Strategy?

I've been getting pretty caught up trying to learn as much as I can about property investing. I'm hoping to buy my first IP soon.

I realised yesterday that I haven't really put any thought into an actual strategy. I've been too focused on the details and neglected the bigger picture.

I'm interested to hear what strategy you are following?


(Let's say I do purchase my first property. I may move in for 6 months and claim the FHB grant before renting it out... then what? I imagine I will have to wait years before I have enough equity to take another loan and look for a second IP. I don't like the sound of that.)

Anyway... what is your plan/strategy?

Compleks, there are many. many strategies to profit from property.

My personal fav. is to manufacture equity when the market is stagnant or in a gentle rise (like now in some parts). You're right tho, it can be boring waiting for the market to increase your property's equity. So one of the safest ways is buy, reno, hold:

Buy a property in need of a cosmetic reno.
For every $1 you spend on reno aim to get $2-3 back in end value
Get the property revalued
Draw down manufactured equity and use that as a deposit on next IP
repeat process at regular intervals.

Or: buy, subdivide off back yard, reno existing house, sell spare block
Or: buy, subdivide off back yard, reno existing house, build IP on spare block
Or: buy unit block, strata title, sell some / keep some
etc etc

hi Compleks.

You have to start somewhere. Just as property is a long term investment so must be your strategy.

My strategy is as you suggest.

Buy,
hold,
build equity through time/ buying bargains/ adding value,
finance another property using accumulated equity.

One very clear thing you need to remember is not to get carried away with the excitement of it all . Make rational, unemotional decisions and buy for profit.

By this I mean: Make money when you buy.

I bought a property 40k under market price because a contract fell through on a bad building report. The sellers were desperate.

Most banks won't revalue your property under 6 months. So you will need to wait 6 months if you are hoping to use your aquired equity to finance another property. (Alternatively, you can refinance but this can also cost you.)

Find bargains and don't get caught in a stampede.

This can take time but it may be quicker than you think.

Regards JO

Hello there,

There are so many different strategies out there. Look at your situation and go from there. All noobies should just focus on getting into the market and adopting a "buy and hold" mentality, UNTIL things become clear. Working out how your cash flow works, in my opinion, is paramount above anything else when you first start. BE creative later.

we have used the buy reno hold way with good success.

My only other suggestion is be aware of analysis paralysis, you can check and learn and analyse until the cows come home but you won't get any results until you actually jump in and do something!

Good luck!

I'm a little of everything, I learn on the job, I'm still learning.

-The buy well-when I can is doing okay, we are not selling anything, for us, there is no reason to sell, we are purchasing, (some) adding value and getting capital growth and healthy rental returns.

-Still accumulating a quality base of assets until I come up with another idea.

-When we first took the leap into property I was quite familiar with a lot of regional cities in Vic and knew they were growing well, I made an effort to get as close to the cbd area as possible, plus where there were a couple of new schools being built then bought land which I thought was good value for us, (turns out it doubled in value in 12 months, and is still going up).

We built on the land, within 12 months I had found another block of land I thought good value, so repeated. Equity from each IP is being used to fund more purchases...(dipping back into the lolly jar). Some of the purchases are already builts, "buying well", and some, more land blocks, (I consider good value), and building on them...

So, I'm not that sure that would all be a strategy, I consider myself someone investing in property and learning as I go along and a Creative Opportunist Grab All.

Names, strategies, plans, whatever you might like to call them...keep purchasing appreciating assets at a price we can afford, within the perimeters of our financial framework.....and repeat.

For the moment.

Have fun.

I'm very much of the just jump in and buy something, then work it out as you go along.

So long term strategy = invest in assets that produce cash flow and capital gain so we don't have to take gov pension.

Short term next goal = buy a property

Mid / short term - if you keep buying property you will run into "rent reliant" "serviceability" so you need to change your plan to work around these issues.

So at the start you will have a rough long / mid / short term plan and goals, as you progress and lean and discover road blocks you need to be able to modify your plan and goals to map a new route to the long term goals. There are heaps of things that you don't know, things you think you know and things that you don't even realise exist. Currently you can't plan for these so you need to start doing something and be open to modify and mold the plan as you go.

I still want to be able to purchase below median priced houses in average suburbs with enough cashflow so they take care of themselves. AND be able to continue to do this year on year for ever.

There are ways to achieve this but you need to find the ones that you are comfortable with the SANF is very important. You need to be able to enjoy the journey, delayed gratification is fine but what's the point if you live on bake beans, water and bread while driving a crap car and living in a dump while working 60 hours a week in the hope of having everything you dream ofl in 20 years?

So my strategy is work out long term goals, work out a rough plan, take some action, learn a bit, change the plan, take more action, learn some more, continue.

