Increase capital base quickly

Hi guys,

I understand that in property investing it is important to increase the capital base quickly, that is buy as many properties as possible in a short period of time. The idea behind this is to get more exposure to the market forces and great capital gains.

However is this approach relevant in all economic conditions? I suppose a good example is current market and economy conditions, where IR's are most likely to continue rising. Or is it better to use the principle of "dollar cost averaging" and invest your capital over several years?

Thanks!

 

- Take on 2nd job or do overtime.
- Work on improving your earning capacity.
- Put some elbow grease into renovating a property using mostly your own labour.
- consider whether business will be better for you than working, or potentially even both.


These all either give you cash or equity which enables you to use as a deposit on another property and increasing capital base.

 

How long is a piece of string?

If you are buying volume with no consideration for market conditions it will be hit and miss, average results and you will need a huge amount of luck.

Exposure to many capital markets is good but timing the market is far more important if you are trying to increase capital in shorter time frame

Si follow the rising trend or manufacturing growth i.e. Best use of land, developing property this can also work well and go from passive investor to active investor

 

Another approach if you can fund all your property loans from your salary is to reinvest all your investment ( rental ) income.

In this scenario if you have say $2000 spare each month, you can invest these excess funds in income-producing shares/ETFs/LICs. A 5-7% grossed up yield is readily achievable with the right investments. If you buy good income-producing shares/ETFs/LICs at obvious market dips you can also quickly grow the capital base. Just have sufficient diversification. It's an entrepreneurial approach but without setting up you own business.

Within 1-2 years you will have a deposit for a modest investment property or a H&L package.

 

I suspect this may be more relevant to someone who has been doing this for a while and has a big portfolio already.

So, lets say you are starting out and have a couple hundred k in cash and no properties.
You don't know what will happen in the future because your crystal ball is broken (I hate it when that happens).

Here are some scenarios to consider that will happen.

1. market levels off for 3 years before starting to slowly rise (takes another few years before it starts rising well)
2. market drops about 20% and stays down for 5-7 years
3. market continues to rise for 3-4 years
4. prices go up for another 1-2 years, levels off and does not go up or down for 3 years, then starts slowly rising again.

Your choice right now is to buy something or wait.

Waiting runs the risk of #4. You missed out on 1-2 years of profit, it does not go down and at what time do you enter? You enter 5 years from now meanwhile you money is earning 1% over inflation?
Waiting also runs the risk of #4
Waiting did very well against the worst outcome (short of a recession) with #2 and was not really good or bad regarding #1

Buying now runs the risk of a major correction (#2)
Buying does well in options #3 and does ok in scenario #4

For someone such as yourself who has a whole heap of properties, you can sit on them and see how your portfolio goes.
For someone who has none and some cash handy, waiting for market conditions has it's own risks.
Shares suck because if the property market is ripe in 3 years, your shares might have dropped and you can't take it out anyway.

I do agree that if you have the time and inclination, then some active developing would be very helpful.
But if you don't then I think saying to wait for a better time is probably better for someone who currently has a bunch of properties, but it ignores the problems of someone a little cashed up with none and waiting for 3-5 years when it could end up missing some gains and a place to stash your cash and have the property start paying itself off would be a mistake.

Not everyone is in the same boat as you.

 

Sounds like a bad idea to me. Quality not quantity. Everyone seems to be in such a rush these days. After you have been around a while you will read stories of people who rush, fly high, crash and burn. Remember property investing is a marathon, not a sprint.

No. You need to adapt your strategy to the economic conditions.

 

I think in these conditions if you have a few properties (especially if you bought them all within the past year or so), then waiting seems like a decent idea because you are actually hedging your bets.

If the market continues to rise, you already have property that can profit from it.
If the market falls, you avoided buying multiple properties in a short time frame at the peak when they all drop in value at the same time.

I think if you bought 1 or 2 in the previous 12 months, then waiting seems like a decent idea.
If you have not, then buying now is probably ok (as long as you can service it if the rates drop)

All of this is for long term B&H by the way, not for speculative players.

But of course, there is the worry of more APRA changes meaning if you don't buy now, maybe plans to buy in 1-2 years will end up meaning you can not buy for 4-5 years (who knows what other changes are coming?). So there is also that spanner thrown in to make it even more difficult to decide.

 

Nothing to do with how many properties you have or I have, but more to do with resesrching markets to identify those with low stock and high demand.

Plenty of Members on PC will give leads, many posts on booming markets over the last 4 years. infact we have had 3 booming markets in Australia during this period would you believe

It's very easy to find out what is happening on the ground, make sure you phone many re agents to keep them honest and to get a handle on the market.

You probably have missed the boat with Syd.?

Melb, 20km middle ring in Melb can still represent excellent value up to 500k, less risk, fhb/investor mix....which is still hot. When will it peak not sure you could have 12 months? Don't know?

In terms of crystal ball, you don't need one when jumping into rising markets because the evidence is clear, low stock, multiple offers, high auction clearance rates, daily media hype

however we can not predict the end/peak but we should pay attention to signs that may change market sentiment. The idea with boom cycles is to get in early when the evidence is clear

I am not buying in Brisbane or Adelaide because I don't see a rising market, though I understand some suburbs are doing OK?

For newbie developers I would start small, consider any properties where you can add value ie build at rear, sell front. By selling the front you take your capital, reduce risk and fund new build. Numbers game. If you can not sell the new build needs to be cash flow positive and you be able to access equity

Increasing capital in short time frame is also about strategising so you can continue to service debt, no bank loans, no properties. If you need to sell to move forward so be it, whatever it takes to continue to move forward

At the end of the day whatever works, plenty of other strategies that have made investors wealthy.

 

Couldn't agree more!!

Transitioning from a passive investor to an active investor, developing/manufacturing equity is a great way to increase capital in a shorter timeframe than buy and hold.
Doing it in a rising market supercharges your capital increase.

All comes down to being able to read actual market conditions away from the hype and timing.

 

100% agree with this. Best way to increase capital is to develop, and if you can live in the existing, reno that and sell, and move into the new build, it can be quite tax effective also.

The keys are to be able to keep borrowing - no money means no purchases, and at the moment that means reducing debt as you go, otherwise it doesn't take long to hit borrowing limits.