A STEP-BY-STEP PLAN TO

Build a $66,000 p.a

Positive Cashflow
Portfolio
WHILST PAYING PRACTICALLY ZERO IN TAX

Ever thought: I want to be a millionaire? Millionaire

status is the milestone that every wealth creator wants
to reach. Currently in Australia, there are only 192,000
millionaires. This is only 0.8% of the population.
We want you to join the millionaire ranks! This is a step-by-step
guide to how to construct and build a $1m property portfolio, debt-free,
using real numbers, real market conditions and real strategies. Various
team members were employed to ensure the accuracy of all figures in this
article, including mortgage brokers, accountants, and acquisitions team
members. This example will follow a current client situation as a starting
point to illustrate these steps.
There are some key philosophies that must apply in

5. Buy every property and make every finance

almost all portfolio construction strategies, which are

decision with the next three moves in mind.

important to understand before we move forward:

Always ask the question: How is this property going to

1. Property investing is a business and needs to

get me closer towards my million-dollar portfolio?

be treated that way. This means that it needs to

To show you how this can be done in real life, lets

be separate from your personal life and should not

take a look at our investing pair, Peter and Mandy.

absorb all your cash flow. Your portfolio is supposed

to enhance your life, not take away from it.
2. Get caught up in the outcome, not in the
property itself. Focus on the fundamentals of the
deal itself and make strategic investment decisions
based on facts, not on personal emotional decisions.
3. There are stages in your portfolio to focus on.
When investing, the three main stages are:
Acquisition: The main priority is creating leverage
in the market and expanding your portfolio.
Consolidation: This is when you begin
consolidating your portfolio and your debt.
Lifestyle: This is when you create strategic results
in your portfolio based on your outcomes.
It is important to focus on just one stage at a time.
4. It is not about the number of properties
you have. Dont get caught up in the number of
properties you own; instead focus on how they are
helping you achieve results.

Positive Real Estate

 Serviceability: This has been calculated after each

year to ensure the banks will still continue to lend the
pair money for the next deals. Using current servicing
calculators all of the following purchases work.
Savings: As net income goes up, savings will also
increase. However, only 50% of the wage increase will
go into savings; the rest will go into improving Peter
and Mandys lifestyle.

PUTTING THEORY INTO

ACTION: How to build a
million-dollar portfolio
debt-free as fast as you can
ASSUMPTIONS
A few assumptions must be made when
mapping out a 10-year portfolio plan.
These are:
Wages: Wages increase at 3% per annum.
Rent: Rental income increases at 3% per annum.
Capital growth rates: The average capital growth

There are a few things we need to consider about

Peter and Mandys situation:
The interest rate on their owner-occupier loan is
high compared to the current market, at 5.45%, and
can be reduced to the current market rate.
Their buying power and serviceability is a relatively
balanced figure, meaning they can move forward with
a balanced strategy in regard to equity and cash flow.

rate used is only 5.9% per annum across the

Both individuals have minimal tax deductions as

portfolio. However some growth rates have been

PAYG employees, and are presently paying the full

adjusted depending on the deal itself.

marginal tax rate.

Interest rates: We start at 2013 interest rates

The current debt level is relatively low, with only a

and increase to 7% over time, which is in line with

car loan. Their credit card is paid in full each month,

many economists projections of the interest rate

and they have a regular savings plan. This suggests

environment.

Peter and Mandy can manage their money well.

How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

Year 1

FINANCE

PROPERTY SELECTION
Peter and Mandy will start with two purchases
within the first six months, which can be achieved
comfortably with serviceability of $1.1m and a buying
power of $960,000.

