Are you a Yardney or a Lomas?

[MarkandTina]

I've been reading this site for a few years now, had a PPoR for many years and an IP for 3 years.

Two of the peoples commentary I read are Mr Yardney and Ms Lomas.
I enjoy reading (or viewing) the opinions of both and appreciate what I have been taught, however I cant help but believe that they use fundamentally different strategies.

My gist on Mr Yardney is that a focus on positive cashflow is not such a good idea, its all about buying well located property and having capital growth and improving yields over time.

Ms Lomas appears to be very strong on positive cashflow (I haven't read the recent book yet) and seems to favour lower cost areas with higher yields.

I find myself stuck in the middle, I plan to continue to buy property in more expensive areas for capital growth (i.e. I favour the Yardney method) but I see sense in what Ms Lomas says.

I'd be interested in how others how found the middle ground when developing their own strategy.

 

[buster]

I have property of the type both of them advocate Yardney is the master of spin. His type has very low yeilds, 6% vacancy, rents are less than they were 4 years ago , increasing rates and body corp fees compounding costs including compounding costs of interest means the gap between, cost and value of asset gets wider every year. The money spent on that could buy almost unlimited Lomas type properties. In regional areas that have less than 1% vacancy increasing rents, 7% yeilds, 8%+ CG in the last 12 months. Small towns such as Ouyen ,where about 6 years ago, where for a breif period ther was a glut of houses on the market and even though these houses had asking price of 30k ,vendors were accepting 17k now they are worth 6 X that and rent for $150 a week. The type Yardney and other spruikers warn not to touch. Look who has the runs on the board.

 

[sash]

My strategy is more in line with Margaret Lomas.....I would not have the portfolio size I have without CF.

I agree with what you say about MY. With the MY strategy you will stall after 1-2 properties due to the high holding costs. In times like this CF strategy wins hands down.

I have property of the type both of them advocate Yardney is the master of spin. His type has very low yeilds, 6% vacancy, rents are less than they were 4 years ago , increasing rates and body corp fees compounding costs including compounding costs of interest means the gap between, cost and value of asset gets wider every year. The money spent on that could buy almost unlimited Lomas type properties. In regional areas that have less than 1% vacancy increasing rents, 7% yeilds, 8%+ CG in the last 12 months. Small towns such as Ouyen ,where about 6 years ago, where for a breif period ther was a glut of houses on the market and even though these houses had asking price of 30k ,vendors were accepting 17k now they are worth 6 X that and rent for $150 a week. The type Yardney and other spruikers warn not to touch. Look who has the runs on the board.

 

[virgo]

Strategy

LOMAS (very similar to Steve McKnight too) for me!

 

[Dazz]

I'd be interested in how others found the middle ground when developing their own strategy.

Easy - take the best of both worlds.

Only choose properties that will deliver all three criteria of high growth, high yields and do nothing.

Happy days....

 

[Ausprop]

surprised to see some really quality answers above. here's the dirty little secret that the neg geared spruikers don't want you to know... a secret that only the rich know about, but for just $1999 I will share it with you... ah heck here it is for free: capital growth is not the exclusive domain of neg geared properties.

 

[oc1]

This is why development is good. You sell enough to keep say 1 dwelling which will have little or no debt, will be cashflow positive and growth if you have developed in a "growth" area. It goes against the grain now to buy and hold with a 80% loan...yuk!

 

[MangoMadness]

surprised to see some really quality answers above. here's the dirty little secret that the neg geared spruikers don't want you to know... a secret that only the rich know about, but for just $1999 I will share it with you... ah heck here it is for free: capital growth is not the exclusive domain of neg geared properties.

Whew! I was just about to send you some cash through paypal too.

 

[Ausprop]

This is why development is good. You sell enough to keep say 1 dwelling which will have little or no debt, will be cashflow positive and growth if you have developed in a "growth" area. It goes against the grain now to buy and hold with a 80% loan...yuk!

so you build 4 and sell 3. so if the first 3 were justifiable in selling, why not the last? each property should be assessed on it's own merit, not the gearing provided from other properties

 

[Bigtone]

as DAZZ said the combination of all three is ideal on every property but not always easy to find

getting the portfolio to have all three is much easier.

quick capital growth even on vacant land with a zero yield can provide massive opportunities to create cashflow in other areas.

personally i don't agree with lomas or yardley strategy but combining the two with other strategies can work very well.

good luck

 

[oc1]

so you build 4 and sell 3. so if the first 3 were justifiable in selling, why not the last? each property should be assessed on it's own merit, not the gearing provided from other properties

No, each property should be assessed/based on your overall strategy, if you have one

Think what happens when you repeat this process 5-10 times.

 

[MarkandTina]

Thank you to those who have answered so far.

I guess there is no "right answer" but its interesting to get others opinions on what to me is a key question.

 

[jacbmw]

What about setting your sights on a goal, and then working back from there. Having an actual workable target, then plugging in potential investments from either of these strategies (or others), to achieve you goal.

