What's my next move?

Hi all,

My current situation is this:
- 28yo
- 9 IPs in Logan/Ipswich all positively geared - 8 are at 80-85% LVR, 1 is at 55% LVR
- PPOR in Sydney worth $1.3m - <80% LVR
- High income, no dependants so cash flow is not an issue (but tax is!!)
- I should be in a position later this year to buy another IP of around $400-500k while retaining all of the above
- Keen to explore using debt recycling for future purchases

Goal: to build as much equity as possible in the short-medium term, and eventually turn that into income (probably through commercial property)

Challenges:
- Not sure where to buy next, but I don't want anything else in QLD (due to land tax + desire to spread risk). Perth fundamentals look good, not sure what Melb and Syd will do
- Very hard to judge where the market is going at the moment. From what I'm seeing in the markets I'm following in Sydney and Logan, there are plenty of buyers. Not sure if this will change in Q4
- I'm not sure whether I should cash out of the IP @ 55% LVR to pull some equity out in case some good buying opportunities come up in Q4. This would allow me to spend around $800k on an IP/s
- I would be happy with buy & hold opportunities with good CG prospects, but preference for properties that I can add value through development (now or in the future) - however I don't have a lot of time to actively develop so would prefer to have someone I can trust to outsource the project management to, or someone to partner up with

Any thoughts/advice would be appreciated, as always.

Thanks!

 

Have you gave a thought to Adelaide? I'm not speaking from any experience, just curious.

Could you sell an IP in Logan/QLD to reduce debt and redeploy into NSW, you have a landtax threshold you aren't utilising etc?

 

Nope, never even been to Adelaide actually!

Would prefer to stick to Syd, Bris, Melb and Perth. Perth would probably be more of a buy, develop, sell strategy than a long-term hold.

I have about $40k worth of losses in my trust so keen to do a development in an entity owned by my trust next, to wash the profits against these losses...

 

In all honesty, what IS the strategy with all the positively geared stuff? What do you expect to get by holding onto them?

 

I had a similar strategy to you, bought multiple CF positive ips in regional NZ. They all doubled or close to in five years. I'm now selling them off. You could partner with an experienced developer as money partner, build equity but also get development experience and start to really scale.

 

Great question.

Would I buy something like these again? No, but at the time, they were all I could afford, and the cash flow didn't hurt my serviceability too much so figured it was the best way to build a decent sized portfolio to leverage off. I bought them all fairly well (most of them were run down so I bought them below market value and/or did some renovations).

I learnt a lot from them though, and glad I made mistakes on properties that are only worth ~$300k, so I now feel more comfortable moving onto bigger properties and eventually some larger development projects.

Given they haven't had much growth yet, there's no point selling them (after transaction costs + CGT I wouldn't be left with much) so I plan on sitting on them until I see some growth, then probably sell some off and keep the duplex and a couple others I can add value to.

 

Thanks @ellejay.

When I was buying them, returns were 6-7% and interest rates were 5%. Returns are still 6-7% now but rates are under 3% and there are grants and concessions for first home owners, so I'm hoping we see some growth soon. But I don't see it doubling for quite some time!

 

?

While its great that you have developed experience on these, the problem is that you only have maybe 1m or so equity? Most of it not accessible.

Wouldnt it make sense to think, if i started all over again what would i do, and aim for that? Probably doesnt include logan property unless you now expect significant growth.

Selling for low gains might seem like a step back but if it frees you up to take bigger steps forward......

Isnt this the classic yield trap. Sure youve made cashflow, but buying in sydney and melbourne instead would have given a different outcome in terms of net assets. Which you could use to fund developments but the 50k you get from your cashflow properties probably wont help much.

Sort of think this is what fast forwarding some of the newbies who insist on positive cashflow looks like.

 

@Westminster knows the WA market well, and from what i've read it can be difficult to make money in that market unless you know what you are doing/have experienced people on your side.

 

no one really knows where is going to rise next, plenty of people bought in Syd west when the yields were good and then it shot up

 

Yep, been chatting to her about WA and she definitely knows her stuff! Certainly wouldn't try to do it myself given I know nothing about the Perth market and don't have the time to learn it intimately

 

Thanks Trainee, you definitely make some good points.