PROPERTY 1
PROPERTY DETAILS:

Property type: New one-bedroom unit in a bluechip area

Location: Newstead, QLD
Purchase Price: $400,000
Refinance their home mortgage to reduce the
interest rate to 4.84% and fix 70% of the loan for
three years to lock in the low rate and secure against
any upward swing in rates.
Leave 30% as a variable loan to keep in an offset
account to offset the personal mortgage on Peter and
Mandys home with their savings, buffer and ongoing
income.
All of their personal income will be directed into

Rent: $430 per week, giving a 5.6% gross rental

yield
Ownership: 90% ownership will be in Peters name,
as he is paying the most tax and this property will
reduce tax owed for the next financial year
Finance: 90% LVR with a separate bank to that used
for the principal place of residence (PPOR) to avoid
cross-collateralisation ensuring a strong foundation
for the portfolio

the offset account and they will live off a credit card
for most of their personal expenses, which will be
paid off each month. This will maintain the maximum
balance in their offset account, and compound to
reduce overall interest paid.
Switch the loan to interest only and use the offset
account to reduce the interest payable. A focus on
debt reduction will come later in the portfolio.

TAX
Peter and Mandy have minimal deductions to
legally reduce their tax, but with more investment
properties they will have more deductions. Tax
refunds will be filtered back into the portfolio for
further deposits and buffers.

DEBT MANAGEMENT
At this stage of the portfolio, they should not focus
on debt reduction as the primary outcome. This will
happen organically through the use of the offset
account.

PROPERTY 2

PROPERTY DETAILS:

Property type: Four-bedroom house and land

construction

Positive Real Estate

 Location: Newcastle, NSW

Purchase price: $450,000
Rent: $480 per week, giving a 5.5% gross rental
yield
Ownership: 90% ownership in Peters name
Finance: 90% LVR with a separate bank to the PPOR
and the Brisbane blue-chip deal, to avoid crosscollateralisation

Year 2
With their PPOR in Western Sydney, their purchase
in Brisbane and with construction started in
Newcastle, there will be some solid growth in both
Newcastle and Western Sydney and very moderate
growth in Brisbane.
Additional equity can be released from their home and
a small amount from Brisbane after a 12-month period,
in addition to some savings and a tax refund, ready for
another property purchase in the first half of the year.
A second purchase will be made in the second half
when more savings are accumulated, once Newcastle
is completed to release equity, and once another tax
refund is received.
Servicing is decent, with $620,000 still remaining
for the next deal. This is a point at which a lot of
people get stuck on chasing equity deals only and
hit a serviceability wall, which needs to be avoided
through strategy.
This is also time to consider setting up a PAYG tax
variation. Receiving tax back on a monthly basis
and applying it to the offset account will further
increase the debt reduction strategy on the personal
mortgage of the PPOR.

How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

PROPERTY 3
PROPERTY DETAILS:

Property type: Dual-income strategy. House and

flat to generate two incomes on a single title.
Location: Peregian, Sunshine Coast, Queensland
Purchase price: $430,000
Rent: $600 per week, for a 7.2% gross rental yield

 Ownership: 90% ownership in Peters name

Total new cash/equity = $70,600

Finance: 90% LVR and with a separate bank to all

This gives a new buying power of $470,666 at 90%

other properties

LVR.

PROPERTY 4
PROPERTY DETAILS:
Property type: Existing
Location: Liverpool, NSW
Purchase price: $390,000
Rent: $430 per week, for a 5.7% gross rental yield
Ownership: Peters tax has been reduced after our
first three deals, so we now flip the ownership to a
50/50 arrangement
Finance: 90% LVR, with a separate bank to those

Financial situation by the

second half of year 2:

used for all other properties

Peter and Mandy have $30,700 left over. They can

save another $7,500
They can do a loan increase on the Newcastle house
and land once construction is completed. The market
has grown by a solid 8%, creating an additional
$32,400 to be released.

Year 3
The focus in the foundation years of this portfolio

increases as per the assumptions, serviceability

is to ensure servicing stays solid to continue building

stands at $550,000. There is still buying power of

equity in the portfolio. The portfolio is diverse in four

up to $585,000 without releasing any equity from

different states and these properties can be retained

Liverpool, which can be done mid-year if required.

for future barter potential.

Future purchases at this stage will be done at 80%

Due to the high rental yield of the dual-income

LVR to ensure that servicing stays strong in the future

strategy on the Sunshine Coast and income

and to begin to deleverage Peter and Mandy, which

Positive Real Estate

suits their personal life outcomes.

