Lets try something new and may i challange the theory of trading in 4 cheaper properties for one high quality one.
eg; Lets say you had 4 average house and land investments in the outer suburbs/country town of x that were say neutral geared with debt and traded them for one property in an upmarket location in say Hunters Hill Sydney.
For this exercise the traded value is $1.300.000.00 or equilivant swop … which will be the better senerio over 5/10 years do you think ?? or which portfolio would you rather own in this example ??
Phil [juggle]
I’ll have a go,
would it not depend on the Town ‘X’?! X may be in a location that will benefit from greater CG in the next few years. Naming only the upperclass suburb makes it hard to properly evaluate the differences, don’t you think. Even if this discussion is meant to be hypothetical.Cheers
C@34
I don’t quite get the point of this exercise. Shouldn’t people invest to their means? I’d rather the cheaper properties… vacancy in the hunters hill place means big big repayments to meet… at least with 4 the risk is spread. The Hunters Hill one may very well be worth more in a decade, but my sleep at night factor for the other option will be much greate…
cheers
rThere is also the potential for CG on 4 properties that you could renovate and sell/re-finance……
I agree with the four properties.
As Richmond and Pelican mention you spread risk and have potential over time to renovate.
Its always easier to rent out median priced properties than expensive ones. Thats my strategy.
I invest around Mentone/Frankston not St Kilda or Middle Park. But one day as my portfolio grows I would love to invest in those areas. But only when my portfolio is large enough to support a property in those areas with limited risk.
define quality propety anyone???
and please explain the definition??
the reason i ask is that the concept of ‘quality’ with respect to ‘returns’ in any market – has mostly to do with time in the market…short or meduim or long. country property has caught up to city property. city property will probably go ahead once again, then country property will catrch up again.
the market is cyclical and if you buy and sell at the right time and have a decent spread to hedge your risk then you wont get caught up in trying to evaluate subjective terms like ‘quality property’…
and the above example only refers to capital gains not cashflow. quality property in terms of cashflow is a completely different thing once again
my 2 cents
Well with one property I would be losing alot per week when it was vacant and tennated.
To me I dislike losing moeny (as I don’t need a job, the benefits of negative gearing aren’t that great for me). I really invest for the cashflow not the Cap. Gains though.
So I would buy the 4 netural properties and make them positively geared investments (through either improvements/renos or through another twist).
Rgds.
Lucifer_auI’m also with the 4 I/P’s. Even if you did achieve greater growth with the Hunters Hill property, such an area would demand a very high rent hence less people being able to afford it which could equate to longer vacancies. Would be great to be in a position to have both, i.e the 4 cheaper properties AND the Hunters Hill property.
Just my thoughts.Regards
MartyHi All
I’d prefer to manage one property than 4.
Lets look at the aggro factor of 4 properties.
4 tenants who can be in arrears or default somehow or vacate.
4 HWS wearing out
60 tap washers
4 gardens
4 roofs and sets of gutters
4 TV aerials
4 sets of carpets
4 property fences
4 homes to paint
4 statements from agent plus fees
On the other hand, with one upmarket property
1 chance of tenant vacating, not 4
one fence, one roof, etc etc.
Once again, the importance of careful PM and tenant selection can make all the difference.
I prefer quality property & quality tenants, and I’m very careful choosing both.
cheers [biggrin]
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
If it was 3 years ago I would have chosen 1 property
Today I would go with 4G’day Yack,
I don’t know how you can call it “spreading the risk” when you’re talking about four backwater properties.
I would imagine it’s the other way around.
Hunters Hill,you would have no problems renting to quality tenants.No riff raff can afford to rent within miles of the place.
All your renters would be show ponies. All show,top earnings,no money in the bank.
As one investment author put it “big hat no cattle”.
I’ve done almost the same thing. Sold all my units.Held onto my North Curl Curl dual occ.
In three and a bit years all the same average type houses have been demolished.Now, there stands two story lastest design homes.
Nearly the whole street has(is) been rebuilt.
Except mine and a few others.
My return on the two rentals is 6.9%.
From the cost of $790K to well over a million dollars. That will do me!
As for renovating, you seem to think it’s only the backwater dumps that apply to renovating.
If you watch Channel Nines (I do,I’m addicted)
Donald Trump’s Apprentice Show.He spends multi millions on renovating high quality properties.
Then on selling them for multi-multi millions.
For a BOOFHEAD he’s a very smart man.THECREST has it right! The more properties you have the more problems you have.Specially if your tenants are renting your backwater properties and are,naturally, on the dole
No employment in backwater.
Biggest industry is the dole office.
Two months behind in the rent. “Gee can’t a man have a couple of drinks at his favourite pub every afo,without you (the land lord) bitching about your flaming back rent”
Just my thought.bruham. [withstupid]
So what’s your answer Phil?
Before you respond could you possibly run spell check and grammar check over your reply so it appears reasonably credible?
Howdy bruham my man,
I still don’t know why people equate “cheaper” or “country” properties with “backwater”… there are many bustling cities in Australia with populations of 30, 40, 50 thousand that have a solid diversity of industry and are good places to invest. One example, I bought 4 with yields of 10% 18 months ago in a city of 50,000 for a total of $330,000… I put $45k total into the deals… if I was to sell the lot tomorrow I would easily gross around the high $400s to $500k. Say I sold them all for $500k, that would make my gross cash on cash return around 400%. It’s not as good as some, but good enough for me.
