Re-assessing Strategy

Re-assessing Strategy



I am currently reviewing my own portfolio and it seems to me that the current investment environment is somewhat changed from what it has been in the past 7/8 years:



Considerations:

• Current low interest rates. (With impending increases?)
• Outlook for property CG. (Market tracking sideways / downwards?)
• Lower property yields. (As a result of high prices?)
• Equity market at / close to record highs?
• RBA looking to restrict soft lending criteria?

Also it seems that there are a few classes of investor (from reading the many posts on the forum)



Class of investor:

• Starting out. (Yet to acquire first property)
• Have PPOR (Yet to acquire first IP)
• Have IP (Yet to acquire PPOR)
• PPOR and IP/s (How many more?)
• PPOR + IP/s + Shares / other (What is the correct balance?)

I pose then the following questions for discussion:

• What are your views regarding the above considerations?
• Which class of investor are you?
• What is your ultimate goal?
• Can you set out your planned strategy?

I realize that this is a vast topic, but in essence the answers I am looking for should lead to a conclusion as to future direction . . . WHERE TO FROM HERE?



Regards,



Steve

May I suggest that you have a loot at Olly Newland's book "the day the bubble bursts: how to profit from the coming Property Slump"? Read it and if you think that he doesn't make a good case then keep doing what you are doing. THere is a review of the book on this site.

Hi Steve,

conclusion as to future direction . . . WHERE TO FROM HERE?

Same as usual except there are fewer properties that stack up to my criteria thus it may be some time before I buy more properties.

What is your future direction ?. Where do you see yourself going from here ?

Cheers

Good question Steve

Currently we have PPOR, 4 IP's (7 tenants), Shares.
Wife working 1 day/week
Me working 5 days/week
3 kids sucking up money

The IP's are paying for themselves and throwing a few $'s into our pocket.
The shares are just ticking along.

Serviceablity is an issue. But the LVR is around 50%.

We have been looking at Commercial Property, Residential Property (Newish and Old), Business's, haven't look at shares much in the last 3 years.

So the current thinking is get some assets that will return more cash. I gave up on the get a job that pays more or get a pay rise.

I would like to own some Commercial Property, I would like some more Residential, I would like some more shares both Blue Chip and some speculative ones, I would like a few Business's under management. I'm confident that as the economic cycles shift there will be many opportunities to get into these asset classes, it's just a matter of timing and being aware.

This may change as I gain more experience at each of these areas but the idea is to have a diverse selection of things that both grow in capital value and generate cashflow.

If we can get the correct mix we will no longer run into the not enough serviceability and not enough equity issues that we seesaw between.

I'm happy to pay tax as long as I'm paying a minimal / reasonable amount.

Cheers
quoll

Hi Steve

Very good question!

Where to from here...

The investor class that I fit into is "Have IP's, No PPOR, and small portfolio of shares".

When I was 25 I made this off hand comment to someone about retiring when I was 35. A year or so later I thought what a fool I was to think that that was possible. Now 3 years down the track I can actually see that that was an acheivable goal and now everything I do is with that goal in mind.

I was asked this question on the weekend "What are you going to do, Rent forever?".

Probably? Maybe?

I dont see any reason to make a PPOR purchase when that would mean that I would have to put aside more funds for now to fund an expensive PPOR, at least for the next few years.

I am looking to manage current interest rate risk by locking in some of my loans and leaving the rest variable, and manage cashflow by ensuring where possible each IP supports itself.

I am looking into locking in current values of properties so that the equity is there for me when I need it.

I am looking at creating another income stream from trading options in the US, still just learning.

Other than that, I am just continueing to learn a lot about investing, read lots of motivational books, and keep myself motivated and active.

Where to from here for you? You have the portfolio, the business, the brand

You are going to have to work out some serious stretch goals to top your acheivements to date!

Also looking forward to hearing what other somersoftians future directions are, I may need to borrow a few ideas

Best Wishes

Corsa

Steve, when is the NavraInvest International Share Fund coming online ? I wanna diversify a little !

Good questions.

Steve Navra said:

• What are your views regarding the above considerations?

• Current low interest rates. (With impending increases?)
• Outlook for property CG. (Market tracking sideways / downwards?)
• Lower property yields. (As a result of high prices?)
• Equity market at / close to record highs?
• RBA looking to restrict soft lending criteria?

