LOE Model

[Dazz]

LOR might be great if you're portfolio is commercial IPs, AND you have them all rented.

Yeah it is - as I said before, it's fabbo. You only need a few - or even just one good renter - to carry you thru.

the "risk" with CIP is loss of tenants and the long vacancies periods that can ensue in a downturn.

...or so I've read in books from residential advocates and authors....

I kick myself for swallowing that line as well for about 10 years, especially from Jan's books. It cost me many millions of dollars to blindly believe it, without testing the theory.

I admit in a boom economy like Perth the risks are possibly less, but in the "rest of the world" these risks are real and can wipe you out.

I'd say Perth is no different from any other market. I'd say it has far more to do with the quality of the investor's mind behind the investment than the dirt and bricks, and where they are.

If your portfolio is all resi IPs, you will need many, many years to achieve LOR IMO. If you think you have an XL spreadsheet that dis-proves this, feel free to PM me.

I agree. I'd say many many years as well. I gave it up as a bad joke, so I definitely don't have an XLS saying otherwise.

This forum is supposedly the cream of property investors in Oz, and I can only think of less than a handful of very very long term investors who actually live off their investments. The vast majority all look after their investments, instead of the other way around.

I'm all resi & LOE and very happy with that situation.

If that is the case sir, then good luck to you, and best wishes for the future. As I mentioned before, you are at the mercy of your Valuer and your Banker, both of which must say yes before you continue down that path.

 

[VYBerlinaV8]

This forum is supposedly the cream of property investors in Oz, and I can only think of less than a handful of very very long term investors who actually live off their investments. The vast majority all look after their investments, instead of the other way around.

It's probably worth remembering that most individual property investors are firmly in the camp of 'amateur investors' - I know I sure am. To genuinely live well off investments alone will take most of us a couple of decades at least, and it seems to me many of us on this forum haven't been at it that long (although a few have).

Of course, there are some very smart people that post here, and I suspect some of them are at the point of being able to live of their investments without working.

 

[yadreamin]

want2bewealthy congrats on reaching a big goal and so early on, and as for quitting your job that sure was a biggy if only for a week
we all have to find our mark so to speak and if you are fit and healthy and not a couch potatoe then a job is pretty handy to have.
Where l work [4hrs a day] there is a lot of retirees and all pretty active and they are bored to tears most of the time. They have very busy days trying to find something to do and they end up very dis satified in everything.
You will probably retire 3 or 4 times in the next 10 years, till you find your mark.
keep at it and enjoy
cheers

 

[chrispy]

I have left the paid workforce a number of times and LOR. If a job offer came along that I fancied I would take it. Now, I am more interested in various other pursuits.

LOR can be done, I am proof of that, and yes I have been in the market a long time. I can do what I want, when I want, so although it takes a while to get here, I am very glad I made the journey, I just wish my husband was alive to see what we worked for and had been able to get the benefit.

Remember to enjoy the road along the way

Chris

 

[BayView]

This forum is supposedly the cream of property investors in Oz

I wouldn't reckon we are. I'd say we are a few of the very keen ones, who also were lucky to find this forum.

I know some very, very wealthy people in Vic - all through their own businesses.

But, they also invest in things like blocks of units, dabble in shares a bit.

None of them come on here.

Not that they wouldn't, but they have various other things to occupy their time, and their property pursuits are probably not the major factor - not their main interest.

Property isn't my main interest either now; I'm going down the businesses path first, property second. I can see that a business will deliver immediate useable cashflow returns of a high order while property doesn't.

But I found this place when I needed education and needed an interest and some people that are on the same wavelength as me.

 

[wylie]

This forum is supposedly the cream of property investors in Oz......

Where on earth did you get this idea?

 

[landlubber]

and well done I say !!

As I mentioned before, you are at the mercy of your Valuer and your Banker, both of which must say yes before you continue down that path.

And if you're honest with yourself Dazz, ultimately, if the faeces hits the fan, so are you ( unless you own your properties free & clear). We've all made hay while the sunshines, And that's the right time to make hay. That's for sure. And that certainly applies to Perth which has benefited more than anywhere from the mining boom. Well done !! But I remember the early 90s when you just could not lease CIPs and you couldn't sell them either for cents on the dollar. The "For Lease" signs were many & well weathered. As you would be aware, the value of a CIP depends greatly on the yield and when the yield is "zero" ... the valuer and the banker are not far away. I sincerely hope you never face these conditions. Because they can wipe you out. Like I said, not if you own outright, but very few do.

