Tuesday, May 10, 2011
Reflections on a Broken Strategy
Back in 2009, I posted about a strategy that got me very excited about an early retirement.
Basically, it involved an acquisition phase, followed by an LVR equity draw-down phase. It all seemed so simple back then. The GFC had just hit, but the housing market stayed resilient and there was no suggestion of the 7% annual growth pattern subsiding. How wrong I was.
It's now 2011 and my properties have performed dismally. When I mean dismally, I mean DISMALLY. There had been virtually no rental increases on any of the properties and CG has, instead of the 7%, been on average 1-1.5% per year. DISMAL.
What else has caused a deviation from this 'plan' I hear you ask? It's only been two years after all, hasn't it?
The answer is cash flow. Without boring you with details, I have had to unload two properties; one, a money hungry beast with some maintenance issues the other just came along at EXACTLY the wrong time.
Rather than point the finger, I think it's basically a combination of a few factors, and probably the weird alignment of some planets, that has lead to this scenario.
So where to from here? Cash flow is now looking better thanks to the sales, but we are now looking for a PPOR, which will 'lock away' more cash flow. Will the market return to the 7% days, I honestly can't tell you, but what I can say is that in Queensland anyway, the $400,000 psychological price ceiling is still well and truly alive and wages just aren't going up fast enough. So, for an average investor like me, it's just not happening. I am looking to hold on to properties, but when rents are not going up, and prices are staying stagnant towards the bottom end of the market, it's not looking pretty.
Until next time...