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Building a Property Portfolio Impervious to Market Forces....

Discussion in 'General Property Chat' started by sash, 23rd Jun, 2015.

  1. sash

    sash Well-Known Member

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    I posted this on Somersoft forum about 3.5 years...

    http://somersoft.com/forums/showthread.php?t=74886

    Some things have changed....this is how I see it going forward. based on what I am seeing in 2015..in successfully building a large property portfolio. One of my friends has been able get to 12 properties within 6 years.

    As I have said previously, my core strategy mitigates risk by buying properties with balanced growth and cash flow and tightening expenses.

    My portfolio has grow from about 7 digits 2005 to nearly 8 digits in about 10 years based on this strategy.

    The premise of this strategy is based on the following:
    1. Buy in 5 major cities or larger regional (i.e. over 100k in the greater
    catchment) metropolitan areas
    2. Buy with minimum of 6% yield (will need to increase soon as IR move up) with a view of increasing this to 7.5-9% in
    2-3 years
    3. Buy in areas with infrastructure improvements within 3-7 years...be patient...it will pay off
    4. Diversify your portfolio around the country - to reduce risk as well as
    reduce any land tax liabilities
    5. Balance between growth and CF - this the only optimum way to continue
    to grow your portfolio and your wealth in my opinion without significant risk. Even more important now due to the APRA Changes....be also mindfull of the first point. I have always avoided one horse towns..people who bought in mining towns know what I mean.

    Having said that..some of your investments may not always getting growth or cashflow. Fortunately for me...4 years later the ... 2 properties in Qld have gone up 70k...and 1 in Melbourne is about to have another spurt of growth. Time heals all....I still have 3-4 places..which are not starts..I will offload once the market goes up...I don't mind holding them as I am now between ..80-100k positive per annum.

    So now down to the nitty gritty of my portfolio:

    1. My existing portfolio is geared at an LVR of 39% (would like this to be
    34%) this is despite me acquiring 3 properties this year for about 1m.
    2. The overall portfolio is returning 4.7%...low due to significant growth.
    3. The CF+ is 80-100k
    4. Equity has grown 60% in the last 3 years...remember a larger portfolio will no longer grow at 400% every 7 years...

    My portfolio is structured in way it will perform whether the market is falling/flat (as it is now) or booming!

    How is this possible? Well easy to see property performs in a booming market...so no explanation required. As for falling/stable market...see below...

    I believe my portfolio will still perform in falling/flat market as rents and interests drop.

    My current IR repayments are about 145k per year (only a 20k increase from 126k on my post in 2011..interesting what low IR can do). The rents have been edging in the last year.

    I said previously as IR drop I simply build a large cash reserve. This now is in the 7 digits. The plan now if to lock down the rates in planning for higher rates down the track as part of my risk mitigation approach.

    Some things to remember about the current market:

    1. People are getting hyped about the Sydney market....this in my view is the most dangerous part of the market. ...only madmen/mad women go in now...

    2. Brisbane and Melbourne Outer surbubs/Geelong are being primed for growth. Brissie's growth is dependent on jobs growth.

    3. Launch counter measures early...as the market in Sydney will turn...IR will rise...and lending will get harder...

    Welcome any comments about my assumptions. This theory was tested in the GFC ...it worked over the last 3 years....the future now awaits...:D;)...
     
    Cactus, Realist35, Northy85 and 51 others like this.
  2. Arashi87

    Arashi87 Well-Known Member

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    Great post!

    What do you think of NSW excluding Sydney at this stage?
     
  3. sash

    sash Well-Known Member

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    Wollonging/Central coast is about 6-12 months behind Sydney.....I am not brave enough to..recommend Newcastle or call it there ..due to the mining impact.

    Don't follow other markets...some regionals like Albury, Wagga have potential

     
  4. Arashi87

    Arashi87 Well-Known Member

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    According to Herron Todd White Central Coast is rising market and Wollongong is close to peak 6-12 months behind Sydney, but just research Wollongong is more expensive than Central Coast thats for sure!

    Sorry to sidetrack things, building property portfolio, as much positive cash flow as possible.

    What are the tips to minimise LVR? Save money and get cash flow positive properties?

    By CF+ 80k-100k , is that purely net rent return?:eek::eek::eek:
     
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  5. Daniel007

    Daniel007 Well-Known Member

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    I was actually read your old somersoft thread a few days ago and was wondering how it would be different today. Fantastic information though, i will definitely refer back to this in the next few years when i start my investing journey.
     
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  6. Daniel007

    Daniel007 Well-Known Member

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    Yep, i've seen this first hand as i've been monitoring the woywoy region for the last year. It's pretty strong there at the moment but it has been flat for years so i think it's still playing catch up.
     