Cheers
Graeme

Thanks for all the replies. Great to hear what other people are doing.

I have a meeting with investors direct tomorrow morning, to hopefully find out what sort of loan I am able to get. Then the real fun begins I assume.

I guess my strategy at the moment is to borrow with as little deposit as possible, while paying interest only on the loan, along with a 100% offset account.
I would like a property near my area (south east/inner east of Melbourne) which will probably limit me to buying an apartment. I would prefer a house, or even a sub-divide, but I don't think my loan will be enough.
I'll probably live there for 6 months to secure the first home buyers grant. Then find myself a good Property Manager and rent it out.

Does this seem like a decent approach? Could I/Should I do something different?

I'm guessing the property will probably be negatively geared when I move out. Not because of any intention, but I don't think I'm 'savvy' enough to get my hands on a positively geared property at this stage.
Is it difficult to find a property where rent covers loan repayments?

Thanks for listening... or reading.
Cheers.

In a market where rates are at historical lows, you have more chance of your rent being comparable to your repayments. I don't know what your budget is, but say you buy for $350,000 (you will need to contribute at least 5% plus costs in todays market), this will make your repayments (depending on lender) approx $1488 per month. I'm note sure in the areas you are looking at what the rents would be, but say you get $350 per week rent, which in monthly terms would be about $1515 per month. Obviously this doesn't take into account any managing agent fees, rates, repairs, body corps if applicable etc etc. This is based as you said on interest only repayments.
Just always make sure you get plenty of options on your property and finance - do lots of research...

ps also variable rate so be prepared for any future rate rises

Compleks said:

I'm interested to hear what strategy you are following?

Anyway... what is your plan/strategy?

Click to expand...

Compleks,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you also.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis. I've been purchasing IP per year and currently into year 9 of this 10 year plan.

I've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well thats the Basic Big Picture of CGA. Once its set up its a self perpetuating, TAX FREE Income Machine.

Compleks, I hope this has answered your questions. If you require any clarifications just ask.
__________________

Rixter said:

Compleks,

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you also.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis. I've been purchasing IP per year and currently into year 9 of this 10 year plan.

I've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well thats the Basic Big Picture of CGA. Once its set up its a self perpetuating, TAX FREE Income Machine.

Compleks, I hope this has answered your questions. If you require any clarifications just ask.
__________________

Click to expand...

Rixter, you say you don't draw on the properties equity until its run the full 10yr growth circle. In saying that how do you fund your next purchase?

Michellem:

Just always make sure you get plenty of options on your property and finance - do lots of research...

Click to expand...

Yes, yes, yes....we bumbled along for the first couple of IP's...then started to surround ourselves with people really good at their jobs. What Michellem says, financial structuring was important to us. Our mortgage broker is such an important part of the obsession team.

Compleks said:

Thanks for all the replies. Great to hear what other people are doing.

I have a meeting with investors direct tomorrow morning, to hopefully find out what sort of loan I am able to get. Then the real fun begins I assume.

I guess my strategy at the moment is to borrow with as little deposit as possible, while paying interest only on the loan, along with a 100% offset account.
I would like a property near my area (south east/inner east of Melbourne) which will probably limit me to buying an apartment. I would prefer a house, or even a sub-divide, but I don't think my loan will be enough.
I'll probably live there for 6 months to secure the first home buyers grant. Then find myself a good Property Manager and rent it out.

Does this seem like a decent approach? Could I/Should I do something different?

I'm guessing the property will probably be negatively geared when I move out. Not because of any intention, but I don't think I'm 'savvy' enough to get my hands on a positively geared property at this stage.
Is it difficult to find a property where rent covers loan repayments?

Thanks for listening... or reading.
Cheers.

Click to expand...

Hi Compleks,

I think your plan is good. Apartments/flats/units within a 10km radius of the cbd (especially Melbourne) are currently hot property. With Melbourne's population rising, land close to the city should continue to appreciate well.

I'd be looking for a complex within walking distance to transport (tram, train, bus), and ensure that you buy something with off street parking. Either a car space, undercover parking/carport, or a garage.

I would stay away from highrise complexes. (ie. multiple stories 4 and above) Preferably look for an art deco style apartment (Elwood, St Kilda), or complexes built in the 60's or 70's. If it is an apartment/flat, try to buy on the top floor (Many of these complexes are 3 stories - ground, 1st and 2nd) and either to the front of the building or the very back. Look for north facing apartments if possible with a balcony. (Not always possible but desirable).

Suburbs that are sought after include Armadale, Toorak, South Yarra, Pahran, St Kilda, Elwood, North Melbourne (I have investments there), Carlton and Carlton North. There are plenty of others as well, including Brunswick, and Brunswick East.

