Poking or Taming the debt monkey

Starting at the beginning of the year I decided to sell of an ip that was renovated, in a blue chip area never had problems being rented and was renting very well with great depreciations.

Purely to take some bread of the table, rationalise leverage.

Planning to improve other ips to maximise cash flows and restructuring debt. To be ready for the next thing.

I'm sydney based with a sydney bias and I agree with sash but I think we have a few more years of single digit growth and historic low interest rates.

Am I the minority here? Or are others doing similar, rolling interstate instead or the opposite high leverage , high yield , borrow as much as possible mentality

 

In the office we've found a number of our Sydney client's have been in the process of selling to consolidate their debt positions, and then leveraging elsewhere. They would still be in the minority, with the majority releasing their funds to enter into new markets.

The interesting one is that almost none of the Syd equity releases are being used for follow up Syd purchases - perhaps a market sign that the gravy train will slow there in the meantime.

 

Does this mean they are refinancing to free up some equity for further investing, Corey?

 

Yes Bayview most of our clients are looking to release equity to invest in new areas.

Avoiding Sydney & Melbourne at the moment and looking at areas where they can still get value.

Cheers


Richard

 

AHA! Just as I thought.

Set him straight about all those investor loans he keeps on charting here.

 

My own plan is to now consolidate without selling anything though.
We have purchased property's fairly aggressivley with alot of leverage over the last 12 years in our accumulation phase....like most would do when starting out.
The second part of the plan is now stockpiling cash and letting the next 10 years of capital and rental growth do its thing.
We "should" have the ability to choose what to do with our time at that stage.
But who knows what the next 10 years have in store for us all

 

Correct - quite a number are releasing equity through cashouts/refis and then diversifying their portfolio into other markets.

 

Planning to cash out a little bit of equity from the 2 places that we have, in case we want to buy number 3.. Currently looking for our PPOR. Want to get as close to neutral as possible, and sit back and wait for the next 5-10 years.

 

Hindsight is 20/20 although hope you bought heaps of properties in Sydney around this time, would probably have seen around 40% growth!

 

true... to a certain extent

The reason we flicked that one was it suited us .Wife was on maternity leave that year. We paid no cgt. Also the unit we renovated well and felt at the time sold well. The 90s block had inherent waterproofing issues and mold occurances and we felt high maintenance, not to mention really painful strata managers.

 

I had a similar experience many years ago when I had a property which had so many maintenance and property manager issues that it was giving me the ‘irritants’. The location was poor with limited prospects for capital growth. I also had problems with cash flow but was determined to hang onto the property, spurred on by Jan Somers’ strategy of those days of ‘buy and hold’. It was stressful for a few years; however, I’m glad I hung on because 20 years later I’m 100s of thousands of dollars better off.

 

Been on holidays !!!

Soz , should of said I had bought property in 2010, 2011 and 2012 in Sydney 10 k from city. We were lucky during these years, banks giving money away and tumble weeds at open homes. Then interest rates dropped and Syd went boom!! Then as a result rents are now mental. We tripped into it really. I feel for people starting out ...so many different barriers to overcome than what we had to navigate.

At the time of the sale in June 15 , I had four places with lots of Sydney (over)exposure. Wasn't to fussed at missing out at the time.

I still own three of them, all in 2015 had some unrealised upside.

Since '12 all have doubled in base value. So I did miss a little on growth on that one but that's the breaks.....the others luckily did ok.


Maybe my monkey at the time was having higher value places than purchase ( June 15 in Sydney) , inability to seize opportunity due to having poor cash flow and serviceability issues creeping into my discretionary cashflow. Commencement of APRA stuff led me to ponder at the time a way forward. Not being prepared for an opportunity when it presented fired me into action.

Let's just say this place is a great resource!!!

I dare say many more mature investors at the time (2015) would of adjusted in various ways.

We decided for this sale to focus on deleveraging , paying off PPOR debt. Increasing cash flow on a investment property( doubled) via renovation and granny flat with borrowed monies( completed 2016).

Switched to fixed P@I for this which I swore I would never ... ever do!!!!

Next will be to push a DA on another property with a 50/50 chance of putting a duplex on it.- this expensive exercise (punt) can only be undertaken if cash flow / position is good. If it gets up , I am in a good position to develop and retain for rent roll. If not... granny flat and renovate like previous one.

This would not have been possible without changing my hold and never sell mentality. I dare say without APRA , I never would of taken the rigorous financial restructure / emphasis that I have had to. In hindsight I could of swung it to hang onto the sold place , but the SANF would have come into it.

Next will be to upgrade the PPOR with a Sydney softening and maybe sell my existing one to the wife for recycling!!

At the time of the post I was trying to see if others saw it how I did and use it as a sounding board.