If the asset lacks liquidity, but the banks still value the asset to allow you to leverage the equity you create, then its not a deal breaker.

My focus to date has been to ensure my next investment, yields enough outcome to get me into the following one. I prefer paths where selling down the market share is not required, rather leveraging the equity I create.

Does the deal yield this result? If not, there’s not much point to creating a book based equity position if you can’t use it to continue your portfolio development.

From my understanding; strata title is where dwellings on a community title, can be sold separately.

If the title was subdivided, then there is no community title, only individual ones ‘freehold’, with own rates.

A multi-unit title is where more than one dwelling shares the one title, for which there is still a community title, managed by the body corp.. I’m pretty sure that’s right. Any Town Planners out there?

So if you are keeping what you produce and renting, as per your friend’s advice, its logical to keep the holding costs down by having more than one dwelling on the one title to minimise rates.

The downside depends on whether you want the completed valuation of the property to reflect the two separate (strata titled) townhouses. Or whether the value of the two dwellings on a multi-unit title are going to value up to support the equity required to retain the debt.

Remembering that two dwellings on one title are worth less than two strata titled dwellings, which can be sold separately.

Is this making sense?

Cheap stock in the sticks for neutral gearing at purchase is not my preferred approach. Perhaps others on this site are better suited to address this for you?

If it were me, I’d apply your research to an ‘inner city’ as you can get for your money land based site, with a dual income option or value add yield option to bridge the cash flow gap. I’d prioritise the location and land size over the dwelling standard, obviously ensuring the product can still be rented @ market. Employ the value add to try and manufacture equity, ensuring the ‘improvements’ at least value up – you can forecast this. Best case create equity, worst case increase my market share to attract higher returns, funded from yield. In either case, a potential path to hasten the capacity for further investment.

Last tips, I don’t chase premiums in the market. Reno only to the majority product standard, ensuring majority demand and I use design to plan these next steps, so I can borrow to afford them, rather than funding from cash or equity.

Interesting comments on this one Kurtuk,

Really depends on the purpose of the purchase. Assuming its for investment:

I would go for market share, $700K would give you access to significant options in Brisbane. Including value add opportunity. I would buy one site with zoning for multiple dwellings, this way you purchase an asset with in built value add to exploit. Rather than having to buy more sites to build up your market share.

There are lots of ways to develop a site. Brisbane, from my experience, offers flexible options including keeping the existing dwelling for holding income. Then building additional dwellings on the same lot, yields a pretty sustainable path. Ensuring holding income and a staged approach to help manage risk.

Done correctly you use the future value of the new product to afford the debt, increasing your market share from $700K to $1.8M or more, without burning more of your own equity. This depends on the site and its location. $700K in Brisbane should get you within 8Kms of the CBD – assuming this is your driver. Importantly also, you can hold the completed product (market share) as the income it derives will fund the holding costs, as per the plan..

Alternative strategies would have you buy and hold, and wait for market help for equity, rather than manufacturing it. Which can burn a lot of time in market, as you may have already experienced?

Development isnt rocket science, but it is important to work with a proven approach so you can benchmark your outcomes and qualify market feedback to ensure you maintain your margins to achieve your result.

Have you considered development to continue the growth of your portfolio?

Consider also, you are one of many investors being sold into the same product, right next to the other 100 dwellings in the development. This means widespread rental properties; one after the other. This will segment the demand for this type of product as you will loose the ‘owner occupier’ driver for capital growth.

Second, you’re in a mortgage belt. All the surrounding properties are likely to have 100%+ debt on them, bringing interest rate risk into the equation. Obviously the current interest market is very low, but it wont last forever. In future when they increase rates, there is potential for the majority of owners to feel increasing financial pressure all at the same time. Potentially leading to broad discounting across the area. Meaning the values can drop quickly if the market competes to sell.

hopefully this making sense, its more easily addressed in conversation, rather than via these posts.

Off the plan property sold through an intermediary, suggests commissions. Also just make sure these ‘investment advisers’ actually have a Australian financial services license. As without it, they are not allowed to give you personal strategic direction on anything, including property product.