Cheers
rOriginally posted by richmond:I still don’t know why people equate “cheaper” or “country” properties with “backwater”… there are many bustling cities in Australia with populations of 30, 40, 50 thousand that have a solid diversity of industry and are good places to invest.
If you were on a modest salary had reasonable deposits and could get approx $300k finance, you could either:
1. Buy one modest place (a small unit in an inner suburb or a house in a cheap area of a cap city)
2. Buy three $100k IPs (in regional cities with good prospects)
3. Buy eight or ten $30-40k fixer-upper houses in declining farming towns.
I’d go with 2. If you lose a tenant you don’t lose all your income and yields are likely to be higher (portfolio could be neutral or close to it). Note that 2. involves purchases of attractive and highly rentable properties large towns with strong rental markets. 3. is high risk and 1. is a bet that cap growth will exceed losses through massive -ve gearing.
If you were on a higher income had a higher borrowing capacity (say $900k) and wanted to invest in the big cities only, you could:
1. Buy one $900k house
2. Buy three houses for approx $300k each
I would still go for 2. There’s lower risk, most people can afford to rent them and most can afford to buy if you need to resell.
Peter
Hi qwerty, i’m just back from Qld so here i go, thanks for the suggestion on spell check, i must learn to slow down (when i get the time).
One answer from my experience is that as i have had the great country properties, i have also had many a problem with them, not only from tennants but also wear and tear which at times is very taxing (dealing with agents and disputes), no pun intended.
There are always opinions on both sides here, however now that my asset base is more substantual than what it used to be, the upper end of the market is proving more profitable. For one there are less properties to worry about and secondly the capitol gain is the winner.
My other experiences are that when the market changes as it is now, you can’t give the cheaper ones away, because the buyers are not there in the country areas when you want them. Orange – Bathurst – Mackay – Proserpine – Midge Point – Nowra – Cambeltown etc.
Any body can buy a property but try to sell one when the market has gone the other way, (country and outer suburbs) even Cambeltown in Sydney is suffering from over supply. In another 6 months i believe there will be some great bargins to be had.
So my humble reply is that it depends where you are financially. When you start to invest you need to go out, but when you have made a few bucks you want quality closer in, rather than quanity. Not unlike the dating game is it?
qwerty i’ve just found spell check!! – will use it next time. As i have said before i got caught with a $5mill tax bill then the interest rates went to 19.33% when i was 27, and i have met a lot of experts since then. There is a lot to be said for surival!!.
On the other side i know how much (crytical mass)money i am chasing to live the life style i want. I used to be like a ship with out a captain, now i’m at the wheel. I believe you need to know how much money you need to acquire, and at what age you want to enjoy it. I realised i wasn’t born into the Packer house hold, so i maped out in writing what i wanted to achieve from my investments.
Just saying you want 20 houses is not being specific enough, you neeeeeeeed to get clear on what you want in life other wise you will get dissapointed, shit i’m going on, better stop!!!
Money can’t by happieness but it (i lied there) does remove two words from ones vocab. “if only”
Regards Phil[xmas]
Hi Phil,
One good point you made there, is, that’s it’s not necessarily about the Number of houses…. I’d suggest it may be more about the amount of INCOME they provide… be it 1, 2, 5,15 or 50…. or more…..
Cheers
Scott
You may know the cost of everything…. but what about the value ????
IMHO I don’t know if owning property in Hunters Hill is the answer either. Two things that come to mind is if the property sits on a substantial block land tax would kill you and your potential pool of tenants is considerably smaller.
I’ve noticed in the past that when the economy is going bad these high ticket properties become difficult to rent because the corporate high flyer who rented it has now downsized because he’s been retrenched, etc. Sometimes these properties can rent for not a whole lot more than an average house in the suburbs.
I like the Steve Navra principle: Buy in suburbs which have a median price that equals the capital city median plus 25-30%. This will keep you out of crappy suburbs with crappy tenants but not expose you to the expensive properties that demand the high rentals.
I have thought about this. I used to think buy the more expensive one. But actually it doesn’t matter. They are both cyclical.
It comes from us confusing return with value. A properties value depends on location, location, location. But actually the % return has little to do with this. If high end suburbs did better by only a couple of % then over a couple of cycles the expensive suburbs would be astronomical and unaffordable for anyone. I live in the northern suburbs and there is a perception that because it is an expensive area then the returns will be better. This is crap.
There is a good time to be in any asset but none of them do well all the time.
Hi Obiwan yes but,
Does the suburb have a wow! factor. There is a huge difference between greenwich and Hunters Hill.Kate Blanchit just paid 10mill in Hunters Hill. ROI on the top end is CG. Potts Point is still going through the roof, because it caters to a certain market.
Where does Lang Walker live and all our other aussie heros etc. Remember that 97% of the wealth is comtrolled by 3% of the population.
Property isn’t abc its much more than that. The secret to building wealth is to own something that is more valuable to some one else, and they are willing to pay dearly for it.
IMHO regards Phil
You must be logged in to reply to this topic. If you don't have an account, you can register here.
