The objective
With an initial investment of $120,000 over the first 12 months, our client’s goal and objective was to build a property portfolio that was able to deliver a passive income in retirement (circa ~20 years).
How we did it
Milk Chocolate advised accumulating five properties across multiple states and territories around Australia to keep our client’s portfolio diverse and to minimise their risk and exposure.
We recommended the first purchase be an apartment in Canberra. The aim here was to have a high rental yield which would increase cash flow to procure the other properties faster. Capital growth was not necessarily the main priority. We progressed and purchased the asset in April 2018 in the highly gentrifying area of Braddon for $372,000, with the property achieving a current rental yield of 5.88 percent.
Using the cash flow from the Braddon property, we were then able to progress and purchase the second property in the Game Plan™: a house on a decent-sized block of land in a high-growth area in Brisbane. In February 2019, we purchased a traditional Queenslander in the north-western suburb of Keperra for $595,000, which was valued at $850,000 in Q2, 2022 – a net return of 11.6 percent pa. The property is currently bringing in $575 a week, or a rental yield of 3.52%
Thanks to the strong performance of the first two assets we procured, we were able to move forward and purchase the third property in February 2020: another house in a high-growth area, but this time in Adelaide. After a purchase price of $644,900, this property was recently valued at $780,000 as of Q2, 2022 – a result or net increase of 20.95 percent. Not a bad result at all.
The next steps/purchases
To achieve our client’s goals, we recommended a further two purchases: one in Melbourne in 2023 and the final in 2028, in a location to be identified closer to the proposed purchasing date. When it comes time to execute that purchase, we’ll be taking into account the ebbs and flows of the property market and identifying potential new areas that present strong growth prospects.
We also recommended our client sell two of the properties in 2033 in order to start achieving a passive income of circa $70,000 pa, with the funds from the sales sitting across the existing offset accounts.
By 2043, when our client plants to retire, we modelled an assumed cash surplus position just shy of $5 million, equating to roughly 20 years’ worth of living expenses at $245,000 pa – a key objective of our client’s that we identified during the onboarding phase and one we’re confident we can meet.
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