Investment strategy

Discussion in 'Investment Strategy' started by Andrew Nicholls, 22nd Jan, 2019.

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  1. Andrew Nicholls

    Andrew Nicholls New Member

    Joined:
    22nd Jan, 2019
    Posts:
    1
    Location:
    Sydney
    I have a question to anyone who has bought a Sydney Investment property, carried out a cosmetic renovation, put a tenant in, revalued, been able to access the equity from the increased value and purchased again. I hear a lot of "experts" suggesting this is a great strategy. But how does this work in regard to serviceability, the tightening of lending criteria in regard to taking on too much debt etc.

    Does this strategy only work if you sell immediately after the reno is completed to access the increased value created by the reno.

    Thanks for any help or advice.

    Andrew
     
  2. jazzsidana

    jazzsidana Mortgage Brokers - Investment Savvy Business Member

    Joined:
    27th Jan, 2018
    Posts:
    440
    Location:
    Melbourne
    Can be made if sums are done properly and bought at damn good price. But try and catch a falling knife ...

    Property market in Sydney is on decline right now. I'll be super careful and have big fat buffer to avoid any losses ..

    Cheers,
     
  3. Redom

    Redom Finance Strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,033
    Location:
    Sydney (Australia Wide)
    In general ones ability to continue doing this is relatively limited because of borrowing power limitations.

    The upside of the proposed strategy is that you may be able to 'recycle' your initial deposit again. I.e. if you have $250k to begin with, you may have a similar amount after the process (depending on the numbers & profitability of the renovation). This is because you can release the increased value of the property back out.

    The difficulty of this strategy is the ability to continue to purchase, your borrowing power will likely eventually run out. Depending on income/expense profile, this may be after 0, 1, 2, 3+ properties.

    As a general investing strategy (outside finance), it can be a bit dangerous in falling markets. Nonetheless, given market dynamics now, you can purchase assets that aren't owner occupier friendly at very low prices with big discounts from peak now. You can also sell premium grade properties at near peak prices (at least in some limited stock areas). The combination of the two is largely because theres very little investor activity at the moment. This may mean the numbers work a little better for this type of strategy now than before, but theres a high risk attached to the numbers associated with a declining market.
     
  4. NHG

    NHG Well-Known Member

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    20th Jun, 2015
    Posts:
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    Location:
    Sydney NSW
    It works with:
    a. decades of time
    b. boat loads of cash/serviceability.

    Most get stuck. Perhaps after 1, 5, or 50 properties.
    There are limits to buy-and-hold. Even with renovating, you can't access the equity without the serviceability.

    Few up-skill (build, subdivide, flip for profit, run successful business, etc).
    Basically, generate higher income.

    Question is, what are you trying to achieve.
    Do you need 50 houses. Perhaps just need 2. Can you service 2. Done.
     
    Last edited: 22nd Jan, 2019
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,561
    Location:
    Canberra, Brisbane and Sunshine Coast
    It can be....but not in a declining market unless you manage to score a bargain.

    I just had a Syd client renovate/revalue. After a fair bit of work to his property the valuation came in lower than the pre renovated val we received 6 months ago :-(

    Cheers

    Jamie