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

Exactly, you need both CG/Cash flow, but why don't investors do this? Seems logical? Most investors are negatively geared??

In Australia we have enjoyed phenomenal growth in at least 3 markets, growth is great but when the markets peak there is no growth. Timing is far more important IMO

MTR

 

Agreed. But if you have the ability, then why not? Why play in a space that heavily populated?

 

When you say ability you mean you can service debt, right?

Problem is it takes deep pockets to continue with this strategy, and then there is your partner, the bank, you need to be able to continue to service debt moving forward, and it just got a little harder lately.

That is why timing is important, because boom cycles generally range from 2-4 years then we have bust, no growth perhaps 7-10 years. Have a look at all the cycles around Australia ie Syd, bust 2004..... boom 2012.

MTR

 

In Melbourne between 1986 and 2006, housing prices in the inner suburbs grew faster than anywhere else, the median price jumping 220 per cent even in real terms (after deducting inflation).


Probably a similar story in Sydney and most other capitals. Than again these are for houses with land. If you just bought units or apartments close to the CBD you probably would've done better off purchasing a house with a large block out in the suburbs.

 

If you buy in a trust then you can get around and it wont matter much either way.
Terryw could elaborate on this I guess.

 

Nice. Where'd you get the map? Could you post all the other capitals for the same period?

 

Not sure whether you are saying blue chip always out performs? this is not fact, but fallacy.

I have been playing in many rising markets over the last 14 years and I had the same mind set when I started. Fortunately I got it slapped out of me once I realised I was missing some brilliant opportunities to capture growth at lower entry levels.

This is why I don't like stats, they are rubbery at best, yes, I said it again, there are always markets within markets.. What is far more important is understanding what is happening on the ground, and jumping into rising markets.

Syd recent boom did not start with blue chip/inner city, started in the cheaper areas/lower demo, Syds West, due to immigration and affordability.
Perth, same scenario, last boom it did not start with blue chip properties, lower entry levels went ballistic due to rezoning and it was about affordability FHB activity got this market moving

I will only speak from my experience, I was buying in 2007/8 GFC in Melb and it was booming during this period.

I purchased a number of properties in Broadmeadows and Coburg, however I went hard in Broady, I know on the nose with locals, however had massive growth, one of the stellar performers during this time. Lower entry level. When the market tanked, all areas got hammered, and blue chip just fell harder. As I have mentioned timing is everything, these charts wont help if you are looking at short term gains.

All to their own but my point is investors should not get stuck with buying blue chip with the belief that this will provide the best result this is what many gurus preach, makes their job easy.


MTR

 

Yes, I agree.
I think strategizing most important factor, and ways to generate growth and capital gains and servicing debt so investors can continue to invest rather than get stuck, no finance, game over.

MTR

 

What would be really interesting is a similar map on rental growth. You don't need to look too far for capital growth, but good statistics on rents tends to be fairly elusive.

 

A smack in the face with a huge wet salmon, will break the mindset. Normally followed by a dose of reality. Don't follow the sheep, the grass isn't green on the other side of the fence, sometimes, to get that sweet clover, you have to wade through the prickles.

 

I wouldn’t say it’s black or white. It all depends on an array of factors. For me the most important thing I look for is land size as well as good local infrastructure and transport etc. If you’re buying and flipping it’s more important to time the market. Likewise if you’re developing location is less of a factor.

From a buy and hold point of view if you had a highly paid job (like the OP who is an investment banker) it would make sense purchasing houses near the CBD because serviceability and holding costs are less of an issue. Long term the CBD is always going to be an attractive option as people are willing to pay a premium for the opportunity cost of time. Demographics of the area come into play as well, which is why places like Sunshine and Braybook are still fairly affordable. There are also a lot of postcode snobs around as well, which is why it’s definitely not always as easy as saying close to the CBD is good and far from the CBD is bad. However, in general over the long term I think purchasing near CBDs is a good strategy as gentrification tends to occur. This is for buy and holds and assuming a high income. The whole strategy turns on its head if the investor has a low income. In that case yields and cash flow becomes a lot more important so they can grow their asset base without stalling.

You mentioned Broady so I’m assuming that’s Broadmeadows. In 07/08 if you got in and out you would’ve made good money. However, if you were holding the property from 2010 until present capital growth would’ve been negligible. At the end of the day there’s lots of different ways to skin the cat.

 

That is my point, timing is everything, not time in the market.
If you had a choice to retire in 10 years or 20 years which option would you take??

MTR

 

am i the only one here clearly with not enough IP's to be worried over quantity or quality?

 

Don't feel bad, read thread on Nathan Birch

 

Devank...yes that is correct. You need to understand what your strategy is....however..your point about having too much capital gains in one property will be an issue if you eventually plan to realise the gain and can't distribute it via a trust structure. No point making a $1m gain and paying $250k in tax. Having said that quality is important..you are better off buying quality properties in the major capital cities. Or very large regionals like the Central Coast, Wollongong, Geelong, Newcastle. The other aspects are if you own just two decent properties in a place like Newtown...the land component is going to be quite close $1.5m (assuming assests are worth 1.2m each). If you already have exceeeded the 400k Land Tax threshold...you are up for $24k in land tax. And a $1.2m house in Newtown is going to return about $820pw in rent. Which will give you about 85k and net minus land tax (24k) and other costs of rates, management, maintenance, insurance (16k). You are left with 45k in net on asset value of $2.4m...that is about 1.8% return. Very poor return in my view...the minimum you need is double that. The other issue...is if you have a 4 week vacancy it starts to hurt!!!

Some truth to this....but if you would have bought in the North Shore...your cash on cash return would have been less than in the Western Sydney or Central Coast.

 

Effectively though, you're still paying the same CGT. The only difference is flexibility. You can choose to pay 125k this year and 125k next year vs 250k in one year.

 

That a nice map. Are other capital cities available? I wonder what Sydney would show? Perhaps not the same pattern?

 

Yes...but what is the bonus is income tax management.

If you have 50k income and then add 250k in CG...then you will still end of paying about 100k in tax...it is too hard to minimize 250k legally.

However with say you made a 200k CG and apply the 50% discount you have a 100k added your 50k income. With that lets say you have 30k in depreciation allowances..and then you pay 30k interest in advance..and say you contribute another 10k to super. You have effectvely reduced you tax liability to 30k.

Add that to your income...you have effectively only pay 15k in tax...as opposed to making a 400k gain and paying tax on 200k which amount to about 60k. Even if you sold one now and one in the new financial year..the savings amount to about 90k in taxes.