I could go on, but suffice to say, I don't question that CIP has real benefits, but I also think RESI is a "better ship" for the rough weather that inevitably does come.
LL
PS ..and I detest reading those dam long leases !!

 

[Dazz]

And if you're honest with yourself Dazz, ultimately, if the faeces hits the fan, so are you

Yes indeed, I am totally at the mercy of my Lenders. The subtle difference is, I am only asking them to support the properties themselves....I'm not asking them to support the properties and our lifestyle. With the detailed questioning nowadays before they grant a loan, it'll definitely come out in the wash.


I broached the subject of LOE about 3 years ago to one of my Bankers. The appreciation rate required was something like 0.2%. He hit the roof. Hell rained down for about 3 months and I had to do some quick sidestep shuffling to dodge that onslaught. Never again. They will support LOR. They despise LOE. At least, that has been my experience.

I remember the early 90s when you just could not lease CIPs and you couldn't sell them either for cents on the dollar. The "For Lease" signs were many & well weathered. As you would be aware, the value of a CIP depends greatly on the yield and when the yield is "zero" ... the valuer and the banker are not far away.

Not so much a drama for us LL. Most of our stuff is falling down rusty old sheds. The infrastructure on it is worth about 10c. All of the value is in the land content. Our Tenants like big elbow room, for swinging B-doubles around and big cranes etc. The properties are still worth oodles even when empty.

I don't question that CIP has real benefits, but I also think RESI is a "better ship" for the rough weather that inevitably does come.

Indeed, I think this is where our opinions differ, and hence our different investing paths diverge. I guess we'll see how those paths perform as time ticks by. Both might "do well", but I'm not interested in just "doing well".

PS ..and I detest reading those dam long leases !!

Yes, I can see how people might view them as being cumbersome. When you get into the nitty gritty and start writing them, you tend to wake up fairly quickly. It helps copying the Banks, they have been good teachers to me. I pop all the nasty stuff on about page 87. By then, most have well and truly fallen asleep. hahahaha. Leave the execution page to about page 216, and most simply skip to that.

 

[Dazz]

LOR can be done, I am proof of that, and yes I have been in the market a long time.

Yes Chris, you were one of the very few whom I was referring to.

 

[landlubber]

Yes indeed, I am totally at the mercy of my Lenders. The subtle difference is, I am only asking them to support the properties themselves....I'm not asking them to support the properties and our lifestyle.

I think you're splitting hairs on that one. If one loses tenants/rents with CIP, you lose your income, you then lose your valuations due to "zip" yield (even with rusty sheds/land), you lose your lifestyle...and you can lose all your hard work. With Resi, if you lose tenants/rents, you just drop the rent $20 and problem solved.

I broached the subject of LOE about 3 years ago to one of my Bankers. Hell rained down for about 3 months and I had to do some quick sidestep shuffling to dodge that onslaught. Never again.

That's because (disregarding other factors like gearing levels) your assets are CIPs. Not resi. They know how volatile the CIP values are when the economic downturn comes.

Indeed, I think this is where our opinions differ, and hence our different investing paths diverge. I guess we'll see how those paths perform as time ticks by. Both might "do well", but I'm not interested in just "doing well".

I think we all want to "do better" and for each of us the journey is different... but we all share the same end.
Happy investing !!
LL

 

[Dazz]

I think you're splitting hairs on that one. If one loses tenants/rents with CIP, you lose your income, you then lose your valuations due to "zip" yield (even with rusty sheds/land), you lose your lifestyle...and you can lose all your hard work. With Resi, if you lose tenants/rents, you just drop the rent $20 and problem solved.

Not at all LL. Your generalisations do you and others reading this no favour whatseover. I'm happy for the folk to believe whatever they will. The property authors have the same opinion as yourself. I'm happy for others to run with it as well.


What you write about however, we have no experienced of as yet. It's only been six years we've been in this game, but we've had now 34 "lease-years" of experience on which to draw upon.


In that time, we have only had two Tenants leave.

The first went bankrupt, after being in the place for 2 years. I was getting not alot pa gross rent for a year before he moved in. He paid us alot more nett rent. It took 2 months to find another Tenant when he left. The new guys have been in there for 3 years now, initially on heaps, and are now paying us heaps plus quite a bit more nett. Couldn't be happier that the old company went bankrupt. It doesn't happen by us sitting on the sidelines twiddling our thumbs - you have to work it and negotiate hard. We weren't lucky.