Click to expand...

My views -

• Interest rates - edging up - good time to fix was last year. I'm 80% fixed for a further 4 yrs.
• CG in prop has reverted to continue the long term mean. CG in shares is doing the same. Long term investors should expect (& welcome) this. If I found a bargain today, I probably wouldn't go ahead, because there will probably be more & better bargains later, with less risk & we'll be closer to the next upswing in a few yrs.
• Lower IP yields - all part of the cycle. Long term investors won't be worried.
• Equity market is still not expensive - P/Es are at about the long term average. Earnings have risen to justify the record highs.
• RBA restricting credit - I won't be needing more credit for a while, 'cos I won't be buying IP for a while. I have locked in plenty of excess credit & currently have conservative LVR - I am reasonably cashed up. Also locked in majority of loans at low fixed rates. Cashbonds may become harder to get.

Steve Navra said:

• Which class of investor are you?

Click to expand...

I have IPs, Shares, hands off business, PPOR

Steve Navra said:

• What is your ultimate goal?

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Previous ultimate goal was to retire. My next ultimate goal is to bring up the kids as well as possible by being there as much as possible. Then I'd like to travel to acquire/build awesome houses with spectacular views to stay in for a couple of weeks each year.

Steve Navra said:

• Can you set out your planned strategy?

Click to expand...

High level philosophies about my current strategy -

• Any strategy has to be long term - trading houses or shares is a job.
• Buy quality Shares & IPs when they are cheap.
• Don't sell - transaction costs are prohibitive, so is CGT.
• Diversify - IPs & shares both perform roughly the same, but at different times. They also have different characteristics - liquidity, LVRs, yields, sentiment, volatility.
• Use the yield to pay interest & live off it. Ensure your investments are working for you & not the other way around.
• Don't ever pay off debt permanently - use offset a/c
• Consider alternative investment structures - living off equity, swapping low yield assets for high yield assets or vice versa.
• Reduce risk - lower LVR, have cash reserves, fix rates, insurance, trusts.
• Revaluate current strategy every month.
• Remember to occasionally lick the marshmallow.

I pose then the following questions for discussion:



[*]What are your views regarding the above considerations?
[*]Which class of investor are you?
[*]What is your ultimate goal?
[*]Can you set out your planned strategy?

Good post Steve,
class of investor..i only ask my self one question,before any investment
will there be enough people willing to spend thier money,to justify me
spending mine,one ppor,down to 2 investment properties,these carry no
debt at all,rental returns reinvested into other areas within the top 20
australian companys on the ASX,all divs from shares reinvested over and over for the past ten years,i still look at two properties per week,and if the numbers are in the deal then i will buy more property, but not just yet
i see a different picture on the horizon and its still uncertain if the market will stall or start to fire up again it all depends on who you talk to,and how you understand the word Deception, and can you talk your way around it.
imho i dont think anything will change, well placed property in inner city
locations will still manage 7 to 11% growth,over any period the lows and the high..
my plans for this year i have 750k in cash of my own money waiting for
something to buy for a dollar and sell for two,nothing changes over time
only your bank balance..
good luck steve but more important what do you think.
good luck
willair..

Hi,

Great question. I am 25 years old, own a PPoR and shares. I am trying to close on my first IP now. I have owned a business in the past but not now.

Interest rates: I try not to spend any time worrying about macro-stuff like this, since no-one knows what will happen (remember at the end of 2003 how it felt like a rise in rates was imminent?). My loans are 50% fixed and 50% variable.

CG in property: Pockets of real opportunity all over Australia. Managing a property remotely does not bother me and I am happy to invest in areas that present good opportuinities.

Yield of property: Will increase over time. Currently at uneconomic levels.

Equity market: I don't bother doing valuations of the market as a whole, but I am finding fewer and fewer companies trading at attractive prices. There are still some cheap companies around but I can't find any home runs.

My investing goals over the next five years are to:

• Build equity rapidly through leveraged property and share investment.
• Pay off PPoR
• Purchase a controlling interest in a business

Also, the most important investment I have been making over the last few years is in my education. I am finishing off the SIA course, have a mentor and am learning as much as possible about managing a business through work and my family.

The biggest challenge I face is getting my wife excited and involved about investing.

