Same location self propelled capital growth?

[Sunstone]

Dear guys,

Have posted the following part of one of my posts on another thread. However believe that it is worthwhile to consider more for further discussion on the issue. Please find details as below:


Does one:
a) Purchase IP's in one chosen area? or
b) Purchase IP's all over attempting to pick the next area of growth.

Personally the research that you do for your first IP's should be extensive to choose the right area for yourself. If you research was done well why wouldn't that area continue to be a good area to invest in? Yes prices can go up but if you understand an area you will always be able to find new opportunities in the area that someone less versant with the area would not.

Classic example. Brick, lowset walking distance to station worked well for myself and gave myself the 10%+ yields that were my requirements. Now with capital growth in the area these yields are no longer possible/as easy to achieve. This presents myself with the choice. Do I a) Find the same type of properties that fit my requirement into another area (one that I have to research again from the beginning?) or do I b) open my mind to finding different opportunities in the same area? Such as dual occupancies or conversions?

The other issue is by buying in the same area do you 1) Put all your eggs in one basket or 2) Do you ensure ongoing capital growth for your existing properties through your ongoing and future purchases?

Whilst it may not work in all areas, in certain areas I am sure that investing in the same area can ensure to a certain degree capital growth. Doesn't this then become a self-fulfiling prophecy?

And then do you need to be a "jack of all trades" investing in all areas but a "master of none"?

Cheers,

Sunstone.

[Steve Navra]

Hey Sunstone,

I tend to spread them around for a couple of reasons:

Land Tax: properties in different states allow you greater use of the existing thresholds.

Differing growth cycles:

Example: Prices peak in Sydney, draw down the equity for use in next area. Maybe then in Melbourne and when that peaks repeat the process and use the equity in Brisbane . . .

So, what I am suggesting is that if all your assets are in one area then you might miss out on the market fluctuations.

AND of course, when all the areas are at a peak simultaneously, then OBVIOUSLY shares will be cheap!

Regards,

Steve

[Sunstone]

Dear Steve,

On the thresholds this should not be a problem if additional trusts are created when you approach the threshold level for each trust.

Yes a $150k threshold goes a lot further in Brisbane than Sydney but the principle is still sound for QLD.


Differing growth cycles:

Is it the issue of investing in three different cities in order to catch the differing growth cycles? Can one spend so much time trying to be an expert in three different cities and the multitude of suburbs that they are sold "overpriced IP's" by overzealous agents to less-educated interstate investors? Even with the highest levels of due diligence there will be some element of this.

Are you improportionately increasing your level of risk by investing where you have a lower level of expertise?

Some thoughts......

Cheers,

Sunstone.

[stirling]

Dear Sunstone,

I tend to purchase my cashflow properties in the one place and spread my capital growth properties around.

A cashflow property can prove itself on day one, or as soon as it gets rented out, so why not buy more in the same location. A capital growth only proves itself once the value has gone up and by then it is too late to buy more (although it may keep going up).

Typically a cashflow property is in the outer suburbs or in regional centres. The main issue is the quality of tenant, the rent level and the quality of the managing agent. Issues that become clear straight away.

Also cashflow properties are typically only 0.25 times the value of capital growth properties, therefore for the same amount of money you need to buy 4.

Stirling

[XBenX]

off the top of my head I dont think there is any threshold for land tax exemptions for trusts in NSW dont quote me on that though, its just from memory...

back on track - I like to have a more diversified portfolio but Im talking about suburbs/areas rather than states.

Thats just what Im doing initially, I can see the benefits of not limiting yourself to a single market (as Steve mentioned) that way you can maximise your returns (the only downfall is this is a more active approach)

just my thoughts

[Steve Navra]

Hi Sunstone,

Yes this is a more pro-active approach, but in simplicity (And forget not that at heart I am a simpleton - just ask my wife!) as I was saying, it comes down to a fixed criteria list of what you are looking for in a property and that the purchase is realistically priced. (Rental Reality again)

Ultimately then, it doesn't matter which state you are in.
Also, it remains far more objective to allow the actual market to dictate price reality, rather than to rely on opinions of other "experts".

Regards,

Steve