Is Buy and Hold still a good strategy

S

stargazer

Hi all

Have been thinking with all the talk of the future for the ageing etc. Is buying property to hold still a good strategy for a person say 10-20 years from retirement.

With percentage of depreciation minimised to what can be claimed

The threshold raised that keeps the PAYG person on 30% tax

Is NG still a reasonble strategy for people in this wage and age bracket.

The Super has been made a bit more pallitable

Should this group of people be looking for alternative strategies in property or something different?

Cheers
BC
 
buy and hold

I still believe that property will perform well over the next decade. It is a matter of being selective on where you purchase. In my view Melbourne and Brisbane are likely to have the strongest capital growth over the next ten years. The other place I would concider would be New Zealand. There you have no stamp duty or capital gains tax and very strong rental demand. It is still possible to purchase positive cashflow in main cities with capital growth try doing that in Australia.


Regards

Nigel Kibel


www.propertyknowhow.com.au
 
New Zealand huh. interesting.

I'm guessing this topic has already been discussed in detail, so I won't start in this thread. I'm going a search!

George
 
CGT in NZ

It doesnt matter whether there is CGT in NZ. You dont pay tax in NZ, you pay it in Oz so if you make a capital gain you pay CGT, regardless of where it was made.
 
If you are buying and holding then CGT isn't so much of a worry - generally only comes into effect if you buy and sell.

I am now of the buy and never sell camp.
 
Yes tubz, I believe you are correct, I have ppty in NZ and I also believe that if you sell many houses for a capital gain the IRD (tax dept) in NZ may start asking you to pay tax on the gains.

I'm also in the Simon Macks camp of hold and don't sell !!
And yes NZ does have many options for investors, I have contacts in the Sth Island who have properties for sale, from $75k to $110k renting from $120-160 p/w.

Regards

KI :)
 
Hi KI

What I mean is that even if they dont have CGT in NZ, you still pay CGT in Australia. If you are an Australian resident and pay tax here, you pay CGT on ANY CG that you make, regardless of where it is.

And also for Simon as well, do you mean that you will NEVER, EVER sell?

Tubs
 
tax

If you establish ther correct tax structures in New Zealand, you pay tax in New Zealand not Australia. We have a tax agreement between both countries. It is not tax avoidence, but it will protect your interests. Because some people on the forum have not got a structure in New Zealand does mean that it cannot be done.

Regards

Nigel Kibel

www.propertyknowhow.com.au
 
nkibel said:
If you establish ther correct tax structures in New Zealand, you pay tax in New Zealand not Australia. We have a tax agreement between both countries. It is not tax avoidence, but it will protect your interests. Because some people on the forum have not got a structure in New Zealand does mean that it cannot be done.
]
Click to expand...
This structure: Are we talking of simple things like trusts or do you go the way of incorporated companies?

I would like such a structure in Canada so I can trade mining shares there.

Regards ...... Thommo
 
Guys,

So long as there are any costs on acquisition and costs on divestment of this asset category then buy and hold will continue to be a good strategy.

If you didn't have to pay CG tax, and didn't have to pay a real estate agents fee and stamp duty and listing fees and loan application fees etc etc. then you could trade readily in the category and the cost of trade would be zero.

Since there is a cost of trade, then you need to offset these costs to the potential gains from trading the asset. i.e. If you really think the market is going to bomb, then maybe these costs exceed the cost of holding. Given the high costs of trading though, it would take a serious correction to make it a prudent approach to take.

Not too mention the "time and effort" cost of trading this class of asset.

Cheers,
Michael.
 
MichaelWhyte said:
Since there is a cost of trade, then you need to offset these costs to the potential gains from trading the asset. i.e. If you really think the market is going to bomb, then maybe these costs exceed the cost of holding. Given the high costs of trading though, it would take a serious correction to make it a prudent approach to take.

Not too mention the "time and effort" cost of trading this class of asset.

Cheers,
Michael.
Click to expand...

Don't just consider the cost of the trading and any potential fall in the market . On the other side of the equation is the downtime where property goes sideways and your money is in a holding pattern.

Sure you can draw down equity , but then you're taking on extra debt at a time in the cycle where values arn't going up much ( or are already going down ) and interest rates are potential going to go higher.

We've just had a cycle that has been double the normal length. Who knows how long till the next price rises kick in .

See Change
 
See change,

Good point, but even if your money goes sideways for 3 years or so, you might well be leaving it in the asset than getting out and getting back in. Sure, there's opportunity costs of not investing elsewhere, but the trading costs here are substantial.

Good point though.

Cheers,
Michael.
 
I wouldn't advocate any particular strategy. Surely a mixture is prudent?

I sold a regional property in December because I felt the market in that town had peaked and there was profit on the table. I'm selling another property shortly because there is very good profit sitting there and I can't see the price moving for a long time. I have better uses for the money.

Then there are a couple of properties I'm holding. Their prices have softened, but they are quality properties that I believe will always perform medium term.

Never say never.

Scott
 
tubs said:
Hi KI

What I mean is that even if they dont have CGT in NZ, you still pay CGT in Australia. If you are an Australian resident and pay tax here, you pay CGT on ANY CG that you make, regardless of where it is.

And also for Simon as well, do you mean that you will NEVER, EVER sell?

Tubs
Click to expand...


Thats the plan atm. Buy good quality property which I will hold. I will sell if there is any changes in my situation but I don't believe that the cost of selling and repurchasing is warranted if I buy the right places.

