Long Property: How to own your home debt-free, and generate $120,000/yr passive income from investments

By Daniel Gold

STOP! This is not a get rich quick scheme.

If you’re looking to double your money in six months, or if you want ten properties in ten weeks, then you may as well stop reading now.

Successful homebuyers and property investors understand that property is a long-term investment. They follow proven systems for buying assets that will appreciate in value, and they set up loan structures sensibly and correctly to support this.

Strategic investors have plans. They set goals like:
- I want to own my home outright (with no debt); and
- I want to retire with $120,000 per annum passive income from investments


Then they work with a team of specialists (finance brokers, buyers advocates, accountants, solicitors) to make educated decisions, and to execute accordingly.

In LONG PROPERTY, top finance broker Daniel Gold sets out a strategic wealth plan towards home ownership and retirement. It’s the exact opposite to what (unfortunately) dominates the residential property and finance industries - no plan, no strategy - just getting a cheap interest rate, and buying sub-optimal properties.

In this educational new book you will discover:
- Why the outlook for well located residential property in Australia is remarkably positive
- How your retirement objectives can be met via a strategic long-term investment journey
- How to navigate today’s banking system and utilise advanced finance structures for wealth creation
- How strategic investors use the ‘GLOW’ model to buy the tiny percentage of properties (maybe 2%) actually worth buying, and how they don’t overpay – case studies included; and
- How working with specialists could easily save you or make you hundreds of thousands of dollars

LONG PROPERTY is the book you wish you read in your 20's. It will help you know where you’re heading, so you can start making smarter property and finance decisions today.

DANIEL GOLD is a leading finance broker specialising in residential real estate. Since 2015 he has authored the Long Property Blog and in 2018 he was recognised by Mortgage Professional Australia and also the Mortgage & Finance Association of Australia as being one of the top young professionals in the industry. He lives in Melbourne with his wife Elise and son Isaac.

• Language: English
• Publisher: Tablo Publishing
• Release date: Mar 28, 2018
• ISBN: 9780648299530

Book preview

Introduction

I’ve participated in over 500 client meetings and I can tell you not many people have a wealth plan towards home ownership (owning their home debt-free) and retirement.

This book is that plan. (At least from an illustrative perspective.)

It’s a roadmap I’ve developed to illustrate how someone can successfully progress through a long-term property journey, the end result being owning their home with no debt, and an investment portfolio generating $120,000 per annum (p.a.) passive income.

If you don’t think plans are important, imagine your doctor or pilot turning around and saying screw the plan, I’m just going to wing it!. You would be mortified.

"True professionals never just wing it" [1]. . . and I don’t think you should, either.

By way of background, I started my career in corporate finance at UBS Investment Bank in Sydney. From 2015-2018 I worked at one of Australia's leading mortgage broking firms [2], and then in June 2018 I established Long Property a boutique mortgage broking firm myself.

In 2018 I was recongnised by both Mortgage Professional Australia and also the Mortgage & Finance Association of Australia as being one of the top young professionals in the industry. (See Section i.i for further details.)

In my opinion there are two main reasons why so few Australians have proper wealth plans.

Firstly, at the time of writing, we’ve experienced over twenty-five years of uninterrupted growth in Australia, so a lot of people take a laissez-faire attitude towards their property purchases now. ‘I grew up in this area, my parents did very well . . . She’ll be right!’

Secondly, the property and finance industries in Australia are very transactional in nature, not strategic. What I mean by this is that most people simply go to a banker or broker to find out how much they can borrow, and how they can get the cheapest interest rate.

Very few bankers or brokers are modelling out cash flows for their clients and critical conversations around asset selection, ownership structures, debt strategies and risk mitigation are invariably missed.

So clearly there’s unmet demand for strategy, advice and education around creating wealth through property. . . Hence my motivation for writing this book.

My hope is for more people to set goals, like:

‘I want to own a $1.5 million home outright within ten years’; then

‘I want to have $120,000 p.a. passive income from my investment properties within twenty-five years’.

LONG PROPERTY outlines the six steps which characterise a successful long-term property plan. They are a guide for thinking two to three steps ahead, and for helping ambitious Australians achieve the above type of goals.

Step 1 – The fundamentals of property investment, plus the mindset for investing.

Step 2 – Entering the property market.

Step 3 – Growing your asset base.

