I wrote the following post in response to a query by Steve Navra over at Invested re timing , and one of the mods asked me to repost it over here .
http://www.invested.com.au/forums/showthread.php?t=372&page=1&pp=15
A brief outline
I don't have a formulic approach as such , more an opportunistic approach.
When I've reached the completion or organisation of one particular investment , I'll look around and see where I think the best place to invest my money is at that particular stage of the cycle / market.
We completed the subdivison of our Previous PPOR in 200O. Originally purchased in 1994 for 575K ( 1/2 acre in Pymble ). We sold one block in 2000 for 550 and after spending about 500K building a new house , subsequently sold that in Sept 01 for 1.4 mil. This subdivision wasn't planned at the time of the purchase , infact we were told ( when I enquired with council in about 1999 ) that we couldn't subdivide it , but that's another story.
Bought new PPOR for 750 ( 3/4 acre in wahroonga .. ) with this purchase I applied all of the knowledge that I'd learnt from somersoft over the preceeding year in terms of negotiating / offers etc and todate remain very happy with this purchase. At this stage we owned the house outright and had cash in the bank.
By the time we had moved in and settled ( organsed LOC's etc care of Rolf L) we started looking for IP's in early 2002 . I was aware that by that stage there had been significant movement in most of Sydney including the outer West.
Starting my research I looked at areas in Brisbane. Again by this time much of the market had started moving. My intial interest was in Redcliffe, however one of the forum's recognised experts in Brisbane assured me that it was Deadcliffe and would amount to much ( Lesson , never rely on experts , always check things out yourself and draw your own conclusions).
For various reasons I checked out Logan. I was assured by many people, including the local agents , that there was never any capital growth in logan . Again checking this out , I found that it wasn't actually true. In each previous cycle logan had doubled. Once I started looking at prices and talking to agents I found that the amount of property on the market had decreased significantly in the preceeding year. In the previous year each agent had had over 200 properties for sale but now some only had 20-30. The agents were muttering about crazed southern investors ( returns were over 10% ). In the previous cycle, prices had peaked at about 80K. They were now at a similar level. Taking to agents , I asked them how they were going getting new properties. A couple mentioned that they were having problems getting properties from their rental roll to sell , as most of the people who'd wanted to sell had already sold. To me with was a classical example of a commodity about to break its resistence level.
Also at this stage Steve McKnight , John Burley were promoting the benifits of Cash flow positive investments and were recieving publicity.
We ended up buying 4 IP's in logan around the Mid 2002 , and a further 3 near the end of the year. At that stage prices had moved by around 10K.
At the same time we started looking in other directions. There was a moderate amount of talk about Tasmania ( both positive and negative ). We looked at ( or rather some one looked at it on our behalf ) at two adjacent houses in Launsceston which were split into 7 units , but we decided there was too much potential structural work involved.
At this stage the forum came calling and a fellow forumite passed us the details of a block of four units for sale in New Town in Hobart. They wern't in a position to buy it as they were fully commited . At this stage the central parts off Hobart hadn't moved so unlike Birsbane ,where we bought in the middle outer ring , were were able to buy a well located property in a well considered suburb. Purchase price 220 , current rent 550 . About to renovate one unit ( hopefully , just under 20K ) with an estimated rent increase of $50/ week.
Subsequentally we moved on to Rocky..... and my first post outlines in detail why we bought there
http://www.somersoft.com/forums/sho...ght=Rocky+thing
We've sold all but one of our Rocky IP's with gains of about 50 - 60 % over about an 18 months period. We've kept one which is on a development block close to the main drag, and we have an intersting twist we are thinking of doing with that...
Just after buying in Rocky we also bought an IP in Townsville. As an exercise we did this via a mail drop. This took about one hour on Word and about ten phone calls . We had 10,000 flyers delivered and negotiated with people via mobile phone. (I don't think many realised we wern't based in Townsville ) . As a result of this we had two very good buying ops, one of which we bought and the other we missed out on because I didn't have my organisational side ready to move quickly enough . Who ever bought it ( 120K for a house in south Townsville ) subsequentally flipped it a few months later for about 50 K more , and the market didn't move that quickly there... ( another lesson learnt ) I would have kept that one myself. The property we did buy settled in mid 2004 ( six month delayed settlement , another thing learnt from the forum ) and this has gone up from 152K to around 200K.The bank valuation came in above the purchase price.
