Stepping up in your investing career...

[sanj]

Yeh I didn't have that for my first IP

fair enough but a lot of people do by their 2nd IP if not the first. was just trying to point out that it isnt always the case that people need heaps to do a development, if youre creative it can be done on a lot less.


in this case it was also in 2009 or so when the market was extremely flat in perth, buy and holds were a waste of time in the majority of instances so there was a definite motivation to manufacture equity

 

[MsAli]

fair enough but a lot of people do by their 2nd IP if not the first. was just trying to point out that it isnt always the case that people need heaps to do a development, if youre creative it can be done on a lot less.

in this case it was also in 2009 or so when the market was extremely flat in perth, buy and holds were a waste of time in the majority of instances so there was a definite motivation to manufacture equity

Yeh horses for courses. Had various other priorities too. So had to balance out. And don't regret the path we took. Development is one of the routes, not the only one.

 

[sanj]

Yeh horses for courses. Had various other priorities too. So had to balance out. And don't regret the path we took. Development is one of the routes, not the only one.

agreed, my post was more of a general nature.

 

[Ace in the Hole]

Ahhh, that's better. 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"

What's small to Dazz might be huge to others, it's all relative.

 

[DavidMc]

It may also be worth considering high yielding shares as an option or in there somewhere.

 

[monalisa]

Hi all

Many thanks for your valuable responses. Lots to think about re what happens over the next couple of years.

I think we have come SUCH a long way in a short span of 3.5 years! Loving the Sydney price increases - though keep wishing we had more!!!

I think it is time to start researching commercial real estate, and other strategies to help us 'get there' sooner

Next step is definitely building our PPOR - hoping we find the perfect land asap.

Monalisa

 

[Oscar]

I think you'll find that strategies evolve over time. Most in business do so why not property investment? Once you have a "foundation" that has provided equity of at least a couple million net, it's usually time to look for higher yielding assets. I'm just talking from self experience here. High yielding Managed funds have worked well for me and to a lesser degree US properties, though this was just a small piece of my overall portfolio.

I also have a Live off Everything (LOEv) mindset. Too many here talk of ditching the day job that feeds you. Put as much time in your career as you do your "sideline" interests and you can have it all quickly. I'm aiming for a million a year in income from both passive and active streams which I couldn't do so quickly focusing on just one or the other.

And let me tell you how much fun it can be, I'm writing from a casino in Macau enjoying the fruits of my labour and time to get back to my black jack game.

Cheers and good luck.

 

[imbi3]

Love this

And let me tell you how much fun it can be, I'm writing from a casino in Macau enjoying the fruits of my labour and time to get back to my black jack game.
Cheers and good luck.

 

[Deltaberry]

The main advantage of residential is probably the ability to leverage and relatively lax bank requirements.

That's how most people grow when capital is limited. But at a certain point you may wish to consider capital preservation.

 

[wategos]

The main advantage of residential is probably the ability to leverage and relatively lax bank requirements.

That's how most people grow when capital is limited. But at a certain point you may wish to consider capital preservation.

Agree, the leverage also makes property a much faster destroyer of wealth during a downturn than most other types of investments.

 

[Reality Cheque]

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.

This is a point that I struggle with, calculating yield on market value rather than entry cost.

The two big drawcards for property investing are the ability to buy under market and yields that increase over time.

Both of these factors become impossible if we calculate yield on market value rather than entry cost do they not?

I've got a block that I subdivided and it "owes" me $50,000. I'm about to build a $200,000 house on it. Completed value will be about $450,000.

The return on my capital will be 9%pa. (I'm not borrowing , it's all my money)

The yield on the market value will be 5%pa.

Do I hold it because it's a good return on my capital or sell it because it's a low yield on market value?

RC

 

[Asheam]

I believe you have to look at it in two ways Reality.

So far you have subdivided and will build to create equity. That in itself was a good return on capital.

At this stage you have to look at the return you are generating on the capital in the property. It now does not matter what your initial outlay was but must be based upon what you can sell it for less costs.

Say you get a 5% yield + 5% growth PA = $45,000 per year (450,000 x 10%)

If you were to sell the house (costs money), pay tax (costs money) would you be able to use the remaining funds elsewhere to generate more then the $45,000 per year.

If so you may be in a better position if you sell and reinvest.

 

[D.T.]

This is a point that I struggle with, calculating yield on market value rather than entry cost.

The two big drawcards for property investing are the ability to buy under market and yields that increase over time.

Both of these factors become impossible if we calculate yield on market value rather than entry cost do they not?

I've got a block that I subdivided and it "owes" me $50,000. I'm about to build a $200,000 house on it. Completed value will be about $450,000.

The return on my capital will be 9%pa. (I'm not borrowing , it's all my money)

The yield on the market value will be 5%pa.

Do I hold it because it's a good return on my capital or sell it because it's a low yield on market value?

RC

Yep, lets say you bought a place 50 years ago and its now worth 1 million dollars. It is, for some reason, still only renting for $100 per week. It doesn't matter that it was 20% yield when you bought it, you still have 1million tied up earning 100/w... that could be put towards something earning 10 times that.

 

[TMNT]

Yep, lets say you bought a place 50 years ago and its now worth 1 million dollars. It is, for some reason, still only renting for $100 per week. It doesn't matter that it was 20% yield when you bought it, you still have 1million tied up earning 100/w... that could be put towards something earning 10 times that.

That's true

But if you refinanced it and used the one million to buy other stuff, then your yield on the one million loan you have is like 0.5% which is horrendous

I don't know what the answer is as it's a catch 22

You are asset rich and cash flow poor if you use the equity for lifestyle r investment

 

[Deltaberry]

Agree, the leverage also makes property a much faster destroyer of wealth during a downturn than most other types of investments.

Not true. Historically commercial has proven to be riskier, which is why banks require bigger deposits.

In the 91 down turn, it's commercial that fell the most, not residential.

 

[Deltaberry]

Do I hold it because it's a good return on my capital or sell it because it's a low yield on market value?

RC

If you were after yield, shouldn't you sell it to someone so you can go buy something else with 9% yield? You'd double your net income right away...

 

[Deltaberry]

That's true

But if you refinanced it and used the one million to buy other stuff, then your yield on the one million loan you have is like 0.5% which is horrendous

I don't know what the answer is as it's a catch 22

You are asset rich and cash flow poor if you use the equity for lifestyle r investment

It's not catch 22.

Refinancing it doesn't change the fact that the yield to market value of that property is low.

 

[skater]

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

From someone who has a fair amount of Sydney stock, can I just emphasise the need to broaden your horizons, if you don't want to get slugged with a nasty Land Tax bill each year.

At the moment, on average, a property (house) in postcode 2770 will generate around $2k in Land Tax, once you have reached your limit. Now, 2770 is about the cheapest area for Land Tax in Sydney, so it goes up substantially from there.

We have stuff in other States to offset some of this, but just keep that in mind, if you keep buying in Sydney.

We plan on selling some 2770 stock & putting up a g/f or two to increase income. Yes, it's not too great for the valuation, but we're more focused on income as it gets closer to retirement date for Hubby, and a couple of them are dogs anyway, that we've earmarked for removal for a while now.