Buy and Hold - Accumulating Strategy. Does it still work now lending is tight?

Discussion in 'Investment Strategy' started by Jasper, 31st May, 2017.

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  1. Jasper

    Jasper Well-Known Member

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    Looking at buying my next IP with Open Corp.

    Do you think the "Buy and Hold - Wait for Capital Growth to Buy and Hold the next" still works now that lending has tightened up?

    If not, what's a better strategy?

    Thank you for your input.
     
  2. Perthguy

    Perthguy Well-Known Member

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    Depends on how much of a hurry you are in. If you can wait, it's a good strategy.

    A better strategy might be to wait for a market to start rising, wait for a boom and then sell. Some parts of Melbourne increased $300k from 2015 to 2017. But how do you know a market is about to boom? It can be a bit of a gamble. In which case, is it a better strategy?
     
  3. adam duckworth

    adam duckworth Well-Known Member

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    with the fact that banks are making it hard to go IO on investment loans, and interest rate rises, holding costs would be higher. Making outgoings quite a bit higher? my strategy is buy to renovate to make instant equity and be able to rent the house out for a higher price to cover P&I payments, or interest rate rises should i have too. (or atleast some of it)

    And because I'm impatient and want immediate equity :D
     
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  4. Sackie

    Sackie Well-Known Member

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    Quickest way to create equity is by adding value but the downside is you need a lot of equity to start as well as have the passion to be an active investor and willing to have a medium to higher risk profile. If you got all those things then all you need to do is search for the right deal.
     
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  5. Perthguy

    Perthguy Well-Known Member

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    I hear you. I have renovated every IP I ever bought. It's a good and effective strategy.
     
  6. adam duckworth

    adam duckworth Well-Known Member

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    How're you finding it with lending, one IP after another, in the current financial state? Are you keeping under 80% LVR on your loans?
     
  7. adam duckworth

    adam duckworth Well-Known Member

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    Well I plan on being very active in my investments, and hopefully doing it full time as a professional in the coming years.

    Bricklaying is taking its toll on the body already :(
     
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  8. Ross Forrester

    Ross Forrester Well-Known Member

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    Who is "Open Corp"?

    Why are you giving them money?
     
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  9. MTR

    MTR Well-Known Member

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    Or just wait till you see it rise, normally booms last 2-3 years

    Melb started booming in 2013 still strong, you dont need to get in when it begins but as soon as you identify the rise
     
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  10. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    It does for those on very high incomes only. For average incomes generally speaking you'll be limited to between 2-4 properties max with a B&H strategy. Unless you're happy to have a heap of lending with Liberty, in which case you may get a little further.
     
  11. Invest_noob

    Invest_noob Well-Known Member

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    @adam duckworth @Perthguy what kind of renovations do you generally carry out to increase the equity and rent? Let me guess:
    Fresh paint
    Upgrade kitchen
    Upgrade bathroom
    Patio
    Floor tiles
    Is that right? How do you estimate the cost/value added/rental increase?
     
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  12. zlatan9

    zlatan9 Well-Known Member

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    MTR - interested in your views on what indicators you place most weight on in identifying a rise.
     
  13. adam duckworth

    adam duckworth Well-Known Member

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    This is only a plan of mine, I have yet to put it into practise, only plan on buying in the 300k range and spending maybe 10k on a quick Reno (cash) Doing the things you stated. In an uprising market can really help with a quick equity gain. I look up to taku for inspiration. He's done well with this strategy. But might be a bit harder to do in today's lending Criteria. @Jess Peletier, she is the guru here on lending :)
     
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  14. adam duckworth

    adam duckworth Well-Known Member

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    I see people talking about open corp on here a lot, I wanna know who they are too
     
  15. Perthguy

    Perthguy Well-Known Member

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    I haven't gone for a loan for ages so I have no idea. I am in the middle of a big restructure of the whole portfolio. By the end the whole thing will be low LVR and high positive cashflow. It will take another 12 months. After that, who knows?

