Strategy: Consider multiple cheaper Properties

Discussion in 'Investment Strategy' started by Terry_w, 26th Jan, 2017.

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  1. Jimmylt

    Jimmylt Well-Known Member

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    If there is a "bursting of the property bubble" or even a major correction in the market, what segments of the residential market do people think would feel the most pain?

    Blue chip top end homes.

    Quality inner city homes.

    City apartments.

    Middle ring houses.

    Outer ring houses.

    New estates, H&L.

    Regional.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    mid to higher in places live Sydney I think.
     
  3. kierank

    kierank Well-Known Member

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    ... then you would have more tenants to deal with, more PMs to deal with, more tradies to deal with, more banks to deal with, more paperwork to deal with, more ....

    Yuk! Yuk!!
     
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  4. Tony3008

    Tony3008 Well-Known Member

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    Ten properties means lots of admin and hassle, but IMO there's a lot to be said for aiming to have three properties so as to spread your risk. For some people these will be $300K properties, for others twice this and more. This also gives you more flexibility if your situation changes - if (say) you lose your well paid job and can't afford to hold your single $1m IP, you can sell it, but you may then not be able to get finance to get back in the market at a lower point.
     
  5. Beano

    Beano Well-Known Member

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    Terry is 100pc right the higher yield enables you to continue to build your portfolio. ..almost completely unstrained ...each property adding to the profit
    Not so with cf- properties
    My current restraint. ...no properties to purchase anywhere in Australasia (after lessors interest )
     
  6. Beano

    Beano Well-Known Member

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    Yes i like to have all my tenants to be $1m plus pa (not just one ) ...almost no admin ...just 3 bills a month !
    They also pay all the cost directly too (except the income tax)
     
    Last edited: 3rd Feb, 2017
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    But which makes you more money in the long run is the question
     
  8. Beano

    Beano Well-Known Member

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    A hard ratchet clause on a property where the tenant has invested a substantial amount of equity will protect the landowner from a economic downturn
     
  9. Beano

    Beano Well-Known Member

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    Yes the question that will not be anwered till after the event
     
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  10. mcarthur

    mcarthur Well-Known Member

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    My calculations base on common serviceability calcs mean you would need a yield of something like 10%+ to increase your serviceability from an IP (ignoring max'ing out with a particular lender). Note many of those around! Getting a "great" 5.5%, or an amazing 8%, or fantastic 9.5% would still reduce your serviceability.
    I can't see any opportunity to be unstrained, or uncontrained :D, in putting together a large portfolio (say Terry's 10 x $200k) from scratch starting now. I'm sure someone can, but I sure can't see it and I don't think it would be easy.
     
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  11. mcarthur

    mcarthur Well-Known Member

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    I'd say blue chip would start ok but go bad reasonably quickly.

    Quality inner city - I'd say would be hurt but not too badly.

    City apartments - don't know, but depends on price and the nature of the correction.

    Middle ring - hurt a bit, but this is the majority so the pullback will be faster.

    Outer ring - hurt a middling bit, and pullback slower.

    New estates - no initial change if sold as people are only just in. Also typically younger and job-savvy.

    H&L - bang!

    Regional - depends on the correction and why. Minor regionals are already way under the majors so may not have as much effect, but the Newcastle's and Geelongs may be hit harder.
     
  12. Beano

    Beano Well-Known Member

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    There are 10pc net yielding properties out there ...my friend purchased in december a 10pc net yield ...it failed to sell at a colliers auction
    I purchased last year and tendered for 3 others (missed out)
    You are right not totally unrestrained. ..i only brought $16m and the others were only $6m so only buying at lower levels ...unrestrained up to say $20m
    Ps i am reducing debt at the rate of $95k pm
     
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  13. Al1979

    Al1979 Well-Known Member

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    Great post guys. Different strategies suit different risk profiles / income etc. A high income earner may be fine servicing multiple negatively geared properties in the $600k range but an average income earner may be better by starting with a few cashflow positive / neutral properties in the $250k to $350k range and build a base before grabbing some higher priced "portfolio jewels" later on once their cashflow grows.
     
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  14. kierank

    kierank Well-Known Member

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    There are many ways of generating cashflow - salary/wages and rental income are only two.

    Smart investors will identify other ways of generating cashflow and will continue their investing journey.
     
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  15. Perthguy

    Perthguy Well-Known Member

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    Depends on your LVR. You can purchase at 90% LVR, 80% LVR, 70% LVR etc. The LVR you purchase at will change your yield, if you count yield as return on borrowings.
     
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  16. dabbler

    dabbler Well-Known Member

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    The advantages outweigh the dis advantages IMO, problem is pretty much no cheapies anymore in cap cities or Sydneys near regionals, so you have to look elsewhere.

    I would not be buying 1 mil properties in Sydney (or anything ATM for that matter) for investment with 2-3% return, 4-500's yes (after a sideways period ends), mix of housing out west and units closer in, more people can afford to buy also so better if you need to sell a place or two.

    The loans in the 2-300's are not a prob, smaller loans of 100 or so, yes you do pay a bit more but it is also easier to buy at 90LVR and be at 80LVR shortly after and re negotiate the rate. The extra paperwork I think is the biggest PITA.....but as they say, you can't have everything.

    Also, all of this will depend on where you are in the investing cycle & what is considered a cheapie, with low income your better to look at cashflow + and mix in more expensive slight negative, but no 2% return stuff, not on average income.

    The other problem is, do this the wrong way round, and you get to the "how do I increase serviceability" or "how do I get a third IP" question a lot quicker.
     
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  17. Beano

    Beano Well-Known Member

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    In my discussions with the bank there are two main constraints
    1: LVR ...with a commercial portfolio it is very dependent upon registered valuers valuations ...due to the cost (up to $6k each) so i only get these when really necessary ...(constrained at another $4m before i need update my valuations ...some over 20yrs old)
    2: Cashflow...with my purchases over the last decade being 10pc + and currently 6.4pc I have not been constrained ...strong cash flow has meant rent has covered interest by almost 3 times ...the constraint is usually set at twice interest.
    Last 29 leases have been treated (by the bamk) as in perpetually. ..Although I wish they would default or not renew the lease ....i will inherit a building (worth from $250k to $28m)
     
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  18. Beano

    Beano Well-Known Member

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    Or another way "my way" is buy high yielders 10+% net that require work and has high risk
    When the cash is pouring in then switch to low yield (6.4% net), low admin, no work almost no risk
    ...have not ever brought cf- ...it is not in my vocabulary!
     
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  19. Al1979

    Al1979 Well-Known Member

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    I assume you are talking commercial Beano?
     
  20. Beano

    Beano Well-Known Member

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    Yup ...commercial
     
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