But no plan survives H Hour intact and I don't know what the future holds.

Cheers,
 
MichaelWhyte said:
See change,

Good point, but even if your money goes sideways for 3 years or so, you might well be leaving it in the asset than getting out and getting back in. Sure, there's opportunity costs of not investing elsewhere, but the trading costs here are substantial.

Good point though.

Cheers,
Michael.
Click to expand...


If it was only three years before we were going to see significant further gains , I'd agree with you , but I expect there to be more than three years before I see significant gains in the markets that I've been selling in ( Logan and Rocky ) . There may well be further gains to go in Rocky , but I've decided to sell the majority of my holdings there prior to the peak , rather than after , or trying to time the peak. ( happy to take a healthy chunk out of the trend ).

If I was holding in Sydney , it might be another matter , because I can see myself possibly buying in sydney within the next three years. But that will be in specific suburbs which I think will out perform the whole in the next cycle.

See Change
 
MichaelWhyte said:
Good point, but even if your money goes sideways for 3 years or so, you might well be leaving it in the asset than getting out and getting back in. Sure, there's opportunity costs of not investing elsewhere, but the trading costs here are substantial.
Click to expand...
Some commentators believe the last boom was an aberration, and is unlikely to be repeated. It finished less than 2 yrs ago - so I wouldn't expect the next one to start for a while.

I think at the present time (& also for the next 3-5 yrs) buy & hold is a below average strategy. In 3-4 yrs I would expect B&H to be a lot better strategy.

Remember that even if IP growth is flat (& not -ve), IP is still losing value in real terms (after inflation).
 
keithj said:
Some commentators believe the last boom was an aberration, and is unlikely to be repeated. It finished less than 2 yrs ago - so I wouldn't expect the next one to start for a while.

I think at the present time (& also for the next 3-5 yrs) buy & hold is a below average strategy. In 3-4 yrs I would expect B&H to be a lot better strategy.

Remember that even if IP growth is flat (& not -ve), IP is still losing value in real terms (after inflation).
Click to expand...

Hi keithj,

Can you qualify what you mean by 'At the present time, buy & hold is a below average strategy' ?. Is holding cash a better strategy even though it will be eroded by inflation ? Can you suggest a better strategy in te short term (3 - 5 years) ?

I agree that prices seem to have stalled but to say that IP is losing value in real terms (after inflation) may be a bit strong. This is very dependent on location and type of IP. Building a portfolio (while managing risk) for the long term is the key.
 
WillG said:
Can you qualify what you mean by 'At the present time, buy & hold is a below average strategy' ?. Is holding cash a better strategy even though it will be eroded by inflation ? Can you suggest a better strategy in te short term (3 - 5 years) ?

I agree that prices seem to have stalled but to say that IP is losing value in real terms (after inflation) may be a bit strong. This is very dependent on location and type of IP. Building a portfolio (while managing risk) for the long term is the key.
Click to expand...
Hi WillG,

All this is generally speaking. I see IP as having no (or below average) growth for the next 3-5 yrs and inflation at 2-3%. So relatively speaking IP is going to go backwards & highly leveraged IP will go backwards faster.

In 4-5 yrs(?) the next boom (or at least above average growth) will be closer, so postponing buying till then will make B&H a better strategy then. So even if planning for the long term (20+ yrs) I believe it's better to hold off buying an asset that is likely to go nowhere for 3-5 yrs.

This time of the cycle is a good time to diversify. There will be signs of a boom before the boom happens, so I will wait till then.

Alternative strategies include -
- cash (with zero risk) will return 4-5% interest
- LPTs (with lowish risk) will return 7-8% & growth at CPI
- shares, LICs, index funds - higher risk

Cheers,

Keith
 
keithj said:
Hi WillG,

All this is generally speaking. I see IP as having no (or below average) growth for the next 3-5 yrs and inflation at 2-3%. So relatively speaking IP is going to go backwards & highly leveraged IP will go backwards faster.

In 4-5 yrs(?) the next boom (or at least above average growth) will be closer, so postponing buying till then will make B&H a better strategy then. So even if planning for the long term (20+ yrs) I believe it's better to hold off buying an asset that is likely to go nowhere for 3-5 yrs.

This time of the cycle is a good time to diversify. There will be signs of a boom before the boom happens, so I will wait till then.

Alternative strategies include -
- cash (with zero risk) will return 4-5% interest
- LPTs (with lowish risk) will return 7-8% & growth at CPI
- shares, LICs, index funds - higher risk

Cheers,

Keith
Click to expand...

Also.... AU is not the only place to invest in property as mentioned earlier ie NZ.
If one wants to stay with property, then in the next 5 years, much better returns can be achieved elsewhere.
As Keithj, noted earlier, other investment strategies are more productive at the moment. Shares for sure, Managed funds, Franchise business etc.

As to "when the next boom will be?".... there may not be a boom at all :)

Thx
V
 
Another point,

Even applying buy and hold, its not all about the long term. If I can make a 10 to 20% return in year 1 or even in the first 6 months on smart buying, then I can lock that equity down with an LOC. Then I can park that asset for 20 years and let it do its thing as its already returned my cash down.

In this way I can accumulate a nice little string of assets which I hold for the long term, but the short term performance is critical. If I buy smart, even in today's market I can make those sorts of gains short term, then come what may for the long term.

Sydney may plateau for 2-3 years or even longer, but my buy and hold strategy is really pitched at 30-40 years. I don't think it will tank for that long...

Cheers,
Michael.
 
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