Along with the rocky properties we have sold three in logan. We learnt which properties not to buy in logan , and while we had some problematic tenants in logan , we applied what we learnt there in rocky and had no tenant problems in rocky. Our most problematic tenancy in logan was bought at 65 K and sold at 145K . Personally I wish I had more problematic houses like that....
Currently we're about to receive a construction certificate to proceed with a dual occ on the 3/4 acre we bought in wahroonga . We're renovating the current house and building a new one next to it. Although I don't have precise figures it's costing us about 60 K to get the approvals through. We anticipate about 250K for the reno and about 550K for the new house.
We anticipate the new house will be worth around 1.4 -1.5 ( moving into this as PPOR ) . In a fire sale we could get 1 mill for the renovated current house , but hopefully it will be closer to 1.2 Mill.
As the renovated house has been our PPOR we can sell this without any CGT. If the market is really crappy we also have the option of selling this one into a trust and refinancing it through there.
Once this is finished we'll have a PPOR worth around 1.4 mill, mortgage free. We'll also have several 100K in the bank , in addition to a significant amount of equity in our remaining portfolio of 9 IP's in Hobart , Logan , Rocky and Townsville. We'll also have access to an 80 % LOC on our PPOR ( assuming the banks are happy to let us keep it...).
18 months ago we contemplated investing in WA , however we anticipated that our development would have been ready to proceed much earlier and we wanted to keep funds available for that. So that's one opportunity we missed out on .
Once we finish our development I have several things that I'm thinking about. We can improve some of our existing properties , increasing their value and rent. I think the best time to do this is during the quieter periods of the cycle.
I outlined a few thoughts on a cyclical approach in this post
http://www.somersoft.com/forums/sho...&highlight=turn
I'll low balling in good areas in Sydney. I may not buy anything , but it will keep me in touch with the market so I'll ( hopefully ) recognise the early signs that the market is starting to move. I'll be watching average prices / auction rate clearances, and talking to several agents who I've got to know after the last ten years. Once I see the market is starting to move then I'll start buying up more property and gradually gearing up , and then following the cycle out to western sydney and then back up the coast to Brisbane , and possibly even Rocky again This time we'll be keeping the better houses that we buy in Central locations , and buying properties in outer areas to sell , for capital gains to pay down the others.
I am aware that some of the longer term members of the furum have been able to buy well placed properties in Sydney in previous troughs at prices of about half what they would have sold for in the previous peak. I have seen properties for sale when we were buying in 1994, considerably below what they sold for in the previous peak . eg > 1 mill , re sold for high 6's and 550 , resold for 350. Both these were walking distance of Gordon on Pymble stations in good positions. The one that sold for high 6's would be worth between 2-3 mill at the moment. That's what I aiming to do.
As you are aware I also have an interest in shares. I've been " beta trading" my system for about 11 months and on back testing unfortunatly I can't find a worse a worse time to start than last Dec... The first three months taught me some lessons and I have learnt from my mistakes and changed my approach . . ( the main lesson was don't buy shares in a weekly system that are being subject to day trading...) I now have a basic fundamental screen which has weeded out these shares such as Fortesque .Since then things have been moving forwards. I'm continuing to trade this system , but am in the process of working on the "Son of Zyprexa ".
If I can get to a point where I am happy in my ability to trade successfully , I will be diverting some funds into this , but if not I will be expanding into m
anaged funds as an additional investment avenue.
I've contemplated investing in businesses, but am aware first hand of the problems of running a business so I am veering away from that.
When we started our investing road with the subdivision of our preceeding PPOR , my aim was to come out of the present cycle with a kitty and knowledge on how to do serious damage in the next cycle. We've exceeded this aim.
