What are your strategies when your IP is not growing?

Given the current circumstances with majority of IPs not growing in value, what would your strategy be to maximize your investments?

I have thought about the following:

1. Minor renos, spend about $50K and get $100/week extra rent (feasible in my case)
2. Pay down loan (PI), so it becomes fully unencumbered (20-yrs), and enjoy the IP income and hope by then it grow somewhat.
3. Sell, although not preferred, but possible

We have a couple of IPs in this scenario, amongst other that have performed significantly better (double in value, 30% growth in rent etc). These two are costing us approx net $1K & $2K/qtr to hold (IO). Moving to PI will increase it relatively by another 30-40% per qtr, as the low fixed-rates help in this scenario.

Cheers

 

Option 1 is about a 10 year payback.
Option 2 is my choice but I am risk averse.
Option 3 if you think we are in for a long term decline in property prices.

 

For me #noadvice

Option 3 if you think the sky is falling
Option 2 does not help the growth of the property and depends on your overall situation as to if you can generate higher returns from the capital than the marginal interest saving
Option 1 would be my personal preference... provided there is an ROI on the capital value?

 

Mine are still increasing however I'll say that I'm also going about splitting one into a battle axe and building at the back to increase my equity gain for future borrowing.

 

Debt recycling and shuffle investment debt to owner OCC rates

 

My strategy is:

4. Wait (patiently).

A golden age is coming. Build up your ammunition.

 

in the area of your IP, are there any new apartments / high rises coming up, in turn increasing supplies of the area with brand new properties which will drive your tenants away / drive down rents ?

 

Depends on your end goal and investment horizon too.

Most invest to obtain a passive income stream or capital warchest for retirement. So some questions you can ask include:
- How will these properties enable me to get there
- Do I have a next of kin to pass these onto in which case the formula turns from being income producing to a store of generational wealth
- Can i get to a point where I can achieve after tax income of more than the govt pension by my retirement age? If you cannot see it being possible then do you consider a plan B i.e. land banking via the most expensive ppor you can find as it is not included in pension tests and investing under kids names.

 

Grow lights and fertiliser.

 

You can't throw that morsel out there and not elaborate!

 

I agree with KieranK, but to add to this... don't just sit on your hands and idly wait patiently. Use the waiting time to fully research and spreadsheet-out buying-scenarios for specific property types in specific postcodes you are interested in. Follow the sold-prices in that area for that stock-type, on REA/Domain, and note the trends over the coming 6 months ahead.

No one has a crystal ball but I'm in the camp that believes that SOME locations and stock types will fall to bargain-basement prices when the avalanche of hardship combined with cutting off of supports by banks and goverment; starts to come to an end.

Now, I said SOME but most of the bargain basement stock will be rubbish not worth buying and certainly not what would be classified as long term solid investment grade assets... But, if there is a nexus between the type of property/location that you are already researching on your spreadsheet, and a drop in prices via excess stock on market, then it could be your opportunity to strike.

I'm saying this because one of your options mentioned a $50k reno option meaning you have 50k of equity/cash you could deploy. $50k could be enough of a deposit/purchase costs on some decent IP's.

I would do this in favor of a 50k reno on existing property that would only 'gross' you $5k of extra cash-flow per year. It'd take 10 years to recoup that 50k investment into actual profit. Using it instead to seek a new IP altogether would also help diversify your asset basket and not have all your capital eggs in the one basket.

Also - I'm not sure how secure your day job is, into the next couple of years. If you dont perceive any risk to your job, you should put the 50k to work i suppose. But if you do... perhaps for the next year or so, keep saving and leaving it in the offset until that time? (Just in case of an employment rainy day?).

For me personally (and I may be in a very different personal scenario/stage of my investment journey whereby I'm looking at shifting more to cash-flow as I transition slowly towards financial independence/living off of income); I would be wanting to boost my income and maximise the 50k's cash flow generating power without taking on more debt to do so.

For me, that would be either of:
1) save another $30k and use the AUD $80k total to buy another cash-flowing US property owned outright; that generates say 6%+ (NET) income per year after taxes and expenses. The surplus income from the US one (owned outright) can then be put to work to pay down the AU ones mortgage faster
2) or... consider diversifying even beyond owning properties altogether. This could be things like becoming a money-lender in other markets, or other asset classes entirely

 

I posted more details here:

COVID-19: Australia vs the rest of the world [Health & Family]

 

Good point - luckily one of them is not (good ol' 4114), but the other one is. Vacancy rate is hovering around 2.4 - 2.5% in both.

I'm carefully considering Option 1 - as my view is that 50K is generating 10% gross yield, without necessarily having to deal with another property, rates, and another set of tenants. Plus minor tax depreciation benefits.

There's a cost of money, as I'm funding this from offset, so it's technically costing me around 3.8% (or less with PI Fixed).

I've looked at ETFs and Shares, but there's not many that can generate 10% gross returns.

My particular focus with these ones is cashflow, as I'm guaranteed to see it monthly in this climate. Capital growth is absolutely important, but I'm already getting that from my other properties (and project development).

 

Thought about that, but we have no PPOR. We're no longer in that boat, and is now purely rent-vesting. It's about 2.2% yield to rent where we lived so it makes sense.

I understand the benefit of having a PPOR from tax point of view however..