  7. sash

    sash Well-Known Member

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    The best way to reduce LVR is to do the following:

    1. Pay everything via a credit card and direct debut the month end payment...you need to be disciplined for this. The amount offsetting interest will reduce interest.
    2. CF+ pump that into offsets....
    3. Calculate expected tax return and get that in your pay early.

    Once you have the above applied for a couple of years...your LVR drops. Mine for example pays off about 150200k in principle with all savings measures in place and whether a I buy a few more properties. I have 2 properties in the building phase once these are done...the CF goes up again. :)

     
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  8. Arashi87

    Arashi87 Well-Known Member

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    Holy Smart :cool: Thanks
     
  9. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    Wow very inspirational!

    Is there a certain price range you target with your purchases? It sounds as though your purchases are at around the 300k mark. It seems that quite a few successful SSers purchase at our below this price. Is this a strategic decision to diversify your investments?
     
  10. Eric Wu

    Eric Wu Mortgage Broker Business Member

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    Amazing achievement, it is amazing to build such a large portfolio with such low LVR.
     
  11. sash

    sash Well-Known Member

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    Most of my purchases these days are brand new H&L land for well under $350k.

    I target the small lots and put decent size homes 15-19 sqm homes...mostly 3x2x2 sometimes a study also.

    I find these rent well if tricked up....and end value difference between this and slightly bigger house on a larger land is only 10-15% more....the bigger land usually costs substantially more.

     
  12. euro73

    euro73 Well-Known Member Business Member

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    I have a portfolio consisting of several older Sydney properties and @ 10 x NRAS properties. Because of the NRAS, my portfolio generates over 100K CF+ tax free, and has allowed me to pay down my PPOR in full. That creates both the equity and the borrowing capacity ( through the removal of a significant amount of non deductible debt) to continue. It also buys me a lot of time in the market where interest rates are of little or no concern to me, as the NRAS model can tolerate rates to 8% comfortably.
    My strategy is simply a dividend reinvestment plan- use a small amount of equity per purchase ( @ 60K usually) to generate a 9-11K CF+ surplus. That is a 16-18% tax free ROE. Then reinvest that surplus in debt reduction, manufacturing an even higher compound ROE. Repeat. In a worst case scenario, even if my portfolio showed zero growth across the next 10 years, it has still manufactured over $1Million tax free dollars for me and the reinvestment of that $1Million will have manufactured a significantly larger result than $1Million.
    But in an even modestly reaslistic scenario where that portfolio generates even 50% growth across 10 years, it has not only manufactured sa significantly larger result than $1 Million from the dividend reinvestment plan, but in light of the APRA changes it has also created the necessary borrowing capacity for me to avail myself of the equity created through that aggressive debt reduction
    As many investors are learning or will learn soon enough, the APRA changes are only serving to reinforce the importance of cash flow within a portfolio that wishes to grow. Debt reduction rather than equity creation will now need to form a core part of most "sophisticated" investors plans in order to be able to borrow sufficient amounts to continue to invest.
    As I have posted many times on Somersoft, very big payrises, lottery wins, casino wins and inheritences are alternative ways to achieve this; but in the absence of those things, the only other way to manufacture significant cash flow is NRAS.
     
  13. Pins

    Pins Well-Known Member

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    Great post Sash

    What do you class as outer Melbourne? From how far out?

    K
     
  14. Tekoz

    Tekoz Well-Known Member

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    Hi man did you bought first stage release in Schofields / The Ponds or Edmondson Park / Jordan Springs area in Sydney two years ago ?
     
  15. Veech

    Veech Active Member

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    Hi sash, if you are getting brand new builds at 6% yeild now, how to increase the yeild on them. Also what would be the cg in short to medium term as i was thinking all these new estates will have plenty of land and cg struggles because of that
     
  16. JDP1

    JDP1 Well-Known Member

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    I somewhat disagree with the title. Real estate is an asset class. Other asset class include gold, cash , share market etc...all asset classes have their own cycles, so no singular asset class is impervious to market forces in entirety, no matter how much of it is owned. This is why punters diversify across asset classes- to become more resilient to wherever the market may be at any given point in time.
     
  17. sash

    sash Well-Known Member

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    Nope
     
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  18. sash

    sash Well-Known Member

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    The estates i am looking at are unique and they also have over 90% owners. I expect rents to go up in the short term.






     
  19. Tekoz

    Tekoz Well-Known Member

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    For a new H&L OTP how did you know if there are more owners than investors ratio ?
     
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  20. Biz

    Biz Well-Known Member

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    Only thing i would do differently here is build 4 bedroom homes rather than 3. You can get 4 bedder 19 square homes, a little cramped but from a marketing/valuation perspective it's always a 4 bedder.
     
    Terry_w likes this.