Buyer's advocates such as the Wakelins are a great source of information. They often buy apartments for investors and first home buyers. I have never used their services, but have met with them a couple of times.

The Wakelins have a preference for properties within 10kms of Melbourne, but I notice from reading an article that appeared in the Herald Sun a couple of weeks ago that Monique Wakelin is recommending first home buyers with families buy in Caroline Springs and suburbs in the outer east. Then pay down the loan rapidly and invest closer into the CBD. This is rather unusual for Monique, and sounds like a good alternative to me too. (This is what we did - bought in an outer suburb, paid down the loan, and started investing in inner, middle and outersuburbs).

Having said that apartments are sought after, remember that the FHB's grant finishes soon, and unemployment is tipped to continue rising. This may have an impact on prices. But then again, nobody really knows!

Hope this helps a little, although it may confuse you somewhat - sorry. Would be interested in hearing what you end up purchasing.

All the best.

Regards Jason.

DreamBig said:

Rixter, you say you don't draw on the properties equity until its run the full 10yr growth circle. In saying that how do you fund your next purchase?

Click to expand...

Sorry let me clarify...I use equity from PPOR topped up from IP's if necessary in the portfolio accumulation phase. I dont draw upon the the IPs equity for lifestyle purposes until 10 years down the track in the next property cycle after its basically doubled in value if not more.

Hope this helps.

buy something cheap, hopefully close to neutrally geared. Spend 6 months fixing it up. Move int a cheap rental, and rent out your property. get a new valuation and do it again. Live simply, work hard, get informed/educated. get hedged/insured. Dont get any consumer debt, and dont buy your PPOR until you have a substantial investment property equity base to build on.

Whatever plan you have, building wealth is long term. Once you start to see the momentum building it gets easier to stick to it.

Good Luck.

Hi Compleks

I started off with the buy and hold strategy and have accumlated quite a few properties during the last boom cycle in Perth. I have continued to access equity from these properties to fund ongoing deals, but have changed my focus to purchasing Melb and shortly Syd.

I now purchase properties with large land component which can be subdivided. Close to city and good infrastructure. I am not too concerned if it is the ugly duckling area, just as long as there is demand and the figures stack up when selling. My plan is to turn over a couple a year as income and also hold a couple.

My latest purchase which will settle in 60 days is 2 properties side by side which can be developed into 7 unit site.
I think this is a very sweet deal as it did not hit the market and I have been able to get it at the right price and no competition. These 2 properties cost me in total $3,700 pa to hold, I have not calculated negative gearing. I will not sell these as I plan to develop down the track.

As part of my strategy I continue looking at suitable properties and also have a RE agent working for me and it seems to be a win/win, he finds me the deals and he gets the commission when I sell.

I am located in Perth and do all the research.

All the best
Cheers, MTR

Thanks for all the replies! You have been very helpful.

Rixter. I'm curious what you mean here:

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with.

Click to expand...

When you say 'Draw out', does that mean you are taking another loan based on the increased equity? Or is there a way to take money out that isn't a loan?
Sorry, I don't know if that makes sense. I'm just confused by this part of the strategy.

Anyway... I had my meeting this morning. It went well, but I'm not in a very good position when it comes to borrowing money (I made another thread in the finance forum if you're interested).
However, I was told that if I buy the property as an investment then I can increase my loan potential because rental income gets factored into the equation.
I was also told that even if I buy my first property as an investment, then I do not give up my right to the First Home Buyers Grant later on (though I will miss out on the current increased grant money).

Going on this information, I'm leaning towards buying my first property as an investment. I think the extra money I could potentially borrow will pay off more in the long run. I hope... Especially if I want to purchase something in my area.

Something else that came up was the possibility of using a relatives income/equity as security on a loan. I don't really like this idea, because I want to do this on my own without putting my parents property up as collateral. But I would still like to hear your opinions on this idea?

Umm, that's all that comes to mind right now. The biggest issue at this stage is trying to get a decent loan.

If you have any comments, criticism or advice please let me know.
Thanks alot!


PS: Can anyone get a 100% offset account with a loan? Do all lenders offer this feature?


Thank you all!

Compleks said:

Something else that came up was the possibility of using a relatives income/equity as security on a loan. I don't really like this idea, because I want to do this on my own without putting my parents property up as collateral. But I would still like to hear your opinions on this idea?

Click to expand...

I would avoid any one becoming a guarantor,...it can end in devastating results, maybe a separate loan from parents or relatives might be safer.

Rixter,

when you draw down from the equity from IP1 (and IP2 ,3 ,4 in each subsequent year) what's the strategy used to meet the increased interest payments on the drawn down equity? Correct me if I'm wrong but the amount borrowed against IP1 after the 10 year cycle would be for private purposes and therefore not tax deductible either.