Looking back retrospectively, yes I wish I bought in Sydney. But as Vertigo mentioned, no one knew where growth would occur. At the time I had the option of buying a couple properties in Western Sydney (lower yields, already overpriced according to many, could only hold a couple) or buying multiple in QLD (lower/no holding costs, opportunity to learn how to develop on a small scale, seemed good value in comparison, could hold a lot more) and I chose the latter. I didn't care about cash flow, it just allowed me to service more debt and continue to buy.

In any case, it's a long game so I don't mind if it takes 5-10 years to get decent growth on these properties. I'll let them sit there paying their own way and put my money into different markets moving forward.

Just because Sydney has had better growth recently, I personally don't think this means it always will. I think QLD is a great place to live and Sydney is already overpriced in comparison, so can't see how that price gap can continue to grow forever.

Unfortunately I can't try and change what I've already done, but would rather focus on moving forward in the right direction. Would be keen to hear your thoughts on what my next move should be!

Thanks

 

Still the same idea. Not going back, but if you could redo your portfolio now, what would it have? Would you want more syd / mel property because it might have more growth? Or where do you think would have the most growth?

if you develop, do you have enough cash? If not, is it worth selling some?

the thing that sticks out is you want to maximise the next one while keeping everything else. Because you believe logan will have good growth? Why doesnt your strategy have a rebalancing option?

 

Good point. Never thought of it like that.

Truth is, I have no idea where growth will occur moving forward. But it probably wouldn't hurt to get out of a few of these and have some exposure to other markets... Thanks for getting me thinking!

 

If you can hold the CF properties and now start moving into developments I would do that. I've adopted the same portfolio as you to some respects except I loaded up in Hobart instead of QLD. I can put you onto a developer I know if you like you can simply chat with him and see what you think? He goes JV with people who buy the properties then uses his cash to do the developments and you split the profit. Does a lot in Melbourne and outer suburbs of Sydney.

 

The main problem with looking at selling my IPs is there isn't a lot of benefit in doing so. For eg a property worth $280k with a 85% LVR. There's only around $40k equity there. After marketing, agents costs, legals and CGT I might walk away with $20k. Even if I sold 5 of them it's still only $100k, which isn't a lot based on what I earn in a year.

So aside from a bit of cash, the only real benefit is freeing up some serviceability. And with interest rates so low and the properties positively geared, I don't know how much they are affecting my serviceability in any case.

 

I think you might be missing the critical factor, and that is deleveraging.

Its the 238k~ debt you will be removing off your books which you can then redeploy into other markets.

Opportunity cost and so forth.

 

One question might be. You can buy a 500k property on current serviceability.

if you sell some, could you buy a $1m property? Does that increase your options?

no idea of your numbers but have you had that conversation with your broker?

other things to consider. Are you going to be in sydney long term, and your family as well? If you think sydney will rise faster than brisbane long term, it makes sense to have a bigger bet on sydney houses.

the problem with thinking that sydney is expensive is that it is always expensive. Logan looks cheap only relative to sydney.

 

Sydney is Overpriced?

Its a very big blanket statement.
$500k /600 for a house near liveprool area. Lots of infra airport and other developments in area. In 10 years you will get likely more appreciation than Logan in my opinion.


Bondi is expensive sure. Although people that buy in dont think its overpriced they want to live theere and many other places where prices are high.


Not all off sydney is expensive or overpriced.


The reason Logan is cheap is because the deman is low.

Logan @ $400,000 could be overpriced.


Bondi @ $1,500,000 could be a bargain.


cant blanket statements in property where their are so many markets.

 

A couple of thoughts:

* I wouldn't sell anything. It is a soft market at the moment and as you said you don't have that much equity anyway.
* personally I would stay the course with your current holdings, youve planted the seeds, don't dig them up to see if they are growing.
* diversification would be good, every thing in SEQ is a risk.
* CG in any market in the foreseeable future is hard to see, nothing wrong with putting your positive gains to work and deleveraging for a bit. There is nothing getting me excited at the moment other than the prospect of some decent buying opportunities to come.
* I like Perth too, lots of metrics starting to look pretty good out West, I am starting to research next buy at the moment and Perth firmly on the radar.