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.

The most expensive single piece of real estate in Queensland!

Well, I'd live there if someone forced me, but only if I had my own KFC built in first. Admittedly, it's a beautiful property and a fairly good location AND it looks like I'd have space to put my collection of shot glasses.

At 15 million, I bet you could haggle a bit, you know, a mill or two, in the current climate. :)

Is this Australia's fanciest Real Estate???

The Charters Towers Century 21 building is a beautiful piece of colonial styled architecture.

www.realestate.com.au has changed a bit....

Nothing Earth-shattering, but a slight change to the layout, colours and font has given our favourite online property listing website a mini-facelift. I still think that a keyword search would be great, but you see, that would make too much sense...and now I see that www.domain.com.au has got rid of it's keyword search too....bugger.

Anyway, it's the same old same old, but somehow new....

Update on cheap 3 bedroom houses...

Well, after well over 1000 page views, I am happy to report that I did my part to move some stock at the bottom of the market. Only 2 properties remain unsold from the list, the New South Wales and Victorian cheapies, as advertised on re.com.au. It has also come to my attention that in some cases, there has been even cheaper properties for sale in Australia.

Also, this post has generated a bit of interest on the SS forum and rightly so, investors will bite at anything that says "cheap".

A bargain...GONE!!!

I found this chapel above on re.com.au a few days ago, so I innocently sent off an agent enquiry email. It was listed for 90,000. The next day, I receive an email stating that he has already received 4 offers, one being CASH! Admittedly, this did not surprise me, it was a bloody bargain alright....chuck in a few dividing walls and she'd come up cash flow positive no worries. 50km from Hobart's CBD, it's the type of place I am looking for...cheap, little work to do, WAY under priced. I'm thinking I may find a few more of these and with a bit of luck, the financial planets will align for yet another acquisition to the portfolio...

People deny reality....why?

I would have to say I have by now, must have had over 200 conversations about property in the last 5 years of my life with various individuals. Yes, riveting as they may be, there are so many experts out there, I may as well give up and just follow most people's advice. Care to guess what it is??? Don't invest. Wow, words of wisdom...it's like listening to a potato on how to be a carrot.

Yet in my strange parallel universe all is well with my investments. I am going to continue to buy as much as I can (with some security built in of course). Listening to people who don't invest is a very interesting experience for me, I liken it to getting a tooth extracted. Not just any old tooth, one that is stubborn and requires a lot of wrenching, one that has caused you hell for a few weeks before you went to the dentist. ANYWAY, I feel like telling them to get a grip, but then I remind myself that one day, it could bite me in the arse. I have only been investing for 5 years. I have done quite well and am happy with where I am, but was this all just good luck? Did I just happen to stumble upon building markets and cheap suburbs that have performed well? We'll see....

So until then, I will try my best to continue to show restraint, continue to hold my breath the best I can and watch as these "unlucky" individuals continue to complain about how much fuel costs and heaven forbid, KFC, while not investing their hard earned cash into asset producing investments.

Online treasure hunt the way to property.

When I am not hunting KFC, I am usually on my computer either playing chess or searching for property. Therefore, I am not surprised that most investors do the same. This poll, while sadly not including "Over-hearing a bargain deal discussed at KFC" shows that investors, on the whole are lazy SOBs who sit in front of a computer (like me) and search and search and search.

I was always under the impression that the really successful investors have real estate agent friends who "alert" them to properties, even before they hit the market. While this may still hold, it appears most search online for bargains.

I got a little bit excited this morning...

No, it wasn't that I had a dream of eating KFC, it was a realisation upon reading this forum post. Rixter quite rightly puts forward a good argument here. After I read it, I decided to do a little tinkering and I have come up with my own strategy. I'm going to call it the "5/7 Strategy". It all makes so much sense with numbers, I got a little bit excited with the prospect that I could retire in 5 years time. Anyway, let's see it I can explain the 5/7 as clearly as possible:

In a nutshell, the 5/7 Strategy will allow you to retire in 5 years, by owning 7 investment properties.

