i was asked a very pertinant and thought provoking question the other day: "would you have been better of financially if you had done nothing for the last 4 years?"
ie, kept the rentals we had in hand then, not sold any and not bought any new ones.
and to cast the mind back to where we were in 2003 i had to honestly answer "yes".
if we hadn't sold, we would currently have 3 cashflow neutral investment properties worth $820,000 with equity of $420,00 (keeping the unmortgaged ppor out of this) and shares of around $120,000. we probably would have had even more because our cashflow would have been much healthier than what it is now.
currently (again keeping ppor out of calcs) we have 7 ips (had 11 but sold some last year) worth around $2.2mil with equity of only around $250,000 in total (due to falling prices and compounding interest) and shares of $10,000.
the ppor is keeping us afloat.
what a mess. how did we get here?
well, i have been reading some of my vast investing library and getting right back to basics. goodness, i made some really stupid elemental mistakes. revisiting the basics has been great "food for thought" and i thought i would post here to warn, discuss and hopefully teach others for when the next boom hits.
where did we go wrong? well, i didn't follow the basic principals (as outlined by peter spann in $10mil worth of property in 10 years). some of the below is peter's, some is mine:
buy uniqueness - people want to live in community of "like" people yet still feel unique. buy something that people want to live in that is similar to everything around it but has a uniquely desirable aspect - ie, view, transport, large yard, better parking etc ... nope, bought in desirable areas but didn't buy "unique" properties.
buy value adding - this means something that is strucutrally sound and only requires a polish. cosmetic makeovers only. ie, remove the purple shag and sand the floors ... didn't follow this one - went for total bulldoze properties or older properties that didn't need anything done.
buy what people moving into that area want at that stage of their life. something that they would be proud to show off to their friends ... okay, we did not so good on this one. for our "white elephant" rebuild we built something that was a modern spec home and would fit on the block. instead we should have gone smaller, architect design, specialist builder and uber-trendy as the house takes up to much outdoor space. it is a very lovely mcmansion - but in a trendy eat street area - so better suited to the suburbs than where it currently is. we have had a lot of trouble selling this, and now i understand why.
follow the money - aim to buy something in an area which is growing but not overheated. how do you find out if the area is overheated? look at the stats. in a growth cycle that takes 7 years there will be:
3 years flat
1 years small growth
1 year medium growth
1 year high growth
1 year declining growth
start again
peter spann did have that the cycle would be 6 years and there would only be 2 years flat and 1 year declining, but recent figures of the last boom indicate otherwise - anyhow, you need to look at the stats and buy in the year of small growth, when it is coming off the flat ... we bombed sold in the year of medium growth and bought at the end of the high growth year. so we've had basically 3 years of static growth and are looking forward to at least another 1 before getting any return.
emotion has no place in investing ... damn. failed that miserably. i got so excited about the massive growth going on around that i jumped in and bought at any price, thinking i was going to keep riding up and i would improve the properties and sell. unfortunately the rollercoaster came off the rails shortly after. the figures didn't add up as buy and holds, but i felt i was forced into a position to hold - in hindsight i should have sold there and then instead of hanging out for a higher price. all i got was higher interest repayments instead.
know your end goal - very clearly and defined (no emotion allowed here either) so that you get your structure correct from the start ... a lack of a specific end goal lead us (me) to dabble in various areas - wraps, rebuilds etc - which weren't terribly profitable. if we had stuck to what we knew, and had been profitable at in the past - buy large blocks with a good but cheap house, put on another good but cheap house, subdivide and rent both - sometimes sell the older house - we would've been in a much stronger position today.
and, because i wasn't clear in our goals, the accountant at the time set us up in a structure that has since cost us very dearly. i know i have vented regarding him in the past but, in distant hindsight, when it comes down to it the fault was ours for not being clear on our objectives (because we weren't clear to ourselves and therefore the accountant) and emotion got involved again.
set up your structure for optimum tax minimisation. comes back to goals.
we listened to too many "advisors" who weren't into the type of property investing that we had profitably been doing - and hence being distracted by their goals, structure and passions. comes back to knowing your own end goal and how to get there - and don't be distracted by the "latest" thing.
anyhow - i have learnt immensely over the last boom and bust. the first i have been fully involved in as only caught the tail end of the early 1990's scenario as a ppor owner, and didn't start learning about property investing until after 2000.
now if i can only keep the head afloat for the short term - having revised the basics the next boom will be sensational for us. (facts and figures only - no emotion allowed!)
what else has everyone learnt that they wish to share?
