My 3 year plan - Buy in rising market - Build up cash savings buffer

Discussion in 'Investment Strategy' started by Alex P Keaton, 11th Feb, 2018.

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  1. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Ok so I know what I'm going to do for the next one and even though it'll be a little scarey at first I won't let fear stand in my way.

    I'm going to buy under value. Make my money when buying and buy in a rising market, sell nearing the top. To build up my cash buffer

    There are a half dozen suburbs I know really well in Perth so I would be able to do well here buying below value here, however who knows what Perth is going to be doing in the short to mid term!! So if I'm going to invest soon I need to buy interstate. I'm wanting to make money now not later! Maybe later on down the track I could invest in Perth if it looks like it's rising. So I'll continue to keep an eye on the Perth market.

    My goal is to buy and sell a few years later. My plan to begin with is to make some profit so as to build up my cash buffer and it'll help lower my ppor payments too sitting in my offset account!

    I would be out of my comfort zone but I guess you have to if you want success! I would need to employ a buyers agent I'm thinking to cut the stress down and manage things for me as they will be on the ground over there. I would do my own research too to oversee things.

    I have a goal to make a profit of at least $80,000 in 3 - 4 years. Buy under value and in a rising market. Catch the wave and sell as it's nearing the top. Not too close to the top though.

    Sometimes I feel like you are just taking a gamble but if you do your research I think it'll work out just fine. But I think it's far riskier to sit and do nothing. Like my colleague who bought a house here in Perth a few months ago and has a $500,000 ppor mortgage. Because of such a large debt she won't be able to invest. She will also be focused on paying it off, like most Aussies rather than making money investing. I'm glad I have just a small mortgage as it means I can invest.

    I don't want to be a passive investor anymore. I won't just sit and wait till values rise anymore, hoping and waiting for a rise. Playing the waiting game!

    I've realised you need to be proactive, get out there and make things happen!

    With all that I've learned in the past ten years since buying my three properties in Perth it has been a great education. Haven't made much money but I've learnt many lessons! and I'll look back and be so proud of myself, in what I've achieved.

    I'm 45, I wasn't planning to retire until I was in my 60's anyhow so I'll have a good 20 years left to invest and will probably continue investing after I retire. Looking forward to sharing my success story. In the meantime I might share my story, what I've learned, what not to do lol. But I'm more focussed on my new story not the old story. What's happened has happened, it's in the past.

    After I sell my current unit that's on the market, I'll have at least $50k in savings. I'll use some of that as my deposit as my two other properties don't have equity in them. I'll make sure I use the minimum of my own cash as my deposit if I can help it. I don't mind having to pay a bit of LMI. I know it's important to have enough buffer to see you through.

    Yey. I'm excited to see my mortgage broker on Thursday night.

    What do you think of my plan?

    It's just my short term plan at this stage My 3-4 year plan to build up my cash buffer. I'll need to decide on a longer term strategy too. But for now ill focus on the next 3-4 years.
     
    Last edited: 11th Feb, 2018
  2. Noobieboy

    Noobieboy Well-Known Member

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    I personally like the plan. But I would narrow down first to the areas to target. Figure out what cities /areas are of a particular interest. For example, the areas that might have growth potential, undervalued or strong to withstand potential rate hikes.

    Places where rents are falling might become a major headache when rates go up as a lot investors will need to pay more to the bank and might start selling in next 2-3 years. More properties on market could transfer to significant decline in prices.
     
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  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    How are you going to decide what is a rising market? And how will you know it is close to the top when selling?
     
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  4. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If your IP which is on the market needs to drop it's price further to sell then all the equity you thought it had may quickly disappear leaving you with little deposit for new IP.

    If you are going to buy Interstate then I assume you'll need a BA so you will need to see quite a lot of growth to overcome stamp duty, BA fees and selling fees. You'd need to see at least 10% growth during that time to break even. You'd need to see 15-20% growth to come out 5-10% ahead.

    That to me is high risk in 3-4 years. It's possible sometimes but with the markets and the price point you'd be looking at it's not going to be easy - especially with the type of tenant an interstate cheapie might attract.
     
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  5. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Thanks.

    Im not sure at this stage what areas to invest.

