Is Buy and Hold still a good strategy

[Merovingian]

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

I agree: If one was to not buy property for the next few years due to stagnant projected growth, perhaps simply using a high interest bank account to save for the next deposit would be a better idea. Therefore, when the next upswing occurs, or is projected to occur soon, you're already cashed up, and ready to make an informed decision, and most importantly, are in a good stead to follow through with a decision.

Hence, in my mind, when a market is flat, building up some cash somehow, (high interest account or even LCPTs through capital gain and re-invested dividends), would be the best preparation for the next boom or given opportunity.

Just my naïve $0.02...

 

[WillG]

Hi Panic & keithj,

Thanks for the responses. I understand where you are coming from.

As property is my favorite investment (mainly because I can manage the risks), I may have to resort to keeping my extra $$'s in my 100% offset account. At least it saves me 7% interest at zero risk, keeps it liquid and it's not taxed.

Thanks

 

[MichaelW]

As property is my favorite investment (mainly because I can manage the risks), I may have to resort to keeping my extra $$'s in my 100% offset account. At least it saves me 7% interest at zero risk, keeps it liquid and it's not taxed.

WillG,

I too know where you're coming from. The risk is, though, that if you are always trying to "predict" the market then you will never enter the market. I think you can still buy well in any market and let the long term take care of itself.

Look to lock in some immediate gains on the buy, and buy well in the right postcode. There's always postcodes that buck the trend. Then you can still go up in a sliding or stagnant market.

This way you're in and in heavy when the market eventually turns North in earnest.

Just another pespective of course,
Michael.

 

[XBenX]

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.

And that, is why I both love and hate perfect mobility of capital...

 

[NigelW]

Hi WillG,

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

One point to bear in mind is that the LPT's are somewhat different these days from what they used to be...no longer are they solid, boring, great rental streams...some now have, through stapling, an element of development risk...great whilst the market was going up...a risk item when the market is flat to negative.

I have to say that I reckon you're much better to take a punt on some of the better and long established LIC's like AFIC and Argo than accept a consistent, but slightly below the relevant index performance from an index tracking fund...

If history is anything to go by, the big LICs have consistently outperformed and have a very low fee structure...

Cheers
N.

 

[keithj]

I too know where you're coming from. The risk is, though, that if you are always trying to "predict" the market then you will never enter the market. I think you can still buy well in any market and let the long term take care of itself.

Look to lock in some immediate gains on the buy, and buy well in the right postcode. There's always postcodes that buck the trend. Then you can still go up in a sliding or stagnant market.

This way you're in and in heavy when the market eventually turns North in earnest.

Even if you score a bargain 10% (or even 20%) below 'market' today, it still ain't gonna grow much for 5 yrs. So on average you may make 20% in 5 yrs which is 4%pa - just beating inflation.

Why not consider waiting a couple of years and find a bargain then? Do you think there will be more or fewer bargains in 2-3 yrs ?

If it's a 5 yr wait till the next boom that's around 20% of most peoples total investing timeframe. If you put your money into an asset class that is counter cyclical to IP then it may stand a better chance of doubling in those 5 wasted(?) years.

 

[NigelW]

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).

I think this ignores the amplifying effect of leverage. Sure you have to manage your cashflow in the interim, but I'd rather have, for example, 4% per annum growth on $400,000 property costing a few thousand after tax with the chance that growth will accelerate down the track than have my $100,000 getting say 3% after tax and no growth potential...

because for sure when I next read in the papers that [insert name of city here] has had 15% growth in the last quarter...I've missed the boat on growth...

Seech makes a good point though...my thoughts are limited to buying in capital cities in historically strong suburbs. Taking a trading approach in regional areas or "bad" areas which have had ballistic growth and rolling that into shares or quality properties sounds like prudently reaping the rewards from a calculated risk...

Cheers
N.

 

[Peter 14.7]

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.

Cheers
BC

Yes, property is very unique in that it provides a very secure income and very secure ( long term ) capital growth. Shares provide an income and capital growth with the risk they could do a HIH.

Growth with income is more important to retiree as they are living longer and 10 year annunities and such obviouls lat only 10 years.

You can also reverse mortage a property and subject to your draw down verus growth actually hold your position.

Hi all

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.

Cheers
BC

Yes if you want to gain aproperty portfolio.

And because at 30c in the dollar when you sell capital gain will be only 15c in the dollar ( assuming you dont go over your threshold). If you sell when retired it willbe from 0 cents and up.

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

Super is better and for the average Joe that is all they will have in retirement. Thats why the gov is trying to fix it.

Owning (no debt) 10 properties by 65 is better than any super in my book.

Peter 147

 

[Simon]

Even if you score a bargain 10% (or even 20%) below 'market' today, it still ain't gonna grow much for 5 yrs. So on average you may make 20% in 5 yrs which is 4%pa - just beating inflation.

Have you a reference for these growth projections?

Ta

 

[keithj]

Have you a reference for these growth projections?

Ta

Hi Simon,

None whatsoever - it's all my v. own guess. I was continuing this from post #18 where I said

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.

Cheers,

Keith

 

[Merovingian]

If you put your money into an asset class that is counter cyclical to IP then it may stand a better chance of doubling in those 5 wasted(?) years.

I think we're starting to generalise about investment properties here. I assume that most references to "IP" implies "residential investment property".

So, perhaps one could consider industrial property or perhaps commercial property syndicates, whereby if they're chosen correctly, they will be counter cyclical to residential property.

