Defining a strategy

There's one guarantee - the only time you don't succeed is when you give up. The real education comes from the doing!

 

Absolutely spot on

 

Carrying on from the previous examples I listed in earlier post....

Here is my chosen investment strategy if you have not read it previously. It provides you yet another example of how I have done it.

I started actively investing in back 1999/2000 and hit it pretty full on, basically purchasing a property per year over the course of the following decade. Some years purchasing none and other years purchasing two depending upon financial circumstances and existing portfolio performance at time of each IP purchase.

To date we have built a substantial size multi-million dollar residential property portfolio spread around Australia, which has afforded me the opportunity to attain financial independence & fully exit the rat race, which I'm into the 2nd year of.

The capital growth averaging (CGA) strategy I deployed utilises a regular purchasing cycle similar to what dollar cost averaging is to the share market. The major underlying principle to its success relies upon your "time in" the market and revolves around the purchase of townhouses and villa’s.

As such the idea is to purchase good quality, well located property in middle/high density areas (metropolitan areas of capital cities), at or below fair market value, as fast as we could reasonably afford and then hold them long term in order to realise the compounding CG across the portfolio.

We chose to purchasing near new property over older style for the following reasons, in no particular order:

• To maximise non-cash depreciation deductions

• To minimise maintenance & repair costs

• More modern & attractive to tenants, thereby minimising potential vacancy rate

• Attract higher weekly rent, thereby maximising yields

Without getting into the "which is better debate, houses or Units", our preference is for townhouses & villas with a 30%(of lot) land area courtyard thus eliminating high rise apartments that only have balcony's, for several reasons in no particular order:

• lower maintenance & upkeep for the tenant

• lower purchase and entry level into a higher CG suburb

• rapid growing market demand for these type properties - due Baby boomers coming into their retirement years and having to downsize for financial & lifestyle reasons.

• greater cash and non-cash depreciation tax deductions - due to IP purchase price, thus maximising portfolio cash flow.

• able to hold more IP’s across portfolio - thus minimising suburb over exposure risks and maximising portfolio compounding CG exposure across increasing multiple markets.

Early on in our journey we looked to purchase in metropolitan suburbs with a 7% historic CG (See appendix at bottom of this post) that were approved for and/or were about to undergo gentrification...that allowed us exposure to short-middle term CG to leverage against faster. I looked to where the government, commercial, retail and private sectors were injecting money, which ultimately beautified and uplifted the overall feel of the area.

This in turn attracted people wanting to purchase, thus creating demand and putting upward pressure on prices. It also increased our rental yields due to the demand of people wanting to rent in those areas as well.

Later purchases we targeted metropolitan satellite cbd’s. We found these is be very good consistent CG areas with main arterial roads in/out of the suburb, public transport hubs, major shopping precincts, with high employment, good educational, medical & recreational facilities.. All the things people want to be located close by to and/or within easy commute.

During the portfolio acquisition stage all portfolio cash flow we serviced via wages, rental income, the tax man, equity via LOC’s and/or Cashbond structure, and any other form of disposable income we had available.

Prior to rat race exit we refinanced and topped up equity access to a sufficient level to maintain an available balance of 10-15 times our annual lifestyle expenses.

(Appendix). To give you a better understanding of how I derived in areas of 7% CG min - I required that amount as that is the CG rate requirement for an IP to double in value (thereabouts) in 10 years, which is what I'm looking for my IP's to do.

Rule of 72 is what is used to work out how long it take for a IP to double in value, given the CG. Divide an areas historic CG into 72 = years to double. ie. 72/7%= 10 years. Another example 72/8%= 9 years.

Historic CG I use is the average CG an area has appreciated in value over the past 15-20 years.. Now I know past performance does not necessarily dictate future performance however providing an areas underlying fundamentals (determining the supply/demand ratio) remain equal then there is nothing to suggest the same level of CG will not continue into the future.


@Jamestangjjj .... I hope this helps.

 

When (not if) there is a crash, floods, fire and road works requiring deviation... then you deviate.

I have set a lot of goals over time... and missed most of them. Here is a sample.

1) Millionaire by age 30 - Failed
2) Retired by 35 - (Im not 35 yet) but most likely - Failed
3) Develop a property and make 30% - Failed
4) Dive to 100m on a single breath - Not yet achieved
5) Double my income every 5years - Acheived to date - hasnt doubled though in the last 3years, and unlikely to double in the next 2 (Failed?)

So currently I am hitting 1/5. Does it matter? Not really... Why?
1) I hit a million in equity aged 32 (I might have dropped under the mil again atm - but that is short term).
2) Im unlikely to be able to retire at age 35 based on current forecasts. I will be 37.
3) Developed a property which failed to make a single $. I might have broken even if Im lucky (this was well documented on SS forum). It gave me 3x properties at 70-75% LVR and +ve geared.
4) Im still working on it. I have previously hit 55m but have been out of training for a number of years due to other priorities. Its shelved for now.
5) I doubled my income 4x in 10years. If I hold steady at 4x in 15years its hard to claim this isnt a win (do some quick maths!).

Ive faced as many obsitcals as anyone. Mostly put there by myself. I guarantee if you dont have a goal to work towards, you will achieve it.

The risk does not lie in setting your goals to high and missing them but rather setting your goals too low and achieving them.

Blacky

 

No such thing as failure unless you don't learn from the experience, @Blacky

 

Oh, I dont make the same mistake twice... I make it 4or5 times just to be sure.

 

Thanks for this whole post Blacky - super valuable. Summed up to a tea also.

 

Awesome posts guys, its real inspiring stuff for a property investment newbie like myself

 

You can drive an amphibious vehicle, really slow, stop every few kms and have a good look for any dangers, and proceed with caution - it will you a long time to get there.

You can drive a Ferrari really, really fast. Maybe you'll make it there really quick, if at all!

Or you can travel somewhere in between that suits the amount of risk you are prepared to take, in order to get there in a time frame that you can tolerate...

Cheers,
Inertia.