    >> Are you keeping under 80% LVR on your loans?
    Way under.
     
  16. Perthguy

    Perthguy Well-Known Member

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    I generally do: paint, kitchen, flooring. The current reno is paint, flooring, add a new bathroom. Huge job but very much in demand in the area.

    For cost, I work with an investment partner and we DIY everything we can. Our projects don't have a budget but they are buy as much on gumtree etc, so done cheap but appropriate finish. For end rent, check comparables in the area. For equity uptick, I like to leave the equity in place, so I don't bother with revals.
     
  17. highlighter

    highlighter Well-Known Member

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    I think this strategy is pretty risky right now. I think it's vital to choose quality assets like family homes in good areas, preferably where you can add value, and you need to look to places with good tenancy potential long term.

    There are an abundance of signs, especially around credit availability, that suggest many cities could be nearing their peaks and there's a good chance many will experience a correction which , really, is long overdue. Realistically, it's just how markets work.

    All this shouldn't discourage investing but it does mean the buy and hold strategy no longer works well, it's no longer enough to just coast on through. In a falling market, quality is everything. Look for what your competion for an asset will be, who else owns identical assets. If there are dozens or hundreds of identical properties to yours, and they are selling at a trickle, you are probably buying garbage.

    Remember in a correction, the assets that suffer most are the oversupplied assets especially where recent development has been extensive. Look instead for closely held suburbs, where families want to live, where owners are mostly paid up on their mortgages so have less incentive to panic, and where people will compete to live. Those are the assets that survive corrections.

    Also, if you pay attention to markets that have corrected and are dominated by buyers, these assets also perform better in that when buyers become picky you need to have something solid to command a decent sale price when the time comes. People come to expect discounts after a market stalls, but if you're holding a great asset you'll be secure in the knowledge that there will always be a buyer.
     
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  18. Sackie

    Sackie Well-Known Member

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    Hi mate,

    Yeah I can imagine bricklaying will takes it toll on the body no doubt. When say 'doing it full time as a professional' are you meaning an industry change to working in the real estate industry? Because generally for most people working on your investments full time doesn't yield a liveable income unless its also a business eg reno and flip, development and sell etc or you have a very low LVR which as significant weekly cash flow.
     
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  19. adam duckworth

    adam duckworth Well-Known Member

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    I
    Yeah the back is starting to hurt, and the wrists...and the fingers....:D

    No not as an agent or anything, as a professional investor, Hoping to have A very large portfolio yielding 5-6% across the board, passive income is what I'm Looking for (rental income) plus cap gains potential. if I can have 20 properties making 80-100 dollars a week after mortgage payments (not accounting for rates etc) I would be able to partially retire from bricklaying, concentrating on buying more investments with high yield, I definitely will have to choose the right properties for this, after the residential income is high enough, and I have enough equity I want to get into commercial realestate for the even better yields.
    Throughout the buying process, if the land allows for it I will do developments and possible flips to lower LVRs if need be.

    This is obviously just a skim through my plan, I have a detailed goal list set out to be able to achieve this. It's just whether the banks are willing to lend to me as consecutively as I would like.

    And a major one is IO loans, if they are making them hard to get it's going to be a lot harder to achieve if I have to pay P&I, which is why under 80% LVR is a must
     
    Last edited: 14th Jun, 2017
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  20. MTR

    MTR Well-Known Member

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    immig
    basically its volume at the end of the day, the stock on the market versus the demand.
    Real estate agents will tell you there is not enough stock. You will also see properties selling in a very short time frame, also multiple offers.

    Immigration (number 1 Melb), no wonder its booming
    Strong Economy/jobs = growth
    Strong Market sentiment - (this is changing, more negative reports in media popping up)
    Demand outstripping supply = BOOM
    Low interest rate environment - this is changing (watch this closely)

    There must be more, these are the main that I follow
     

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