Steve McKnight's new strategy - what do you think?

[beachgurl]

I went to a seminar series last weekend and one of the speakers was Steve McKnight. He said that the days of finding cash flow positive properties are well and truly over in Australia and he has a new wealth strategy that he was spruiking. I'm not convinced it is a great strategy for brand new investors to take on but thought I'd open it for discussion.

He says that capital-growth properties should be purchased in the first few years of investing. Then once good equity is gained in the properties, you use that equity to buy commercial property. While he didn't go into the details, I interpret it to mean that fresh investors will be maxing out their LVRs in their resi properties to buy commercial, which seems very risky. The commercial property would then be cashflow positive, but what happens if there is a vacancy, does the investor lose everything?

I probably sound a bit doom and gloomish but from someone who bought very low risk type properties to make his millions he now is encouraging a much riskier strategy.

 

[Scott No Mates]

Utilising properties with strong cashflow to purchase commercial property is not new. Likewise following the lead of many of the more reputable listed property trusts, having 40% or more equity in the property allows greater flexibility when it comes to suffering a few vacancies in a multi-tenanted property (or within a portfolio of properties).

I don't know his current strategy but in the current market with weak demand for commercial premises, you would need to be comfortable to dabble in this field unless you were picking up a few high yielding leased properties.

 

[Peter Parker]

What happened to his advocacy of wrapping or lease options to generate cashflow?

Some promoters change their strategies as often as their clothes.

It's simple for speakers to suggest changing tack frequently but neither possible nor desirable for investors with illiquid assets to do same.

Spruikers are either the 'broken record' model (eg Wakelin, Lomas) or 'chop and change' model (eg McKnight). I think the latter rely on novelty to have new material at their lectures and maintain the profile for future business.

There is a risk that novelty may be required to sustain a promoter's business model rather than be in the best interests of the investor.

 

[octain]

I currently buying heaps of good cash flow positive properties. You'd think someone with his experience would suggest a time when their is low interest rates, low prices would give rise to more cash flow postive properties

 

[jingo]

I guess he is keeping with his cash flow positive theme and transferring it to another asset class.

In theory, its a great strategy. The returns from commercial property trump residential any day.

But, you need to have a buffer to sustain a prolonged vacancy.

If a beginning investor has a buffer, I don't see any reason why they shouldn't jump straight into commercial over residential - provided they do their due diligence.

Regards Jason.

 

[TMNT]

I currently buying heaps of good cash flow positive properties. You'd think someone with his experience would suggest a time when their is low interest rates, low prices would give rise to more cash flow postive properties

If you don't mind, which rough areas are you buying in, what price points and what yields?

 

[HotRod]

Just sounds like another excuse for a round of seminars.

 

[Cherry Pro]

If you don't mind, which rough areas are you buying in, what price points and what yields?

Hi TMNT

Good buying opportunities in the Logan area in Brisbane and even in Western Sydney 2770, if you're quick. You can get about a 7 % yield and with interest rates at around 5%, it's a good time to buy.

 

[redwing]

You sure it was Steve Mcknight, sounds like a seminar Dazz may give? Any mention of working on oil rigs, the election, commercial leases, lawyers, sheds and industrial property etc

I'd have gone if Dazz was getting up on stage

 

[Peter_Tersteeg]

What happened to his advocacy of wrapping or lease options to generate cashflow?

That went out the window years ago. He's been promoting his current commercial strategy for at least 5 years now.

 

[Angel]

Did he try to get the audience to sign up for his courses? That was his main strategy last year.

 

[Nigel Kibel]

positive cash flow

I think I understand where Steve is coming from. Trying to find cash flow properties are difficult.

The example listed above about a 7% return in Logan city is not necessarily a great investment because growth rates are very low. Secondly rates will not remain low for ever. You are better to buy properties in good areas that offer solid growth.

It is only capital growth that creates wealth, small amounts of cash flow and low growth will just limit the amount of property that you can purchase.

 

[Rolf Latham]

The example listed above about a 7% return in Logan city is not necessarily a great investment because growth rates are very low. Secondly rates will not remain low for ever. You are better to buy properties in good areas that offer solid growth.

Surely this will depend on the resources, risk profile and investment horizon of the investor ?

ta

rolf

 

[Aaron_C]

Using resi to buy commercial is nothing new since that is how most people get the equity required to even get into the commercial space.

 

[Nigel Kibel]

Hi Rolf


I agree with you it does depend on there risk profile however I also think there are better areas of people to invest.

In you buy a $400,000 property and hold it for 20 years one growths at 5% compounding and the other growths at 10% the difference over 20 years works out at around $80,000 per year for each year that you have owned the property.

So my questions is if you are going to buy a property that might cash flow at 7% with very little capital growth whats the point?

It might be that you can buy a cheaper property that could use some renovation to increase the value but at the end of the day the asset must go up in value for you to develop wealth.

 

[cu@thetop]

Will Steve be able to mentor me to show me which is the right property for me. Will there be workshops?

Watch out Dazz ....he'll be approaching you to get some ideas next. Your chance to charge him lawyer's rates for your time

 

[tobe]

I like his early stuff.....

 

[oc1]

I like his early stuff.....

Same with Bon Jovi

 

[beachgurl]

The bit that concerns me most in his strategy is that the resi property used as equity is negatively geared. So u need to gear it further in order to buy the cash flow positive commercial property. You'd need a fair buffer to cover commercial vacancies IMO.

Yep he was selling his program too. I had a chat to him later and he was a little condescending when I questioned him. Guess he didn't want to put off the groupies hanging off him.

 

[oc1]

I always suggest you find someone thas has done/is doing what you want and get that person to help you when possible rather than these mass group activities. Eg if renovation is what you want to do find someone that is successful in that strategy. While it is prudent to change strategies depending on the market cycle I don't think you need to chop and change too often. Real estate dealings take time so the slow nature of this asset class is useful is this respect. There's no golden formula so one just needs to concentrate on a strategy, stick to it and get better and better at it while making sure it suits your personality and risk profile.

Cheers Oscar