This strategy assumes that the 7% annual growth that has historically continued, keeps going...there is little to suggest it wont.

In Year 1, you buy two houses, valued at a measly @200,000 each.

In Year 2, you buy one more.

Year 3, one more.

Year 4, one more.

Year 5, two more.

I would assume it would be vital to not cross-collateralise, as you will be drawing down on each properties' individual equity.

Year 6 - first year of semi-retirement

So by Year 5, you have accumulated 7 properties. The first property would now be worth $300,000 and you draw down the equity in this property to the maximum 80% LVR (loan to value ratio). So this gives you $40,000 for the year. You perhaps will need to continue to work part time to really sustain a higher standard of living, but you could easily live on this. This will provide you with approximately $770/week. Admittedly, this is not a huge amount, but you don't have to lift a single finger, or pay any tax on this amount. It's the equivalent of a $57,000 annual wage, before tax.

Year 7

It's now time to draw down on IP2 - Another $40,000 for the year.

Year 8-12

You continue to draw down 80% LVR on all of your acquisitions with 40K in your pocket every year.

Year 13: Jackpot!

By now, you have owned your first purchase for 12 years and, by following historical data, it will have doubled in value and it's now worth $400,000. This will mean you can now draw down the remaining $120,000 of your 80%LVR and this is the equivalent of a $171,000 pre tax wage.

That's it! It's really quite simple, well, definitely sounds very simple and it seems reasonable. Here is a little catch. If you can do this with $250,000 properties, EVERY YEAR you could draw down $96,000 and it would mean that by Year 13, you would draw down $104,000 tax free as well! Imagine that! Yes, you will have to repay the mortgages, but you have rental income coming in helping and you MAY need to work. At a minimum, imagine the extra cash coming in, tax free!

I think I may be able to do this...I'm getting a bit excited though and I'm sure there will be something that I missed and will mean this dream will crash. BUT, I'm optimistic. So here is where things get interesting (for me at least).

I have just purchased a $255,000 house, I also have another that was purchased for $390,000 and one for $151,000. I'm about to purchase another for $195,000. So I am possibly ALREADY in Year 2 of this plan. Furthermore, I have a block of land that has at least $100,000 in equity. The only issue for me, is that they are cross collateralised, but I'm sure my trusty broker and I can change that. SO, I have to acquire three more, one next year, one after that and one after that. THEN, I can possibly retire, or at least, a scenario that allows me to have some choices in my life. Like how much KFC I want to eat.

Aussie property market wrap - May/June!

I have recently come across numerous online news articles, magazine articles, TV news pieces and I'm surprised I haven't seen it on public toilet walls yet, but it appears that everyone is of the opinion that now is the time to buy.

The Australian property market is still in a state of flux in my opinion. House prices are dropping, there is no doubt, but I can now fairly confidently say that even the lower cost suburbs are feeling the pinch. The sheer number of properties for sale across this crocodile infested land of ours is, at best, alarming, and I get the feeling stock isn't moving. Take my local area as an example; when I go to the "sold properties" section of realestate.com.au, the local agents are averaging about two/three sales per month across the whole town!!! That is not very good clearance rates and I have to say, a lot of these agents must not be having KFC for dinner, rather opting for a boring home cooked cup of rice instead.

You see, this is the problem. Things are looking very doom and gloom from some angles. And then again, you read articles like this, and once again, my brain has trouble understanding just what the hell is going on (although I must say this is not a very difficult to do to my brain just recently)! Maybe it's just my markets that I'm involved with, of course I definitely do not see the "complete" picture and if anyone tells you they do, they're full of little brown chicko babies.

So, at this time, I am still not stating that we are in a recovery. Do not listen to the optimists, do not listen to the doom and gloomers, just listen to everyone and listen to no one. That is all you can do. Finally, it is still only May/June. It will take a few more months, let's say around late October that the picture will start to unfold, a vision for the next 3-4 years become clearer and the time when real estate agents can once again return to buying KFC.