Investing? Use the "Slow", "Average" or "Get Rich Quick" Method?

Reading through a Terry Ryder report recently on which types of suburbs to invest in I concluded the following that you can follow 1 of 3 methods available:

1) "Slow" method: With very little knowledge, if you invest in a well-located suburb in a regional/capital city, then you could obtain 6-9% p.a. capital gain returns (ie. rule of 72: basically your IP will double every 10-12 years);

2) "Average" method: With more knowledge, if you invest in the proven "blue-chip" suburbs in a regional/capital city, then you could obtain 10-14% p.a. capital gain returns (ie. rule of 72: basically your IP will double every 7-10 years);

or...
3) "Get Rich Quick" method: With more specific & well-researched knowledge, if you invest in the "Hot Spot" suburbs in a regional/capital city (ie. "ugly duckling" suburbs that are waiting to be "discovered"/gentrified/urban renewal/discovery of a mine, etc etc), then you could obtain 15-30%+ capital gain returns (ie. rule of 72: basically your IP will double every 4-6 years)

So, herein lies the question: Which category do you invest in? Or is it a mix of 2 & 3 or all 3 categories?

I personally have invested so far in category 2 "in my own backyard" as I knew the market fairly well & bought undermarket.

The reason why I classify the 3rd category as "Get Rich Quick" is that it appears that if those IPs are coming off a low $$$base & therefore get "discovered" & rise rapidly then if you timed your purchase well then you could profit from massive capital gains very fast over a 4-6 year period. Duplicating this scenario each time you buy (say 1 IP purchase each year) would grow your portfolio very quickly over a 10 year period.

The only issue I have with category 3 is that while your IP may double or triple in 7-10 years with 15-30% p.a. capital gain returns, I doubt the same suburb is going to enjoy the same high capital gain returns over the 11-20 year period & above.

I liken it albeit to horse racing...bet on the favourite at short odds & there's a very good chance it'll win or be in the top 3 (category 2) or try to back a long-odds horse at 30:1 or 50:1 & 8 out of 10 times it won't make the top 3 or 5 finish, but if it does win, you've won big. Categories 1 or 2 seems like the safe bet.

Thoughts???
 
Why capital gains?

Most of my evil plans at the moment revolve around getting as high a positive gearing as possible, which you can do in the odd place where prices are relatively low and rents are tight and high. Capital gains would be nice but we're strictly after income at this point, have extremely firm goals and don't have any crazy long-term ideas about wild capital gains.
 
Ryder has no clue what he's talking about in terms of predictions.
He was advocating people buy CIP for 1-2% extra yield over resi just before the market died.
I'd like to ask him how much CIP he bought in Sydney when he put that article in API.
 
Ryder has no clue what he's talking about in terms of predictions.
He was advocating people buy CIP for 1-2% extra yield over resi just before the market died.
I'd like to ask him how much CIP he bought in Sydney when he put that article in API.

No allengiance, connections or anything like that to Ryder, but does getting 1 thing wrong really mean he has no clue about anything?
 
It mean the street garbage man has the same chance of him to predict which suburbs are going to boom.
Even though I'd put my money on the garbage man's picks.
More "on the ground" feel for the the area.
 
Why capital gains?

Most of my evil plans at the moment revolve around getting as high a positive gearing as possible, which you can do in the odd place where prices are relatively low and rents are tight and high. Capital gains would be nice but we're strictly after income at this point, have extremely firm goals and don't have any crazy long-term ideas about wild capital gains.

My thoughts and plans exactly.

I aim for income, positive income and passive income - and i view capital gains as a bonus. I don't plan for capital gains as i plan for regular positive income.

With a positive income from properties, i can then aim to reduce my workload. That is my goal.


thanks


g
 
I tend to agree with GG and rumpled elf.
I have been looking for a second IP at the moment - just researching the market. I see in places further out of town or in less desirable areas there are properties that arent too far from being c/f neutral (that is including rates, insurance etc) on an IO loan. Exluding expenses they are already cf neutral.
So in a few years time after rent has gone up, they will start to be a positive income source and that income will increase over time. Having said that as interest rates are probably going to go up by a few more percent over time that will affect how quickly they become c/f positive.

Versus other properties I have looked at in areas which I think stand to have good capital growth but the yield is quite a bit lower. That means I would have to wait a long time to see any income.

And having said that, even in crappier areas you still get capital gains just maybe 5% less or something (e.g. when bluer chip suburbs were doing 18% a few yrs ago the crappier ones were still doing 13%) but there is still constant capital growth.

So for me it is really about finding something that is as close to cf + as possible and that brings in income sooner rather than later. Of course also if they are cf+ quicker means you can buy another one quicker which will also give you income down the track.
 
My thoughts and plans exactly.

I aim for income, positive income and passive income - and i view capital gains as a bonus. I don't plan for capital gains as i plan for regular positive income.

With a positive income from properties, i can then aim to reduce my workload. That is my goal.


thanks


g

You do that by going to established suburbs to find bargains. That way you're poised for the cpt gains and getting enormously positively geared.
 
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