Stepping up in your investing career...

[monalisa]

Hi all

We commenced investing in late 2009, and given our choices, and recent capital growth, we expect to have a total of 10 properties in not so distant future - so far all properties have been acquired in Sydney. We may purchase in Brisbane or purchase a dev site we have our eyes on in Sydney. We are also looking to build our PPOR.

With each property acquisition, our strategy has evolved. So far the focus has been purchasing in Sydney - to facilitate in increasing our capital base.

Whilst we would like to continue acquiring properties with potential for growth, I am thinking it is time to balance the portfolio with cash flow positive properties. Our properties currently cost nothing to hold after tax - so I am talking about acquiring properties/investments which will help us not rely on paid employment.

I am thinking we have the following choices (but not limited to):

(a) Buying houses on big lots, build another at the back;
(b) subdivisions
(c) commercial

I am not a proponent of building a granny flats - I may buy a house along with a granny flat, but I won't go out of my way to build one - I see it as $100K of dead money - this option may give cash flow, however, val's don't stack up from a number of discussions I have had experienced investors.

I am keen to hear from those who have previously successfully built their foundation portfolios, and been at this stage in their investing careers. What did you focus on at this stage of your investing career? Do we continue acquiring capital growth properties in markets other than Sydney (we are able to sustain some negative cash flow if we are able to have more growth).

I would classify MsAli and I as professional investors - living and breathing real estate - this is what I want to do full time once cash flows from investments is sufficient for us to choose to not work for someone else!

Thanks
Monalisa

 

[Deltaberry]

That's right. I think what you've purchased to date have probably given you decent capital growth and helped you save.

However, the yield, from market value (not your entry value) is now probably low. As such, depending on your risk appetite, you could liquidate the assets, take the tax hit, realise the capital growth and purchase something on solid rent, solid prospects, and minimal headaches.

Depending on your risk appetite, CBD or inner city freehold commercial may be something worth looking at.

The added advantage is also no more repairs or fixing a bursting toilet (unlike residential), long-term tenants (potentially), big bonds (6 months), the law is more on your side if anything goes wrong.

The downside is, you may have to sell multiple properties just to get one - so you may take an ego hit, but would it matter if it means you're genuinely free?

 

[MsAli]

Thanks for the input guys. Thinking we should wait for a bit more equity growth. To be honest I'm not a proponent of selling the foundation portfolio. However, would rather chose equity to step into commercial, once enough...

I was actually thinking may be we should double this portfolio in capital cities before going to commercial...

A bit to think about. Our end game is pretty open ended. We don't have a set $$ value on income. I like to keep re-evaluating and don't want to settle for less. But might be time to set some milestones now...We definitely want 2 x our current incomes to be the bare minimum. As well as, we want to eventually step into business and a potentially a career in public speaking...which we'd enjoy heaps more than working in corporate.

 

[beachgurl]

We've taken the approach that we have enough long term investments for now and we are working toward getting an increase in cash flow from short term property holds. While doing suburban flips doesn't create a lot of cash, the education from doing so could allow us to progress to structural renovations closer to the city which could provide us with 6 figure profits per reno. The idea is then to pay down some of the IP debt without having to sell any of the portfolio.

Bit of a baby steps attitude and may seem backward to some, as the selling costs and CGT significantly eat into any equity/profit but for us it's a way to start semi-retirement and whether I do need to go back to "real" employment when the kids are a bit older or if this is the start of being a professional investor.

 

[westminster]

Well I skipped foundation properties and started at developing - well I did do one House and Land when I was 23 if that counts as foundation.

Strangely that was due to my risk aversion. It may sound strange to jump into 'riskier' developing but in my head it was less risky as I was manufacturing growth and yield and not relying so much on market forces for growth.

I agree with Dazz's step that you might like to look at better areas and higher $$ properties. Not too high that they don't have good yield but closer to CBD etc.

 

[Singo]

Buying bigger lots, subdividing and building would increase the cash flow. Retain and build would be ideal or 3+ unit sites.

Edit: Westminster have elaborated and MTR may say the same!

 

[sanj]

Well I skipped foundation properties and started at developing - well I did do one House and Land when I was 23 if that counts as foundation.

Strangely that was due to my risk aversion. It may sound strange to jump into 'riskier' developing but in my head it was less risky as I was manufacturing growth and yield and not relying so much on market forces for growth.

