When To Stop Property Accumulation And Move Onto Cashflow Consolidation?

Discussion in 'Investment Strategy' started by Michael.Knight, 17th Aug, 2015.

Join Australia's most dynamic and respected property investment community
  1. keithj

    keithj Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    177
    Location:
    Blue Mtns
    Your risk profile will change as you age - kids, job loss, health scare, bad tenants, IR rises, APRA intervention, GFS Mk 2, broker says NO....

    As you age, you experience more cycles & become aware of more things that can go wrong. And you have a lot more to lose.... when you're starting out with 90% LVRs and during the 1st part of the accumulation phase, if things go pear shaped it's usually the banks problem, not yours.

    When you acquire enough equity to provide a reasonable income if it was all paid off, is the time to consider stopping accumulating & start reducing risk.

    eg $2M equity @ 4% nett yield will provide $80pa. At that point you have options to remove substantial amounts of risk.

    My view is that some here are too focused on excessive accumulation, rather than appropriate risk reduction.
     
  2. barnes

    barnes Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    674
    Location:
    Adelaide
    Stopped doing it completely last year. Sold everything in the last 4 years. Will I start again - I don't think so, but time will tell. Property doesn't give returns it did 10-20 years ago. There are other ways to make a living.
     
  3. Ace in the Hole

    Ace in the Hole Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,872
    Location:
    Sydney
    Do you mind sharing where you re-invested the funds for better returns?
     
  4. KDP

    KDP Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    475
    Location:
    Melbourne
    Sydney properties have been giving pretty decent returns recently.
     
    skater likes this.
  5. barnes

    barnes Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    674
    Location:
    Adelaide
    I didn't reinvest them, just kept them in greenback.
     
  6. Richard Taylor

    Richard Taylor Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    434
    Location:
    Brisbane
    Never focus on a single strategy in order to achieve the end goal.

    Buy and holds have to be considered longer term income / capital producers whilst other investment (both property related and non property) are used to generate quicker returns to help pay down debt and reduce the overall debt exposure.

    Relying on ever ending capital growth will not achieve success as in times where price are stable or indeed fall it means you are stuck in your tracks and over time inflation will outpace the rental hikes.

    Flexibility is the key when it comes to investing and being able to adapt to an ever changing investing landscape.

    Cheers


    Richard
     
    kristaje, Sackie and C-mac like this.
  7. C-mac

    C-mac Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,348
    Location:
    Sydney
    I like this approach Richard.

    My aim is to have my 'held' property portfolio set up within the next three years.

    Then, once all of that is rolling along, and I am still full time workforce, I can focus on debt reduction via shorter term high yield things (maybe shares, who knows maybe reno-flips?) To pay down portfolio debt as aggressively as possible. Hopefully within the next 10 years I'll make good enough headway to achieve this!
     
  8. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,035
    Location:
    Vaucluse, Sydney.
    Great point Richard. I always advise investors I talk to that if its not out of their risk profile then try to buy deals that have value add potential. It can pay off big and bring them much faster to their goals, which is the whole point for many who invest - get to their goal asap. If that's 20 years fine. But if it can be done in 15 years when combined with an additional strategy then why not. That's 5 years saved....its a long time.
     
  9. spludgey

    spludgey Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,482
    Location:
    Sydney
    My strategy of buying positive cashflow properties doesn't really require me to stop purchasing to get more cashflow. In fact, all my recent purchases more than pay for themselves at 105% LVR, so the more I buy, the more money I get.
     
  10. Johnny Cashflow

    Johnny Cashflow Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    919
    Location:
    SA
    What happens when you reach your borrowing limit and have properties that won't see much cg?

    Or are you able to continue to buy because of cashflow + properties?
     
  11. spludgey

    spludgey Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,482
    Location:
    Sydney
    I'm still expecting my properties to grow a little bit over time, but considering that cashing out equity is getting harder, I think it's not as relevant as it once was.

    Plus, I'll hit the wall much later than someone the was going for blue chip properties would. My limitation is more getting a deposit together, while CG properties struggle in terms of serviceability.
    Personally, I see my problem as easier to overcome as I just need to save or borrow (when possible) a bit of money and I can purchase the next property. If you've hit the wall due to being negatively geared, you can either earn more money or increase rents, both of which aren't totally in your control (even though the Anthony Robbins types will tell you otherwise).

    If I can get money out of my portoflio, then I only need it to go up with CPI (let's call it 2%) and I can purchase one property a year just on that.

    But, we're also quite good savers and save over $50k a year from our income and perhaps another $10k from property. So I'll be able to buy one or two properties a year until we have children at least and then we might just have to rely on the IP cashflow and CG to increase the portfolio size. It will be slower, but it will be possible.
     
    D.T., 2FAST4U and Johnny Cashflow like this.