Tuesday, June 30, 2009

Buy and Hold is a hard strategy

Let's face it, buying an investment property is simple. You go out, find something you think will make money, do the paperwork and it's yours. This part is easy.

The hard part is the "hold" portion. I am looking over my figures and I always end up in the same place. It goes a little like this:

"If I sell that house and cash in the equity, and use this to pay down that loan, will make that cash flow positive and then I will be better off financially, but then if I sell that one as well, that will mean I will really have heaps of cash around and then I can pay down that one, and then...if I ...."

So it becomes a downward spiral, where in essence, my investing strategy changes from a "buy and hold" to a "capitalisation pay down model." Not that I'm saying there is anything wrong with that, but it mucks with my head.

The reason all of this occurs is the fact I now have an Excel spreadsheet that shows me the equity. I used to have one years ago and then realised that by constantly looking at the equity was driving me crazy and wanted to cash in my properties. So for a while now, I have gone without, but last week I tinkered again and I'm back to where I started.

I suppose there is nothing wrong with wanting to pay down a few properties, especially if I have made some real gains in a short amount of time. This will provide opportunities to acquire more, while making my portfolio easier to manage cash wise. In the last few months I have made two purchases. They are oh so close to cash flow positive, one is only $9/week at the moment, including all outlays. So by selling down the other one, would reduce this mortgage to an amount where it would be cash flow positive. It still leaves my portfolio doing well and it's only one sale. HOWEVER, and here is the icing on the top, I can now acquire another two properties and do it all again!

So this strategy I will call the "Sell Down Strategy".

You buy two properties, let them increase in value to a point where selling one will make the other cash flow positive. You can do this for either property AND if you bought well, in as little as a few months, you could be adding a cash flow positive property to your property empire.

It may work....I'll keep you posted.

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