See Change
http://www.invested.com.au/forums/showthread.php?t=372&page=1&pp=15
A brief outline
I don't have a formulic approach as such , more an opportunistic approach.
When I've reached the completion or organisation of one particular investment , I'll look around and see where I think the best place to invest my money is at that particular stage of the cycle / market.
We completed the subdivison of our Previous PPOR in 200O. Originally purchased in 1994 for 575K ( 1/2 acre in Pymble ). We sold one block in 2000 for 550 and after spending about 500K building a new house , subsequently sold that in Sept 01 for 1.4 mil. This subdivision wasn't planned at the time of the purchase , infact we were told ( when I enquired with council in about 1999 ) that we couldn't subdivide it , but that's another story.
Bought new PPOR for 750 ( 3/4 acre in wahroonga .. ) with this purchase I applied all of the knowledge that I'd learnt from somersoft over the preceeding year in terms of negotiating / offers etc and todate remain very happy with this purchase. At this stage we owned the house outright and had cash in the bank.
By the time we had moved in and settled ( organsed LOC's etc care of Rolf L) we started looking for IP's in early 2002 . I was aware that by that stage there had been significant movement in most of Sydney including the outer West.
Starting my research I looked at areas in Brisbane. Again by this time much of the market had started moving. My intial interest was in Redcliffe, however one of the forum's recognised experts in Brisbane assured me that it was Deadcliffe and would amount to much ( Lesson , never rely on experts , always check things out yourself and draw your own conclusions).
For various reasons I checked out Logan. I was assured by many people, including the local agents , that there was never any capital growth in logan . Again checking this out , I found that it wasn't actually true. In each previous cycle logan had doubled. Once I started looking at prices and talking to agents I found that the amount of property on the market had decreased significantly in the preceeding year. In the previous year each agent had had over 200 properties for sale but now some only had 20-30. The agents were muttering about crazed southern investors ( returns were over 10% ). In the previous cycle, prices had peaked at about 80K. They were now at a similar level. Taking to agents , I asked them how they were going getting new properties. A couple mentioned that they were having problems getting properties from their rental roll to sell , as most of the people who'd wanted to sell had already sold. To me with was a classical example of a commodity about to break its resistence level.
Also at this stage Steve McKnight , John Burley were promoting the benifits of Cash flow positive investments and were recieving publicity.
We ended up buying 4 IP's in logan around the Mid 2002 , and a further 3 near the end of the year. At that stage prices had moved by around 10K.
At the same time we started looking in other directions. There was a moderate amount of talk about Tasmania ( both positive and negative ). We looked at ( or rather some one looked at it on our behalf ) at two adjacent houses in Launsceston which were split into 7 units , but we decided there was too much potential structural work involved.
At this stage the forum came calling and a fellow forumite passed us the details of a block of four units for sale in New Town in Hobart. They wern't in a position to buy it as they were fully commited . At this stage the central parts off Hobart hadn't moved so unlike Birsbane ,where we bought in the middle outer ring , were were able to buy a well located property in a well considered suburb. Purchase price 220 , current rent 550 . About to renovate one unit ( hopefully , just under 20K ) with an estimated rent increase of $50/ week.
Subsequentally we moved on to Rocky..... and my first post outlines in detail why we bought there
http://www.somersoft.com/forums/sho...ght=Rocky+thing
We've sold all but one of our Rocky IP's with gains of about 50 - 60 % over about an 18 months period. We've kept one which is on a development block close to the main drag, and we have an intersting twist we are thinking of doing with that...
Just after buying in Rocky we also bought an IP in Townsville. As an exercise we did this via a mail drop. This took about one hour on Word and about ten phone calls . We had 10,000 flyers delivered and negotiated with people via mobile phone. (I don't think many realised we wern't based in Townsville ) . As a result of this we had two very good buying ops, one of which we bought and the other we missed out on because I didn't have my organisational side ready to move quickly enough . Who ever bought it ( 120K for a house in south Townsville ) subsequentally flipped it a few months later for about 50 K more , and the market didn't move that quickly there... ( another lesson learnt ) I would have kept that one myself. The property we did buy settled in mid 2004 ( six month delayed settlement , another thing learnt from the forum ) and this has gone up from 152K to around 200K.The bank valuation came in above the purchase price.
