Investment Strategy 1 – Cows & Goats

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**** What we are about to discuss below should never be taken as gospel as everyone’s financial and personal circumstances are unique. We recommend speaking with a qualified financial advisor and/or account prior to making any large financial decisions. ***


If quitting your job in the next 10 years and living off positive cash flow through property is something you’re interested in, then please read on.

Introduction to Strategy 1

Introduction to Strategy 1

You might see Facebook ads from property strategists and spruikers claiming that “Bob and Mary paid $250,000 off their home loan in 2 years with only a combined income of $80,000 per annum”. Once you click on their link they invite you to a seminar where you find yourself sitting in a room on a Thursday night listening to someone attempting to subconsciously flog financial planning, off the plan properties or mortgage broking to you then to be rewarded by a $50 imitation android tablet. I’ll be uncovering my own tips and secrets within this article.

Can I really pay off my home in 2 - 5 years?

Can I really pay off my home in 2 - 5 years?

So how did Bob and Mary pay $250,000 off their home loan in 2 years with a modest combined income of $80,000 per annum?The real story is that Bob and Mary have at least 1 or 2 investment properties which have attained capital growth since the day they first purchased them. They have also structured their banking in the following way:

• All of their income and rent is deposited into their owner occupied home loan offset account.


• They use their 55 or 45 day interest free credit card instead of their own funds for their everyday expenses to maximise the number of days their own cash stays in the offset account to reduce the amount of interest paid each month.


• They have an auto-sweep set up to repay their credit card from their offset account on the due date each month.


• They half their minimum monthly repayment on their mortgage and pay this figure fortnightly. I.e. $4,000 monthly repayment = $2,000 a fortnight. There are 12 months in a year but there are 26 fortnights. That’s an extra 2 fortnights worth of repayments per year. This repayment method reduces your 30 year loan term by approximately 7 years on average.In order to pay $250,000 off their home loan they then sold 1 of their investment properties with a considerable profit and put the funds towards their owner occupied home loan. Sound pretty simple right? It can be simple but in the 2019 property market, it’s a completely different ball game.

What do Cows & Goats have anything to do with investment?

What do Cows & Goats have anything to do with investment?

This brings us to the title of this article, ‘Cows & Goats’ (Yes, you’ve heard it here first). Everybody would have heard the term “Cash Cow” and “Scapegoat”. In this metaphor, a Cash Cow is my term for a high yield generating investment property. It could only be worth $300,000 but the area it is located in has ongoing strong rental demand and is generating a rental return of $380-$420 per week. Alternatively, it could be a commercial property with multiple tenancies valued at $1.2mil and generating an annual income of $105,000. Either way, these types of properties are leaving money in your pocket after paying their respective interest and ongoing expenses.

Characteristics of a Scapegoat property are high capital growth investments. Such properties may include knock down rebuilds, the worst property on the best street, purchase of an existing dwelling and obtaining a DA to build duplexes/units, the varieties are plenty.

Scenario 1

Scenario 1

Scenario 1: Michael purchases a 600sqm lot of land in Alex Ave Schofields NSW today for $700,000, he obtains a DA to build a sub dividable townhouse, he sells both townhouses off the plan prior to construction for a combined price of $1.8-$1.9mil, he then borrows $500k from the bank to complete the build with the piece of mind knowing that he has already sold the 2 dwellings.

Scenario 2

Scenario 2

Scenario 2: In 2018 Jane and Karla buy a run down house in Castle Hill NSW for $1,050,000. After watching 2 episodes of House Rules they decide they can give renovation a shot. They hire contractors and also get their hands dirty in amongst all the fun. The entire house is gutted and renovated at a cost of approx. $90,000. In 2020 they decide to put the house up for sale, after purchasing for $1,050,000 + $44k costs + $90k renovations the property has cost them $1,185,000. They receive an offer for $1.32mil and are quick to close the deal. Within 2 years, the girls have made a profit of $135,000. To avoid paying capital gains tax, Jane decided to live in the property prior to the renovations taking place. The term Scapegoat traditionally is defined as a person that has blame attributed to it for the wrongdoings of others, typically resulting in the removal of this person from the scenario, e.g. the scapegoat was sent to jail. In this instance, what we are trying to get rid of is the debt on our Cash Cows and by selling off or removing our scapegoat properties from our portfolio, we are able to reduce the debt on our cash cows or completely pay it off, hence generating true positive cash flow through our high yield investments.

Pulling it all together

Pulling it all together

In scenario 1 above, Michael would have been able to reduce the debt on his Cash Cow investments down by $600k+ within 1-2 years. The million-dollar question on everyone’s lips is “will the future property market perform similar to the past?”. Historically it has, however, we have entered a new phase, macro-economic and global political decisions have recently had heavy impacts on the value of Australia’s property market. Finding a high yielding investments (Cash Cows) tends to be the easier one, as you can already tell which one is going to generate a good return in the short/long run, if all other factors remain static, the only variable which will reduce the amount of rent left in your pocket is the increase of the underlying interest rate. In order to protect this rent, the interest rate must be zero, in order to make it zero, you must pay off the debt, in order to pay off the debt before the rates go gang-busters, you must find lots of money in a short amount of time (2-5 years), to attain this money one should consider buying and selling a scapegoat property. Scapegoat properties are a lot harder to pick out. You could get a DA on a townhouse in Schofields NSW but you may have no buyers who will pay your target price. Similarly, you could spend $90k on a renovation but find that it added little value to your home.

So how do I find these properties?

So how do I find these properties?

Finding these properties requires forward thinking and lots of research. Keep in mind, if you’re getting others to do research for you (i.e. buyer’s agents) the chances of them telling their findings to 100 others is inevitable. The aim of the game is to find your own pot of gold. Here’s a few ways to go about doing this.

• Hop onto Google and search for similar properties as what your property will look like after the renovation and see how much they are currently selling for in this market.


• Call the local council of the area you’re looking to buy in and ask to speak with a town planner, ask them what the minimum land size is for a subdividable duplex then speak with a builder to get a rough idea of costs.


• Check the council website for planning proposals and current Development Applications in progress. The DA page on council websites also allow you to see how many houses in a particular street are undergoing rebuilds or refurbs, you should be able to search particular street names and if quite a lot of applications have been lodged by your future neighbours then the chance of the street appeal and quality of houses in the street improving is quite high, consequently increasing the value of the houses and having a knock on effect on your property too.


• When making an offer on a property try to call an agent’s bluff, low ball your offer and stick to it. You might get lucky.


• Attend many many auctions and learn how to play the psychological game of poker that goes on during these heated events.


• Speak to others who have successfully made solid profits from selling property in short periods of time.


• Visit forums such as Property Chat and attend their regular meet and greets.

How we can help

How we can help

There you have it, we’ve turned 2 harmless herbivores into a property investment strategy! Don’t hesitate to contact the author, Vache Vartanian directly on 0438 615 645 or [email protected] to discuss further. Hero Finance brokers all have first-hand experience generating positive cash flow through property. My team’s passion for property is extended to their desire to make sure their clients always walk away delighted with their purchase. We make it a habit to attend open homes and auctions with our clients and provide first hand advice regarding the potential of each property. We subscribe to the latest analytical property market software to ensure we are always at the forefront of the industry, allowing us to have that next level conversation with our clients, and all parties involved in the purchasing life cycle. ~ Vache Vartanian

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We work for you, not for the banks

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