Is less sometimes more?

[want2bewealthy]

I got to thinking today that fewer IP's, could mean a larger profit in the right light.

I notice that some investors strategies are to buy up as much as possible and maximise debt, while Im certainly not against this, Its not my first choice, others are to buy fewer, quality properties, use offset accounts to reduce repayments and then buy more when comfortable with smaller loans [bigger deposits [the second being my priority even though Im only new to the game]

I know that bigger deposits are always a good idea, though sometimes not necessary if the right property comes along at the right time and price [inflation plays a big part here also]

It seems such a debatable issue, what are your thoughts on the matter?
Im willing to bet that most will agree on the "more debt is always better" side.

 

[Ricardo29]

less is better for me. i dont like the oft quoted theory of "diversification" in investing. find what you do, and do it well in a concentrated manner.

 

[The Y-man]

For me:

Having a lot of debt when the market collapses/interest hikes big time - is bad news.

But when markets are rocketing up, you equity is simultaneously rocketing up, and I have the urge to gear up on that ride.

Trying to figure out where to jump off, is now the biggest challenge!

Cheers,

The Y-man

 

[BayView]

less is better for me. i dont like the oft quoted theory of "diversification" in investing. find what you do, and do it well in a concentrated manner.

I like Warren Buffet's quote on the diversification issue:
"Put all your eggs in one basket and watch that basket very, very carefully".

 

[keithj]

I see diversification as a 'free lunch'.
Shares, IP & LPTs all return 12-14% over the long term, so why not invest in all of them. Syd & Perth & Melb IP all return 7-10% over the long term - why not get IP everywhere.
Buffets no diversification has worked for him, however he's a v. unusual guy. Henry Ford said something similar when there were 100+ car makers listed on the US stock market - how many survived ?
By not diversifying you risk things outside your control reducing your returns.... like flightpaths, nuclear power stations, rising sea levels, changes in development rules.

 

[alexlee]

I go for as much debt as possible (since that usually implies I have more gross assets that grow) BUT within my own risk criteria. That means I have a limit on how negative I let my cashflow become.

I still think you should think more about LVRs than absolute values. Is $2m debt on a $4m portfolio riskier than $1m debt on a $1m portfolio? I don't think so. My dollar debt has gone up but my LVR has been decreasing. That means my risk is decreasing.

I don't always subscribe to 'debt is bad when the market crashes'. If you can keep servicing the debt, there is a chance you might survive. If you really think rates are going to go crazy, fix your rates.
Alex

 

[willair]

I got to thinking today that fewer IP's, could mean a larger profit in the right light.

I notice that some investors strategies are to buy up as much as possible and maximise debt, while Im certainly not against this, Its not my first choice, others are to buy fewer, quality properties,

I do think if you look at everyones investment strategy in this site you will
find they are all different,to some massive Debt is not a problem and that
would depend on the age,income,family,and Tax,and backup you have in
place and as long as low interest rates stay in place i dont see any
problems,unless Australia votes out the government and Labor comes
into power ,all you have to do is ask the question can you hold everything if the
rates go above 10%,for me at my age i don't like debt, property over the
past 15 years has returned above 14%, the equities markets are above
30% for the past 4 years,even with all the bumps in the road like the
equities markets will go through this morning, just another day..
But i know for a fact that upmarket inner city Brisbane land near the river is now priceless..
willair...

 

[steveadl]

At this stage in my life I'm going for as much debt as absolutely possible As soon as they bank will let me, I borrow more

I've currently got the income to cover all the loan shortfalls. Still young too, so if anything changes, I can still change the strategy.

 

[WillG]

Risk is always relative.

I would be comfortable having an 80% LVR on 'older average houses' but wouldn't be as comfortable with an LVR of 80% on newer houses or units.
Having said that ... I don't aim for a portfolio that is highly cashflow negative and reliant on tax benefits.

LVR is only one part of the equation

 

[VYBerlinaV8]

I look at things more in terms of total investment and total return. I look at individual properties only to ensure each part of the portfolio is performing acceptably.

Although my goals are described in terms of number of IPs, it's more about total equity position, and return on that position. Having a target number just helps to define the steps needed to reach the goal.