This is also a strategic lending decision based on the
intention for the next deal.

PROPERTY 5
PROPERTY DETAILS:

Property type and strategy: Duplex build strategy

Location: Toowoomba
Purchase price: $545,000
Rent: $660 per week, for a 6.1% gross rental yield
Ownership: 50/50 arrangement
Finance: As mentioned, this deal is going to be done
at 80% LVR

Year 4
The portfolio has hit a borrowing serviceability wall
and future deals are focused on 80% lends. This is a
common hurdle that most investors come up against
in their journey. It has good and bad points; good,
in that they are deleveraging their debt position and
beginning to shift the portfolio to a more positive
nature. The downside is that much larger deposits
are needed in order to continue investing.
What we can see from the above summary is
$129,000 in capital for deposits and costs, creating a
buying power of $516,000 at 80% LVR.
Servicing is still at $600,000, maintained due to
growing yields and income, as well as by lowering the
debt level compared to value.
How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

PROPERTY 6
PROPERTY DETAILS:

Ownership: 50/50 arrangement

Finance: 80% LVR.

Property type: Off-the-plan blue-chip townhouse.

Location: Melbourne
Purchase price: $580,000
Rent: $660 per week, for a 6.1% gross rental yield

Year 5
At some point in every investment journey, its time
to sit and wait for the market.
There is potential to bring a property up to 90% LVR
to move forward again in the following year. However,
Peter and Mandy are on track for results within the
desired timeframe.
The focus in the next 12 months is to settle the
Melbourne property and allow the other properties
to grow.

DEBT ON PPOR
Through the effective use of an offset account, Peter
and Mandy have been able to pay off their original
personal mortgage of $395,000 on their own home
completely, simply by getting their money working
harder for them.

TAX
Personal tax has been reduced by over $20,000 and is
now received fortnightly through a PAYG tax variation.

This is the halfway point in the 10-year strategy.

CASH FLOW

By now, Peter and Mandys overall wealth creation

The overall portfolio is cash flow positive by $292 per

plan has achieved the following:

week.

Positive Real Estate

Year 6
Peter and Mandys portfolio has reached a critical
mass and the equity is starting to take on a life of its
own.
There are seven properties in the portfolio, all
below 80% LVR and cash flow positive after tax.
The new value of the investment properties has
reached $4.47m, with a debt level of only $3.35m.

GOAL ACHIEVED: $1.11m in

net investment assets
Buying power sits at $890,000, while servicing has
become a limiting factor, still sitting at $500,000.
To consolidate and sell down now would result in
selling costs and capital gains, so a bit more time
is required before moving into the consolidation
phase within the next 12 months. Time for another
property.

PROPERTY 7
PROPERTY DETAILS:

Property type: Duplex build strategy.

Location: Adelaide
Purchase price: $720,000
Rent: $720 per week, for a 5.5% gross rental yield
Ownership: 50/50 arrangement
Finance: 80% LVR

How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

Year 7
It is time to move into the consolidation stage of the
portfolio. The equity position is strong but servicing
is limited at $450,000, due to the increase in the
portfolio and servicing figures now being calculated
at an interest rate of 6.5%.
Properties need to be sold to move forward; the
duplexes in Toowoomba and Peregian have served
their purpose of equity creation and rental yield. The
other trading properties Liverpool, Newcastle and
Adelaide are still to be held at this point.

TOOWOOMBA
Sold = $730,000.
Capital gains tax = $38,076
Selling costs = $18,250
Legal costs = $2,000
Net profit = $94,674

PEREGIAN

only be required to pull out approximately $112,000

of equity, which we will take from the more recent

Sold = $523,000.

duplex deal in Adelaide. This will give us a total

Capital gains tax = $14, 918

equity/cash position of around the $350,000 mark for

Selling costs = $13,077

the next deal.

