I think I'm buying too many -ve geared properties.

Hi guys, I think I'm buying too many -ve geared properties and I'm starting to question my strategy that I developed a few years ago. My strategy was to buy properties that were likely to attain good capital growth as opposed to good yields. The other perequesite was buy property that I could sub divide and then build(or sell) later(10+ years time) All of my 3 IP's when purchased all had a yield between 3.5-3.8%. This hasn't worried me too much, as I earn good money, have paid off my PPOR, have a low LVR and my wife also works and earns a respectable income. Also means I get a nice tax return come tax time from negative gearing.

However, I keep reading of people buying in at 4.5 - 5% yields and I'm starting to underestimate my ability to find good buys as an "investor". Do these properties in the 4.5 - 5% yield category have potential for subdivision, well located, close to cities(15km radius), getting good tenants, etc? My IP's are in Melbourne and 2 of them have had excellent capital increases over the last few years, so this part of my strategy is working(3rd IP was only recently purchased). But, having said that, you could probably say that for all property in Melbourne last few years in regards to capital gains.

Maybe it's time I diversified the portfolio with a unit or property that gets good yield to boost cash flow as opposed to looking at the future for subdivision, land content, etc.

Any thoughts anyone? Ready to purchase IP#4, but feel like I'm losing track a little and a bit disillusioned...

Thanks.
 
Different things suit different people. Personally I wouldn't touch anything with a yeild so low, but that's just me. You probably wouldn't touch the stuff I like.

Most of mine get at least 7% yeild on purchase price (some more) which only increases over time. I also like blocks that I can do something extra with and will eventually get rid of some of the earlier purchases that don't allow a dual income from.

In saying this, IHubby is probably nearer to retirement than you are, too. :D
 
Captial growth is worth more but that said for me I could not afford to buy Ip unless they were close to +ve geared why dont you have a mix of both and enjoy the tax returns!
 
Different things suit different people. Personally I wouldn't touch anything with a yeild so low, but that's just me. You probably wouldn't touch the stuff I like.

Hi Skater, try me. :)

I'd be really interested in finding out actually. I think I just need options as I have been very narrow minded in my short journey to wealth creation.

I guess a lot of it comes from growing up with my fathers mentality of him plugging my brain with "By houses with land content, you can always make more from it later" mentality.
 
just be certain that you don't let your monthly group cashflow turn negative. I have made this mistake before and learnt the lesson of cashflow the hard way
 
Hi TB

I started off doing what you describe but more recently have been investing in, for example:

- Hobart properties with circa 7%+ yields (with good land content) and
- A Karratha property with an 11% gross yield

Having seen both sides of this fence I am now a fan of yields! Even if it means going with CIPs I would take the cash flow any day. There is nothing to say you can't have both good yields and good land content / CG prospects. You just have to be able to manage the perception of risk and ask yourself whether strong cash flow is its own, perfectly valid, risk management method. I think it is.

Same goes for shares, although a few would have got caught in the yield trap recently of course. There is a need to keep both eyes open for that one!
 
OK, you asked for it.

Most of my stuff is in the "less than desirable" areas. I have several in the Mt Druitt suburbs in Sydney, then some in Campbelltown, some Regional NSW and one in Regional VIC. I did have some in other areas, but have sold them.

Most of these were purchased with good yeilds, but some of them have blocks that are big enough to put a second dwelling on to improve the yeild even more so. I was going to sub-divide, however I think with the ones that I intend to keep forever, I might not do that. By keeping them on the one block I only get charged land-tax on one parcel as well as one amount of rates (although this differs for different Councils). I know that the value is less by not sub-dividing, but it keeps costs down and yeilds up, which is what I ultimately want.
 
Hi guys, I think I'm buying too many -ve geared properties and I'm starting to question my strategy that I developed a few years ago. My strategy was to buy properties that were likely to attain good capital growth as opposed to good yields. The other perequesite was buy property that I could sub divide and then build(or sell) later(10+ years time) All of my 3 IP's when purchased all had a yield between 3.5-3.8%. This hasn't worried me too much, as I earn good money, have paid off my PPOR, have a low LVR and my wife also works and earns a respectable income. Also means I get a nice tax return come tax time from negative gearing.

However, I keep reading of people buying in at 4.5 - 5% yields and I'm starting to underestimate my ability to find good buys as an "investor". Do these properties in the 4.5 - 5% yield category have potential for subdivision, well located, close to cities(15km radius), getting good tenants, etc? My IP's are in Melbourne and 2 of them have had excellent capital increases over the last few years, so this part of my strategy is working(3rd IP was only recently purchased). But, having said that, you could probably say that for all property in Melbourne last few years in regards to capital gains.

Maybe it's time I diversified the portfolio with a unit or property that gets good yield to boost cash flow as opposed to looking at the future for subdivision, land content, etc.

Any thoughts anyone? Ready to purchase IP#4, but feel like I'm losing track a little and a bit disillusioned...

Thanks.
Personally I think you are doing fine. With the income you are on and the low LVR perhaps you should be accessing some more equity and getting on a Carlton or Torquay. Everyone is talking about those two so I would suggest they will be a sort of self fulfilling prophecy.

Have a look at your growth and average it out on a yearly basis and then speculate whether you think you could have got those returns from higher yielding property. Then also consider if you could have built that much equity.

Each their own but I don't think your strategy is bad at all.
 
The underlying assumption here is that you either get CG or good yield which is WRONG.

