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Is buy and hold really such a good strategy?

Discussion in 'General Property Chat' started by Xie, 14th Aug, 2015.

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  1. Xie

    Xie Well-Known Member

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    Hi Members, I was reading Steve McKnights From 0 to 130 Properties in 3.5 years - Revised Edition and was surprised to read, in the section 'The Truth About Negative Gearing,' the following:

    'The 50% capital gains discount works better for those who hold for just over a year (or a few years) because inflation has less on an impact. Those who hold for decades suffer significant inflation erosion of their profits without being further compensated by the tax system.'

    Just wondering if I can get some clarification, comments around this quote.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Well, it is true really.

    Imagine you bought a property for $100,000 now and it was worth $300,000 in 10 years. You would think you made a profit of $200,000 but that $100,000 would be worth about $150,000 in the money of 10 years later because of inflation (approx 4% per year).

    But everything else would be effected as well. Your pay rises may be pay cuts when inflation is taken into account.
     
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  3. THX

    THX Well-Known Member

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    2.9% has been the average inflation rate over the past 15 years. Sydney Median house price in 2000 was $287,000. This past July it was $1,000,000. 286% increase over 15 years, growth of 8.68% per year. (Past results do not indicate future results :D )

    *corrected my drunk maths :D
     
    Last edited: 14th Aug, 2015
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  4. FireDragon

    FireDragon Well-Known Member

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    How did you get 16.5%? If it's 287K to 1M in 15 years, I thought it's 8.67% compounded annual growth?
     
  5. twistedstats

    twistedstats Well-Known Member

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    I don't really agree with this because 1) rental growth should offset inflation 2) inflation would have similar effect on other assets (eg: shares, bonds, another property) and 3) t-costs erosion would overwhelm inflation erosion on property on a 1-2 year holding period.
     
  6. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    It's certainly been good in the past.
    Who knows if it will be as good in the future...

    Personally, I don't think you need to analyse to that much detail when considering buy and hold, referring to the statement in the OP.
     
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  7. Scott No Mates

    Scott No Mates Well-Known Member

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    Isn't that the reason you do due diligence before you buy including a full DCF & NPV? If you know how much you are going to make based on the law of diminishing returns you will know when it is best to sell to maximise your gains.
     
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  8. MTR

    MTR Well-Known Member Premium Member

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    Steve Mc always takes profits off the table, he times the market and moves in markets that are rising, he goes in early ie NZ, USA, Melb regional, this strategy will always out perform long term buy and hold.

    MTR
     
  9. Be Developer

    Be Developer Property Developer Business Member

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    Xie,

    Agree with @MTR

    Other part of that tale is that he sold all of them and re invested again..
    (Not sure if it is true or not)

    Then he went on to investing in US and have successful US property investment fund.
     
  10. MTR

    MTR Well-Known Member Premium Member

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    I suppose B&H strategy is just going to get tougher with APRA because I believe some lenders wont allow investors to access equity and LVR to buy is now greater, this will slow investors down.

    MTR:)
     
  11. Azazel

    Azazel Well-Known Member

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    Well he used to, now he seems to make his money sprui.... I mean helping people at seminars ;)
     
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  12. MTR

    MTR Well-Known Member Premium Member

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    they are all spruikers, he has set up a management fund for US property/commercial, last I heard raised $10M, he get % for managing, buying etc, he is in the big league now, no need for resi property, that's just peanuts for him.
     
  13. Azazel

    Azazel Well-Known Member

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    Exactly, use someone elses money, for 'the least risk' he talks about.
    At some point when your email list is that big you can convert a certain percentage of those leads into sales - especially for your invited 'guests'.
    Not need to bother with residential property.
     
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  14. Scott No Mates

    Scott No Mates Well-Known Member

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    $10m doesn’t go far in any market unless that's been leveraged to $50m (@20% deposit etc).
     
  15. MTR

    MTR Well-Known Member Premium Member

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    I don't know Scott, I would not touch the stuff, no control? I guess when you are buying in USA with 70% discount on property perhaps it does go a long way, I believe he is buying low end feeder stuff (commercial)?
    Wonder if anyone of forum jumped into this??
     
  16. Scott No Mates

    Scott No Mates Well-Known Member

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    Personally I wouldn't touch it but I'm too conservative; )
     
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  17. sash

    sash Well-Known Member

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    Nah.....don't do it...it has made me very poor.....specufesting is the way to go.....:p:D
     
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  18. Azazel

    Azazel Well-Known Member

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    I went along to one of his events where he promised there would be no "sales fest" (sure enough there was indeed a "sales fest", but that's a topic for another thread), and I'm sure it seems good to the Mum & Dad investors who may have been stung buying OTP and want someone else to hold their hand and organise everything for them. Someone's got to take their money for them.
     
  19. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi,
    Interesting point but true... I only have a couple of investment that I intend to hold... due to the properties being almost paid off.

    In the last few years, I have bought and sold property within a short time due to the above theory as well and it has worked wonders for me.
     
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  20. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    Use alternative property strategies i.e flips, vendor finance, renovation, strata titling, development etc to pay down your quality longer term property assets to create re-occuring long term income.

    Then look at other cash flow opportunities financing etc to meet the increased demand for business lending etc
     
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