Positively Geared

How to Build a Multi-million Dollar Property Portfolio from a $40K Deposit

Lloyd Edge

• Publisher: Wiley
• Year: 2020
• ISBN:
  9780730384472
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

Fast-track your financial dreams with this Aussie property investment guide for the 2020s Positively Geared offers a powerful approach for clever property investment, empowering readers to make money when they buy properties, not just when you sell them. This sustainable approach to wealth building will equip you with the knowledge, skills and insider strategies to not only build a diverse property portfolio, but also maintain a portfolio that achieves passive income to reach your goal of financial freedom. Working as a teacher, author Lloyd Edge started to grow his wealth with an initial $30k investment. By the age of 40, he was able to retire from his nine-to-five job. Now a leading property investment strategist, Lloyd's shares his personal story and proven strategies with the hope of inspiring everyday Aussies – young and old – to dream big and proactively craft the lifestyle they really want. Positively Geared will enable you to: •Discover tested property investment strategies
•Learn from real-life case studies and interactive exercises
•Understand the importance of growth, instant equity, and cash flow when buying properties
•Employ a strategy designed for property portfolio growth
•Create a plan to achieve financial freedom based on real estate investment Whether you're a new or experienced property investor, you can take advantage of this unique approach to sustainable wealth building and take control of your finances, refocus on your objectives and start designing the lifestyle you want.

Chapter 1
Know your why
Set your big-picture lifestyle goals for wealth creation.

	Welcome to my office! For every client who walks through my door, the process starts with goal-setting. This is a vital first step to creating their property investment strategy.
	In this chapter, we’ll work on helping you to determine your long-term lifestyle goals, then look at how you can achieve these goals using property as your vehicle. So, have you thought about where you would like to be in 10 or 15 years’ time?

Why have a goal?

Because at the end of the day you need a reason for investing, and whether you do it in property or in shares or futures or art works, you need a vehicle that motivates you to stick to your investment strategy.

We’re going to begin by looking at the bigger picture of what you’re trying to achieve, and work backwards to figure out how much money you’re going to need to get there. Then we’ll look at the different types of property acquisition strategies that could enable you to achieve those goals.

Strategy is really important when you’re buying an investment property. You can’t just ‘buy blind’. I see this all the time. People post on social media, asking me, ‘What do you think about this house?’ or enthusing, ‘This house looks good!’, but there’s no rationale behind it.

A lot of people will buy a property solely because they think it’s a good area to buy in, without really knowing what that property can do for them. Others buy close to where they live because they think that way they can easily keep an eye on the property. That’s also not a good thing to do. You don’t want to buy close to where you live unless where you live happens to be the best investment spot in the country. But even if it is a good area to buy in, you need to understand why that’s going to be good for your goals.

Doing what you’re supposed to do is a flawed strategy

I want you to recognise that you really can do anything you want if you put your mind to it. You can be an entrepreneur, a business owner or a successful property investor (or all three). You can create your own lifestyle choices — if you set about devising a strategy to achieve it.

I believe that a lot of what we’re taught in school is flawed. School is about getting good marks in the standard curriculum. They don’t teach you enough about finances or investing. Tertiary education sets you on a single career path, so you can buy a house and pay off a mortgage for 30 years.

I did what I was ‘supposed’ to do, and by the age of 30 I was working for a boss six days a week, for little reward and no real recognition, and with someone else taking the glory. I realised I didn’t want to be in that situation anymore; I wanted to create my own destiny.

At that time I was also buying my first properties in the way that everyone has historically bought properties — by negatively gearing them. And I quickly realised that’s a flawed strategy as well. If you negatively gear your properties, you’ll be stuck in that job forever. The whole idea of investing is to get yourself out of the rut so you can start to live the life you choose.

Most people are too scared to leave a secure job to follow their dream. But if you build up property investments that are positively geared and look after themselves, then you no longer need to rely on another source of income because the investments are paying you an income.

That’s what I did, and now I have a business as well. These two income streams offer me far more security than being in a job where at any point the boss can say, ‘We don’t need you anymore.’

In my case, I lost my passion for teaching music and made the decision to change my life. I set myself the goal of retiring by age 40, by which time I’d no longer need to rely on my super or pension to get by.