Generally there is a trade off.

Pros might be able to pick winners regulalry but if you go choose 100 random properties worth 500k and then 100 properties worth 180k a pattern will form and that is that the 500k properties have better growth but less yield (all other things being equal).
 
Generally there is a trade off.

Pros might be able to pick winners regulalry but if you go choose 100 random properties worth 500k and then 100 properties worth 180k a pattern will form and that is that the 500k properties have better growth but less yield (all other things being equal).


Maybe the lesson there is not to invest in randomly chosen properties? :D

Bludger; personally, I wouldn't worry about what everyone else is doing. Keep it simple; does your chosen strategy work for *you*...?

If so, brilliant! Keep at it and enjoy the ride.
If not, then perhaps it may be worth reassessing.
 
Maybe the lesson there is not to invest in randomly chosen properties? :D
Those random properties represent a cross section of the market and fulfill the adage that there is a trade off;)


I guess the lesson is:

Generally there's a trade off. If you're a novice investor consider this in your calculations. But the more experience you get the more you will be able to identify properties that have excellent growth and excellent yield.
 
If you want to get more yield why not build on some of the land content?

Not sure of the exact nature of your properties, but you mention the long-term potential to build on the blocks given the large size. Why not build and hold one now? Since you already have the land any build should be highly positively geared.
 
I don't think there's one rule for everyone.

I'm digesting a 3.6% yield purchase which wouldn't have appealed to me as a standalone property except that it just so happens to be adjacent to another IP and within 5km of the CBD.

If you are ready for #4, you could try approaching your IP neighbours to see if you can unlock some broader development potential, but otherwise, diversification seems a good idea to me.
 
I think that it depends on what you intend on doing with the properties in the long term.

If you are plenning on selling them and using the capital gains at some point in the future, then the way you are going isn't so bad.

If you are planning on holding indefinitely and living off the rental return then you may need to rethink abit.

generally, I think it would make sense to have a focus on a little of both, capital gains and yeild, within a portfolio.
 
I agree Bludger which is why I'm looking into positive cashflow share products to balance out the income side of my portfolio.

Checkout the thread I started in the Coffee Lounge about one such thing. It's still a green light for me.
 
Hi guys, I think I'm buying too many -ve geared properties and I'm starting to question my strategy that I developed a few years ago. My strategy was to buy properties that were likely to attain good capital growth as opposed to good yields. The other perequesite was buy property that I could sub divide and then build(or sell) later(10+ years time) All of my 3 IP's when purchased all had a yield between 3.5-3.8%. This hasn't worried me too much, as I earn good money, have paid off my PPOR, have a low LVR and my wife also works and earns a respectable income. Also means I get a nice tax return come tax time from negative gearing.

However, I keep reading of people buying in at 4.5 - 5% yields and I'm starting to underestimate my ability to find good buys as an "investor". Do these properties in the 4.5 - 5% yield category have potential for subdivision, well located, close to cities(15km radius), getting good tenants, etc? My IP's are in Melbourne and 2 of them have had excellent capital increases over the last few years, so this part of my strategy is working(3rd IP was only recently purchased). But, having said that, you could probably say that for all property in Melbourne last few years in regards to capital gains.

Maybe it's time I diversified the portfolio with a unit or property that gets good yield to boost cash flow as opposed to looking at the future for subdivision, land content, etc.

Any thoughts anyone? Ready to purchase IP#4, but feel like I'm losing track a little and a bit disillusioned...

Thanks.

HI bludger.

You have the strategy I had about three years ago. Until I hit the servicing wall on IP No.8 and realised too late that my massively NG Portfolio was obstructing my cashflow and I should have diversified alot more.

NG will benefit only those on higher incomes (we were), but you need to watch your cashflow.

It certainly doesn't benefit your servicing with the bank. Be very, VERY careful. You will be extremely volatile when Interest Rates rise if you are not locked in on a rate you can afford.

Personally, I would strongly advise diversifying. The above is only my experience but a hard lesson to learn.

Regards JO
 
Hi TB

I started off doing what you describe but more recently have been investing in, for example:

- Hobart properties with circa 7%+ yields (with good land content) and
- A Karratha property with an 11% gross yield

Having seen both sides of this fence I am now a fan of yields! Even if it means going with CIPs I would take the cash flow any day. There is nothing to say you can't have both good yields and good land content / CG prospects. You just have to be able to manage the perception of risk and ask yourself whether strong cash flow is its own, perfectly valid, risk management method. I think it is.

Same goes for shares, although a few would have got caught in the yield trap recently of course. There is a need to keep both eyes open for that one!

Totally agree with you! Well said! (Again)

Regards JO
 
Personally I'm vehemently against negatively geared properties and think you're a nincompoop :p

Meanwhile, just stop buying them for a while if it is getting to you, or put some effort into paying them down. And buy something a bit different to cancel them out.
 
Bludger

I think it depends on your situation...but you are correct in saying that if you are only getting 3-3.5% returns you will hit a serviceability wall like Josko highlights.

I took the path of optimising both CG and cash flow. I typically look for a minimum of 6-7% returns with a average capital growth of 7-10% CG.

This has worked well and with rental growth the properties I buy are typically CF+ with 1-3 years.

The beauty of this strategy still leaves petrol on the tank allowing me to buy property.

There some newbies on the Hoppers Crossing/Werribee thread saying that this strategy does not work....but it does...a few on SS are doing it successfully.;)
 
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