It's the portfolio $$$ that counts not the number of properties

Discussion in 'Investment Strategy' started by Property Twins, 13th Sep, 2015.

Join Australia's most dynamic and respected property investment community
  1. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    Exactly this. I suppose the Brisbane IP would be regarded as quality/blue chip but you can get bad tenants in any market and all properties require maintenance.
     
    Beano and D.T. like this.
  2. jins13

    jins13 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,357
    Location:
    Sydney
    Still working many hours but guess now it's about diversifying into other markets and being more conscious about cash flow. The Sydney market has been good to me and the purchases was pre-APRA. Have another small reno project to do in Dec once that property settles and don't intend to do any major renovations in the short term.

    Personally, this is my own view and I know there has been many discussions about this in the various threads, but all I can say is that it's a tougher climate on someone with an "average" income and this is due to my recent purchase which was the toughest one so far and I am not on an average income either. In saying that, I already have my wonderful broker ready for the next onslaught in Dec once that other property settles.
     
    Property Twins likes this.
  3. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    I just think it's more important now than ever for people to drop the "only buy blue chip"..blah blah if we're going to be coming into a low growth environment. It means you're going to paying holding costs for a loooong time potentially, what's the point of this? If we're looking at long term I'd rather be holding higher yield in large regionals. At least then you can enjoy your life whilst holding them, and you can sell over a number of tax years. I have a few higher yielding ones and the rent covers all costs on p&i. They've had good growth but have had their dash for a while now. If I carry on holding them though, regardless of any growth I have tenants paying the principle on the properties. So in 10yrs, even if no growth, I get a healthy equity sum.

    Property investing does require a lot of thought at the moment, I look around and see slim pickings but I know others see lots of opportunity. Just depends on strategy etc.
     
    Perthguy, Beano, bob shovel and 4 others like this.
  4. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

    Joined:
    31st May, 2016
    Posts:
    2,738
    Location:
    Australia
    Interesting thought about regional @ellejay. Agree about needing higher return. What sort of growth have you typically seen?

    P.S. I like cheapies due to the rental return. Have stuck to metro however.
     
    Cactus and ellejay like this.
  5. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    I generally find higher price commercial investment properties have higher returns
    The sub $2m have lowest yields while the $15m+ higher (less competition )
     
  6. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    Hi Mrs Ali

    For the current batch of cheapies bought over the last 4 years the growth isn't spectacular ($50-100k ish per property). They were not bought primarily for growth though. The gross yield when I bought them was 8.5-11%. I wanted properties that would perform whatever the market was doing. I knew that growth would come eventually because they're in large regional areas. In the meantime though the yields allowed me to keep buying which was fun, spread the investment and risk across locations and allowed us to travel extensively and not feel tied to a job at the same time. I also didn't have to pay any stamp or land tax, which obviously would have slowed me down as the money has to come from somewhere. All these factors made them seem like a good purchase to me. The low costs meant I also didn't need to withdraw equity for deposits, so all of the properties have at least 20% deposit in them from SAVINGS (shock horror :p). Of course some will go on about how stupid this is blah blah but the market is correcting now and I still have equity, cash flow and a stable portfolio.

    So anyway, after buying them there was a boom in the capitals and I saw growth in my cheapies as investors who couldn't afford to buy there looked to regional. I did sell a couple then and take some profit but I didn't see any point in selling the others, because of the rise in house prices there seemed to be few better options for investing the money. The numbers for buying residential ips there didn't make sense any more, and still don't as far as I'm concerned.

    So, I have my 'on paper' growth but it's irrelevant. I can't eat it, house prices have increased so I don't want to withdraw the equity put it into other properties. People will say "do a development" but for all the effort involved I'd rather just do a couple of months casual work contract. I don't reckon you can easily buy development suitable properties where the numbers make sense, without very deep pockets. Unless maybe buying in Perth, but that's a different conversation.

    So, I'm very glad for the growth because you obviously need that. It's cash flow and mini retirements though that has me living the dream at the moment :D
     
    bob shovel, Toon, Simone and 2 others like this.
  7. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    Actually, would be interesting to work out the average profit after ALL costs that the average Sydney or Melb investor has made following (or this far into) the boom. I don't know what the average investor would have bought or average profit :oops:, but would maybe be interesting to have a guestimate and then compare to someone who bought double figure cheapies outside Sydney or Melb.
     
    bob shovel likes this.
  8. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    This is what I found while people keep saying about buying commercial. There's an awful lot of crap commercial to sort through in the $1m region, and a lot of competition for anything half decent. You need a couple of mil upwards for the superior yields and lower risk.
     
