For most people, a $10m portfolio will represent absolute financial security & independence, without compromise. This number, however, is entirely your choice. The most important thing to consider is the income you want to generate in retirement, and this is where you should begin. In the basic property portfolio we outline below, we are able to generate a relatively low risk, blended 3.5% net return across the portfolio.
It's important to acknowledge that this is not a financial plan and this property strategy is only available to wholesale investors as defined in section 761G of the Corporations Act.
For the purposes of this article, we are going to assume that you have paid off your principal place of residence, which is worth in excess of $4m, and your income is above $750,000.
Risk: This portfolio has been designed to be low risk. We do, however, have to take on a large amount of debt to make this work. This debt will peak around year 13, and there are a number of strategies we can discuss (upon request) in greater detail around how we manage this.
The time frame: Unless you have money coming in from a business sale or from an inheritance, building a large property portfolio takes time. This is largely due to the fact that we need to allow enough time for each property to go through at least one growth cycle. In this case, as we do with most of our property portfolios, we have assumed a minimum timeframe of 20 years.
Capital contribution: For the purposes of this strategy we are going to ask the investor to contribute $100,000 per annum, totaling $2m over the 20 year period.
Like all the property portfolios we build, the core principles are the same:
- Buy property in the value or momentum stage of the cycle;
- Buy quality, A-grade property, and;
Setting up the portfolio:
- Access line of credit (LOC) from PPOR - in order to kick off this strategy we are going to require a LOC against the PPOR for around $2m. This will cover deposits and upfront costs for the next 10 years.
- Buy 5 residential growth assets - over 6 years, we will be buying 5 properties across a number of states. This allows us to take advantage of different market cycles, all whilst helping us minimise land tax which is critical as the portfolio increases in value. The total residential investment will be $5m
- Buy into 10 PPA Commercial Funds - buying into 10 PPA commercial funds over a 10 year period allows us to diversify across a number of geographic markets, different asset types, and importantly, a range of tenants. Staging the money into the market over 10 years will help even out market cycles. The total commercial investment will be $3.5m.
See graph below, how portfolio looks once built, in around year 12 - 14.