Capital Gains vs Cashflow

I find it hard to see how so many people build a large portfolio so quickly. I'm ready to buy my third but I'm concerned about the cost of holding once those these revert to P+I loans. My places pretty much look after themselves currently at IO.

I'm paying some debt down as I go. I'm not in a position to raise rents right now either. Is it best to prop these places up by paying down debt or building up the offset accounts so the are cf positive even when the p and I loan kicks in?

 

TBH most investors (if we're talking about all property investors in Australia) do not build large portfolios and certainly not quickly.

PC is a highly concentrated place of a certain caliber of investor.

 

Sheesh, I'm not exceptional at all, & if your numbers are similar to Sash's, then you too are holding a large portfolio. It's possible that you could sell a few & retire yourself. Although maybe the only exceptional thing about me was the number of properties that I was holding in Sydney......although I've had gains all around the Country, it's the Sydney ones that have been the stellar performers.

I think the difference here is that you say that the yield is a byproduct, whereas I look to the yield as a bit more important, I think. I don't think any of my properties have had a yield lower than around 8% on purchase price. Getting taxed on the cf is really not an issue. Over the years, we've claimed losses each year, due to depreciation.....of course, now that there's no other income to offset it....and even less deductions due to the amount in offsets, we get taxed.....but the income is split in two.

Another thing to note is that I took a long time. Although I don't know what you have, when, or where you've bought, I'm getting a feeling that your income is larger than ours ever was, which means more buying power. I could be wrong, but I also presume that you've been doing this (buying property) for a much shorter time, so some of your rents won't be as mature as mine.

We bought our first one in 1998......and we still have it. It was a nice little brick place at Ambarvale (Campbelltown), that we bought for $90500. Today, that rents @ around $400pw, so the surplus on the older properties is very high, but even the newer ones in the portfolio are churning out cf as well.

So, yes, CG is important, ultimately it was the CG that allowed hubby to retire, but we could not have done it without looking for good CF.

Yes, I've sold down several Sydney properties, but the LVR BEFORE I did that was low too. Now sitting with quite a few offsets in place & LVR is much, much lower.

Yes, timing the market will do wonders.....but so will time in the market, like my above example. That $90k home is knocking on $600k now, so it has seen more than one boom. We were certainly NOT an overnight success, but knew that property would eventually do it. It's something that we knew & understood, where shares & CIP are not something that I'm comfortable with.

 

When I say large I'm talking say 8-10 properties. Plenty of loser 'caliber' investors achieve this.

 

Just when I convinced myself that I was on the right track and doing OK, I now find out that I am STILL a loser .

This property investing is such a hard job.

 

By and large I did get the timing (and entry prices) right, but the trick is just persisting with them through thick and thin.

I know we sometimes disagree on this philosophy but personally I detest the amount of leakage that takes place when you buy/sell (in Australia) whether or not I pick the top and bottom.

What I tend to do is buy at the bottom and top up buffers/hoard cash during the peak (if I can - thanks APRA) .

 

Many investors holding 8-10 properties in the loser category???

Ooooooookay buddy.

 

Common don't pretend like you didn't know...

 

Impressive numbers skater and your purchase def trumps my 1st in terms of growth/yield performance. Do you recall what it rented for at time of purchase?

 

You should be looking at the net worth of the portfolio and not the numbers of properties. You can have a 2 million dollar portfolio with only 3 properties or a 2 million dollar portfolio with 6 properties.
There is merit in both scenarios but either way you put it, saying that someone owning even one IP is a 'loser caliber' investor is a pretty ignorant thing to say.

 

Zzzzzzzzzzzzzzzz.......

 

That is correct ...but it is mainly the residential investors persons that focus numbers
Industrial investors focus on m2
Commercial on net income
I focus on net profit!

 

Rubbish...just absolute rubbish.

