Afternoon all,
Long time listener, first time caller.
Whilst it may be inviting some degree of electronic scorn I thought I’d pose a question that I am currently considering.
I like everyone dream/plan/save for a future of late rises, big fish and bottomless wine glasses and as such am contemplating the number of properties I wish to own. So it is with a genuine wish not to sound like a w***er that I must ask whether some properties really are too cheap.
In understanding that liquidity, diversity and yield may benefit from <100k properties it does appear that expenses that are not proportionate such as strata fees, stumping, tradies, termites, hot water systems etc. may represent a greater degree of risk to return in such situations.
But perhaps more significant is that the idea of owning 100 <100k properties really sounds like trading one 9-5 for another. With an 80% LVR it seems very similar to running a small business in asset management for the bank. And no matter how good the property manager is they each still require some attention some time.Just wondering if anyone has any criteria, checks or measures to deliver lifestyle as opposed to hard labour in their golden years.
Hi,
Must confess I have had the same reservations in planning my aspirations of the long liquid lunch lifestyle, however I think Steve has just given us investment tools and it’s up to us to customise them to suit.
One way we’ve come up with is to form a small investing group and there are personalities in the group who aim to excel at landlording while others are aiming to excel at deal finding and analysing, reno’s and developments, finance, etc etc. We figure 6 heads are better than one, plus it gives us lots to discuss over those aforementioned lunches ……. !!
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MelCaptain
Acquiring many properties at any price with the view to them working for you and you not requiring you to put in much effort is not very realistic. Managing or just owning 100 properties would certainly require more time than one person has. There is an unwritten rule of part-time property investing that says the average person will only be able to afford enough time to own about 5 IP’s (give or take a few) before the burden increases to an undesirable level. Of course this often does not yield the kind of passive income which will allow one to enjoy the finer things in life.The alternative is to invest in property managed funds. The return is considerably lower but so is the input (virtually none).
Of course the real answer is to ensure that you have a balanced portfolio of investments which covers several investment classes.
good advise housesonly
shouldnt your forum name be ‘not housesonly’
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]aussierogue
[]-Touché. It would appear that my forum name is at odds with my advice. Truth is that I do believe in a balanced portfolio and in fact do own units, houses and other investmensts. Within the investment class of property I have in recent times begun to favour houses over other types of IP for 2 very good reasons. Greater capital gains because more buyers are owner occupiers as opposed to investors and also lower vacancies.Sorry to drift off the original subject a bit!
I too have reservations about the maintenance cost of older properties and the investment in time required to find them and manage them. I guess I’m a very passive landlord, but I’ve got a good manager, so my investment in time is very little for my 4 properties (except maybe for the termites in one). I’m sure I could have 10 times as many like these (or maybe more termite proof ones!) without taxing my time too much. They were all purchased new, so maintenance has been fairly minimal. The agent arranges all that anyway. My aim is to just purchase one or two new properties per year, so that hopefully rents inflate enough to keep the equations balanced when the depreciation peters out. It helps that I enjoy my job so much, so I’m in no hurry. The aim is to help fund my retirement.
Several points spring to mind:
1. If average people can only afford the time to own 5 or so IPs, how do professional property managers, who might manage 100 each cope? Admittedly they’re doing this full-time, and have secretarial support, but if you’re up to 100 properties, you should be able to quit your job (more time) and/or hire a secretary/manager to oversee all the PMs!
2. Steve seems to want lots of properties because he wants a high passive income BEFORE the loans are paid off.
If you’re happy to move a bit slower, you might need fewer properties to meet your aim. Then you’d put all your savings into paying the loans off quicker and maybe retire in 10-15 years. At between years 10 and 15 you could cut down your hours as loans successively become paid off.
3. When you’ve done well with lots of country properties, and you can afford the reduced income due to the lower yield, why not sell (say) your 10-20 country properties and buy 5-10 city properties if you think that overseeing many properties is getting you down? Low maintenance brick & tile places, in the same city you live in might be suitable. At least you’ve got a choice as by retiring age there’d be substantial equity to play with.
4. Another issue with cheap properties is that holding costs (eg rates & strata levies) are high. I know people assume 20-25% of rent as a rule of thumb, but some cheap places I’ve asked about have been nearer 40%!
Peter
Having built and renovated the odd house or two in the last twenty years I’m a bit the cost of the house versus the cost of maintenance. The dearer ones generally cost more to maintain and the workmanship is not necessarily better. If the cheapie is starting to frey at the edges it’s generally easier to offload.
As Steve and most other “Gurus” postulate, Ya gotta network, network and then network to achieve the massive number of IPs they have. Sure it’s a hard slog in the begining but it sure as heck beats going to a J.O.B for forty-something years. Just ask yourself… would I still go to my job if they didn’t pay me? Ah well… back to the (tempoaray) grind[]Have a great day
Robert
Veni, Vidi, Vici
I think that you have a really good point here Captain.
So much for ‘passive investing’ – the finding of the deals and setting up of the investment is anything BUT passive!! And yes the maintenance on 130 houses would be huge!However residential RE at the bottom end of the market is an entry level investment. As you build your portfolio you can always trade up to commercial property, either residential commercial or to businesses where the tenant pays the outgoings and often signs a lease for many years. That can also be professionally managed.
However commercial property is more expensive and most people can’t afford it when starting out. Residential RE is also considered to be the lowest risk, because in any economy people need somewhere to live, while commercial buildings are the first to be hit in a downturn.
Dolf de Roos tells about buying office buildings for millions, at a discount of millions! He says because there are less buyers the further up the market you go, the deals get better and better.
cheers-
MiniThankyou for your insightful feedback everyone.
I must say that the idea of dedicating time and money to the IPs for the next 9 years before consolidating borrowing and lifestyle exposure to city brick & tile sounds like the way to go for me.
I have considered commercial property but that really would be too close to my current 9-5 and I suspect that Dolf wasn’t writing in an environment of 9% super contributions and suspect equities markets. LPTs are a good way to access the bigger end of the commercial market but an equivalent amount of leverage could only be generated through a margin loan which I am adverse to.
Thanks again
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