This is what timing can do for you

A guy who recently joined our cricket club told me about his real estate investments this Saturday. He is under 30, married and works in a consulting company. Family income under $150k. No children and they are currently renting a 2 bed room apartment in Neutral Bay after turning their first apartment into an IP.

- 2010, First property (2br apartment) in Inner west using $30k in savings, first home buyer grant and LMI
- 2013, A 3 br run down house in Wahroonga using equity from first purchase plus LMI
- 2015, A house in Melbourne (I forgot the suburb) using equity from above properties. No LMI needed plus spent another $50K fixing the Wahroonga house (drawn from equity)
- 2015 Bought a house in Coorparoo, QLD by using equity in existing property.

Current value of the portfolio is a little under $4 mil with very good LVR. In total, all properties bring a cashflow surplus enough to pay their rent for the 2 bedroom apartment. Their only lump sump investment was $30k in 2010 and they claim to happily spend all their income from day job to enjoy a good lifestyle.

This is what good timing and good Sydney fortunes can do for you

 

Thanks for sharing, you are spot on.

Timing the market is everything if you want to massively improve performance and the bottom line$, not time in the market.

The above is excellent example of how smart money moves in when markets are rising, perhaps some luck but my guess is they paid attention to what was happening and not following the herd. It was not only Sydney that was booming, they also purchased in Melb and Coorparoo is inner suburb in Brissy which has also been a good performer.

Good on them.

 

A combination of good management and heavy sprinkling of luck.

 

Sounds good, but whats the bottom line? How much equity?

 

Hi Wombat
When investors get the timing right everyone says its "luck", in part this is true, however this is one small factor.

For example during this period there were many threads on SS/PC about the Sydney boom, Melb boom and Perth boom. Not to mention media coverage on this and auction clearances rates, and soaring values.

So why do investors ignore the signs that these markets were rising, no one needed a crystal ball it was in black and white everywhere, is this luck or bad luck for ignoring the obvious? Just saying......

 

I like that story

 

I will ask him next week. He was not keen on buying a PPOR in Sydney - unsure if that was due to lack of equity.

 

It sounds like a great success, good on him!

That said... the numbers dont stack up to be cash-flow neutral. At least, not without further numbers detailed such as MGMT costs, quarterlies, etc.

I say this because each purchase sounds like he unlocked equity to fund either the (probably) 10%, 12%, or 20% deposits paid. But these equity-funded deposits arent "free money". Interest is paid on these equity release portions just as the interest is paid on the remaining 90%/88%/80% mortgage amounts.

 

My 2c; The main point I got from this story is that the guy took action.

Plenty of people talk about buying, and then don't.

Well done to that young guy for having the courage and the desire to do it. He made his own luck; to a degree.

Seems that lots of folks who don't buy, look at the folks that do/did buy, and then say; "Gee; they were lucky!"

 

Some smart purchases there. Very well played. Did he have help (eg savvy parent) or just nailed it himself?

 

I only know what I described above and not guaranteeing the accuracy at all as I barely know the guy. Having said that similar scenarios aren't too implausible given the growth in Sydney.

I do think this portfolio could be cash flow positive (I don't think it's that much positive unless he has made some great purchases). Most likely he bought each property at break even and falling interest rates and interest only loans could have easily put him in a cash flow positive territory. He's definitely at risk though if interest rates start going up.

 

I hate to be the bearer of bad news but interest rates have started to rise

 

Good point - If I was in his place, may be this is time for him to build some cash reserves on the side or fix the interest rates for next 1-2 years.

Having said, I haven't bothered doing the same for my portfolio. Different incomes, different risk profiles and a lot higher LVR.

 

Should look at reducing risk, some ways -

locking rates?
reducing debt?selling
accessing equity

I have a theory, sometimes it is nice to take some fat juicy profits from the table and bring it home ready for the next cycle. I know you pay tax, but there are ways of reducing this, improve serviceability? you also reduce stress/risk and perhaps have a better lifestyle today. There will always be opportunities when it comes to property markets, strategizing is critical to grow a portfolio and increase cashflow.

 

I agree with you - i will take a profit whenever i can - I want to sell but I only just bought (3 months settled) so waiting for at least a year for tax purposes otherwise the tax bill would be huge.

 

That's true.

Personally, I would like to offload a unit before the sun sets on Sydney but avoiding it due to all the stress associated with selling process. I haven't hit serviceability though.

 

There's probably many others who have also 'taken action' but you're not likely to come across those eager to discuss the 4 or 5 properties they bought in Perth in the last 2 -3 years. Those people will come out of the woodwork in 10 years' time when Perth has come around again (hopefully). Point being that very few actually know how to time the market - for the others, action taking and doing well is proportionately more based on luck.

 

Totally disagree, plenty of signs that Syd,Melb,Perth actually boomed in 2013 it was in media everywhere,auction clearance rates, many posts on SS/PC you don't need to get timing perfect because you generally have 3 years just need to get in
I think some investors ignored obvious signs

 

Why would you unload? You would then be up for CGT, selling costs etc; wouldn't it be better to keep it, and leverage off it for another investment? This way; the footprint is expanding?

 

Isn't that the point though - if you followed the media's reports in 2013 saying Sydney has boomed (and not bought) then you wouldn't have the gain you have in Sydney today. MTR you're probably one of the few that can pick the right timing but for the average investment property owner (most of whom are not on PC), following the media means they're either getting boom or bust reports.