Bulk up…
Every so often we are inspired by what somebody else has done… and this week I was inspired, by some new clients whom have just come on board.
Mark, Danielle and David are three friends who work up in the mines in Northern WA. They are Fly in Fly out’s and their home base is in Fremantle WA.
What makes these three special is that they are using all their three high incomes, to work as a team and purchase investment properties together.
Prior to investing as a team, Danielle and David already had an investment property each in their own names which they have paid off in full over the last few years.
Working up North and with much time to talk and strategise, they worked out that if the three of them worked as a team they could exponentiate their wealth long term if they combined their incomes and purchased together. So that’s what they did…
Over a period of a couple of years, they have further purchased four more properties that they own 33% each. They could have easily purchased another three properties as they have the deposits ready to do so, but they have two flaws in their strategy… they are time poor and work in a remote area. This is where I come into the equation.
Being high income earners, they were able to save for deposits between the three of them quite quickly, in fact they save the 20% plus set up costs for each purchase to avoid mortgage insurance.
To date, they have agreed to put $1,000 a week each into their Offset account on top of the rent they receive. As their properties are all positively geared (their loans are at 80% leveraged) their Offset account grows at a rapid rate.
So why have they come to talk to me… they were referred to me from a good client of course. That aside though, their portfolio is all in WA and they have realised that they need to diversify and invest in other markets around Australia.
This diversification will also reduce any potential land tax payable, (land tax is a state bound tax on where the property is located).
I will suggest to them that they consider buying properties at 90% leveraged as apposed to 80%. Sure there is mortgage insurance payable, of which they will receive a large proportion of this back in their tax as they are high income earners, but it will allow them to buy more properties faster… much faster! This is how I invest myself.
And at 90% LVR they will still receive a cash flow positive income each month, meaning it won’t inhibit their ability to save for their next property deposit… in fact with interest rates as low as they currently are, this can be achieved at 95%.
I guess I don’t need to tell them this, I just broadcasted my suggested strategy to Australia… let’s see if they like my idea then!
Now the purpose of this story is not to “rub it” into the noses of all of you who are trying to invest as quickly as possible and built an impressive portfolio… it is to show you that it can be done as a team, using a different strategy.
Use the power of bulk incomes to buy more properties together faster…
Over time, we have noticed that investors usually buy between one and three properties in the first couple of years then they seem to take a lot longer to go to their next purchase or stop all together. If they teamed up with other like minded investors they could continue to invest. Even though they may only own a third of the property, that’s better not owning a property.
The other great benefit is that as a team, you motivate each other to keep going…
But like usual lets get into the numbers…
Sure Mark, Danielle and David have the ability to save $3,000 per week… but lets look at individuals that are earning $60,000 each.
Now $60,000 gross per annum = $941 net (in hand) per week.
Being conservative, if there were three of you teaming up, you should be able to save $200 per week each.
This adds up very quickly… $31,200 per annum!
And guess what, that’s enough of a deposit (using 5% deposit plus costs) to buy a $300,000 property per annum… that’s right, you could go shopping for another property every year!!!
Now there are some tricks to this working as a team. I’m no expert so some feedback from some of you who have done it would be great, hit the comments button below and let me know what works and what doesn’t.
- I think that you all have to be like minded into wanting to invest in property and that this is your vehicle to creating wealth, trying to sell the idea to someone wouldn’t work
- Being a third wheel may make the third person not in a relationship feel outcasted, friends would work better
- Set up an agreement between you all, especially one that states what happens of one party wants to exit the investing and sell out
- Have similar incomes, therefore you all come to a saving figure that doesn’t stretch one member beyond their means
- Use each members desired attributes eg, one person to research locations and properties, one to do the paperwork, one to pay the bills
- Set up a savings account that all three of you are on
- Have a plan of attack
- Stick to the plan
- Use the services of professionals that compliment your plan
- Get out and start investing
With all that said I am really looking forward to working with Mark, Danielle and David and I am sure we will make massive head roads in their pursuit to create a passive income, you never know I may even learn a few things here too…