My investment strategy: Part 1 - Property
How I plan to be work-optional by 40
If you’ve followed me for a while, you know that wealth is a long game.
I use the word ‘game’ very intentionally, because it really is.
…And every game requires strategy.
Over the next few weeks, I’m going to give you the full playbook that I’ll be following to reach financial freedom by 40.
This means I’ve got 12 years to build out an investment portfolio that will hopefully pay me between $150k–$250k per year (whether I’m working or not).
The goal?
A net asset base of $3 million – $5 million, yielding ~5% per year.
How do I get there?
My overarching investment strategy has four key pillars:
Property
Shares
Crypto
Business income
In Part 1, let’s explore the core foundation of the strategy: Property.
Why property.
Because it’s one of the key asset classes where the banks allow you to use majority of their money to acquire.
In other words, the banks will allow you to borrow up you 90% (sometimes 95%) of the value of the asset, which means less of your money and more of somebody else’s.
Australian property has a long-term track record of delivering solid, compounding returns. According to CoreLogic, national housing values have grown by an average of 6.8% per annum over the past 30 years (and that doesn’t include rental income).
By continuing to ride this wave and leveraging as much of the bank’s money as possible, you can accelerate your wealth in a way few other assets can.
I’m overall very bullish on the Australian property market over the next 10 years for a couple of key reasons:
Huge levels of overseas migration is currently leading to a property shortage
Build costs remain high for developers
(high material costs, relatively high interest rates, high cost of labour etc)
Both of these points above create a massive supply/demand imbalance.
We have a shortage of homes, and not enough new homes being built each year to absorb the demand.
In Economics 101 - this is a supply squeeze, and the inevitable result will be an increase in the value of the asset being squeezed (ie. Australian residential property).
My approach.
I plan to build a portfolio of around 4–5 properties across Australia.
Starting with residential, and eventually graduating to commercial once the foundations are set.
The idea is to buy these properties across different states - say one in Qld, one in NSW, one in Vic etc - to avoid being overexposed to one local market and land tax threshold.
These properties won’t be speculative flips. They’ll be long-term holds.
I’ll be purchasing in areas with strong fundamentals, a proven track record of long-term capital growth, and properties with future value-add potential.
Part of the overarching property strategy is to purchase establish homes on a large land size with ability to build a granny flat on the block.
This is a way to squeeze more juice from the lemon, by increasing your rental income significantly relative to the debt you have taken on.
Generally this will result in the gross yield increasing from ~4.5% to ~6-7%.
All things being equal, a 6-7% yield should be cash flow neutral or positive.
I am currently in the accumulation phase and working hard to try and acquire these assets.
There will then come a phase of incubation, where we literally do nothing other than sit on them and allow the portfolio to earn income and grow with the market (approx. 7-10 years).
The final stage of my property investment journey will be to sell down some or all of my residential portfolio (pay some capital gains tax) and with the amassed equity, transition into a strong cash flowing commercial property asset.
In my eyes, the ideal commercial asset would be an industrial warehouse, or a well diversified retail neighbourhood shopping centre valued at between $5 million to $7 million.
To acquire an asset like this, it would require a couple of million dollars as a deposit (funded by the sale of the residential portfolio).
Commercial assets of this price point typically have a 6% net yield, after all holding costs (excluding your mortgage payments).
So generally, a commercial asset of this calibre would typically be generating around $300k-$400k of income per year from tenants, minus your mortgage costs, and you're likely clearing $200k-$250k per year in cashflow from one asset straight into your pocket.
Summary.
Property is the cornerstone of my wealth-building foundation.
Residential property will provide me with the capital growth required to significantly scale my wealth during the growth phase of my journey.
Commercial property will then provide the transition from growth to cash flow to enable my retirement.
In the next edition, I’ll break down the 2nd Pillar: Shares.
I’ll show you how I structure my portfolio for both dividends and long-term growth, and how I plan to use the Gordon Growth Model to guide my allocation.
See you next week,
Coran