Strategy, strategy, strategy...

Hi!

Strategy, strategy, strategy... I'm new to property investing and I've been trying to get my head around the 'strategy' aspect of investing for the past couple of weeks/month.

I quickly noticed on this forum that newbies requests for advice (about property or location) would almost invariably be met by the same question from experienced investors: "what is your strategy"?

To a newbie, I think this is a very challenging question.. We are just only barely scratching the surface of property investment, and trying to understand the basics, and here we are asked about, and confronted with metaphysical questions :eek:

It disturbed and puzzled me at first. :confused:. Now, a few weeks down the track I think I am realising how important indeed this is :eek:

So I've set about defining my investing strategy, and with a little bit of help from my friends, I shall succeed :)

Objective and current situation.

My objective is to 'retire' in 15 years, with say 100k disposable income (gross) per annum (in today's $ value), so about 150k in 15 years assuming 3% average inflation. I am able to put 50k aside per annum, super annuation would be 10k p.a.

Depending on the exit strategy, I guess I need approximatel $5-7M worth of assets? Is that correct? Not sure how to calculate this properly.. Could somebody help me on this by any chance?

My current situation is that I've got one IP (400k) in a Melbourne suburb, luckily attracting a dual rent ($520/mth) and slightly CF+ (4k/annum). I still have a lot of savings available to invest. Deposits for IP 2 and 3, and even 4 should not be a problem.

Strategy.

I think I have settled on a Growth strategy, and will be aiming to holding a neutral portfolio to maintain momentum and serviceability whilst at the same time trying to maximise growth but without taking too much risks. If that makes sense.

I am risk averse by nature but am working on it as part of my investment journey. I understand potential gains and risks are often intimely linked and realise I will have to work on myself to achieve my goals.

Taking this into account, what follows is draft of my shortlisting of asset classes and resources to implement my strategy
  • Buy established properties in capital cities.
    I'm more comfortable with houses right now. Buy well, under value, good land ratio, cosmetic reno only (see below why), probably with the help of Buyer Agents as nothing beats their local knowledge and connections I think (as long as the service price is reasonable 1.5-2% max of purchase price). I kinda like dual income properties too for the extra yield in established areas. Sometimes it's not trouble free though as my first IP taught me.
  • Buy new properties (houses) in countryside towns with good yield and growth prospects (QLD, NT) through trust-worthy developers, or value-adding middle-mans. Haven't too found many of those yet, but haven't been looking for very long. Or "Armchair development" approach. Haven't looked into that much yet.

The execution will be a combination, and balanced mix of the above.. if I can achieve it.

So far I have ruled out the following strategies or category of assets, and here's why:

  • NRAS. Just seems like additional complexity and risks for not much in return (~5k/annum max).. when compared to the better investments that are available out there, in both yield and growth potential which would/should beat an NRAS strategy by far without some of the NRAS constraints and/or risks. Also, I have NOT been able so far to find an NRAS property that passed my DD or wish list yet, so very hesitant going down this path at this stage. And I've read all 'Euro' posts..
  • Renovate. Not a handy man, and I don't think I will like it. Not big renovations at least, cosmetic ones could be OK but it wouldn't make a strong strategy in itself I think. Might start renovating one day if I buy a PPOR that needs work but not looking into this as an investment strategy for now.
  • Subdivide/Development. Don't feel I'm ready for this yet. I don't have the knowledge to evaluate opportunities, council policies, risks etc at this stage but interested in it for the future.
I'm sure/know there are much more possible strategies out there, but these ones are the ones I (think I) understand at this point.

Resources I use at the moment:
  • General & Specialist info (Property Observer, Matusik, Ryder, Yardney, Deloitte, ABS, ANZ, Westpac reports)
  • Online tools and data (Real Estate Investar, Boomtown, Residex, MyRP data, SQM Research, RealEstate, Domain)
  • Forums (Somersoft mainly, the other ones just for searches on specific keywords related to researchs)
My questions today are below, hopefully some of you will have time to answer:
  • Am I getting somewhere here?
  • Am going about the "right way" to define a successful strategy for myself?
  • How long did you take to define your own investment strategy?
  • Do you revise or change our strategy? How often and why?
Thanks a lot in advance for your feedback, advice, or new ideas!

Kind Regards

Baguette
 
nice overview

Kaching !, you can take that all the way to the bank :)

You are certainly getting somewhere because you have realised that strategy is THE determinant of real success in most things in life that have a LONG term outcome, finance included ( have a read of The slight edge - Jeff Olson, scary simple stuff)

That because as human beings we totally overestimate what we can do in a short time frame, and underestimate what we can do over the long term.

The more"life experience" you "get", the more you realise this to be true, and I guess thats where the saying " too soon old, too late smart" stems from.

One of the most frustrating and personally painful things from a financing perspective is when you get the "deer in the headlights" look from potential clients when you hit them over the head with a 12 to 20 page fact find, and your persuasion skills arent sufficient to encourage them to go beyond I earn x, I have commitments Y, I have clean credit and I already have a pre approval from z for an amount, so why the heck do you want to me to work for an hour or five ( and think and feel) to complete this busload of stuff. If it was important surely broker A or lender Z would have asked me this stuff as well.

