State of Affairs, October 2014

They say variety is the spice of life and so it has come to be for my family over the last few months. Throughout the last 4 years or so I've often blogged about the tiny little insignificant thing called 'life' that often gets in the way of my ambitious investing strategy and again, it has proven so.

A few thing then. We have sold our PPOR in Toowoomba. Sentiment in the Garden City boomed after the airport announcement and, when news of the bypass started spreading, the proporty market went into a sort of weird piranha-like eating frenzy where everything, and I mean, EVERYTHING, was getting snapped up quick smart. We jumped on the bandwagon and surprise, surprise, we ended up about $20,000 ahead of my best-case-scenario amount when it came time to order the removal truck. It took a grand total of 3 days to sell our comfortable home and I have to thank Ray White Toowoomba for the wonderful job they did for us. 

Just prior to this, we also bought a modest, tiny little three bedder in Caboolture. Remember that little thing called 'life' I was talking about? Well, when the planets aligned nicely for me to leave my job, this little Caboolture residence was (somewhat) ideal to shift into. And, it came to be, that after a short stint in a govy provided residence, we moved again. 

Kicking out the tenant was a whole new world of pain. I won't go too much into detail, but let's just say that SOME property managers have no idea what they are doing (shock horror) and in reality, since we began our investment journey back in 2004, this was the first time we were left with a very sour taste in our mouths. Luckily it all worked out satisfactorily in the end, but it was a close call. 

Caboolture is an acquired taste. The house itself is tiny and we are surrounded by EVERY neighbour having a dog, which of course is not a real confidence booster. On the plus side, we won't need a dog. The clientèle is very much mixed, low and medium socio-economic families, single mums and a lot of renters. Our street seems leafy enough, quiet so far and, the best part of it all, it's a hell of a convenient location. Besides, we've lived in Kingston in the Logan area south of Brisbane and we survived that experience. 

So where does this leave our portfolio? 

We are still in the process of consolidating. We have:

PPOR: Caboolture (QLD), 3 bedroom brick and tile, small suburban block.   

IP 1: Launceston/Invermay (TAS), 3 bedroom plus sleepout, tiny historical block of 405sqm, weatherboard, competitively rented with some renos completed mid last year. On the market, but no bites. 

IP 2: Ingham (QLD), 5 bedroom typical fibro, undesirable street, on the market, DEFINITELY no bites, but we can hang onto it as it's also strongly rented. Both of these IPs are just negatively geared. 

IP 3: Glen Aplin (QLD), small block near Stanthorpe, on the market but again, no bites. There has been some movement in the area where our block is and if the street is finally developed from dirt to asphalt, we may be in luck to make a tidy little profit. A lot of little houses popping up around our block. 

All of these are becoming very hard to move. Ingham is floody, Tasmania has a job crisis and the Glen Aplin block has it's challenges to develop. Hopefully we have a win on one of these soon. 

Time to stocktake the portfolio

It's the end of financial year 09/10 and it's time for my little "business" to have a stocktake. So, let's see what we have now:

Bought this year:

1. Ingham (north Queensland) 3 bedroom highset. Currently our PPOR.

Continued to hold:

1. Ferny Hills (north Brisbane) 3 bedroom brick and tile. This was supposed to be our PPOR one day. Mortgaged. Rented. CF-

2. Invermay (Launceston, Tasmania) 3 bedroom + sunroom, dodgy weatherboard in an excellent location. Mortgaged. Rented (sort of...in the process of eviction). CF-

3. Glen Aplin (near Stanthorpe, south Queensland), 810 square block in an old small subdivision. Sitting pretty. Not mortgaged. No income.

4. Lachlan (40min from Hobart) 29 acres of splendid mountain/valley/river/town views and about an 8 minutes drive to New Norfolk. Sitting pretty, but looking to do SOMETHING to derive income. Not mortgaged. No income.

Sold this year:

1. Toowoomba (1 hour west of Brissie) 3 bedroom colonial in a historic estate. Was a dog when it came to cash flow.

So overall, our portfolio has entered a "consolidation" phase. By buying Ingham to live in (in town, better for missus and myself), our earlier Toowoomba purchase had to go. Cash flow this year reduced thanks to my beautiful little baby boy arriving and allowing my missus to be a stay at home mum, which far outweighs the benefit of additional cash flow. This does hurt our ability to maintain a negatively geared portfolio though. Balancing act anyone?

So how are we travelling? With the sale of the Toowoomba dog, we are OK. Capital gain (CG) has, according to valuations, dropped, but I am putting that down to the bank being cautious. I think at worst, we have increased our CG by approximately 2% this year. In my day job, I have yet again received a pay rise, so things are comfortable, but that bloody Rich Dad, Poor Dad book is still fresh in my mind. Look out for news around a business I may be buying.

Where to in 10/11? The portfolio is negatively geared and our serviceability is low. There are a number of scenarios, such as further down selling, which could increase our ability to service another property or two, but do I really want to? It would involve selling Lachlan, the block which I think has so much potential. I can't bear the thought of "little short term gain" over the "massive capital gain" that COULD occur. It's all a question of time. I will probably put it on the market, mainly because I see bargains EVERYWHERE at the moment and I want to jump in...BUT CAN'T!!!!! I have found some very good properties, close to CF+ and in great up and coming areas....what to do, oh what to do???

PS. Don't forget to vote on the right, some clear patterns are developing, but it would be great to get a few more people's opinions.

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.