Updated  
Game Plan
 

We have adjusted your models to illustrate the purchase of a family home in Brisbane or the Gold Coast in 2024. In doing so, the following has been assessed and adjusted accordingly:

  • Increase the purchase price of Adelaide to $650K with a 35% deposit. In this case, the loan product recommended is principal & Interest. If we believe there are great buying opportunities at $650K +, we will present this and show you how it affects the total strategy

  • For Braddon, we have adjusted the offset holding amount to be 70K

  • The model shows a family home purchase in 2024

  • We have modelled $170K into the Keperra offset account for 2020 ($50K + $10K/month x 12 months) and $120K​ per year thereafter up until 2024

  • This money will be used for the deposit and purchasing costs for the family home 

  • We have modelled a purchase price for the family home of $1.5M

  • Additionally, we have moved forward the purchase of property five to 2020 instead of 2024 and renamed it property four

  • Your out of pocket expenses will be less than $500/month until 2024 when you purchase the family home. From this point, the out of pocket expenses increase to ~$6k/month (as you will not be receiving rent for the family home). From 2029, this gradually decreases to $5k in 2033.

The Changes:
 

  • You will still have a total of five properties including the two existing properties (Braddon and Keperra), however, one will now be your family home

  • Previously, by 2033, your total asset value was projected to be c. $5.9M, it is now $7.392M

  • Previously, from 2033, you were to start receiving an estimated passive income from your portfolio of $67K p.a after selling down two properties and the proceeds of the sale to sit across your existing offset accounts. This number is now $28K p.a, however, your family home will be owned outright (we have illustrated 100% of the debt covered by funds held in the offset account)

  • Previously, by 2043, it was assumed you had a total cash surplus position of $4.9M (equates to 20 years of living expenses @ $245K), the new model shows this to be $2.764M (equates to 20 years of living expenses @ $138K).

 

Disclaimer: We strongly recommend washing our numbers and strategy with your financial planner and tax accountant to ensure the numbers work with your personal tax situation. Our models make assumptions on your tax positions for this purpose.

 

 

 

These calculations are an assumption and you should consult
with your accountant and financial advisor to get a complete

understanding of your personal tax position.

THE GAME PLAN

This Is
How We Do it
 

Here we unpack the full box and dice around building a portfolio, how we tailor the approach to your bespoke needs and what it looks like in a spreadsheet. Finally, we discuss the next steps and how we keep moving forward.

Portfolio
Ingredients
 

Tailor Made

 

Everyone’s circumstances, requirements and goals are different, so it’s important that each strategy is tailor-made to those needs. More importantly, is the sleep at night factor. By that we mean, we can cut up an approach and strategy in many different ways, but ultimately, we need to ensure your best interest are kept at heart and you can sleep at night after signing off on the strategy.
 

Asset Selection

 

It’s important to start your portfolio with high growth properties that will set a platform that enables you to grow and diversify where required. We are big advocates of purchasing houses as opposed to units and we look for houses where value can be added by way of cosmetic/structural renovations and/or subdividing. Of course, not all of those value-add scenarios meet everyone’s criteria, however, it’s an important POD on properties you own if they have potential to add value in the future; either for you or prospective buyers. This adds a significant weighting to the value, but also, most importantly allows you to manufacture equity when your funds permit throughout the ownership phase.

 

To be clear here, It doesn’t really matter how many properties you own. What is more important is the value of your asset base and the individual quality of those assets and how they are working for your individual needs.

 

Cash Flow

 

In terms of asset selection criteria when building a portfolio, it’s important to maintain a strong cash position. By this we mean, the total out of pocket expenses is kept to a minimum, as this is crucial for your cash flow and ability to grow a portfolio and credit lending. When seeking future lending to grow your portfolio, the banks will look at your overall portfolio expenses. So it's about ensuring your asset is still going to provide adequate capital growth whilst providing minimal contributions from you to hold the asset. Generally higher income earners can support greater expenses, so the opportunity to go for higher growth areas with lower yields is still ok.

 

Loan Structures

 

Implementing the right financial structures is incredibly vital for any property portfolio and one key item is the emphasis on Interest only lending that enables you to maximise your cash flow position. Likewise is the emphasis of offset facilities to help reduce your monthly liability and reduce the interest you pay on your loan. An offset account is a transaction account linked to your home loan account. The account’s balance is ‘offset’ daily against your home loan balance, and as a result, you’re only charged interest on the difference between the two.

 

Ultimately, you want your portfolio to be unencumbered to deliver you a great passive income for retirement. However, immediately, you won't always be earning a wage, and a good one at that, so it's important to leverage now to grow the portfolio whilst the banks will lend to you.

 

Management

 

We monitor your portfolio on a daily basis, so we are always going to be aware of how our property plan is tracking against the actual market. It allows us to pivot and adapt if required to ensure your end goal is always on track, even if we need to take a detour or realign along the way. So. it's important to note, that what we have recommended here, may not be exactly how the plan plays out. We need a platform to work from to ensure we are aligned and then importantly, we will continually monitor your portfolio against the original plan.

