My Property Theory – Your thoughts

I think that both negative gearing and cash flow positive will work, just depends on your personal preference.

I was very sceptical about all the theories that “house prices will double every 7 to 10 years” etc when we bought in Sydney 10 years ago. In fact I didnt really care to be honest, we just wanted a place to live. When we bought the house I thought it was a huge amount of money to pay and borrow etc, these days its peanuts and we are only talking 1994 which is not very long ago.

With some renovations to the house the value has more than tripled in the last 10 years. In original condition (unrenovated) it would probably still be worth at least 2.5 times what we paid, 10 years later.

So I guess what I am saying is that I do believe in the buy and hold strategy for capital gains, especially in a major centre of business and industry like Sydney or Melbourne.

I dont see any evidence as to why capital growth in the future would deviate from long term historical averages?

That said, I think my personal preference is CF+
property. I really like the idea of replacing my salary with a steady stream of reliable income. Its something that you can build on over time and quit working as a company slave, eventually, as suggested in the book.

The problem for me is where the hell do you find CF+ anywhere in the Sydney region. Its got me beat at the moment but I’ll keep looking, it must be out there someplace!

Yack/Andrew,
It looks like we are in complete violent agreement here []!!
Mind you, I’m not saying that the sky’s falling or we’re all going to lose our portfolios etc, but if you don’t have the cashflow and/or earnings to service your debt or anticipated debt, then that is reason enough to stay out of the buyers market. Many people I have spoken to have bought property out of the fear of missing out on the boom cycle – that’s an emotionally naive non-strategy IMHO!

This market never ceases to amaze me – there are so many bullish investors here. What is market resilience? I suspect that it’s another term invented by the industry to describe the herd mentality – we all feel safe because we are all feeling safe! That’s ok, as long as the RBA, the banks, the buyers and the sellers are all rumbling down the same path. But for those of you property guru’s who’ve joined the game during the last few golden years, be careful – the real investors are those who can survive the down times as well as the good times. If and when that occurs…

The hardest decision is NOT “shall I sign the contract on this property”…it’s having the discipline to say “I’m not yet ready to sign any contract”. Any fool can rush off and pick up a property – heck, even the real estate agents on this forum will readily admit to having signed up more than one or two buyers in a hurry.

The key is to invest comfortably and have a “buffer” in your portfolio so you don’t lay in bed each night sweating over the overnight cash rates and worring about blowing your wealth plan if interest rates creep up another 25 basis points – they will, one day, and you should factor that into your fiscal planning, just as one expects to have to do some repairs on any property you own, yes, even those nice shiny new ones that you can buy off the plan!

Whether the buffer is a chunk of excess capital or +ve cashflow in your PPOR offset loan or even the expectation of a payrise, is up to you.

Sorry about the rave, but there are a lot of bullet proof people trotting out can’t lose strategies who are heading for receivership, not ownership. I applaud common sense strategies that include studying the market and acknowledging your financial limitations as cornerstone tactics.

Regards,

Rowan

I see what you’re saying, richmond. I was comparing price- nothing more. What does 50k buy these days?

I bought a place 8 years ago for a very decent price. That property has now increased by 130%. To get anything in the price range of what I paid for it, I now have to buy regional.

The property dollar buys less than in used to- that was my point. Hence, people are buying in queenstown- because it’s more *affordable* than elsewhere.

kay henry

HI all

Some interesting and valid points brought up here… it really goes to show that there are as many different strategies for investing in property as there are people investing in it.

I just wanted to add a few additional comments below:

There are ways to add Capital to properties in areas without CG e.g carports, garages air conditioners etc its a matter of finding out what the market is after. This way you not only add to the capital in the property but also usually to your bottom line as the rent can be increases as well.

Another point is that if you have the tenant paying off the mortgage and still getting cash in your pocket you are also increasing your capital.

Also with negatively geared property if you were to loose your job you would most likely also lose your property, where as if you have a positively geared property if you lost your job you could still afford to hold onto the property.

I have been buying negatively geared property for years and found that although the CG has been excellent over the years (thank goodness!) that it hasn’t been getting me fast enough to my goal of financial freedom. This has made me change my thinking with regards to property investing and I am now in the process of changing my property portfolio to contain +ve geared properties. I am now running my property portfolio like a business by watching the cashflow -the cashflow should be coming into the business not running away from it.

Lucinda

Yes Bear, but what fundamentals were driving the CG, and are they sustainable?

Cheers
r

Hi Richmond

I believe it is tourism. The place has come along way in the last 5 years.

They have arguably the best historic railway ride in the world. Tourism in Tassie is growing fullstop. U just have to look at how often the ferries leave now from melb compared to 5 years ago, and now they have one str8 from sydney starting this month.

Look at what Tourism did for Williamstown Vic. Once the poor working mans town that was dying, now u have to be a millionaire to buy there. It now good enough for the premier of Vic to live there and an Ex premier also.

Regards Bear

Thanks Richmond

I understand I could be wrong, and it could take a dive, but it’s a calculated risk im prepared to take. I believe this to be the case anywhere any one purchases. My experience many years ago when interest rates got as hi as 18% the areas where the most CG was previously like capital cities, and near the beach, wear hardest hit in the fall of Market Value. Many people lost alot of money in these areas, yes they went up again and alot higher then previously, but if ya can’t service the loan u have to get out.

Regards Bear

yeah, but queenstown is *cheap* and I think that’s the point. look at what cladding did for fibro homes- it was a cheap alternative to the more expensive weatherboard. and it made properties look better- for buggar all investment.

I could say “look what tourism’s done for sydney”.

Bearsy, if i had a couple of places in queenstown, I’d be happy. big mortgages scare me- because i’m a chicken. Give me small mortgages anyday.

With the couple of units i have, I love knowing they’re mine- all mine (well, the bank’s really). Any property purchase can be a good choice- as long as we don’t expect the world.

sometimes isolation can mean tenants stay. they choose their small community. In places like orange, dubbo, wagga etc- often people move to sydney to work- so the community can be very mobile (although it does have a large enough popn to sustain rental activity).

Regional vs rural- much of a muchness really.

kay henry