Hello and welcome to my June 2021 portfolio update. If you want to check out my portfolio update from last month click here.
This month has been quite an interesting one from what is happening nationally. We have been placed back into lockdown which appears to be an unfortunate necessity. The toll this is going to take on the economy is huge but I’m sure the decision was not made lightly. I hope we are able to return to normality soon and can put this pandemic behind us. Though it appears we still have a long way to go before this happens…
Since last month I have had time to sit down and reclarify what I want to achieve within the foreseeable future. I am currently in the process of sorting out finance for my next investment. This is taking longer than I expected but am hoping to sort this out soon as I am eager to begin my search. The approach I take to find the next investment will be slightly different from my previous purchases. My next property will have a cash-flow focus which means my search criteria will also have to change. The market continues to move so I hope by the end of July I will have some more promising news on this front.
Market update
Nationally housing prices have risen by 0.7% in the past month and a whopping 14.1% in the last year (according to SQM research). I am sure other data analysts might tell you slightly different figures but the consensus is the market is flying. For many, it may seem quite strange how we are seeing a housing surge despite what is happening nationally and globally due to the pandemic. This may be due to the short supply of available housing as sellers are reluctant to take their properties to the market while there is an increase in buyers. In addition, the extensive government stimulus utilised to reboot the economy could be trickling into asset prices fueling this housing surge.
However, national housing prices have appeared to slow down recently as monthly price growth has shrunken. Previously we had seen price movement of above 2% a month to which the most recent data suggest it is now below 1% from a rolling month change. Of course, this is national data so each major market across the country would be experiencing a different outcome.
National cities appear to be moving faster than regionals. One interesting statistic observed was that in the past 30 days capital cities have moved by an average of 2.8% while only 9% over the past 12 months. While in the past 12 months regionals were excelling and behind the whopping 14.1% growth nationally. However, now we have capital cities outperforming the national average over 4-fold. This may indicate a shift in the locality of where growth is taking place and maybe an indicator of strong short-term growth in our capitals.
June 2021 portfolio update: Property breakdown
Each property has had some kind of activity in the past month. Given it is now the end of the financial year I have started to think about my tax return. With this, I have decided to purchase a tax depreciation schedule for each of my properties. If you aren’t aware, these are simply a report to outline what you can depreciate on your property each year at tax time. Given my first two properties were built over 40 years ago I hadn’t bothered to purchase this report for them. However, after picking up properties three and four which were built in the 90’s I thought it may be worthwhile.
After speaking with a company they proposed I would be able to get around 7k approximately for the four properties (though I wait for the reports to come back). This means at a tax rate of 32.5% I would be able to get back $2300 roughly every year. The reports cost me just over $2000 ($500 per report) so the first year will simply reimburse myself for the upfront cost. However, moving forward it will be a decent little bit of extra cash come tax time.
The trade-off is that if I go to sell a property I need to deduct the taxable amount from my purchase price and pay more capital gains tax (CGT). So the use of one of these reports needs to be considered on a case-by-case scenario. Though, I believe the money in my pocket now will be more beneficial than down the track.
The Numbers
|
I |
II | III |
IV |
|
| Purchase price | $390k | $250k | $317k | $331k |
| Current value | $485k | $320k | $400k | $400k |
| Loan | $393k | 198k | $288k | $268k |
| Rent | $400 pw | $335 pw | $400 pw | $400 pw |
Property one
There has been a couple of things which has taken place in the past month for this property. Firstly, I have engaged a new agency to take over the management of this property. I didn’t think I was getting the best out of my previous manager and believe the new agency will be better aligned to provide me with the service I am looking for. It is not a difficult process for this to take place, just a couple of forms to fill out. Though, it does take 30 days in most cases to transfer the property from when the termination letter is sent.
The property also had a maintenance issue that needed to be sorted out. There was a leak to a tap on the property which needed to be replaced. This cost a couple of hundred bucks so wasn’t too expensive. Since purchasing this property there have probably been three different maintenance issues I have had to deal with. Two of them being minor and the other being the replacement of the hot water system which cost a couple thousand. Unfortunately, with established properties, there is going to be some kind of maintenance issue along the way. Though, the payoff in the long term is superior capital growth if the right growth metrics were used when purchasing.
Property Two
Property two had a visual inspection completed this month which revealed a couple of maintenance issues. Firstly, the tenants highlighted an issue with the fan in the bathroom which may need to look into. Secondly, the pain in some of the bedrooms is beginning to peel and may need to be fixed. Neither is too concerning or costly.
From a growth point of view, the property likely still sits around the $320k mark with little price movement in the past month. Though, comparables sales indicate similar Renovated properties are being sold for $350k. So I can renovate the property for approximately (10-20k) but it wouldn’t provide a worthwhile incentive for me to do this right now. Particularly as my capital could be used elsewhere and more effectively. At some stage in the future, I do plan on renovating the property as it will hopefully have more value add potential by then. It will likely also mean a sizeable increase in the potential rent for the property. Though, this idea is on the back-burner and not something I am planning on doing this year.
