The strategy that will help this investor pay all of his debts

You’d think that aiming to pay down debts would mean refraining from buying more assets to avoid accumulation of more debts, but Mr Newbery is actually looking to grow his portfolio further.

After a two-year break from buying, he plans to sell some of his properties, which have gone up in value over time, and purchase more assets through extracted equity.

He highlighted: “I've got plenty of equity to utilise now, so I'm able to borrow again. I can get going and start consolidating.”

Through debt consolidation, the investor will be able to reduce the amount he spends on interest payments and, therefore, fast-track his way to having a debt-free portfolio.

“My end goal is to have an owner-occupied home that's debt free and a portfolio that's also debt free and then I can just live off the income from the properties and do what I want,” according to him.

By the end of the consolidation phase of his journey, he aims to hold a $3 million- to $4 million-portfolio that will give him at least $150,000 worth of income every year, letting him live off $3,000 every week—a comfortable lifestyle considering the taxes and operational costs that he will have to pay consistently.

Strategy in motion

Essentially, Mr Newbery is creating a balance in his portfolio by:

✓ selling properties that are either great in terms of equity or less than stellar in terms of yield, and then;
✓ purchasing properties in growing markets.

By chasing high-growth assets, his overall income and potential profits in the event of sales will most likely increase over time, giving him more chances to pay down the debts on his portfolio over a short period.

Which properties to sell

Just last year, the investor sold his property in Ambarvale, which was bought for $270,000 in 2013 and consequently sold for $565,000.

Knowing that the Sydney market might be going flat in the coming years, he took his money and invested it in a market with a good potential for growth.

The investor explained: “For me, it was about taking money out of a market that's done its job and putting it into a market that is growing to make that money work harder for me, as well as using some profit to consolidate debt.”

“That's exactly what I did. I took some of the profit from that, paid off the remaining debt on my owner-occupied home, then went and paid down some debt on my portfolio, then take some of the money and investing it into a new property,” he added.

Mr Newbery bought a four-bedroom property in Moreton Bay worth $335,000 using part of the profit he got from the Ambarvale house sale.

It is currently renting out for $365 per week—a little departure from the $380/week rent on his Ambarvale property.

However, at the end of the day, the Moreton Bay property has more potential of growing in value quickly.

According to the investor: “The plan is to hold it for a few years, get some really good growth out of it, then sell it down again, take some more profit and use it to pay down the debt.”

Which properties to hold on to

Aside from purchasing high-growth properties, Mr Newbery is also looking to keep properties in his portfolio that have been consistent ‘solid performers’.

For example, he knows that his Mount Druitt unit, which he bought six years ago, will be among the investments he will keep because, since 2012, it has only ever been vacant for a total of seven days.

He said: “I know you should never say never, but I'm never going to sell that property.”

“It's just been really solid performer, and, at the end of the day, because I want to be living off the income from my properties, I need to have properties in my portfolio that are going to be really solid performers and give me that rental income consistently,” Mr Newbery added.

You may be wondering now: Ambarvale and Mount Druitt are both in Sydney—why let go of one and hold on to the other?

For the investor, it came down to picking the property that is more consistent in terms of generating income.

The Ambarvale property and the Mount Druitt property have both doubled in value at the same time. In fact, the property in Ambarvale turned out to have more value since it’s a house.

But the Ambarvale property also had fewer tenants coming in, so, all things considered, it has done its purpose. It made more sense for him to sell it and use the equity to find a better investment since he doesn’t expect its value to grow any further.

On the other hand, the Mount Druitt property will continue benefiting him as it consistently generates income through rent.

According to Mr Newbery: “I said, ‘Okay, well, this property here in Ambarvale, while it's performed well from a growth perspective, from a rental perspective, it’s been a little bit up and down. It wasn't too bad, but Mount Druitt was definitely the better one.”

What is the best strategy?

Right now, the investor is focused on implementing the ‘Sell and Buy’ strategy until he reaches his end goal.

Aside from chasing high-growth properties, he’s also keen to add value to them by renovation or development before eventually putting them back on the market for sale.

He summarised his strategy as: “Buy that property in a growing market, add some value to it, hold it for a bit to let it grow, get some good equity in it, and then sell that down and take some profit and pay off debt.”

Is it the best strategy for people nearing retirement? Maybe. Maybe not. But, at the end of the day, it's what worked best for him.

Mr Newbery encouraged his fellow investors to, first and foremost, understand their goals, capabilities and limitations in order to determine the best investment strategy for them.

By implementing the same strategy that he started using in 2011, he hopes to culminate his two-decade-long investment journey and achieve his goals in five years, before he turns 60.

Mr Newbery said: “I've done a whole host of different strategies throughout that time frame—from buy and hold, rentals, property developing, bought and sold overseas, all that sort of thing.”

“Once I found this strategy and really looked at how it works, I realised that it would actually get me to my goals, so that’s what I used,” the investor concluded.

Tune in to Glenn Newbery's episode on The Smart Property Investment Show to find out how he will go about his five-year retirement plan.