Same strategy but two different outcomes

I went to a friends family bbq.

Met two ppl similar stories investmwnt wise very different outcome

Both in their 60s. Both nice couples

One grew up in in regional nsw. Had 10 properties they had bought over the years. They bought them for the sake of it. and for there long term benefit
They both now have good equity but still working and generally happy. Content. But the property were cheap back then and cheap now. Stil mortaged, can live a fine life, but I wouldnt call it extravagant

The other couple had 15 properties . They bought in a cheap area of melbourne. However the area has boomed a few times over the years and now each prop is worth 2 to 3mill each. They are very content and werent shy of telling me their equity of 30million, and now live a top life (not bill gates though)

Same strategy, not a overly complex one, both probably spent the same amount of working hours/effort into acquiring them.

one as 2m equity vs $30m equity.

Discuss! luck? better strategy?

 

A good example of why capital growth properties are better than 'cash flow' properties

 

Completely agree that its obviously mathematically better, but not everyone has the resources to afford either the initial purchase price or the ongoing holding costs.

Others also have different goals, circumstances or priorities in life.

 

I guess it leads to their Goals during there accumulation phase and also the second couple may have had more money for bigger deposits and could service properties better then the first couple ..
if they were both earning the same money during the accumulation phase I guess couple 2 just were more about delayed gratification and the results speak for there selfs

regardless in todays age I think they will both live a comfortable retirement and good on them both for taking action

 

Inflation plays a big part.. interest rates were 17% for a reason. How can you expect that kind of growth in the foreseeable future?

 

Although on the face of it, it may seem like the same strategy. They aren't. Yes they are both buy and hold. But one was regional and presumably better cash flow. The other was major capital city purchases. Also I'd add that if each one of the cheap ones in Melbourne is now worth 2-3 million each, i doubt it was a cheap area. Maybe cheaper than others but probably not 'cheap' in the general sense.

 

Sounds like you've been going to the same bbq's as Terry.

 

Agreed with second response. Unless you're pulling in 15-20% yields+, in which case you're probably developing a hotel like one of my neighbours is trying to do, cap growth is far more important than cashflow for serious wealth creation.

Ps: high interest rates don't always mean properties are growing. At 17%, properties are probably crashing. Look at Brazil.

 

@TMNT

Buy location
Have clear stretagy and exit plans.

I came across lot of investors who buys Property for sake of buying it, regardless of location, type, etc.

Also, Lot of investors ignore oprtunitity cost.

 

Properties that are worth 2-3 million each in Mrlbourne today would never have been "cheap" areas to begin with! Definitely not apples for apples comparison with regional NSW properties!!

 

Each person's circumstances are different.

• Why did one focus on low cost regional whilst the other bought suburban?
• What was done with the cashflow generated? Reinvested or down the gurgler?
• Did they have the same advisors?
• Were their motivations different?

 

It would be interesting to know the household incomes of both couples. To purchase 15 properties in Melbourne which have enjoyed several booms if all the properties were purchased at different times the later ones wouldn't have been so cheap.
This couple possibly had a much higher income to be able to hold these when interest rates were much higher.
It would also be good to know why the couple with 10 places bought where they did and why they stopped at 10.
Great result either way.

 

What about areas like St Kilda? Surely they were once very (even relatively) cheap, and not desirable at all.

(I'm not sure St Kilda is the right example...)

 

The big question is - when did the 1st couple start living their fine life ? If they were c/f +ve 20 yrs earlier, then the extra years of fine life beats a significantly shorter top life by a long way IMO.

 

As already stated above, these are not the same strategies.
Several elements to consider:
modesty - was anyone being reserved in what they told you? Was anyone exaggerating?
working - are you sure the country couple are working for money? Doesn't take long to get very comfortable in the country.
timing - let's not blame baby-boomers for the great opportunities they've had. At the same time, let's not deny that there has been a LOT of capital growth and gentrification in down and out suburbs while they've been holding.
city vs country - you already know that cities get better CG overall, no news here.
cashflow - you already know there is generally better cashflow in the country, no news here. If either/ both couples renovated, more cg and more cashflow.
income - were they each receiving similar incomes from their jobs?
internet - allows us now to look and buy and manage elsewhere. Previously, renovations and rent collection had to be done locally.
Overall - cleary, a suburb with possibility of future cg And current cahflow is the ideal investor suburb. Where is it?
timing - Sydney and Melbourne both booming/boomed. No bargains around atm. To emulate the 30 million couple, you need to find a grotty suburb with the right drivers and with good cashflow.
moral of the story - timing.

 

$2m is still better than talking about how you "should" have bought properties in your younger years..

 

Obviously a lot of individual factors here. The couple in their 60's with 2m and not living an extravagant lifestyle have probably been very financially comfortable for a long time (depending on their circumstances). Depending where and what they bought they must have enough cash flow to retire, are they choosing to still work? They may just be people who don't need a lot of material stuff, and enjoy their jobs. Presumably the properties in Melbs held by the other couple were more expensive to buy and hold, otherwise the other couple would have bought them? Either way 2m equity isn't exactly shabby, and with super, and rental income I'm sure they have some choices around their work and lifestyle.

 

Why not have a balanced approach buy properties with good cash flow in the capital cities..and buy on locations with good potential.

Over time 10-15 years...it is almost a fool proof stategy. Whilst trading properties work...you also cap your return. My best performing properties are ones I have held for 15-16 years. They now offer something like 25% returns and have done up 7-8 time the original purchase price. That says it all.

As for regoinals...make sure the city has a 200k more in the catchment area.

 

That and hindsight is great. Who would've expected <insert your favourite suburb> to be gentrified and now worth a fair bit?