 

Portfolio
Stages

 

1. Acquisition:

 

The main priority is creating leverage in the market and expanding your portfolio through a combination of growth and high yielding properties.

 

2. Consolidation:

 

This is when you begin consolidating your portfolio and your debt by adding value to your existing portfolio through smart and effective renovations (if included in your overall strategy plan), adjusting rents and capitalising on land sub-division opportunities. It's also where we recommend revisiting the loan products to ensure you have the best facility in place with the most competitive interest rate available to you. Specialist advice is required around the structures set to begin paying down the debt in your portfolio. Any tax deductions and surplus of funds should be used to start paying down your total debt position. 

 

A reminder, there will be a time where your cash flow needs to allow for your loans to convert to principal & interest. 

 

3. Lifestyle:

 

This is when you create strategic results in your portfolio based on your goals, meaning, in your case, the ability to create an annual passive income. 

 

To do this, at Milk Chocolate, we focus on the following steps to building the portfolio:

 

1. Clarify your position and goals

2. Evaluate the most appropriate tactics

3. Establish a plan for cash flow

4. Suburb and property specific due-diligence

5. Ongoing management

 

Finally, it is imperative that we protect you and your assets from the outset, so this involves personal income protection that covers you in case of injury or permanent disability and of course, building and landlord insurance for each property that is purchased. 

The 
Game Plan
 

To recap, you are looking to initially invest $120k into the next property with the key criteria to build a portfolio that delivers a passive income in retirement.

 

To achieve this, we are targeting the following scenario:

 

  • Accumulate a total of 5 properties (including the two existing properties)

  • Property 3 (Adelaide), Property 4 (Melbourne), Property 5 (TBC)

  • By 2033 (15 years), your total asset value is c. $5.9M

  • From 2033, start receiving an estimated passive income from your portfolio of $67K p.a after selling down two properties and the proceeds of the sale to sit across your existing offset accounts

  • By 2043, an assumed total cash surplus position of $4.9M (equates to 20 years of living expenses @ $245K)

 

In 2033, there is the option to pay down all debt and that passive income can convert to c. $100K p.a. However, we would prefer to keep these funds liquid across your offset accounts so you can access them when required as opposed to retiring 100% of the debt. This provides you with access to that cash, whilst maintaining a neutral debt position.

 

Disclaimer: We strongly recommend washing our numbers and strategy with your financial planner and tax accountant to ensure the numbers work with your personal tax situation. Our models make assumptions on your tax positions for this purpose.

The 
Short Term
 

2019

 

Property 3

 

The recommendation for property 3, is a house in Adelaide. The area we are targetting is the Inner West region, approximately 2km from the Adelaide CBD. We are working towards a max. purchase price of $550,000 with a 12% loan product. Adelaide has recently started to show signs of market upside, on the back of the cooling Sydney and Melbourne markets. Adelaide is now the most affordable capital city and presents value for money with new infrastructure projects now starting to commence. We have provided our full analysis of the recommended regions here. You can also access this by clicking on the 'Suburb Due Diligence' tab and the dropdown 'Adelaide'.

The 
Long Term
 

As we are working towards building a foundation for your retirement and a passive income supplemented through the property, we have to ensure the right strategy is in place to pay down your debt.

 

We are proposing to sell down two of your assets by approximately 2033, with the funds from the sale to sit on your offset account. This would offset 100% of the outstanding debt, allowing you to pay down the remainder of the mortgage debt interest-free. On review of your portfolio at this point in time, we will provide a timeline on the sell-down of the remaining assets as this will need to consider your current tax position, lifestyle requirements and passive income needs. For this purpose, we have modelled the sell down by 2043 to provide you with a lump sum cash injection for retirement.

 

We are recommending to hold Braddon as this is a hassle-free asset that is easy to carry moving forward. By the time we sell, we will have seen the current oversupply concerns ironed out, allowing the property to trigger stronger growth on the back of increased demand for the inner city suburb. Property 4 has been modelled to be a blue-chip Melbourne property, so will provide great ongoing growth and security. Property 5 is modelled to be a cash cow and also advised to hold. Keperra and the Adelaide purchases have been modelled to carry all of the debt, so we want to retire these two properties. They will have seen strong growth for a sustained period and by this time, we believe those markets will be in the cooling stage of the property cycle.

 

The below briefly summarises the above approach and what this looks like from a numbers point of view. We have fully detailed this and modelled it on our 'Big Spreadsheet' below. 

The 
Big Spreadsheets
 

Time to get our hands dirty, lift up the bonnet and see how it all works. This is an overview spreadsheet that highlights your portfolio position and cash flows. 

 

 

 

 

These calculations are an assumption and you should consult
with your accountant and financial advisor to get a complete

understanding of your personal tax position.

Next  
Steps
 

You have a lot of information to digest! So, take your time to review our strategy and recommendations. We can make ourselves available at your earliest to discuss and sign off on the strategy.  You should also review with your tax accountant the scenarios based on your actual tax position.

 

Once approved, we will commence th property search based on the agreed region recommendations.

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