Home' API Magazine : October 2014 Contents OCTOBER 2014 n APIMAGAZINE.COM.AU n 29
In my modeling I’ve recommended a
purchase price of $450,000 for the next
Melbourne investment property, targeting
an eight per cent annual compounding
return and a 3.75 per cent gross rental yield.
Area selection is where you get most of your
capital gain returns, so I’d be focusing in on
blue-chip suburbs with young professionals
and great lifestyle and convenient factors.
Opting to invest in Melbourne would, in
my view, mean that we wouldn’t undertake
any further investment exposure in the
Geelong area, as you’ve enough exposure in
Diversifying into other major cities and/
or towns in other states would be a more
balanced bet for your portfolio.
Furthermore, in terms of your idea to
undertake a cosmetic improvement of your
existing Geelong investment property, I’d
want to ensure the principal renovator’s rule
of ‘double your reno dollar’ is adopted.
This means if you wanted to put $40,000
into the reno, then you’d like to see the value
of the finished product deliver a revaluation
of $465,000, based on the existing value
provided. This is the equivalent of a $40,000
reno adding $80,000 in an ideal
So before pushing the green light you need
to do the research on whether or not you’re
overcapitalising for the area.
In summary, you’re in a very good financial
position for your age. As you build up your
nest egg, you should also be building up
strong relationships with professional and
qualified advisers, to help you keep making
You’re well positioned to move ahead
and use the equity in your current
property to accelerate your position, in
an effort to achieve your desired early
Consideration needs to be given to future
plans, in terms of your cash flow position
today and into the future and any life
events that will impact on these cash flows.
With all investing there are risk/reward
considerations and further investigation and
research will ensure you keep making each
post a winner when you have ‘fork in the
road’ decisions to make.
Financial Planning Expert
Considering your primary goal is to semi-
retire in 10 years, you need a property plan
delivering three broad outcomes: sufficient
rental income to supplement your reduced
salary; the potential for rental increases so
that rental income keeps pace with the rising
costs of living – inflation; and capital growth
potential for financial security and to provide
a hedge against longevity risk (more on
longevity risk later).
Building a portfolio to deliver one of
these outcomes would be reasonably
straightforward but satisfying all three
outcomes is more challenging.
For this reason, Jack, the first thing you
should do is obtain advice from a property
expert. This could be a financial planner,
buyers’ agent, strategic mortgage broker
or the like but regardless, one of the most
important things to look for is independence.
Dealing with independent professionals
will ensure no conflicts of interest exist and
they act in your best interests. Property is a
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