Legal costs = $2,000

Net profit = $88,569

At this point, we
will stop accessing
equity from our

This gives a total of $183,243 in cash and frees up

core properties,

$900,000 of serviceability.

including Brisbane,

This cash goes towards the deposit for the next

deal. The deal needs to create cash to eliminate

Melbourne and
Newcastle.

the debt of the core portfolio in the future. We will

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Positive Real Estate

PROPERTY 8
PROPERTY DETAILS:

Ownership: Family trust structure

Finance: 70% LVR

Property type: Block of four units.

Location: Outskirts of Melbourne
Purchase price: $1m
Rent: $1,200 per week, for a 6.2% gross rental yield

Year 8
While completing the build of the units in
Melbourne, the Newcastle property will be sold.
Although it is in a strong area and could represent a
solid long-term investment, for the greater good of
the portfolio it will be liquidated to free up further
cash and servicing.

Property type: Subdivision.

Location: Perth
Purchase price: $980,000
Rent: $950 per week, for a 5% gross rental yield
Ownership: Family trust structure
Finance: 70% LVR

Being in the consolidation phase, the focus is on

creating equity to eliminate debt, but are still open to
having more buy-and-hold properties if they serve a
purpose.

PROPERTY 9
PROPERTY DETAILS:

Year 9
For these final years of the portfolio, its time to let
the properties sit. There is nothing more to do except
consolidate completely during the final quarter of
year 10.

How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

11

Year 10

Sell down some of the properties and again

Its time to see the results that the last 10 years have

the portfolio.

created as Peter and Mandy consolidate debt in the

Sell down and consolidate two to four properties,

portfolio. They can do one of the following:

Keep all of the properties they are all cash
flow positive after tax at this point and they can
simply hold the portfolio. If Peter and Mandy want
to continue working full-time, this would be a solid
option.

release servicing and cash to continue building

preferably owned outright or at a very low LVR.

As the original outcome was always to eliminate the
debt on a few core assets, this third option is the best
choice for Peter and Mandy. On the chopping block
are the Melbourne, Adelaide and Perth properties;
their sale prices are shown in the table below:

The result is $1,039,261.80 in cash to use for debt

With the remaining $287,000, pay down the debt on

reduction on the properties they intend to keep,

the Melbourne property to only $287,000 which is a

including Newstead in Brisbane, the Melbourne

31% LVR.

townhouse, Liverpool, and half of the splitter block in

Perth four properties in four states.

The property in Perth is left at a 59% LVR. If they

wanted to reduce the Melbourne property debt

The cash to eliminate the debt on Newstead and

further, the property in Perth could be sold to clear

Liverpool completely.

another $180,000, but it is not necessary.

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Positive Real Estate

A lot has been accomplished during this 10-year period:

The PPOR is down to $184,000, and we have
$200,000 in cash, which could be used to pay this
debt off completely.
Peter and Mandy have two properties owned
outright and another two at relatively low LVRs.
The portfolio is cash flow positive by $66,000 per
annum, which is more than the average income in

The strategy focused on creating equity when

going into deals, shifting around the country to
take advantage of various growth cycles, as well as
taking equity out and trading properties to keep the
portfolio moving forward. This balanced strategy
and conservative but active approach has set up a
quality portfolio that will continue to grow into the
future.
Ultimately Peter and Mandy have been provided

Australia of $57,980 (ABS).

with more opportunities to live out the life they

Peter and Mandy have reduced their tax to

they are now the proud holders of a million dollar

practically zero.

truly want, unlimited by income. And of course,

property portfolio.

Mandy now has the option to quit her job if she

wants to and Peter can reduce his hours, while they
maintain the same standard of living they are used to.

Want to know more?

Get in touch with one of our coaches after this exciting event and
discover how to get started in a 45 minute FREE Discovery Session.
Our expert team can help you put together a tailor-made strategy
for your unique situation and help identify the RIGHT properties
that can build HUGE wealth whilst SLASHING YOUR TAX.

Disclaimer: The information provided is of a general nature only and should be considered as general education only. Readers should not act
on the information above without obtaining advice from a qualified professional person.
How to Build a $1 Million Property Portfolio Debt-Free in 10 Years

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