    Lacrim likes this.
  9. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,218
    Location:
    Melburn
    Love the approach @ellejay

    I bought my properties not in the really high yield range, but main assumptions is that they won't grow for a long time (worst case scenario - I take it as bonus if they do), so they need to be made +cashflow from outward effort (offset, improvements, etc) - 4 years in maintenance or issue comes up , 1st IP slightly positive, 2nd should be ok next year given there's no additional fixes, 3rd bought this year is a minus due to upcoming issues. How do you manage adverse events In general, are there many?
     
  10. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    When you have a reasonable spread of tenancies with a mixture of types tenancies and located in different cities/countries , spread of fixed and floating loans...with a good yield margin ..then you can manage the adverse
     
    MTR and EN710 like this.
  11. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,218
    Location:
    Melburn
    So... I need more properties :p
     
  12. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    I think about 50+ tenancies (spread over various cities/countries) is sufficent to not suffer from loss of one or two tenancies
    Remember it is just as easy to go from one to two tenancies as it is to go from 50 to 100
    Same with rentals to go from $1m to $2m same as $10k to $20k pa
     
    EN710 likes this.
  13. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    I can honestly say I've had no adverse events. Hope I don't jinx things by saying that, I've never had a weeks missed rent, never had a house damaged or any major maintenance. I look for houses in good condition and use pms who are good at vetting new tenants. Only bad tenant I ever had was OCD with unachievable expectations. Took us to a tribunal for refusing to windproof our garage that she'd turned into a gym lol. Despite all that she kept the house immaculate and never missed a payment. I'm sure I'm due for a crap tenant/other issue but so far all is ticking along.
     
    sharon and EN710 like this.
  14. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    I agree with you, for me the challenge is finding something worth buying in my price range though. Finding the finance isn't necessarily the biggest issue, it's finding something that makes sense to buy rather than a "lets hold this neg geared property for a few years and hope it doubles in 10 years".
     
  15. bob shovel

    bob shovel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,935
    Location:
    Lower Blue Mountains
    @ellejay do you have a minimum set of requirements for your regionals or case by case? Eg has to be min population 50k or do you take a more open view and look at the town and it's economy?
     
    Property Twins likes this.
  16. Lacrim

    Lacrim Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    6,175
    Location:
    Australia
    So Beano, for the average punter with say, a modest $500K to play with, what type of commercial property would you suggest buying and in what sort of location?
     
  17. Lacrim

    Lacrim Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    6,175
    Location:
    Australia
    Obviously you buy what you can afford and what fits your strategy but the thing I (personally) don't like about cheapie properties in Australia (sub $150-200K) is the weighted percentage of repair costs, and increased possibility of tenant issues that can decimate your + cash flow. If they don't achieve good growth, it almost defeats the purpose. Speaking in very general terms here.
     
  18. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    Best to go for
    1 multi unit ...reduce risk if vacant
    2 simple buildings ..warehouse. shops..avoid office as fitouts are expensive and they date
    3 buildings where the tenant have invested into building
    4 large ratio of land to building
    5 reasonable rental
    6 building where the business has been there a long time ..avoid new startups
    7 single story if possible
    8 good ratio of carparking to buildings
    9 good frontage
    10 busy streets
    11 multi-use/purpose buildings
    12 properties that do not sell at auctions can be good value
    13 ones with net leases
    14 main cities avoid small towns
     
    pwt, mcarthur, Perthguy and 8 others like this.
  19. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,222
    Location:
    Sydney? Gold Coast?
    We've had good growth across the board. Sydney cheapies, well, no need to ask, everything in Sydney went up....but the regionals have done good too. The cheapest one that we still hold in our portfolio, we bought for $67k and is now worth around $200k. We've had it for just over 10 years & has had the same tenant for all this time. It costs next to nothing in maintenance, the rents are kept at market, and I think the most expensive thing we've had to attend to is a water heater. It's getting $220pw rent.
     
    Property Twins and Beano like this.
  20. ellejay

    ellejay Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    2,192
    Location:
    Kimberley and NZ
    Min 100k population.