How do you work out 'your strategy'?

[Catspaw]

Hi All,
Ive noticed a few threads where people are asked 'what is your strategy'? How do investors work out what their strategy is? Is it through experience or do you work it out upfront? Ive done a fair bit of reading ie books and this forum, magazines etc and Im not much clearer yet on what ours is or should be. Despite this we leapt in last year and purchased two 1 br units. Perhaps someone on SS might have some advice to offer us. Our story is:
- Were in our mid to late forties.
- We own our PPOR value approx. 850K
- Have 2 x IPs 1 br units bathrooms were done before purchase and we cleaned, repainted and put in new carpet. Both rented.
- Hubby is a licenced builder mainly doing small renovation projects, maintenance, structural work etc. Im in full time work on a good salary.
- We like the idea of buying around where we live so that most maintenance work (or renovation work) can be done by us or people we know in the trade. However, we also see the sense in buying in other locations that might see quicker capital growth.
- Like the concept of buy and hold but also would consider renovate and sell where it makes $$ sense.
- Hubby likes units because the repair bills (if you get a bad tenant) are likely to be smaller than a house. However body corporate fees need to be factored in, you dont own the land, other than renovating the unit, value adding may not be possible.
- Im thinking houses may be good for better capital growth and opportunities to renovate/ value add/ knock down & rebuild, sub divide etc.

Would appreciate your thoughts/ suggestions.

 

[Brady]

Work out where you want to be and work backwards from there.

What do you need to get there, whats the best way to get there.

It will likely change overtime and develop as you figure out better ways to get there.

Best of luck.

 

[vaughan]

Hi All,
Ive noticed a few threads where people are asked 'what is your strategy'? How do investors work out what their strategy is?

For me, the investor needs to answer the basic question "How do I expect to make money out of the property?"

Money can be made by either or a combination of:

- selling the property for more than it cost to buy and hold;
- earning income from the property (usually rent)

Generally there is more money to be made from selling the property. The "trick" is working out how to get somebody to pay more for it than you did. The simplest is "buy, hold, wait for the market to move up, sell" however this strategy is at the mercy of the market. A better strategy would be one that actively adds value to the property, independent of the market.

Most investment strategies are really about how to "add value" to get somebody to pay more for the property than you did. References to "the numbers" are estimating the property's buy, hold and sell costs, the cost to implement improvements, the eventual sell price, and thus the potential profit. Many of these quantities are unknowable with certainty (such as future property value, or the cost to renovate) and this is where business acumen and experience come to play. It's really easy to lose money in this business.

I also think that an exit strategy is also necessary. Simply saying "I want to buy and never sell" is not really a plan.

 

[HD_ACE]

start with your overall goal/ destination and then figure out how you are going to get there. This can be broken up into other goals and timelines etc.

Just as you would jumping in a car to goto the supermarket. You know your destination now just figure out the most effective way to get there. after a while it will become second nature and you will know how each step or stage or turn is going to fit in to get you to that destination.

cheers

 

[devank]

I feel your pain Catspaw.
Every 5 years in my life has been vastly different. There is noway I could have ever even imagined my future. These days, I try to learn from people who are 5 or 10 years ahead of me.

I guess the starting point is start from the end as everyone else suggested. Decide what you want to have when you turn say 60. Then make a plan based on where you are now. Then, may be set milestones on your plan. Use SMART goals to achieve those milestones. Once you reach your first milestone then re-evaluate your plan.

 

[The Y-man]

Hi All,
Ive noticed a few threads where people are asked 'what is your strategy'?

As others have said, "strategy" is merely a "means of getting to a destination".

eg if your Destination is Sydney from Canberra, you have a choice of walking, driving, plane, train. But if you were to go from Canberra to Auckland, your "strategy" - ie. mode of transport will be different.

When we strated, we just chose an arbitrary (almost random) goal - 100 IP's in 10 years.

Never got there, and changed goals since, but that doesn't matter - it got us thinking on HOW to get to that, and putting those plans into action.

The Y-man

 

[perthguy]

Work out where you want to be and work backwards from there.

