital from the settlement of the sale of his first property on one day to the settlement of the purchase of the next property on the next day. If this is achieved, his capital will always be in play and generating a return. We’ll assume his timing is perfect.

Property 2 details

Type: 2–3-bedroom small house in capital cityinvestor lives in

Features: 1–2 bathrooms

The numbers As with any endeavour, experience adds to wisdom and the speed of execution. It should be no different with our investor. The second project should be easier. The renovation should be completed in three months and the property sold in six weeks, with a six-week settlement period after contracts are signed. By the time the renovation is complete, our investor should be scouting for his next purchase.



Deposit (11%) $33,550


Holding costs $0

Cosmetic reno budget $30,500

Total cash required $79,950


Selling

Sale price $414,235 (purchase price + market-driven value growth + value added through renovation)


Profit $42,420

0 month 1 month 2 months 3 months 4 months 5 months 6 months 7 months 8 months 9 months 10 months 11 months 12 months

Activity Decide to build wealth

Searching for property

Still searching for property

Nearly there

Found property and signed contracts

Preparing for reno

Settle on purchase and move in

Reno underway

Reno underway

Reno done Listed for sale

Sold Pay out loan and receive profit

Savings $30,000 $31,666 $33,332 $34,998 $24,164 $25,830 $14,496 $10,095 $5,694 $1,293 $892 $1,491 $84,028



should give him pause for reflection: he has achieved this in just two years, coming from just $30,000 in savings.



Deposit (18%) $59,400


Holding costs $0


Subdivision costs $25,000



SellingSale price – house $320,000

Sale price – land $180,000


Profit $79,100

Properties 4, 5 and 6

Strategy: Buy small house on larger block,live in it, and subdivide it this time into threeproperties, also renovating before selling.Repeat process for Property 5, simply withbigger numbers, and add a developmentaspect to Property 6

Funds available: $252,587

Splitting one block into three is very much like a 1-into-2 split. The basic guidelines for the area will not have changed, so the skills and knowledge the investor has acquired and built over the last two years plus will become a valuable platform for bigger and more profitable deals. Of course, he will still have to do them at a rate of one at a time.

Playing with bigger numbers, it will be possible to put nearly half a million dollars into our investor’s bank account after the fourth property project. While his goal is still firmly fixed on a passive income of $90,000, his confidence will certainly be building. It will soon dawn on him that the skills that have been acquired so far are skills for life. They can be utilised at any age and time, and in any market.

With significantly more funds at his disposal for the fifth property purchase, the investor will simply repeat what he did in the fourth property deal, with even bigger numbers, but bigger numbers in a critical way.

His deposits should be getting bigger, but his loan

Property 3

Strategy: Buy small house on large block,live in it while subdividing and renovating it,and eventually sell

Funds available: $144,833

Splitting one block into two isn’t a complex process in most circumstances. Once you know the basic guidelines for your area, it becomes significantly easier. Our investor will need to become familiar with zoning restrictions and get the assistance of a good local land surveyor.

The investor will likely need to pay income tax and/or GST on the sale of the second block. The amount and timing of this payment will have a bearing on the outcome of the project, but not significantly enough to threaten his primary goal.

The investor will also need to hold the property for longer, as getting new titles takes time.

Property 3 details

Type: 2–3-bedroomFeatures: Large block of at least 750sqm;

1–2 bathrooms

The numbersFrom settlement to settlement, this deal is planned to run for roughly nine months: six months for the subdivision and reno, six weeks for selling, and a further six weeks for settlement.

The results of this project should put our investor into new territory. At the end, his bank balance should show more than $250,000 for the first time in his life. This





amounts should remain relatively the same. That’s because his ability to borrow won’t be changing. All that’s changing is his cash position, which is getting better with every deal. As long as he keeps his head he should have $690,311 in the bank at the end of the Property 5 deal.

By the time the investor gets to Property 6 he should be very familiar with the process of subdividing and renovating. Now he will be doing something bolder. He will add the construction of two units on the two additional blocks he creates through a subdivision. He will elect to purchase a cheaper property to secure a loan, but will spend more on adding value.