Step 4 – Buying your home, then owning it outright.

Step 5 – Transitioning to stronger cash flow.

Step 6 – Retiring with sufficient passive income.

I refer to this plan as the LONG PROPERTY PLAN (LPP) . . . Original, I know!

The word ‘LONG though is significant in two ways:

Property is most powerful as a long-term rather than a short-term investment; and

In finance lingo, if you buy an asset with the expectation it will rise in value (clearly that’s what we’re aiming for here), then you’re said to have a long position in that asset.

Fortunately or unfortunately, depending on which way you look at it, none of the LPP is particularly innovative. It covers many of the same principles taught by our country’s top wealth strategists.

What’s unique here though is that rather than presenting standalone ideas and investment strategies, this is the first book I’m aware of which explains everything in the context of a strategic wealth plan. This is helpful as it gives readers an insight into the importance and longer-term consequences of the property and finance decisions they’re making today.

The LPP is not a wealth plan for individuals to follow mindlessly or blindly copy. Everyone’s requirements are obviously different, my intention is simply to map out a hypothetical journey to illustrate what’s possible.

To the extent readers find the general direction and end outcomes appealing, the LPP will hopefully encourage them to take a more strategic approach.

Where are you today, and where would you ideally like to be in five years, or ten years, or twenty years? The bigger the gap, the greater the importance of strategy and planning. 

If you’re after a secret for buying seven properties in seven weeks, or anything ridiculous like that, this isn’t the book for you.

My strategies are get rich slow in nature, and generally speaking at least two property cycles (over twenty or more years) are required to achieve the stated objectives.

My primary example only involves buying two solid investment properties within the first ten years of the journey, then buying a home to live in (eventually your dream home to live in), then reducing debt. On face value this actually sounds quite boring, but don’t worry, it’s the results that count.

The combination of leverage, compounding growth and ‘time in the market’ is a tried and tested wealth formula that has broad acceptance and a proven track record of success. This is the essence of the LPP.

It’s worth noting upfront that at no point do I use more than 7% p.a. growth in any of my assumptions. Also anyone who has bought the types of properties I favour over the last twenty, thirty or forty years in Australia, and financed them correctly, has most likely been rewarded handsomely.

According to 2017 research from Performance Property Advisory 7% p.a. growth aligns with the long-term average growth rate for houses in each of Australia’s five major capital cities (see reference #5 for further details). It should be acceptable for illustrative purposes, particularly considering the LPP provides countless strategies for outperforming the averages. Note that capital growth is rarely linear though, there are usually better years and worse years. I also lower my growth rate assumption to 5% p.a. for the last ten years of the journey.

LONG PROPERTY is targeted towards anyone who wants to build wealth from property, not just get a cheap interest rate, and then buy something uninformed.

However it’s most relevant for young professionals, the wealth accumulators. For this audience, once goals have been established, decisions around what to buy, where to buy it, and how to finance it, become better informed. They then have the time on their side to reap the greatest potential rewards.

LONG PROPERTY will also have relevance for anyone who simply wants to ‘dip their toe’ into the property market, but in a sensible way. The LPP gives this reader a practical model for making educated and informed decisions. When spending upwards of half a million dollars . . . this alone is essential!

Before launching into the LPP itself, I also provide two chapters on why I believe residential property in Australia has a great long-term outlook (Section ii), and why residential real estate is a powerful vehicle for wealth creation (Section iii).

I’m very optimistic about the long-term prospects for Australian real estate, however it’s a cyclical asset and my personal view is that growth (as a whole) is likely to slow soon, particularly in markets that have either run too hard recently, or where there is now an oversupply of dwellings.

There are still great opportunities for savvy homebuyers and property investors, though. You just need to know the where, what and how. This is what the LPP will teach you.

Getting into the property market is not cheap; therefore, if prices move in the wrong direction, unsophisticated investors face the greatest risk. When markets turn it will be those who have bought inferior assets, at the wrong time, and financed them incorrectly, who will eventually be found out.

Having strategies, structure and direction is therefore becoming increasingly important. You need strategies for making money in average markets. You also need financial buffers in place, because being forced to liquidate investments early is the number-one way people lose money from property.