Cheers,
Ben

bent said:

The biggest challenge I face is getting my wife excited and involved about investing.

Click to expand...

Hehe. Getting your wife excited is one thing. Getting her involved about investing is another

Hah - bad turn of phrase I used there. Maybe I should go back and delete the post

bent said:

Maybe I should go back and delete the post

Click to expand...

Don't you dare!

great questions

steve - these are the exact questions im asking myself at the moment and the best overall reply i can come up with is 'waiting for something to happen'.

im waiting for a trigger, or an incident - something to give me a little clarity on the best way forward. The environment is fairly high risk at the moment so small steps, stay liqiud to make the most of opportunities, and above all else have patience.

Hi steve and All
I think investors have to keep moving with the markets. Some strategies work really well for a long time and others maybe for just a one off hit.
The one fact remaining is that as far as we are aware there is only one planet that people can live on and on that planet the people who own/control the prime land are always going to do well.
I think that the stratergies of "Buy low,add value,hold then duplicate" will be a winning formula for a long time to come.
We are current ly sitting on our hands and watching for the next opportunity to present itself.
The rule we invest by is to only do a deal if it is better than our last one(based on return and growth)
Simon

Punchy said:

May I suggest that you have a loot at Olly Newland's book "the day the bubble bursts

Click to expand...

Hmmmmm . . . but I don’t believe there is a bubble about to burst.

Sim said:

Steve, when is the NavraInvest International Share Fund coming online ? I wanna diversify a little !

Click to expand...

Yes . . . in the planning stage. NOT a small enterprise this, but I believe vital to all our future plans.

aussierogue said:

the best overall reply i can come up with is 'waiting for something to happen'.

Click to expand...

I understand your sentiment, but have never willingly just “waited for something to happen” . . . so I am now choosing to MAKE something happen.

WillG said:

What is your future direction ?. Where do you see yourself going from here ?

Click to expand...

willair said:

good luck steve but more important what do you think.
good luck

Click to expand...

To both WillG and willair,
I fully intend to set out exactly what my strategy is from this point onwards.
I posed these questions to get all of us thinking about what we should be doing in this somewhat uncertain environment.
So I will wait for a few more responses and then offer some of my planning. (Say by next weekend)

Regards,

Steve

I tend at the moment to fit into own IPs, no PPOR. Primarily because in the last 10 years I have changed employment locations 5 times. These IPs are basically cash flow neutral using 10 yr P & I loans.

I'm looking to refinance one of the IPs over a longer term at fixed interest rates which will mean one IP is unencumbered, thus giving flexibility when opportunities occur. I'm also looking to maximise income on one IP which is industrial by some rent reviews.

simonjulie said:

The rule we invest by is to only do a deal if it is better than our last one(based on return and growth)
Simon

Click to expand...

Simon,

Couldn't you be waiting quite a while if your last deal was exceptional?
Whats wrong with several smaller ones.

A86

Steve,

Currently I am very close to selling my unencumbered PPOR (a tiny flat) and don't own investment property or shares. Selling it for a variety of reasons.

When I'm cashed up (hopefully within the next month) I will be taking a margin loan and putting $500k into your wholesale fund, whilst adding $5000 to it each month.

In about 24 - 36 months, I will cash out and buy a PPOR outright (will be renting in the meantime). This I am imagining will be before the next upswing in capital gains. Then it's a case of using our unencumbered $500k - $600k or thereabouts and following your Optimised Investment Structure.

With re-investment I would hope to see our wealth double every five years. If it does I'll have 2 million by the age of 40. That would be sweet.

tks yr reply

tks yr reply steve - look forward to seeing your plan. i think i should clarify when i say 'waiting for something to happen'. technically i guess this is not true. ive recently paid of all of my bad debt (part of my plan) and currently managing to save (ing) around 5k per month. im also doing some landscaping and painting of an investment property in order to increase its value..

but must admit my future plan lacks a little focus

aussierogue said:

i think i should clarify when i say 'waiting for something to happen'. technically i guess this is not true.

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Hi aussierogue,
Yep, I understood your sentiment to be "unsure" rather than unwilling

aussierogue said:

but must admit my future plan lacks a little focus

Click to expand...

And again, you're absolutely correct . . . what we are all now searching for:
The focus on HOW now to move forward.

regards,

Steve