    This will be the important one. I have to get this right. Must make a profit this time around.

    Sydney is a good place to invest but it's already had a lot of its growth and I think I've missed the Sydney boat.

    Perhaps a large regional area near Sydbey or Melbourne.

    I'm thinking small old style 70's units for affordability reasons. Somewhere in demand, no shortage of tenants, decent rental return and good growth prospects.

    I can see myself spending a good few hours per day online researching and conversing with peeps here. :)
     
  6. Alex P Keaton

    Alex P Keaton Well-Known Member

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    I'll have to keep tabs on what the market is doing. See what properties have been selling for, how there tracking etc..

    Hmmm not sure about when it's at the top. Perhaps I'll just cash out when I can see I have made a profit.
     
  7. Trainee

    Trainee Well-Known Member

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    A few slogans, theres no plan.
     
  8. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Thanks! Yes, true good points! Yeah and I'd also be up for a bit in BA fees too.

    Ok I see what your getting at. I agree! Back to the drawing board then. I'll need to tweak my strategy then.

    Maybe sometimes the best thing to do is to sit, have a breather for a while. I'll have a smaller $150k ppor mortgage to worry about after I sell my unit and I'll have less expenses draining me as I'll have sold my ip. My villas rent will rise hopefully soon too.

    Maybe the best course of action is to save as much as I can in the next 3 years and then look to buy somewhere on the rise using half of my cash as my deposit.

    Or scenario 2 is I could wait till my 2 Perth properties rise a bit in value and extract some equity to use as my deposit and keep all my savings in tact. This could be the way to go. The less risky way but I might be waiting 3-5 years for this to happen. So if be on the sidelines a while.

    This might just mean putting back my retirement by a few years. Retire aged 67 rather than 60 like I was thinking about. But I don't mind.
     
  9. Trainee

    Trainee Well-Known Member

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    Youve just flipflopped between ten different things in an hour. You see what the problem is?
     
  10. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Early stages. My plan is, I'm trying to figure out a plan. Like ya do, when you first start.

    Appreciating the input of the experienced investors here. Thanks! I'll get things right this time that's for sure.
     
  11. MTR

    MTR Material Girl Premium Member

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    A couple of things, if you want to chase rising markets then you have a better chance of succeeding by investing in moving markets in Australia not only Perth, you could be waiting years??

    We have seen 4 property booms that I know in Australia since 2013 - Perth, Syd, Melb and Tassie. Imagine if you just purchased in 2 of these markets? what you could achieve with little work.

    I would not buy any properties unless the market is actually rising, otherwise its guess work and you will be waiting and paying debt.

    How do you know when its rising ?? volume shrinks, auction clearance increase, networking networking and more networking with people on the ground, real estate agents.

    A BA will recommend a particular suburbs/area, but its up to you to work out whether it is actually rising not the BA.

    Fast forward.... if you succeed, what do you do with the capital gained? that is what you need to work out, a strategy to continue making money.

    MTR:)
     
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  12. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Yes. That's because I'm figuring out a plan! There's nothing wrong with that!! I'm taking it all in. I'm seeing sense now.

    Anyway I think after reading the comments here and thinking about it some more. I know what I need to do. I wrote about it two posts up. It's important to listen to your gut too. I think I've just been keen to get investing get the ball rolling but I realise it's too soon. I'd be under the pump and I don't like that.
     
  13. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Thanks

    Havent worked out anything concrete yet but I have some ideas. Im thinking I might buy and sell some, keep some. Yes I know it's not a detailed strategy at this stage. It's early days.

    I'll have a few years to work on a strategy whilst I'm busy saving. I've decided not to invest for a while until I'm more financial stable and can afford it.

    Yep I know I'll need to do things differently. I won't be rushing into anything. I'll get it right from now on. :)
     
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  14. Blacky

    Blacky Well-Known Member

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    I like the idea, however, I’m not sure about the practicality of it.

    With your $50k available you may potentially get into a $300k Property. That is $15k buying cost, $30k deposit (10%) and $5k left over (probably eaten by the BA fee) leaving you very little cash buffer.

    Your total cost is going to be
    $300k buy
    $15k buying costs
    $5k BA
    $5k in LMI
    Total $325k

    To make $80k in 3-4 years you need growth of 7-8%/ year. (25% in a few years)

    This does not account for any holding costs, repairs, reno, etc.

