End Phase of Buy and Hold Strategy

Hi There,

My wife and I have a buy, renovate and hold strategy for high capital growth.
I am keen to hear from others what their end phase looks like post accumulation phase? How are you consolidating/lowering your LVR/increasing equity? Do you?

• Sell and invest in shares?
• Sell and live off capital gain?
• Live off the rent?
• Other?

Thanks

 

Why are you renovating them?
Is renovating them making any difference to the capital growth levels?

remember if you sell, you have to pay capital gains tax so you may have a large tax bill before you can reinvest your capital growth.

 

1. Increase in Rent
2. Manufacture Equity

Selling is an option, but keen to explore what others have done, what has worked, what hasn't etc

 

Isnt it a little early to be thinking about the later stages? You bought your first just before the coronavirus shutdowns. You dont even know if your add value strategy works or not.

The end game partly it depends on how much you accumulate and how much net you have. A lot depends on the lending environment.

 

I encourage your enthusiasm, but if you run the maths over 20years, you will probably find doing the absolute minimum will yield you the best result. Capital gains is in the land, not the sparkly bathroom.
Save your Reno money for the next property and get more properties faster instead.

 

Go with the flow .The strategy changes as often as we change Prime Ministers. If you have high growth your LVR automaticly will accelerate down. I sold a few, one 3 years ago and 2 about 6 years ago when the bank turned of the tap, for concentration and rising interest rate risk reduction, reduced drawings on LOC and started a share portfolio. then bought another 2 properties. Originally kept about 3-5 years living expenses available in the LOC. With a plan to sell a property every 5 years if neccessary that way I could keep the LOC the same and have spare cash. Now with low interest rates instead of higher ones, and increased rent, Started 2 more share portfolios, I am not paying down loans they are almost fully drawn now, in the last month have invested almost every available dollar in the shares market.

 

Property investing is a totally different ball game now, I dont think you will get the growth, and you certainly cant get the finance like you could 20-30 years ago then you could just ring your bank manager and tell him you where buying a property even on a sunday and they would ask how much do you want, when you told them they would say why dont you get more, even if you knew you couldnt afford more. Back in the day when you had personal responsibiity and banks gave personal service.

 

Not to mention tying up cash or borrowings which could have been put to better use elsewhere and the compounding effect.

 

The nostalgic eye of the youth it seems.

 

Wasn't our experience either. Maybe that's how it was for those on larger incomes perhaps, but I remember many, many hoops we had to jump through in order to get loans.

 

Just a minute here. You've bought ONE property. That's hardly a strategy. It's just one IP. How do you know there will be high CG?

It's great to be thinking end game, but property is a long and very bumpy game. You will have good years and bad years. The environment may be totally different by the time you get there, than what it is today, so think long term, but be flexible, and change with the times.

We've bought crappy properties in crappy areas over the years. Reno'd and held on. Some we sold & reinvested elsewhere. They were CRAPPY to start with & virtually unliveable, so something needed to be done. Main thing was primarily paint. DO NOT OVERCAPITALISE .

This! Many people start off thinking this is going to be a quick & easy way to wealth. Let me tell you from experience, this is nothing but quick & easy. We've just started another full reno on a trashed property. While I haven't been counting, it could easily be reno number 30 or 40. It feels like reno number 695.

If you stay the course for 20 or 30 years & you end up with a portfolio of 20 or 30 properties, you will most probably have seen most of human nature at it's worst. Made money, lost money, held on through extremely hard times, and celebrated the good times.

As your net worth starts to reach a certain level, you will need to make some decisions on how to implement your end game.

Agree, depending on what the reno looks like. I don't like spending a lot of money to put a tenant into a property. Even the good ones, often don't treat it like your own property, and when it gets tired, you've just got to do it all over again. I've never put a lot of $$ into a reno of a rental, but happy to spend more if I'm selling it.

And as @Foxdan says, the minimum will yield the best result. In fact the current reno was bought maybe 13 years ago now, in a terrible state. We did the absolute minimum to get a tenant in. We did plan on doing a much better job, but were busy elsewhere. The plan was to reno when the tenant moved out. We've just now evicted the tenant. This is the one property in our portfolio that made us feel like slumlords, but the timing was never right to do it. It's a BIG job and the plan is to sell it when done......depending on what COVID 19 has done to the market. It'll take a few months, so although things are still selling for good prices (if nice properties), that could change by the time we're through with this property.

 

I agree with the rest of what you wrote, but this bugs me.
I'm a very big believer in "Start with the end in mind"! You obviously shouldn't get too hung up on what colour your second yacht is going to be, but working out the end game is very much part of the whole plan for me and a prudent thing to do.

 

Everyone has a plan until they get punched in the face (Mike Tyson)

our plan was to work till 2021 to live off Shares and super gradually selling off investment properties in a zero tax environment to minimise CGT.

Hasn’t worked out so well so far! Sudden early retirement for me in 2019, possible sudden early retirement for my other half in 2020, the headwind of a bear market and potential property slump. Oh and the little part time jobs and consulting gigs that were everywhere are drying up fast in the face of a world pandemic!

on the plus side, the scary loans moving from interest only to P & I are now not so scary due to low interest rates. So maybe we can afford to hang on to the properties a bit longer and who knows, Brisbane could finally get some of that elusive capital gain.

I add this not to criticise your strategy or your planning, Nor to whinge about my lot in life, merely to demonstrate the need to adapt to the curveBalls life throws at you.

 

Plans should never be written in concrete/never changed or put on the shelf and forgotten about.

Plans should be a living document. But they shouldn't be modified every time the wind changes. But they should change when one's goals change, one's circumstances change, ...

I will give a quick example. We designed/built our current PPOR between 2010 and 2012. Our plan was to live in it for 20 years; every decision we made about the house was made on this basis. We moved in on 25th May 2012 (nearly 8 years ago).

In November 2016, my wife was diagnosed with breast cancer. She also had another major health issue in September 2018. As far as we know, she has fully recovered from both. We didn't have either of those curve-balls in our plans.

Her health experience has resulted us in re-evaluating our goals, etc. We have decided to sell our PPOR and move to the coast (a long held desire).

We changed our plans. We are no longer aiming to live in our current PPOR for 20 years; it will be slightly longer than eight.

 

I think it's great to have a plan, you need a goal, but be aware that plans and goals change.
My first goal was to make $1m net. Then I realised it was about cashflow.

We left our fun late so was in a bit of a hurry.
We typically bought houses, full Reno which made them CF neutral to positive from day 1. This allowed us to keep buying.

We sold half of our portfolio then retired. Money in offsets. Living off rents, some shares and some Super now.

 

The plan should be living happily with your wife, good health and happiness. Then the living at where is not an issue!

 

You haven’t met the wife - those three things I can’t control .

Plans should be about deliverables, things you are accountable (= responsibility + authority) for.

Things outside one’s control are risks/external factors. That is where risk management comes into play.