Getting an extra $50 a week or 2.5k a year in CF+ will take you about 10 years to get 25k (I will be generous and say 30k for compounding savings & increased rent). Less tax = 20k (assuming 30c/$)

Lets look at what Ballarat Central has done in roughly in that time.
2009 - 285,500
2016 - 376,000
CG = $90,500

Total return = 90.5 + 20k = $110,500

Compare it to Rosanna (suburb of Melbourne) which was pretty much double median in 2009
2009 - 584,500
2016 - 968,000
CG = $383,500

But being CF- at $50 pw or -2.5k p.a so after 10 years -25k (note I have not increased the rent on this)

Total return = 383.5 - 25k = $358,500

So the CF+ since 2009 comparing Ballarat (stable CF+ area) gained $110,500 or for two properties would be $220,500 return from initial investment of $571,000 which % return is 38.6% return.

Or the CF- Rosanna suburb returned $358,500 from initial investment of $584,500 or 61.3% return and remember I haven't included rental increases but did allow on the CF+.

I would much rather 61.3%+ return than a 38.6% return from the same period or for additional $13,500 investment you walk away with additional $138,000. Must be a new kind of stupid.

I could of taken an extreme example of the CF+ mentality by using mining towns (which very few people will get it right or even using Broken hill which btw the median house price in the same time has gone from 120k -> 105k = 15k loss or 14% loss (before income). Along with I could of used better gains from Sydney comparisons but trying to keep it as even as I can.

So rubbish...just absolute rubbish. Please tell me how you can make a CF+ get more CG as typically this has been done for you (as dual occ cannot usually add a 3rd unit on the block), as I can tell you how a CF- property can turn into a CF+ investment (development, renovation).

I am by no mean suggesting people buy in Rosanna now or Sydney but CG will make you rich CF just lets you hold/maintain it. The hardest part of starting a portfolio is having the capital, the hardest part of building on top of an established portfolio would be cashflow. Hence why you need both but I would favour CG as you can change a CG into more CF through development when needed but a dual occ or unit cannot be developed further for CG.

E.g. My latest purchase has a renovated house on 1,600m2 of land, I got the house for about 30k more than the land 2 doors up. I can now choose when to develop to increase the CF but it will return greater CG than the CF+ property in the suburb but in 10 years it would be a no brainer to develop as my land isn't going to cost me any more than today's rate. Where as buying a 400m2 TH would mean I have to buy another TH on 400m2 at the price in 5 years time and another TH in 5 years later for the price 10 years from now. Where as the construction cost will likely go up by not by the same extent and with the new budget I will be able to get the full depreciation compared to buying in 5 and again in 10 years.

Yes I must be stupid targeting CG over CF however no one that is saying look for CG is saying ignore CF.

 

So....you're a loser if you have 8-10 properties?

So, fess up.....how many have you got? Are you a loser or are you better than that....or don't you even have that many yet?

That is by & large the hardest part. The midway point when times get tough.

Yep! It first rented for $185pw.

 

@Big Will , with the CG property, you have to sell the property to realise profit so you will be paying CGT(planning ahead might help with this though).
Correct me if i'm wrong please but the CG numbers won't be the same if you include CGT which would be almost 90k from a brief look(considering an 80k yearly income) so your returns are very much diminished after tax(still better then you Cashflow example). Also, with a Cashflow property, once the mortgage is payed off, the property will be a nice income earner for as long as you need it too and if you sell you would have a bit of CG to top it off.

I am more of a CG 'investor' and my way around cashflow is simply to either have at least 20% deposit or start paying off the mortgage hard for a year or so and then pretty much let the property take care of itself.

CG vs Cashflow is a misleading ultimatum (not taking a punt here...)

 

I started a recent thread only 0.8 % hold/rent 5 IPs, it aint getting any easier with current financial climate, and we are talking resi.

@Beano is in a different league

 

Not sure if we'll ever see those sorts of returns again!

 

CG V CF...always end up in a head lock...sigh!!



and always end up dead..

 

Let me just throw a spanner in the works

Capital First
Grow Capital First

 

I love Steak!