Capital Gains vs Cashflow

It is a struggle to build a large residential portfolio as the net yields being so low (i have brought as low as 5.7pc net)
Hence you may need to add commercial property to your portfolio where net yields of 10pc plus are not uncommon.
But like most investments you do have to be patient
Many of my residential tenancies are reviewed 7 to 8 yrs while i have one commercial that the review will be in over 12yrs
Hence you need to obtain the investment at positive net yields at the very start
If you do not add value (like other PC investors ) i do acknowledge the road is long and there will not be many that reach one to two million net profit.

 

Agree that's the reality.

I don't know where this wave of "I can build millions of dollars" in 7 years from property and shares comes from.. it seriously, seriously aint so easy.

 

Unless you are already seriously cashed up!

 

Mate - all well and good to try and qualify your position now, but this comment ..... "CF+ generally doesn't give you options" was unqualified , generic, not supported by any form of sensible argument and was as such, rubbish.

That doesnt mean I suggested you were stupid for targeting CG. That must be an entirely different conversation you imagined. I suggested the unqualified one size fits all comment of "CF+ generally doesn't give you options" was stupid. Because it is.

Now, when you come at me (a guy with a $10 mil portfolio generating over 350K net) with anti CF+ arguments, be sure to have your numbers right. Really right. Be sure you bring more than just generic examples of pre CGT profits -that have to be sold to be realised by the way - and which are based on growth achieved in the era that predated APRA 1 and predated APRA 2 - when anyone who could fog a mirror could get I/O money for as long as they wanted, when LVR's were readily available at 95% + LMI tyo anyone who asked, and where no docs and lo docs and sign here, how much would you like? was everywhere.... Also be sure you account for the compounding power of debt reduction that you've conveniently ignored , which didnt used to matter back then but certainly matters immensely now... and also try and do better than $50 per week in defense of your arguments. I play in the $160-200 per week per dwelling space - net.

I could be rude and ask....Big Will, what is the value of your portfolio? Whats your net equity position? Hows your borrowing capacity looking these days? What sort of income does your portfolio provide for you in the event that you were forced to P&I tomorrow? Or do you need to sell things to ever get ahead? What happens if the CG you expect to get, doesnt come along AND you hit the P&I cliff? Do you have a Plan B ?In other words, why should anyone be listening to a 30 year old who may or may not be someone worth listening to......?

Instead, I will simply say... very very different ingredients available today, so you cant expect to bake the cake the same way you have in the past. In the end, lots of people reading these forums are trying to navigate a dramatically different lending landscape than has ever faced investors before. Thats not hyperbole or exaggeration- its just the way it is. For those people in particular, making unqualified comments that imply there's little or no use in cash flow, whether to assist with reducing debt or even just to help them hold on to assets already accumulated - is poor advice.

I understand the argument you are making, but its underpinned by an assumption that growth will keep coming at levels you've experienced in the past. So again I would ask.. whats your Plan B if that doesnt happen, and your loans revert to P&I and you cant refinance them ? How does strong cash flow look to you from that prism?

 

Was meant to say lesser as in lower income investors or newbies.

 

Typo mate. Was meant to say lesser. No offence meant.

 

All good my friend. Makes perfect sense now buddy.

Though I do still believe that most people who are holding say 10 properties, they generally are not too newbie(ish.). Although really the number of properties is not that important. It's more the overall portfolio value. Where the number of properties becomes important somewhat is where the portfolio has diversification to reduce the risk of having say 2 assets worth 5mil each. Yield wise as well as for a few other factors, its not the greatest idea to have that much value in 1 asset, at least it isn't to me when I consider risk.

 

Perhaps ...you need to look into the details of the property first.
Multi tenanted, large land holdings, large tenant investment in the property, prime location reduce the risk .
All the while looking at the total portfolio.

 

I guess I don't like to have a high concentration of tenants in one area or assigned to the same asset. Having a good location would reduce the risk I agree, though overall I feel more comfortable with a more diversified asset structuring, considering what the bulk of my portfolio is made up of.

Also I think generally for a lot of people who will be investing in residential, I personally wouldn't recommend having too large an asset in one area and would generally be leaning towards breaking it up. But then it depends on a person's risk tolerance and how their portfolio is structured in other areas. I think for commercial assets its a different ball game somewhat.

 

Yeah ...the poor performance league
(My average CG has only been 54% ...not very good for someone who has been investing for more than 25yrs)

 

54% CG over your entire portfolio?

 

Is the bulk of your portfolio residential?

 

Yes it is quite shocking ....the purchases span over 25yrs
The CG is large. ..just the % is low (the volume has made the number large)
But also surprising is the cf the properties have and is generating .... .the interest rates post GFC ...not skill being the main contributor
Also surprising is how little savings from salary has contributed to net assets.

 

Although I am a strong avocate of cf+ historically i acknowledge has generated substantially more wealth than property net profits and salary had been the poor cousin
Going forward (salary is gone now) CG ( 3%pa) looks like will be neck and neck with net property income (3%pa)

 

CG whether 1mil over a couple of years, or over 50, or 50% over a couple of years, or over 50.....is irrelevant, if it is paying more money than you can spend to have the lifestyle you want.

 

Even when you aim for CF ( ignoring CG) the CG still come....higher than CF

Yes that is correct
My aim to have safe and easy to manage portfolio hence the change to ground leases.

 

I'm not sure I should be taking offence to this or not!

FWIW, we WERE lower income when we started out. Still on a low income when we had 8-10 properties. Way more than that now.....and retired, not on a low income, living on rents from those loser properties & more.

 

Why quibble? Consciously have a mixture and you are done!

 

@Beano
Yes mate. All my holding in Australia/Europe is residential and then in Asia about 50% split for residential and commercial.

I've been an equity focused chap from day one.. just been my thing.