The second mob decided to leave at Xmas last year after renting the place for over 37 years straight. What a run. The only reason they left was a big wheel, after buying the company told them that 11 branches in the state was too much, cut it back to 9, get rid of two. Ours was one of the two chosen. They were paying us decent nett rent. They spent buku cleaning our place up like a new penny. They left on a Wednesday evening at 5pm and handed me the keys back. End of an era we all said. I was standing there at 8am the next morning, handing the keys to new Tenants who had signed up for quite a few years at lots more nett rent. You bewdy. Wish the old mob had left earlier. We weren't lucky.


I don't fear vacancies anymore LL. The bogeyman has been squashed. I fully encourage them to bugger off, especially from Tenants who are paying under market rent.


As for the rest, the great Tenants on long long Leases simply keep chugging away. They are the ones that will carry us thru any rough patches.


We haven't lost our rents.

We haven't lost our values.

We haven't lost our lifestyle.

We haven't lost all of our hard work.

We haven't dropped the rent $ 20 pw.

 

[landlubber]

..but we have had the wind at our back ...

All noted & well done. But ....you must admit we've sure had the "wind at our back" through all this. And especially so for CIP in Perth. The largest resources boom in our history coupled with an overall positive (and low IR) economic climate. But, but , but .... we haven't been tested yet. Since the "recession that we had to have" in the early 90's, none of us has had "the blow torch to our bellies". This has been easy street. Drover's dog stuff !!

After we survive a deep, protracted downturn ...ONLY then we can all crow about our abilities as investors ... rent collectors ...and, hopefully, survivors !!
LL

 

[Dazz]

No I don't admit that at all Landlubber.

I take full responsibility for my failures and full credit for my successes.

I don't blame my good fortune on luck or external factors, and I don't blame my bad fortune on others or external factors.

Piffle to the "Drover's Dog analogy". That is demeaning to someone who got off their behind and had a go.

I'm not interested in 'deep protracted downturns'....you maybe but I am not. I'll beaver away working on my title deeds, my mortgage contracts and lease documents, and you can study the global economy and macro Keating stuff. It doesn't interest me in the slightest.

 

[landlubber]

Nobody is ...

I'm not interested in 'deep protracted downturns'....

Dazz, I've never met anybody who was ... until they arrive. They're like that !
LL

 

[random]

I like it. It's very close to my idea of buy a property every 3 years.
After 15 years you have 5 properties.
Then buy another and sell the first property.
Repeat every 3 years.

It gives you an income of 15 years growth every 3 years.

If you bought in 1985 for $100k, it would conservativly be worth about $300k now. That would give a net return after costs and CGT of $153k or about $1000 pw after tax. Property growth has actually been far greater than this really, but I am being consevative.

Of course future groth may slow, but with a 15 year window, booms and busts iron themselves out.

This was also my exact strategy , after I turned around at 40 after losing everything . It is fool proof imo and can also easily be sped up by 5 or 10 yrs just by throwing a few reno's into the first few buys equation .
My first problem was though , in losing everything and having to start again , I've had a lot of trouble financing which has held up the show enormously and really had of I had been able to finance all deals on the day , in only 5 yrs I'd easily had gone from flat broke to quite a wealthy man and of as much leisure as I could handle .
As it is I've still got a couple of yrs to go , which will make it roughly 10 yrs, because I just haven't been able to get those one off's at the time but then , I'll be as free as a bird .

Cheers

 

[Dazz]

I'm sure you'll let me know when one comes around the corner, but once again, your general assumption that a deep protracted downturn will automatically affect my individual situation is not agreed to.


The reason I like to do business with multi-billion dollar companies on long Leases is the fact they have the horsepower and momentum to get through the bog holes, that automatically pull up the little families on their tricycles. My rent is a trifling to them.

....in the meantime, I'll keep doing what I'm doing.....

 

[Pete]

Bravo & thank you, Dazz. Inspiring many, I'm sure. regards

 

[alexlee]

Dazz, I've never met anybody who was ... until they arrive. They're like that !
LL

Don't you think this conversation resembles the ones where people tell resi IP investors that they're going to be killed by the coming high interest rates and price crashes?

 

[Pete]

These 'people' are non-investors, right?

 

[BayView]

These 'people' are non-investors, right?

Either that, or they are arm chair investors who are all studies and graphs with no runs on the board, or they are bitter and twisted share investors who were creamed in the GFC and other market slumps.