ie, kept the rentals we had in hand then, not sold any and not bought any new ones.
and to cast the mind back to where we were in 2003 i had to honestly answer "yes".
if we hadn't sold, we would currently have 3 cashflow neutral investment properties worth $820,000 with equity of $420,00 (keeping the unmortgaged ppor out of this) and shares of around $120,000. we probably would have had even more because our cashflow would have been much healthier than what it is now.
currently (again keeping ppor out of calcs) we have 7 ips (had 11 but sold some last year) worth around $2.2mil with equity of only around $250,000 in total (due to falling prices and compounding interest) and shares of $10,000.
the ppor is keeping us afloat.
what a mess. how did we get here?
well, i have been reading some of my vast investing library and getting right back to basics. goodness, i made some really stupid elemental mistakes. revisiting the basics has been great "food for thought" and i thought i would post here to warn, discuss and hopefully teach others for when the next boom hits.
where did we go wrong? well, i didn't follow the basic principals (as outlined by peter spann in $10mil worth of property in 10 years). some of the below is peter's, some is mine:
buy uniqueness - people want to live in community of "like" people yet still feel unique. buy something that people want to live in that is similar to everything around it but has a uniquely desirable aspect - ie, view, transport, large yard, better parking etc ... nope, bought in desirable areas but didn't buy "unique" properties.
buy value adding - this means something that is strucutrally sound and only requires a polish. cosmetic makeovers only. ie, remove the purple shag and sand the floors ... didn't follow this one - went for total bulldoze properties or older properties that didn't need anything done.
buy what people moving into that area want at that stage of their life. something that they would be proud to show off to their friends ... okay, we did not so good on this one. for our "white elephant" rebuild we built something that was a modern spec home and would fit on the block. instead we should have gone smaller, architect design, specialist builder and uber-trendy as the house takes up to much outdoor space. it is a very lovely mcmansion - but in a trendy eat street area - so better suited to the suburbs than where it currently is. we have had a lot of trouble selling this, and now i understand why.
follow the money - aim to buy something in an area which is growing but not overheated. how do you find out if the area is overheated? look at the stats. in a growth cycle that takes 7 years there will be:
3 years flat
1 years small growth
1 year medium growth
1 year high growth
1 year declining growth
start again
peter spann did have that the cycle would be 6 years and there would only be 2 years flat and 1 year declining, but recent figures of the last boom indicate otherwise - anyhow, you need to look at the stats and buy in the year of small growth, when it is coming off the flat ... we bombed sold in the year of medium growth and bought at the end of the high growth year. so we've had basically 3 years of static growth and are looking forward to at least another 1 before getting any return.
emotion has no place in investing ... damn. failed that miserably. i got so excited about the massive growth going on around that i jumped in and bought at any price, thinking i was going to keep riding up and i would improve the properties and sell. unfortunately the rollercoaster came off the rails shortly after. the figures didn't add up as buy and holds, but i felt i was forced into a position to hold - in hindsight i should have sold there and then instead of hanging out for a higher price. all i got was higher interest repayments instead.
know your end goal - very clearly and defined (no emotion allowed here either) so that you get your structure correct from the start ... a lack of a specific end goal lead us (me) to dabble in various areas - wraps, rebuilds etc - which weren't terribly profitable. if we had stuck to what we knew, and had been profitable at in the past - buy large blocks with a good but cheap house, put on another good but cheap house, subdivide and rent both - sometimes sell the older house - we would've been in a much stronger position today.
and, because i wasn't clear in our goals, the accountant at the time set us up in a structure that has since cost us very dearly. i know i have vented regarding him in the past but, in distant hindsight, when it comes down to it the fault was ours for not being clear on our objectives (because we weren't clear to ourselves and therefore the accountant) and emotion got involved again.
set up your structure for optimum tax minimisation. comes back to goals.
we listened to too many "advisors" who weren't into the type of property investing that we had profitably been doing - and hence being distracted by their goals, structure and passions. comes back to knowing your own end goal and how to get there - and don't be distracted by the "latest" thing.
anyhow - i have learnt immensely over the last boom and bust. the first i have been fully involved in as only caught the tail end of the early 1990's scenario as a ppor owner, and didn't start learning about property investing until after 2000.
now if i can only keep the head afloat for the short term - having revised the basics the next boom will be sensational for us. (facts and figures only - no emotion allowed!)
what else has everyone learnt that they wish to share?
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...but have since sold one...so sitting on 10. I took the view that I would continue buying and never thought about selling....that is till I realised that one of my properties would be not move much in the next few years and the CGT would be less than 20k.