Just chucking ideas out...

 

[Aceyducey]

Not only generalise, but to espouse opinions as fact.

It's the first step on the slippery scope to demagogy!

Yes buy & hold is still a good strategy. What you should buy and hold right now may vary from what you should have bought to hold in the past.

Cheers,

Aceyducey

 

[ralph wiggum]

It's the first step on the slippery scope to demagogy!

*Demagogue - person who wins support by appealing to popular feelings and prejudices.
Thanks Acey, I just learned a new word.

 

[see_change]

Michael

One thing to remember is that even well selected properties in good areas will go down during a down turn.

The top end of the market tends to go down further than the middle end.

From the previous peak in 89 to 94 ( when we bought our PPOR ) I saw a couple of examples of good positioned properties on the North shore drop by about 40 %.

That's not an issue if you don't need to sell, but you may find that when you revalue to increase a LOC , that it hasn't gone up.

I'm already watching an area where I want to buy in Sydney in the next cycle , it's centrally located ( by sydney standards) and has good fundamental reasons why it should increase in value, and it has gone down about 50 K for an average house in the last year to 18 months. If I see places selling at 40 - 50 % below the previous peak I'd probably start buying , but outside that I'll wait untill I see definite signs the market is moving up before buying.

An investor friend follows Newington ( previously promoted as one place to buy ) and he reports that prices have dropped there .

At this time I'd still be parking my money in an offset rather than actively buying in Sydney.

IMHO , if you watch the market closely , you can get a pretty good idea when the market is starting to move up consistently.

See Change

 

[MichaelW]

Seech,

I like where you're coming from. The more I think of it, the more I start to agree that holding off could do no real harm. So long as you're well positioned to move in earnest when you see the market start to strengthen again. My concern is primarily "missing the boat". I invest carefully and like to spend a fair bit of time selecting properties. If the market starts to turn, it will be a full 12 months later before I'll have my IP portfolio to the size that I want it to be. That's 12 months of lost growth, but I suppose that lost growth might be much less than the potential actual decay experienced if buying too early.

Just trying to get the timing right. In the interim I might park that cash in my PPOR offset, or even leverage in to Steve Navra's trading account. He seems to perform well even on a falling market given his DCT not DCA approach.

His fund is pretty liquid too so I can bail enough funds quickly when I need to start my IP purchase spurt.

Cheers,
Michael.

 

[see_change]

Seech,

My concern is primarily "missing the boat". I invest carefully and like to spend a fair bit of time selecting properties. If the market starts to turn, it will be a full 12 months later before I'll have my IP portfolio to the size that I want it to be. That's 12 months of lost growth, but I suppose that lost growth might be much less than the potential actual decay experienced if buying too early.

Cheers,
Michael.

Michael, I can understand your reasoning .

Part of the logic I'm applying to property is borrowed from the "trend following " style of share Technical Analysis and my observations over the last few years seem to confirm what I thought instintively.

The chances of picking the bottom and the top are pretty remote. My aim is to wait untill the trend is established and then jump on board and grab the main chunk of the trend.

The reality is when the market is going down , no one knows when it will start coming up. There may be signs that it could be changing but you don't know when the bottom is untill some time after.

I've also noticed the Property market doesn't change direction that quickly. While people can point to periods of rapid growth, if you look at what was happening before you will see that there had been a longer period of slower growth prior to the "manic " periods . Logan went ga ga in about four months in mid 2003, however prices had been going up more gradually in the 2-3 years prior to that.

Within the body of Vendors ( and Agents ) there is a different level of knowledge about what is happening in their own market. While some will know exactly what their property is worth , some will still be operating on values that may be 1-2 years behind. We sold our last PPOR in late 2001 ( Pymble ) and spent several months closely what was happening with sales and I picked and got a selling price that was 150 K above the highest price that any of the agents told us we could get.

In reverse we've just sold a property in logan for 20 K below what several agents told us we should get. We were repetedly told that we can get you $ xxx , but after several months on the market , I told them what I thought we should be asking , and it sold within two weeks. ( we still made a very nice profit ... )

See Change

 

[Sunfish]

Australia is no longer flavour of the month for hot international money. It is being pulled from both our stock market and mortgage market.

The D........ financing model would now be totally dead because they have missed their window of opportunity (ignoring other problems). The all ords has just flipped into the red today in spite of having a had shocker y'day and Wall St having a good night.

I'm thinking patience and preservation of capital are the orders of the day. We are beginning a period of asset deflation.

Thommo

 

[Aimjoy]

Michael

One thing to remember is that even well selected properties in good areas will go down during a down turn.

The top end of the market tends to go down further than the middle end.

See Change

mmmmmmmmmmm the "middle end"......sounds like Homer's advice to Marge when she was working a rubicks cube.
Spin the middle side topwise. Topwise!

Thanks for the laugh.
Aimjoy

 

[Panic]

Technical analyses

Seech,

My interests are very similar to yours. You are not Elder's student by any chance ?
Anyway, what type of technical analyses would you employ to outline the trend in the property market?
Do you have any enter/exit indicators besides the usual that you look at?
I also want to put some money in Sydney, but I'm looking into the mid-south area... have you done your analyses of this area and decided to go with central Sydney instead?

Thx
V

 

[Aceyducey]

Panic,

Are you aware that in shares technical analysis isn't anything of the kind

In property you want to look at the fundamentals!

Cheers,

Aceyducey