I agree with Dazz's step that you might like to look at better areas and higher $$ properties. Not too high that they don't have good yield but closer to CBD etc.

i happen to agree with you. for me buy and holds are in a lot of ways riskier than developments. some people like MTR certainly make it work, she has an innate ability to pick and time investmentns but simply buying and hoping for the best (which most ppl seem to do) doesnt sit well with me

 

[TPI]

I've stopped buying residential property and now focus mainly on shares, but do have a soft spot for commercial property.

If you love property and have the equity as well as sufficient income in your job/business to start a commercial property portfolio (and convince banks to lend you more money for this purpose) then I would do this.

If you're happy to be more active and do developments, then I still think commercial property would be more worthwhile in the long-term, but it would probably be easier to do this with residential property due to the higher leverage you can access here.

 

[TMNT]

whats a professional investor?

 

[devank]

'commercial property' seems to be the answer coming from experienced property investors.... but where/how do you get started?

My plan is to buy houses with large land till age 55 to the value of say 4-5 mil (~ 12 IPs) . When the work force doesn't want me anymore (say by age 55) then start developing one by one.

 

[TMNT]

yes commecial property seems to be the common theme?

you have generally higher yields, longer leases/tenants, usually higher demand, usually better paying tenants

on teh flip side, vacancies might be higher, pricing point it higher (some would say thats a pro), LVR is lower

And i assume better CG

however I still love my resi property, so much easier I think to add value

 

[TPI]

yes commecial property seems to be the common theme?

Perhaps, but I think ultimately you have to do what suits you the best and that you understand the most, and also in the context of your financial means.

For many people with modest amounts of equity built up over time and modest incomes, commercial property may be an unrealistic option, and they may be better off focusing on shares or actively developing residential property instead.

 

[devank]

you have generally higher yields, longer leases/tenants, usually higher demand, usually better paying tenants

on teh flip side, vacancies might be higher, pricing point it higher (some would say thats a pro), LVR is lower

Maybe that is why commercials become more attractive when you get older (asset rich but cash poor).

 

[westminster]

yes commecial property seems to be the common theme?

you have generally higher yields, longer leases/tenants, usually higher demand, usually better paying tenants

on teh flip side, vacancies might be higher, pricing point it higher (some would say thats a pro), LVR is lower

And i assume better CG

however I still love my resi property, so much easier I think to add value

I'm not sure I'll ever go commercial. I don't have the passion for it but that may change as I grow older and want more passive, less active income.

For now I love the thrill of the chase (finding the deal), designing the solution, watching it take place and finishing it.

DH does commercial so I'll leave it in his hands. His tenants seems to whinge more than my resi tenants though

 

[MsAli]

I think going into development first up really depends on if you have oodles of cash. Majority of the people starting young do need to build a foundation and that comes from buy and hold, regardless of the type of dwelling you buy. Value can be added in different ways inc cosmetic renos etc.

Development is on the cards. Our latest purchase is a dev site. And as monalisa said, have eyes on another one in Sydney.

I actually would like to learn more about commercial. I don't think commercial is as passive as people would like to believe.

 

[sanj]

I think going into development first up really depends on if you have oodles of cash. Majority of the people starting young do need to build a foundation and that comes from buy and hold, regardless of the type of dwelling you buy. Value can be added in different ways inc cosmetic renos etc.

I actually would like to learn more about commercial. I don't think commercial is as passive as people would like to believe.

not necessarily

i had around 80k for my first development and i had to buy a property and subdivide using that money. ended up getting a personal loan top up but total out of pocket cash was only around $110k including deposit, stamp duty, holding cost, subdivision costs etc. figures could be out slightly as this was a few years ago but are in the general ballpark

that isnt heaps and is why i chose a retain and subdivide first up

 

[MsAli]

not necessarily

i had around 80k for my first development

Yeh I didn't have that for my first IP

 

[Ace in the Hole]

whats a professional investor?

I believe that would be someone who generates their income via investments.

 

[willair]

whats a professional investor?

The only simple way to look at that question and their measure of personal self made success is how much free time you have to do nothing..

 

[MsAli]

Now you have something to shoot for. One small tenanted comm. property should do the job comfortably. Hop to it.

Wow...got something to think about there Thanks Dazz. But how do you know what we earn

Also are we talking "net"