Property 4 details

Type: 3-bedroom housesFeatures: 2 bathrooms; large block of at

least 1,200sqm

The numbersFrom settlement to settlement, this deal is planned to run for 12 months, with the renovation and subdivision taking nine months of this period, while it will take six weeks for the property to sell and a further six weeks until it is settled.



Deposit (30%) $120,000


Holding costs $0




Loan amount $280,000 (70% LVR at 8% interest)

SellingSale price – reno house $350,000

Sale price – land 1 $165,000


Selling costs (incl. GST) $23,500

Net profit $141,200

Property 5 details

Type: 3-bedroom houseFeatures: 2 bathrooms; large block of at least

1,200sqm




The numbers Like the fourth property, this project will run for 12 months, including six weeks to find a buyer and another six-week settlement period.



Deposit (51%) $300,900


Holding costs $0

Other costs $6,000




Loan amount $289,100 (49% LVR at 8% interest)





Net profit $181,950

Bank balance upon settlement $690,311

Property 6 details

Type: 3-bedroom houseFeatures: Large block of at least 1,200sqm

The numbersFrom settlement to settlement this deal will run for 18 months.

Purchasing and renovatingPurchase price $350,000Deposit (15%) $52,500Buying costs $17,500Holding costs $0Cosmetic reno budget $36,800Subdivision costs $30,000Construction costs $535,000 (paid in cash)Total cash required $671,800Money borrowed $297,500 (85% LVR at

8% interest)


Sale price – unit 1 $470,000Sale price – unit 2 $470,000Selling costs (incl. GST) $57,650Net profit $228,050Bank balance upon settlement $1,034,115

Property 7

Strategy: Buy small house on larger block,move in once more, subdivide into threeproperties, and renovate the existingdwelling while constructing two more unitsand selling

Funds available: $1,034,115

By now our investor will realise that he is getting very close. With his current bank balance he is just $91,000 shy of his target of $1,125,000. The temptation to stop will probably be strong because converting $1,034,115 into income-generating assets will produce a passive annual return of approximately $82,500.

Being very committed to getting $90,000 passive income, our investor won’t stop. He’ll press on with another project, same as last time, but with bigger numbers.

Property 7 details

Type: 3-bedroom houseFeatures: 2 bathrooms; large block of at least

1,200sqm

It will soon dawn on our investor that the skills acquired

are skills for life. They can be used at any age or time, in any market




Disclaimer: The value of taxes payable is not discussed in any detail in this forecast. The forecast is for the purpose of demonstration only and should not be considered as legal or tax advice.

The article is for illustration purposes only and should not be taken as financial advice. Ensure that you speak to a professional before investing.

Project progress over the seven years

Activity Bank balance

0 months Renting $30,0001 year Property 1: buy,

reno, sell $84,028

1 year, 6 months Property 2: buy, reno, sell

$144,833

2 years, 3 months Property 3: buy, reno, subdivide (1–2), sell

$252,587


$444,325


$690,311

5 years, 9 months Property 6: buy, reno, subdivide (1–3), build, sell

$1,034,115

7 years, 3 months Property 7: buy, reno, subdivide (1–3), build, sell

$1,524,133After the final projectIt’s the end of 2020 and Joshua will be in a solid position to resign from his job. He just needs to get that passive income. At the moment he has a bank account with more than $1.5m in cash, but he doesn’t have any actual cash f low.

At this time, he needs to go shopping. Over the next few months, he’ll need to scout out high-yielding properties that typically attract blue-chip commercial tenants. As long as he can achieve an annual yield of 8% across three to four commercial properties, then the income will be reliable.

What’s more, it will require little ongoing effort, giving our investor the truest sense of financial freedom.

The numbers From settlement to settlement, this deal is planned to run for 18 months, including six months for building and six weeks respectively for selling and settling.



Deposit (46%) $262,200


Holding costs $0



Construction costs $635,000 (paid in cash)

Total cash required $1,034,500

Money borrowed $307,800 (54% LVR at 8% interest)


Sale price – unit 1 $640,000

Sale price – unit 2 $645,000


Net profit $337,250

Bank balance upon settlement

$1,524,133

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