my not so great investment experience: Cheapie strategy

So for me , the key lesson of this post is

Have plenty in reserve
Don't buy at the very bottom of the market ( as in bottom end of the spectrum, not cycle ) . Buy1-2 steps up so you don't have really crappy properties
Talk to local PM's . Are there any difficult areas which they won't manage in ?
Time the market . Don't just buy in cheap areas because they're cheap . Buy in them because there is likely to be a rise in the near future , so at the moment you wouldn't buy in Perth , but you would look at cheapies in Brisbane , Adelaide , Hobart ( maybe Melb , but getting late ) .
You make your money with capital growth , unlikely with cash flow .

We have a large number of cheap properties . Have rarely had issues ( though have had a recent brief issue with vacancies , now resolved with no concerns due to plenty of reserves - first time we've had it occur in 15 years and very unimpressed with PM in that area and will be changing once money claimed off bonds finalised ...)

My personal spin is once we've made good capital growth , I'm happy to take profits , pay tax and pay down debt . Then repeats and re rinse . This way we don't have an ever increasing pile of debt and can often buy when others can't because we're rarely fully extended .

Cliff

 

Like this very much, and reduce risk along the way

 

+1.

A variant of this is when cheap properties purchased in areas that you consider volatile (eg regional or mining towns) go up consider selling one and buying a couple in somewhere a bit more stable (eg cheaper outer suburbs). After those go up maybe sell one and buy in a good inner suburb of a capital city (even if only an established unit with reasonable land value %). That way you end up with a diverse CF neutral or + portfolio without all your eggs in one basket or high leverage.

As for mining towns you'd only buy if there's other industries and you're paying much less than capital city prices. Even if things do drop you're unlikely to be in negative equity since you didn't buy when it was expensive.

 

Spider-Man

We wouldn't buy in mining towns and I wouldn't ( haven't ) bought in towns with a narrow economic basis .

We've bought cheap in Brisbane , Hobart , launceston , rocky and Townsville . They're all places with diversified economies.

We have looked at cairns and Gladstone and decided not to buy there in the early 2000's.

We did start looking at Geraldton when Karina was buying there in mid 2000's but were too caught up with our PPOR subdivision in Sydney to have the time to buy that far away . It did do very well . Didn't get to the point of checking out the economy so I don't know whether we would have gone ahead .

Cairns is more diversified now . When I researched Gladstone every project talked about the large number of construction phase jobs and the significantly less number of production phase jobs . Was a big red flag so didn't go ahead and turned out to be the correct decision , though if you'd got in early and sold you'd have been ok . I still like to have somewhere I think I could rent if things go belly up .

You still need to spend some time looking at the current economic circumstances of your target town . The Queensland costal towns are not tracking well at the moment , though Gladstone seems to be in a special place of its own . I tend to buy early so I can pick up good properties and have less issues , but it's too early for me at this stage . High vacancies , and they won't move until Brisbane has gone up significantly more and their economies are picking up . Their time will come

Cliff

 

For us , in a practical basis , selling our Logan and rocky properties in the late 2000's enabled us to find a PPOR subdivision in Wahroonga , buy a new PPOR in Turramurra ( the last 2013 buy before the main Sydney boom ) while we still held longer in Wahroonga and saw more capital gain . Pay cash for units in Mosman in the middle of the GFC when banks weren't lending and buy a weekender also at the bottom of the market . On selling Wahroonga and Mosman we were able to fully pay off our current PPOR and weekender .

We have LOC's on both which have funded our more recent purchases .

The Logan and Rocky properties would be worth more now than what we sold them , but the gains we've made in Sydney over that time are significantly more .

Maybe we could have kept some in rocky and Logan , but our level of debt would have been very high and the sleep at night fact would have been scary .

Cliff I

 

Hi guys,
Far out TMNT you have done pretty well-getting in there acquiring such a good sized portfolio and renovating the properties yr self etc .
I get the feeling you are just in a lul/depression due to all the issues have happened to come at once.You obviously could handle some stress and pressure previously as otherwise you wouldnt had got to where you are now!
Has something else happened in your life that is putting pressure on you?
We have all gone through stuff at times that can put us way off track - before we know it.

My opinion would be to look back at your original goal -prior to building your portfolio. Look at why you couldnt still stick to that ,but at the same time assess yr worst 3 properties maybe-(for cashflow and maintenance problems and lack of capitol growth prospects)and look at selling those only.Get back out on the ground and do the tidy ups /renos yrself(you said you have time yes?) and make as much as you can through adding value yrself -like you did when you were passionate about property investing !(i think it might rejuvenate your passion again anmd remind you what you have achieved?!!)
Then give it some time .As otherwise i think you may regret it.It is alot harder to build a portfolio that size again.We often forget how much effort went into building ,after the fact.

 

Agree with this. I am finding it alot tougher to increase my portfolio and it seems like it's going to get even harder now.