Property Three
This property went to the rental market at the start of the month. Like I expected there was some decent interest in the property and it ended up renting for $400 a week within a week of going to market. At $400 a week with a purchase price of around $332k, this demonstrates a yield of 6.27% (excluding expenses). I am pretty happy with this return but more impressed with the price growth of the property.
It can be difficult to determine the value of a property during a constantly rising market. While the hope of a good renovation is always to add value to the property. Knowing this, I was confident I had purchased well and the renovations would add value. There aren’t as many comparable sales within recent months so it is harder to determine its current value. There was a property sold on the same street at a whopping $470k but this property was a bit larger than my own. I suspect the property would be valued close to the 400k mark and if taken to market this would be a number I would be confident of achieving.
Fortunately, the property’s value will be quite evident very shortly. I am in the process of organising a full valuation on the property as I plan on tapping into the equity of this property to provide me with another deposit. The number we have proposed to the banks is a valuation of 400k so the valuer will now need to determine if this valuation is accurate. I am confident I will achieve this and if not anything lower than $390k would be extremely surprising.
Property Four
A couple of things have taken place within the past month for the news property in the portfolio. As I expected the rent renewal was up for the property and the tenants agreed to a $50 increase in rent taking the property to $400 a week. I mentioned that when I bought the property I knew it was being rented below market value and this was evident in the recent increase. It only took a couple of months since purchase to increase this purchase price. This is a pretty telling example of how a property may have a hidden X-factor if you don’t just look on the surface.
In terms of growth, the property continues to be revealed as an extremely good purchase. The last 5 properties sold within this particular suburb with very similar configurations have sold for 430k, 415k, 400k, 400k, and 330k respectively (the $330k being my property). This shows a great return of over 20% growth in such a short period of time. This is likely contributed to the fact the property was bought at a great price and the market has continued to move since then.
This property is also going to have a full valuation done within the coming week. Similar to property three I am hoping to tap into the equity of this property to use for future purchases. whichever property values back at the highest will likely be chosen for the equity cash out or I may use both! So, the valuation of the property will also be brought to light in the near future by an external valuer.
June 2021 portfolio update: Portfolio breakdown
The portfolio has grown by roughly 30k since last month. This is likely due to the continuing growth we are seeing across the country. Though, as more sold properties come to light we are seeing the increased prices of sales. I suspect next month will also show a similar trend but only time will tell. From a cash-flow perspective, this month was excellent as we saw both properties three and four achieve $400 a week in rent. Property three was taken to market and was rented straight away while property four had a $50 increase. This represents strong yields for both properties considering their purchase price.
Breaking down the numbers
In previous months I have used a general interest rate (3%) to determine my cash flow. This month I took a look at the exact interest rate and loan type to determine my expenses. The council rates, insurance, and maintenance were still roughly estimated as this would require an in-depth look into all maintenance costs over the past 12 months. Rather I use a figure of $3500 which encompasses $1200 of insurance, $1800 of rates, and an additional $500 for maintenance items. With this, It came to my surprise to see the portfolio is actually positive by close to $5k per annum. Although, as I have previously mentioned, there are a couple of loans that are interest-only which once reverting back to P&I will cost me significantly more.
It is good to illustrate that trying to build a property portfolio doesn’t mean it costs you an arm and a leg to hold. In fact, as mentioned previously, my ambition with my next purchase is to buy a cash-flow-focused asset that will improve my cash position even more. This was one stipulation I gave myself when building my portfolio, I wanted it to always be as close to neutral or cash flow positive if possible. Don’t get me wrong the main focus is capital growth but it doesn’t mean you need to compensate in order to achieve this.
|
The Numbers |
Change since last month |
|
|
Portfolio value |
$1,605,000 | + $30,000 |
|
Loan |
$1,147,000 |
– $3,000 |
| LVR | 71.5% |
– 1.5% |
|
Rent (per week) |
$1535 |
+ $50 |
|
Repayments (per week) (loans, rates, maintenance, agent fees & insurance). |
$1440 |
+ $74 |
| Cash-flow (p.a) | + $4918 |
+$6403 |
June 2021 portfolio update: Race to $5 Million Portfolio
This month I hit the 32% mark which means I am extremely close to being one-third of my way to my goal. I imagine by the end of the year without any purchases I would get to the one-third mark. However, given my plan to purchase another couple of properties I am confident of smashing past this mark and striding towards the halfway mark by the end of the year. Let’s see what happens!
portfolio growth
Month on Month change June 2021 portfolio update
| Date | Portfolio ($) | Change (+/-) | notes |
| June 2021 portfolio update | 1.605m | +30 | |
| May 2021 | 1.575m | +45k | |
| April 2021 | 1.53m | +0 | |
| March 2021 | 1.53m | +390k | IP4 bought |
| February 2021 | 1.14m | +35k | |
| January 2021 | 1.105m | +370k | IP3 bought |
| 2020 | 740k | +320k | IP2 bought |
| 2019 | 420k | +30k | |
| 2018 | 390k | IP1 bought | |
| 2017 | 50k | Cash savings | |
| 2016 | 25k | Cash savings | |
| 2015 | $50 | The journey begins |
until next month.
Cheers,
