Changing the Game as Finance Gets Difficult

As APRA tightens the noose....the footloose and fancy free days of finance are over. Accordingly, investors need to get ahead of the curve. Here are some of my ideas to address this:

1. Substitute securities, ideal time to sell in Sydney/Melbourne and replace them with markets which are headed up- ie. Brisbane, Canberra, or Hobart

2. If you are a first time investor....consider buying quality properties instead of CF properties...the next few years you will lots of equity to continue to grow. Investors will increasingly need larger deposits

3. Consider flipping after renos.

A lot of people have asked what I am doing...I still buying but I am also selling some of my non-performers (well have reached their full potential). I have 3 targeted to sell next financial year...this should reduce debt levels by at least 700k. Interesting times indeed....

The ones to watch are who have done no planning...and hit the I/O cliff........they will be serious trouble...if they do not plan or have large cash reserves.

 

^^^ this. Trouble for some. Opportunities for others.

 

Ummm, maybe pay down debt could be an option.

 

Diversify to the stocks go generate some cf

 

Yes an option....but a zero sum game and it is not going to build wealth. You need to change the game if you want more wealth. This is do nothing strategy.

Agree...it requires thinking outside of the square.

 

Definitely...another option....already doing this with top 15 fifteen ASX stocks...the Dividend growth has been impressive....the share growth has been even better.

 

I am waiting for stock market to crash

 

Yep...another correction...and my mullah goes in.....

 

Yep, I have been selling my entire portfolio lately, looking at new ideas. I won't make a doom and gloom thread but will enjoy the ride from the sidelines.

 

How does this aid servicing if you buy properties producing 4-5% yields where the debt is assessed at 7.25% P&I and between 70 and 80% of that 4-5% yield is used by lenders for servicing.

Its all great until you hit a servicing ceiling and your loans revert to P&I ... you are relying on picking superstar winners in order to be able to make enough profit to exit, harvest post CGT profit and reduce enough debt with whats left over to be able to re-enter.

If you focus on strong cash flow and use it to reduce debt, it's another ( albeit slower) way to create equity, but it will simultaneously improve borrowing capacity... again, slowly...but slowly and surely beats not at all.

 

I am just waiting and it will be in SMSF

 

CG will add to another deposits....but also gives the option to take profit and do it again in another growth market.

Poor quality assets are not a good idea...

 

Currently renoing and selling off a few. One step backward for 2 steps forward

 

Smithfield and Lizze stuff?

 

You are assuming growth will replicate the performance of the past 2-3 decades... I doubt that in an environment where LVR's and I/O are being so severely restricted. Leverage needs to breath to work at its full potential. You benefited from an environment where oxygen was being pumped into the market year in and year out . APRA has placed a hand over leverages mouth and it isnt getting the same oxygen it once was... There's nothing wrong with what you are proposing when the credit environment is extremely expansionary , but in this new world it will require quite a deal of luck and you cant afford any missteps at all or you will be snookered.

 

The problem with this statement is cash flow offers you far less leveraging power today than it once did.

Any purchase made with a 6% yield today will reduce your capacity going forward. Previously a 6% yield and you could recycle your borrowing power x 6-10 over and over again by swapping lenders. This meant the 'yield' you got was crucial to growing a large portfolio size. See 50 stories in Domain, news articles, etc about 30 something year olds with $5million portfolios. Easy.

This obviously attracts investors as it sells the 'dream'. But the reality is your not building that portfolio size that pays for itself with 6% yields anymore. The additional yield you get may get you two more under your belt, but its not going far beyond that.

Today is completely different. A 6% yield doesn't offer you multiples and multiples on your borrowing capacity anymore. It may offer you one more cheapie to the portfolio overall, but not 10x numbers that were applied in the past.

In my view, this change in financing requires investors to adjust as sash has mentioned. Now is a time to harness your limited borrowing power. You have less of it. Focus on quality, not quantity (because quantity won't get you much further!). Use it well.

That doesn't necessarily mean yield assets are bad, they can indeed be far better than growth assets as they have more certain return profiles. Yield has a quality attached to it, its part of your return profile and more certain. This is definitely worth factoring in investment strategies, particularly in a low growth environment.

But walk in eyes wide open and note that cash flow doesn't offer you leveraging benefits it used to. So statements like 'cash flow increases your borrowing power' are weaker arguments today than they have ever been.

 

Just wait for the ones who have signed up for off the plan properties.

 

That's all he owns soo yea lol

I just sold in Lizzie myself to reduce debt. Not sure what to do now though ...

 

Wait for them to do what exactly? I am reselling two of mine before settlement at $65k gains each post stamps. The stuff I have replaced with have already gone up $10k each in two months.

Read a research article on growth corridors @sash and Melbourne outer growth areas are almost at an avg land price of $300k with prices increasing $10 an hour. I am making serious money without even going to work. You must be killing it.

 

Did you just buy the top 15?? Easy???