^^^ this. For example, I want $1,000 a week income when I retire (in today's money). For this, I figure I will need around $1,500 a week rent coming in. In my area, 3x2's rent for around $500 per week. So, I figure I will need three 3x2's fully paid for when I retire. If I build three 3x2 units on a development site, there are my units. I would just have to figure out how to pay for them

 

[Brady]

^^^ this. For example, I want $1,000 a week income when I retire (in today's money). For this, I figure I will need around $1,500 a week rent coming in. In my area, 3x2's rent for around $500 per week. So, I figure I will need three 3x2's fully paid for when I retire. If I build three 3x2 units on a development site, there are my units. I would just have to figure out how to pay for them

Do it twice and then when property doubles pay off 3 keep 3

 

[perthguy]

Do it twice and then when property doubles pay off 3 keep 3

that would be awesome... except in the area (near Perth airport), development sites are now selling for $799,000 and the numbers don't work for 3 grouped dwellings at that price

 

[mins]

I am 35 and my goal is that I want to be financially free of the govt when I retire and not reliant on pensions etc. I also would like to be able to quit work or work part time because of my passive income.

I would say my strategy is buy and hold cashflow positive properties along with some "adding value" strategies. Which one takes precendence at what time will depend on what is happening and how much cash I have.

I feel that I am on the right track with my 4th Investment property in the bag today. All positively geared and currently generating approx $200-250 per week after agent fees, rates and interest.

 

[perthguy]

I feel that I am on the right track with my 4th Investment property in the bag today. All positively geared and currently generating approx $200-250 per week after agent fees, rates and interest.

That's some great work there! Just wondering if you have a strategy for paying off the loans? I have been trying to figure out the logistics of this say property A, B, C, D... A would be principle and interest and pay it off as fast as you can with B, C, D remaining interest only until A is paid off. Then make B principle and interest and repeat until all are paid off? I ran this against a scenario of making all of them P&I but that seemed like a lot more interest.

 

[devank]

I am 35 and my goal is that I want to be financially free of the govt when I retire and not reliant on pensions etc. I also would like to be able to quit work or work part time because of my passive income.

Add a figure to it... then it becomes Specific, Measurable, Achievable, Realistic & Timely (SMART) goal. Without a figure how can you work backwards?

 

[mins]

My figure is to earn $60k p/a from IP which would allow me to be financially free. I would like preferably like to be on $80k p/a when I retire.

This would then support me and my husband comfortably. Please note that this is in todays dollars.

Perthguy... my loans are all I/O except my PPOR. I think they are fixed rate for another 2.5 years at 4.89%. After this I will see what rates are doing and where my investments are at that time. I think if rates are still low like now I will refix at I/O for another period of time. If rates go up, then even though not fantastic for tax reasons, I think I will convert to P & I.

Still undecided and a lot can happen in 2.5 years.

 

[Brady]

That's some great work there! Just wondering if you have a strategy for paying off the loans? I have been trying to figure out the logistics of this say property A, B, C, D... A would be principle and interest and pay it off as fast as you can with B, C, D remaining interest only until A is paid off. Then make B principle and interest and repeat until all are paid off? I ran this against a scenario of making all of them P&I but that seemed like a lot more interest.

Not at this stage, at the moment trying to acquire as many properties as possible. All either cf+ or with development potential which will inturn create equity and make cf+.

Once enough assest acquired and 15 years later I will look to reduce debt. I would be looking to target the worst performer first as it would be the property that would be off-loaded first.

 

[HD_ACE]

That's some great work there! Just wondering if you have a strategy for paying off the loans? I have been trying to figure out the logistics of this say property A, B, C, D... A would be principle and interest and pay it off as fast as you can with B, C, D remaining interest only until A is paid off. Then make B principle and interest and repeat until all are paid off? I ran this against a scenario of making all of them P&I but that seemed like a lot more interest.

A widely used strategy (as mentioned) is to sell down close to retirement phase. This is obviously where the time factor comes in. You buy more than you need during acquisition phase and sell down to decrease debt.

Depending how you've leveraged them earlier on, and once they have increased sell to pay down debt or to offset debt and live off the required rent in your goals. Rents should have increased by this time also so hopefully you will find you have superseded your original goal.

cheers