I definately do this, and in 2012 my goal was CG property in first 6 month, followed by Lomas dazzlers in second Six months...

Next year, if all things go to plan, then maybe a bit of strategy C (development of a current corner block), then potential back on the Lomas train.

This is all liable to change however, and when/if it does, the strategies etc will change also.

 

[wobbycarly]

Easy - take the best of both worlds.

Only choose properties that will deliver all three criteria of high growth, high yields and do nothing.

Happy days....

Stop rubbing it in!

 

[emptyvessel]

The Lomas school is both capital growth and cashflow. If you are buying property with high cashflow and getting no capital growth, you most likely didn't follow the rest of the Lomas guidelines on selecting the right area and property. How do I know? I am a happy Destiny Financial client working the Lomas method.

The Yardney approach of high -ve gearing with high cost, low yield property never has sat with me very well. Essentially it requires me to buy property with guaranteed high CG right from the start of my property adventure. I am good, but I know for sure that I won't buy the high CG property every single time. But I do know that the more seedlings I can plant, then the more chance of me growing an abundance of fruit.
The "manufacturing" of CG with development and renno's is definately appealing, and I think in this the Yardney approach has considerable merit. If I ever went seriously down this path I would probably lean more towards the Steve McKnight methods. I think they will make a nice "bolt on module" to my Lomas portfolio base in time.

Right now, very happy with 5-6% CG on average. If I can achieve that or more, I have hit my strategic curve. The yields just keep climbing, helping me to carry the properties, then eventually pay off debt and live on. It's so boring that sometimes I am tempted to move off the Lomas path. But I haven't as yet, it is early days and things are going just fine. Patience and diligence. Have the later, getting better with the former.

 

[INVSTOR]

I haven't taken either path. I'm not too impressed with the results I've achieved from choosing my own path either. I'm looking at alternative avenues at the moment. I'm not jumping into anything, but I'm looking forward to doing something different.

 

[BayView]

I've been reading this site for a few years now, had a PPoR for many years and an IP for 3 years.

Two of the peoples commentary I read are Mr Yardney and Ms Lomas.
I enjoy reading (or viewing) the opinions of both and appreciate what I have been taught, however I cant help but believe that they use fundamentally different strategies.

My gist on Mr Yardney is that a focus on positive cashflow is not such a good idea, its all about buying well located property and having capital growth and improving yields over time.

Ms Lomas appears to be very strong on positive cashflow (I haven't read the recent book yet) and seems to favour lower cost areas with higher yields.

I find myself stuck in the middle, I plan to continue to buy property in more expensive areas for capital growth (i.e. I favour the Yardney method) but I see sense in what Ms Lomas says.

I'd be interested in how others how found the middle ground when developing their own strategy.

High income earner = cap growth over cashflow - because they can afford to hold a massive neg position (and often do) in the hope of CG.

Amazes me how often I see high income earners willingly take on a huge neg just get a tax deduction. (not just property either - wineries are a popular one for the doctors and lawyers. pff

Low income earner = no choice...cashflow 1st, 2nd, and cap growth 3rd.

 

[Rolf Latham]

Thank you to those who have answered so far.

I guess there is no "right answer" but its interesting to get others opinions on what to me is a key question.

Id say dont worry about the question........or even the answer here.

Whats your END game and how will it look when its done, on that basis you may then be able to backtrack a little to make it work more easily ?

ta'rolf

 

[Peter Parker]

My approach has been nearer Lomas, but with a couple of provisos.

1. Lomas suggests buy sight unseen.

Because a. she believes many buyers act on emotion and change their mind when they visit the country town or housing commission suburb she recommends, or b. because some of the locations she recommends are remote from most 'average' investors in Sydney, Melbourne or Brisbane.

Her belief in this is a variation of 'ignorance is bliss'. If you're smart enough to put emotion (and urban middle-class prejudices) aside, and are willing to travel then there's nothing to be lost from going to Rockhampton, Mildura, Bunbury or Elizabeth before buying. And you might gain if you find a better deal or notice the speedway or rubbish tip over the back fence.

2. Lomas places a higher value on building depreciation than she should (whereas McKnight doesn't).

The highest yield places (especially if you want reasonable land content) are often older homes, so don't attract it. But they might turn out fine investments. Newer IPs with depreciation may be holiday rentals or retirement homes etc whose prospects might not be so good.

The correct approach is to treat building depreciation as a bonus not worth paying too much for. Eg if you find a 1990 house for the same price as a 1985 house, then you obviously buy the newer one, other things eg land and location being equal. But if it's $50k more in a less handy spot then you probably wouldn't. Building depreciation (like negative gearing past a couple of IPs) is no good if you don't have a big job income as there's no tax left to deduct. Whereas as higher yield will help no matter how low your income.

3. I think Lomas is less conservative with finance (eg cross collateralisation) than many others would be.

 

[gfreer]

Depreciation

Another dirty little secret re depreciation: while it is nice to get tax benefits up front, the cost base is adjusted on the sale of the asset, which means that you pay more capital gains tax. This why cashflow analysis is important.