    All of this from an interstate transaction into unknown markets relying on relationships you don’t already have.

    It’s hard to make that kind or return developing/flipping. Let alone just buying and holding. Buy and hold works in the long term. But buying and selling costs Are too high to attemp to flip without adding your own value. And sadly I don’t think you have the funds available to do anything worthwhile to add value.

    Personally I think you would be better off dropping $50into a stable LIC, and with your monthly cash flow reduce your PPOR loan and debt recycling into your LIC.

    Just my 2c.

    Blacky

    Not advice.
     
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  15. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Yes and it killed me to know this, to live through this. If I had of bought in Melbourne in 2008 instead of Perth I would've done well as there was a huge boom. If I had of bought in Sydney in 2014 instead of Perth I'd be sitting pretty now. I know, I know.

    What's in the past is in the past! I can't change what has happened but what I can do is take away all the lessons I've learned over the past decade and apply it in the future. I've released it and moved on.

    I'll only have failed if I make the same mistakes again and I don't see myself doing it next time around. Not with what I know now.

    In the past few years I've also undergone tremendous personal growth from life experiences... awakening so I've had wonderful learning in all areas in my life not just investing, but personal relationships and that will see me in good stead for my investing future too.

    I'm really quite excited about my future and more importantly my present, my now! :)
     
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  16. MTR

    MTR Material Girl Premium Member

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    Good for you
    we all make mistakes.
    Just need a few wins and you will flying

    MTR:)
     
  17. WattleIdo

    WattleIdo midas touch

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    I can't help thinking that you may actually be better off staying where you are for now - that is, if you want to use your money to invest.
    As Trainee said, you seem to be missing an actual plan. Not trying to be mean, just calling it.
    But you already had a plan and took action and here you are, for better or worse.
    Now just imagine that 3pm on Sunday afternoon 11th Feb 2018 is the exact bottom of 'The Perth Market' and there will be solid, gradual increases for the next 15 years. In that case, you're already exactly where you should be.
    If that's the case (and I'm usually not wrong about these things), all you need is a little patience. Just keep your eye on all the stats and news and be selective. Guard your precious positivity.
    If, on the other hand, you really really can't stand paying the mortgage any more, sell and use the money to enjoy life. Take your Mum out to lunch, buy some new clothes, etc.If you do sell, don't pretend that you'll get something better, 'cause you won't.
    Either you'll sell at close to bottom for far less than you expected and buy into a more expensive area (how?) Or you'll go to a crappier area.
    You are where you need to be. Hold on and ride it out. :)
     
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  18. Marg4000

    Marg4000 Well-Known Member

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    Before you do anything else, sit down with your bank or mortgage broker and find out exactly what you can borrow. Run through all the possibilities.

    Even if you sell one property,

    From memory you will still have two IO mortgages with little equity. With interest rates at record low levels, and depending on when your IO terms end, further borrowing may be an issue.

    Also, as @WattleIdo said, consider sitting tight on your three properties.
    Marg
     
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  19. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Hi Blacky.

    Thanks for your reply! Yeah Myf was saying the same thing! I agree. I've decided against the idea now.

    Thanks for the idea of the debt recycling into a LIC. I don't know much about it though but I'll read up on it.

    When I see my MB on Thursday I'll pick his brains on a few things. Talk to him about debt recycling. I'll be stashing my cash into my offset against my ppor mortgage.

    I'm going to fix my loan on my villa. I think I'll get a 3 year fixed loan. I doubt I'd need to use it to refinance for a while.
     
  20. Alex P Keaton

    Alex P Keaton Well-Known Member

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    Yes I've also been thinking along those lines too as one of my options. Since yesterday I've been tempted to pull my ip off the market but I'm just not confident I can afford to hang on to all three properties in the next few years. Well unless rents start to rise, that'll be a big help. It might be a case of cutting my losses, otherwise I might go under.

    But who knows maybe there is hope to hold on. I've got $14k in cash and I'll get back $7k from my tax return. Is that going to be enough to keep me going for a couple more years until rents rise again. Maybe, maybe not. I'm not sure what to do. I've actually been torn.