 

Very true.....land in Mickleham....only 2 years ago was 85k for smallest blocks.....now they are around 155k......build costs 2 years ago turnkey was about 170k...now that are about 185k for 16sqm. SO what do you think that will do to prices?

Also....get on the ground and see how many blocks of land are being brought to the point where you maybe able to build. In the Craigieburn there are 3 estates which are within cooee for the shoppign centre...Trillium (sold out now 1000 lots sold in under 3.5 years)....Stockland Highlands (releases about 200 lots per year)....and Aston (they are down to the last 200 lots)....what do ya think will happen to prices then?

Sure they are releasing heaps of land on Donnybrook Rd Mickleham nearby...but not infrastructure...even there land prices have risen rapidly...for example in Merrifield the cheapest blocks were about 105k...now they start around 150k....that was only 18 months ago....

 

ive heard a few people saying that, and to a certain extent yes i agree,

however that being said, yo ucould buy a $1m IP, and the yields are going to be a killer, obviously if there was some sort of guarantee or realisticness that it would double quicker then average, then it would be a buy

if someone told me a $20m prop with 1% yield was guarnateed to double in 7 years, id buy it!

 

thanks Luke, appreciate your honesty,

persoanlly nothing else has gone wrong, its just that 1/3 of my portfolio is having silly maintenance issues, eg arrears, hws, heaters, toilets, vacancy , mould, etc.etc.

it absolutely frustrates the hell out of me that my inbox is full of mostly genuine some silly maintenace requests,
and now I just roll my eyes when I see a call from a PM.

my origianl goal and still is to set up a portfolio that will grow faster than average, while having minimal or even positive cashflow, so that in 5-10-15-20 years ill be retired in the bahamas.

I dont mind putting in cash now for a bigger return later but not at the expensve of my health sanity and wellbeing.

to be honest, I dont have the buffer or cashflow to buy anything else
and to be honest, I think a lot of markets are peaking or near their peak, even if i had the money, i probably wouldnt buy and just sit

at the same time, some of hte regionals have not moved much so in my mind, do Ilet them go, even if they arent causing any issues, as issues may arise, or if there is a boom or mini boom around the corner ive just let a big opportunity cost go and id feel pretty stupid

the general consensus is that for this cylce, the regionals as a whole wont boom or even do better due to the economic fundamentals

 

very true but the costs of regional low price point IPS to get in and out is pretty high in terms of % so selling a dud to buy a good one, might end up becoming an average deal because fo the costs and the figures not looking as good,

 

cycles are tradtionally 7-10 years, a few years ago IRead that people think the new cycle is more like 15 years, which I think is a valid point

so 4 years might be the 4 years of a flat time of the cycle , so it is possible that it will recover, however , as someone has said, the economic fundamentals are always different and history is not guarnateed to happen again

 

I know this is a unfair comparison but redfern was a comission area (and still is ???)

suburbs in melbour such as brunsiwck coburg were comission housing, and look at them now,

obviously an area like ashmont isnt going to worth double the wagga wagga CBD or be ever seen as a toorak of wagga, unless we wait 50 years, and then if only, it might be pure coincidence

so its a hard one for me

 

hey jen,

seriously, I cant retire on what I have, im not prepared to retire and live like a hermit or a pernsioner relyng on their pension

im still relatively young, am very healthy and still have about90% drive of what I did in my 20s,
I just have a few more treasures to protect eg kids, equity, health, family

Im always on the look out for business ideas, however, maybe its my rsik profile but i wont be doing something like starting my own restauarant, it wil be a garage from home side business



All good!

 

If you sold everything today what is your net worth?
If you care to share ? otherwise all good

I remember meeting Navra when he came to Perth years ago now, he told my partner that we could retire on equity, I told my partner we could not, at the time I was right.
Why did I mention this, probably cos most people get confused, there is a massive difference between net worth vs equity

 

A bit hard to say but anywhere between high 1.2 to mid 2 mill

Which in todays market isnt OMG
But a good start for my goals

 

.

TMNT....sorry, that was aimed at Vultures.

The problem for a lot of regionals housing areas is they won't change really, even if they sell them all off, it helps, but won't transform like Redfern, regionals have lot's of land and no pressing reason to be right in CBD.

PS If you have generated that amount then your strategy is working fine ! You must have had them for a fair bit of time.

 

Not ex housing, but one is in a better part of a housing suburb. Perth I'll definitely hold, it's the Rocky ones that are duds. Lots of maintenance on the horizon with no upside in the near future.

I think that's a good point too. Even in Hobart the last boom was over 10 years ago so I don't hold out a lot of hope for Rocky.

Don't know if any of you follow Gary Vaynerchuk but this video came up in my fb feed today. Very timely!

https://www.facebook.com/video.php?v=10154479177368350

 

thanks
that's 800k discrepancy? not sure on values
Does this figure include a primary residence ?

 

currently have no ppor, I rent

im pretty certain on most of the values, but Ihavent included agents fees, plus I might be a bit hopeful on some of them

sorry it was supposed to say high 1m- low 2m

im a bit of a pessimist