The busload of "stuff" is only your life goals :rolleyes:, and some"guided discovery" questions to get you to think in a structured way, and prise open your "heart" so that someone thats providing you a statement of credit advice can maximise your resources, minimise your personal risks and to have any hope at all to provide you with the appropriate tools you may need.

There is a real "maturity and stability" thats derived from going for a financial goal thats well outside your current resources and comfort zone, going THERE and working backwards and realising that an "ad hoc"approach isnt going to yield the result.

Whether its getting a fresh person to do the most basic investigative work on their risk profile or to get a very successful and well established business person to see their current finance structure is their biggest threat to their family's financial future.

A good broker/planner/banker can really provide you with some tools to have a much more "global" view on this stuff, but they cant provide the magic "pixie dust". The magic comes from the clients' self discovery, and thats why I still really like the thrill of that chase.

I am sure you will get heaps of constructive input after my fluffy and fuzzy stuff.

ta
rolf
 
Very nice overview indeed. Trust me.. You are not alone. I always think why my strategy can't be "do the best possible at this point in time" :)

Rolf... You are worst than me :)
 
Very nice overview indeed.


... except the proven successful strategies have been ruled out -- renovate, subdivide, develop.

If you don't do something to add value or improve yield then you're relying on the market to make the money for you.

You could be waiting a while, then your holding costs start hurting. :(
 
... except the proven successful strategies have been ruled out -- renovate, subdivide, develop.

If you don't do something to add value or improve yield then you're relying on the market to make the money for you.

You could be waiting a while, then your holding costs start hurting. :(

Exactly. Adding value is key and adapting to market conditions is another. You will need different strategies for different cycles, especially the more active you become.
 
I started with the plan of buying houses and building granny flats. Council then announced new fees and builder costs went up. That killed that strategy.

Then got into renovations, made some money, however looking forward I see myself running out of steam in another 2 properties as I drop money into deposits and other purchase costs.

Implementing new strategy I learnt, I can now see properties 6-10. Wouldn't have known this strategy when I started, it comes with experience and growing confidence.

Adapt and change. The target shouldn't move, but the way to get there should be fluid, adapting as your learn new methods and better understand market conditions.

Lol well I'm just getting into my second year, so will see :p

THE SLIGHT EDGE - BY JEFF OLSON, consider it ordered!
 
Hi all, thanks for your feedback!

I read your reply 3 times Rolf and got it in the end :) thanks for that; and the book recommendation.

Yes, I realise the most active and productive straetgies could or would be renovate, subdivide and develop, and that the two I am looking at at the moment are quite passive and deeply reliant on the overall and local market, plus tons of other factors that I don't control or probably even know about.

I definitively don't like not being able to create and manufacture wealth directly myself. I prefer to be in control and create my own luck. And "Wealth without work is sin" right? :) http://www.mkgandhi.org/mgmnt.htm

That said, I also need to be realistic about my knowledge and my skills. I can't afford to do nothing waiting for this to build up so I have start somewhere, as best as possible, and learn along the way.

A few specific questions on renovate, and subdivide/develop then:

For your heavy renovations projects (e.g. kitchen, bathrooms, major landscaping, etc.), do you guys do it yourselves, or do you engage specialists? If you are engaging someone, how can you tell if they will do a good work? Say that you are living in VIC and that you purchase a reno project in QLD. How do you make this work? Or must reno projects always be close to where you live?

For subdivide/develop. What is actually the high level overall process? Say I pruchase a house on a good block of land. What are the steps to go about subdividing it and building on it. Right now, this is daunting to me and seems like a lengthy and complex, varying from council to council? Same question as with renovate, are these kind of project only possible near to where you live considering the complexity and the nature of the it?
 
Baguette, it's all about the numbers.

Basic strategy = Buy, improve, sell.

Profit = Sell - improve - buy - holding costs - taxes.

All the information is there to answer your questions, just think about ways to optimise the profit by maximising the sell price and minimising the others. (For instance, keeping the property for 12 months will halve the capital gains tax payable, but the holding costs will be higher.)

Builders can make more money than non-builders because they can get the lowest cost to do the improvements. People that have to pay builders to do the improvements will make significantly less money.

The people that have the lowest improvement costs can afford to pay a bit more for the properties and still be confident of making money out of the deal.

People that have not thought about this much are most likely to pay too much to buy the property, spend too much doing the improvements, and over-estimate what the renovated property will sell for. Result = loss.
 
Hi all, thanks for your

For subdivide/develop. What is actually the high level overall process? Say I pruchase a house on a good block of land. What are the steps to go about subdividing it and building on it. Right now, this is daunting to me and seems like a lengthy and complex, varying from council to council? Same question as with renovate, are these kind of project only possible near to where you live considering the complexity and the nature of the it?


Hi there

I just thought i would add in regards to subdividing:

You dont have to subdivide and build to add value. with suvdivision approval your block will always be worth more. Or you can subdivide and sell the land to pay for the next deposit.

Yes it costs and its a lengthy timeframe but you can still rent it out while you wait for approval, which is exactly what you would be doing witha non development block.

Also renovating is a great and proven method to add value and improve yeild.
So dont dismiss these strategys just because you think theyre to hard or your unsure. just yet. read up on them more and then decide...

cheers
 
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