Forums / Property Investing / Help Needed! / Long Term Strategy

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  • Profile photo of FionaFiona
    Participant
    @fmproperty
    Join Date: 2018
    Post Count: 0

    I’m not sure if this is the best forum to ask for advice, but I have no property investment friends, so I will ask anyway.

    Many investors I see love acquiring, flipping, negative gearing. Even the mortgage broker I just spoke to.

    I was thinking to actually pay down my 4 investment properties (3 in Brisbane, 1 on GC). Their value has not really improved in the past 5 years, I don’t have much equity, and the rents have decreased slightly too. I was even thinking of selling the poorest performing to focus on the other 3.

    Is anyone else thinking or planning this way?

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 147

    I don’t like negative gearing.

    To me flipping should be done as a way to raise capital rather than “hold it and sell when I retire”. I would consider flip in the following scenarios:

    1. I want to do buy and hold but I don’t have enough deposit to buy another one for buy and hold after this purchase, so I will flip for this purchase and as many flips as necessary to raise deposit. (in the ideal situation, if I implement my strategy correctly, at 80% LVR, I shouldn’t need to flip to raise capital)

    2. I sell for strategic reasons.

    The idea is to look for properties that look like total crappy hole that turns off and scares away most buyers, but in reality they only need a cosmetic renovation to get back on the “normal value”.

    So buy that property at a value that will make your strategy work and do the following after buying

    Renovate, which can take between 8-20 weeks depending on how much to renovate.
    Re-evaluate, aim for spend X number of dollars on renovation and get at least twice as much value in return.
    Get a tenant in with a strong rent.
    Refinance, so you get deposit for the next purchase straight away after renovation, a term lots of investors refer to as “instant equity”, rather than having to spend 5 years waiting for a natural market growth.

    You get positive cash flow out of it too because you are buying what most people consider as a “useless crappy property” at a “crappy value”…

    For example:

    Normal market value = 250K, and normal rental = 300 per week. Negatively geared. Not only do you need to wait for 3-5 years for the value of this purchase to increase, it hurts your serviceability too.

    Then you find a crappy property selling at 150K (because everybody thinks its crap and nobody wants to buy it), you spend 30K on renovation to bring its value back up to 250K, and rental it for 300 per week. This means you are getting 300 per week against 180K purchase price. This becomes positive cash flow, which means it becomes easier for you to refinance the 70k (250K-180K=70K) which can be used as deposit for the next investment.

    When I say “positive cash flow”, I don’t just mean “rental – interest = positive”.
    Instead what I mean is “rental – interest – property management – insurance – council rates – maintenance fees = still positive”

    Of course, this is only a very brief and high level view of the strategy I am thinking. There are lots of factors to consider when buying (demand, population, etc, etc, etc…)

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,304

    Hi Fiona,
    Some good words from Steven there – maybe some thoughts appeal to your current situation?

    My thoughts are that the current situation calls for caution – i.e. have a little bit spare cash in your back pocket, and don’t go stretching. Maybe for you, that means selling one to bolster others. You haven’t shared any numbers, so you would need to run your own numbers to determine “Which one?”

    And maybe two? Steve himself was saying just a few weeks ago that now is a good time to consider selling any IPs that aren’t pulling their weight. How are yours doing? Do any have “future potential” – e.g. a reno, or development, to add equity? Are you planning to (as Steven mentioned) do some flips to create some spare cash? Or are you looking to sell one or two to enable a better purchase that will give you some reno possibilities, also with equity growth?

    Are you neg gearing? Are you wanting to “Grow” out of it – i.e. become pos geared? Do you have income stability? What are your goals re investing?

    Re “values not grown much in last 5 years”, I totally agree – but I think I see the green sprouts of growth appearing in Bne…. It is just a bad time from other perspectives, leading to a lag in better values, but I suspect they will be coming. Meanwhile, are you better off selling one or two, to enable you to buy a “worst house in best street” so you can add value yourself, thus allowing it to “build” your next deposit, rather than having to “save” it.

    What do you think?

    Benny

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