Along with the rocky properties we have sold three in logan. We learnt which properties not to buy in logan , and while we had some problematic tenants in logan , we applied what we learnt there in rocky and had no tenant problems in rocky. Our most problematic tenancy in logan was bought at 65 K and sold at 145K . Personally I wish I had more problematic houses like that....
Currently we're about to receive a construction certificate to proceed with a dual occ on the 3/4 acre we bought in wahroonga . We're renovating the current house and building a new one next to it. Although I don't have precise figures it's costing us about 60 K to get the approvals through. We anticipate about 250K for the reno and about 550K for the new house.
We anticipate the new house will be worth around 1.4 -1.5 ( moving into this as PPOR ) . In a fire sale we could get 1 mill for the renovated current house , but hopefully it will be closer to 1.2 Mill.
As the renovated house has been our PPOR we can sell this without any CGT. If the market is really crappy we also have the option of selling this one into a trust and refinancing it through there.
Once this is finished we'll have a PPOR worth around 1.4 mill, mortgage free. We'll also have several 100K in the bank , in addition to a significant amount of equity in our remaining portfolio of 9 IP's in Hobart , Logan , Rocky and Townsville. We'll also have access to an 80 % LOC on our PPOR ( assuming the banks are happy to let us keep it...).
18 months ago we contemplated investing in WA , however we anticipated that our development would have been ready to proceed much earlier and we wanted to keep funds available for that. So that's one opportunity we missed out on .
Once we finish our development I have several things that I'm thinking about. We can improve some of our existing properties , increasing their value and rent. I think the best time to do this is during the quieter periods of the cycle.
I outlined a few thoughts on a cyclical approach in this post
http://www.somersoft.com/forums/sho...&highlight=turn
I'll low balling in good areas in Sydney. I may not buy anything , but it will keep me in touch with the market so I'll ( hopefully ) recognise the early signs that the market is starting to move. I'll be watching average prices / auction rate clearances, and talking to several agents who I've got to know after the last ten years. Once I see the market is starting to move then I'll start buying up more property and gradually gearing up , and then following the cycle out to western sydney and then back up the coast to Brisbane , and possibly even Rocky again This time we'll be keeping the better houses that we buy in Central locations , and buying properties in outer areas to sell , for capital gains to pay down the others.
I am aware that some of the longer term members of the furum have been able to buy well placed properties in Sydney in previous troughs at prices of about half what they would have sold for in the previous peak. I have seen properties for sale when we were buying in 1994, considerably below what they sold for in the previous peak . eg > 1 mill , re sold for high 6's and 550 , resold for 350. Both these were walking distance of Gordon on Pymble stations in good positions. The one that sold for high 6's would be worth between 2-3 mill at the moment. That's what I aiming to do.
As you are aware I also have an interest in shares. I've been " beta trading" my system for about 11 months and on back testing unfortunatly I can't find a worse a worse time to start than last Dec... The first three months taught me some lessons and I have learnt from my mistakes and changed my approach . . ( the main lesson was don't buy shares in a weekly system that are being subject to day trading...) I now have a basic fundamental screen which has weeded out these shares such as Fortesque .Since then things have been moving forwards. I'm continuing to trade this system , but am in the process of working on the "Son of Zyprexa ".
If I can get to a point where I am happy in my ability to trade successfully , I will be diverting some funds into this , but if not I will be expanding into m
anaged funds as an additional investment avenue.
I've contemplated investing in businesses, but am aware first hand of the problems of running a business so I am veering away from that.
When we started our investing road with the subdivision of our preceeding PPOR , my aim was to come out of the present cycle with a kitty and knowledge on how to do serious damage in the next cycle. We've exceeded this aim.
See Change