It’s near impossible to achieve anything significant in property without the likes of a specialist finance broker, buyers advocate, tax accountant and solicitor (at the very least). At the conclusion of LONG PROPERTY I explain where you can find these key advisers, to build your team.

As a disclaimer, this book is not tailored investment advice. It's really just a hypothetical representation of how property as an investment vehicle can be used for wealth creation.

The strategies obviously resonate with me personally, and my wife and I are well progressed in implementing them ourselves. However everyone’s circumstances are obviously different, so before going ahead with anything it is critical that you first consult with qualified professionals.

If LONG PROPERTY helps a few people have a better life, by making better decisions and enabling them to create wealth through their property activities, then that would be a very fulfilling outcome for me.

This book is designed to be interactive. Throughout the book I provide numerous links to the free resources section I have created on my website ( longproperty.com.au/book ). These links contain free templates as well as more detailed articles about the topics discussed.

I wanted to keep LONG PROPERTY short and easy to read, so these additional website resources are my opportunity to elaborate on topics in more depth (and in the context of current market conditions).

At the very least, I strongly encourage you to head over longproperty.com.au/book and download a free copy of your LPP template.

This is something I can help you complete – with your own milestones and objectives – and then check in with periodically, to maximise the likelihood of your success.

My contact details are at the end of the book should you wish to get in touch. Email is best, [e-mail].

Best wishes on your journey.

Daniel Gold

i.i. Why you should listen to me

I think what makes me most qualified to author LONG PROPERTY is  my volume of transaction experience.

The average mortgage broker in Australia settles $12 million in lending per year [3], so having been part of $500m+ settlements I've developed insights which would typically take tens of years to accumulate.

Most of what I've been exposed to has also been heavily wealth focused. Most clients have been interested in creating wealth from real estate, not just getting a cheap home loan or interest rate. 

I’ve seen clients' good investments and bad ones. I’ve seen their strategies and their structures, their mindset, their processes, their teams of advisers, their assets, their outcomes. Everything!

I'm well progressed in my own personal investment journey (case studies of personal investments are provided throughout the book) and in 2018 I was recognised by Mortgage Professional Australia and also the Mortgage & Finance Association of Australia for being one of the top young professionals in the broking industry. [4]

To read more about my background and experience, please visit my free resources centre at longproperty.com.au/book

i.ii. Setting the scene

Say your dream home is today worth $2.0 million, you want to own this debt-free, and $120,000 p.a. passive income requires a further $3.75 million worth of unencumbered property ($3.75 million x 3.2% net rent = $120,000 p.a.).

Well that’s $5.75 million you need to meet your objectives, and with inflation and house price growth it’s likely to be a lot more in the future.

Don’t count on saving your way to this sort of money. It’s hard enough saving anything these days. And if you’ve got your money in a bank earning 1.5% p.a. interest, then with inflation slightly above that you’re actually going backwards.

What you really need is a sensible investment plan, and of course, time.

To illustrate the point, take $700,000, which grows at 7% p.a. for twenty-five years. After twenty-five years your $700,000 grows to $3.8 million. Not bad.

But say you added some leverage . . . for example, 60% leverage. So your initial $700,000 combined with a loan for $1.05 million now allows you to control $1.75 million worth of real estate ($1,050,000 / $1,750,000 = Loan to Value Ratio 60%).

Loan to Value Ratio is abbreviated to ‘LVR’ throughout the remainder of the book, it is simply the debt level as a percentage of the property value.

Thanks to the leverage your asset is worth $9.5 million after twenty-five years (up from the $3.8 million). With leverage at 80% the portfolio would be worth $19.0 million.

Sure you would also pay a lot of interest on the debt, but at LVR 60% the portfolio would likely be positively geared from day one, so your rental income would more than compensate for the interest.

For example, with interest rates at 5%, your interest obligation equals $52,500 p.a. (5% x $1,050,000 = $52,500). With net rent at 3.2%, net income on day one would be $56,000 p.a. (3.2% x $1,750,000 = $56,000), so aside from capital growth, which is where the real money is, your cash flow from the portfolio is positive from the outset, and this would typically increase over time as your rental income increases, but your debt either reduces or stays the same.

This is a basic illustration, but it demonstrates the power of leverage, compounding and time, which is exactly what you can get from residential real estate, so long as you structure your investments correctly.

Now of course not everyone has $700,000 cash or equity available, but this example is just to set the scene in