I’m with PHP & Richard, older property in established markets, with value add is the most strategic path as a starting point. Stay away from attached dwellings due to the additional holding costs, which will suck up your cash flow. Also don’t count tax returns as cash flow either, as depreciation benefits don’t last forever, nor will the returns be particularly tangible given your current wage, making the property expensive to hold.

GC unit market has had over supply issues for years, and although some prospectors are using the coming Commonwealth Games as a potential driver, its all pretty short term. Is this purchase for your own home or for investment purposes?

Hi Glen, great to see some young guns raring to go! Any traction before kids will make a big difference long term!

Flipping requires continuous effort, its like adding another day job to your existing ones. It can pay well when the market is right and rewards renos, but difficult to do year in year out profitably. If you are handy, there are other ways to channel this skill set.

Splitters are also hard to make money on if flipping, they can offer capital outcomes given enough time in market. But market timing would need to be just right (close to peak) to turn over and make a margin in the short term. Mostly due to the council/ infrastructure costs incurred. As well as entry & exit fees.

Small lot development might sound like the deep end, but not if you stage it. Its a longer time commitment, but will allow you to accumulate significant market share within the next few years. If done right the strategy has holding income throughout, and realizes enough equity to hold and facilitate continued accumulation. Not to mention the cash flow to cover costs and offer ongoing working capital.

I’ve done/ participated in (I think) most strategies available to an individual investor, concentrating nowadays on small development projects. if I could turn back time, I would’ve done this from the start and held everything I built and accumulated.

Food for thought…

Agree with your list Mark, I’ve always prioritised holding what I create.

A couple of my rules:
Work to a time frame: Property investment doesn’t have to be a life endeavor. If you actually have a plan for how you are going to build your portfolio, you can channel your effort and make it happen within a time frame that’s tangible.

Have an outcome in mind: if you know what you want from property; growth, income, both. Different property offers different outcomes, particularly if you are working to a time frame. I see a lot of investors expecting the market to deliver a result. This can lead to long wait. Better to be proactive, and have some control on time, than wait for market to do all the work!

Have the right ownership structure: when building a portfolio, having assets in your own name versus trusts, have pros & cons, the main message though is to think about the scenario in 10 years from now when you’re generating $100K passive from your portfolio. You wont want this all in your own name. Better to have some flexibility to distribute…

This list could go on, but that’s my two cents for now.

Hi, thanks for the post.

I’m a big believer in having a strategy in property. Value add can be a purposeful path, particularly as waiting for the market to do all the work, can stretch out your time horison.

I started with accumulation using equity and Lines of Credit like a lot of investors about 8 years ago. I found this limiting as it sucks up your cash flow and the banks eventually stop lending…

Having learnt these lessons, I sold down and dived back in, with a cash flow requirement in my investment criteria. I started by converting single housing into dual living, which meant neutral to positive outcomes, then into shared living property for positive cash flow. Although these options improved cash flow significantly, the cost to reno didn’t always value add because at the time the market wasn’t paying a premium for renos. They only went up in line with the money I put into them, with the yield as the main result.

So even though my strategy evolved to include income, it was still subject to market to create equity for reinvestment. I guess ‘luckily’ for me I was in Darwin at the time and the market did eventually offer enough upside for next steps.

In an attempt to create equity and cash flow at the same time, I moved to Brisbane to access low/ medium density zoned property at an affordable price to start doing small lot developments, which I’m still doing (and help others to do too). The idea is to manufacture equity, but at price that the rent achieved is in surplus of holding costs to create equity and passive income. I’ve done 3 sites already and current working my 4th through DA atm.

The strategy is defined, which means I dont need to worry too much about all the other options in the market while the there is still money in it. Which means I’m head down and channeling my effort working one project into the next. This approach has yielded my best success in property, allowing me to hold what I create and still have enough to reinvest into another site. using the income my portfolio generates to cover cost and provide working capital. Its getting to a point I could live off it if I wanted to, which is great peace of mind – financially speaking at least.

Property is a great market, but there is no easy money. My experience has helped me develop a formula to apply, stick to and repeat. You can learn this for yourself over time or pay others to spell it out for you.

In any case value add is the right option in my opinion, particularly if you want some control on outcome..

• This reply was modified 10 years ago by  Richard.
• This reply was modified 10 years ago by  Richard.