I was on $70k at the time. I had four properties. I lived in my Ingleburn property and had investment properties in Rockdale, Blackwater and Toowoomba. My mortgage payments, less my income from work and rent, meant I was losing money each week. Apart from the Blackwater property, I was negatively geared on all other properties, meaning the rent I received each week was less than my outgoings (mortgages, plus bills and repairs).

If I had just waited for capital growth, it would have been a very slow journey to building my wealth and each property would need to have been bought years apart. So I started to visualise how I could manufacture growth, and the types of properties that would work for me. After I did my first duplex development, I knew that this was going to work, because I was creating equity. I made twice as much money in my first duplex development as I earned in a whole year in a nine-to-five job.

Creating equity means adding value

The problem with relying on a portfolio of properties with only organic capital growth — that is, growth that occurs naturally by way of market movements — is that it can be very slow and there is no guarantee of how much growth you will get, so typically you need to wait a long time to make a profit. I don’t know about you, but I’d rather make my profit in the short term. Having said that, I still advocate that you hold your properties for the long term so that you can reap the rewards of positive cashflow, which is needed to help you attain your goals. You will achieve the trifecta if you get instant equity, organic capital growth and positive cashflow.

The way to achieve your goals faster is to take control of your portfolio and actually manufacture that growth. This is what I mean by creating equity in your portfolio.

Equity is the ‘fair market value’ of a property based on a bank valuation, minus how much you owe on the property. So if you have a property that is valued at $400 000 and you have a loan of $300 000 on it, then you have $100 000 in equity. This would mean that your loan-to-value ratio (LVR) is 75 per cent, meaning you have 25 per cent equity in the property.

The big difference with what I do is that, where you traditionally get 4 to 5 per cent rental yields and maybe an average of 5 to 7 per cent growth on properties — depending on the market and where it sits in the property cycle — when I focus on building duplexes and other micro-developments, we get a lot more growth than that. And we’re looking at 7 per cent plus for yields as well.

On top of yields you get instant equity — by which I mean within 12 months or less — which can mean 20 to 25 per cent in capital gains. Compare 25 per cent capital growth through instant equity to 5 per cent through organic capital growth over a longer period, and you can see that developing properties is a no-brainer — and a much quicker way to reach your financial and lifestyle goals.

Going back to the $400 000 property example mentioned above, if you increase the equity by doing something clever with the property, such as a subdivision or renovation, you’ve added value to the property (from $400 000 to $500 000). Your loan is still $300 000, assuming you haven’t added to it, and suddenly you’ve got $200 000 equity in the property.

Now you can use that equity you’ve created to go and buy another property straight away, then another and another. This is how you attain your goals more quickly.

All of these things we can afford to do if we invest in the right type of properties.

More money means more choices

People say, ‘Money doesn’t create happiness’ and even ‘Money is the root of all evil.’ I don’t believe this, but what money does create is choices.

You should be setting yourself up for the future and, at the end of the day, for retirement. You’ve got the pension and you’ve got super, but they don’t pay very well. And you shouldn’t have to work your whole life. If I was still teaching, I wouldn’t be in a position to retire until I was 70, and even then I’d be close to broke! Far better to retire early and, ideally, leave something for your kids if you have them.

This book isn’t about becoming a multi-millionaire; it’s about creating the life you want to live. Without money, your choices are limited — you can live only according to your means.

As a teacher, I got to a certain level and realised, well, I can’t progress from here. I can’t drive a nicer car or live in a better house, because I can’t afford it. I’ve always wanted to live in a waterfront home and drive a nice car. Property investing allowed me to achieve these lifestyle goals even on a teacher’s salary. My salary was used to obtain the loans, but I invested strategically to create equity and cashflow, allowing me to achieve my goals and to continue investing.

Certainly, retiring from a nine-to-five job with my property portfolio has already given me great freedom, and people often ask me why I choose to keep working and running a business. Personally, I always need something to do, goals to achieve, contributions to make. Sitting on the beach all day is something I might do on holiday! I can’t just do nothing. When I’m 90 years old, I’ll still be working.

Freedom is about creating choices. There are teachers out there who love their work so much they would never willingly retire. I’m not saying everyone quit their job, be...