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What Strategy first?

Discussion in 'Investing Strategies' started by Triu, 4th Dec, 2007.

  1. Triu

    Triu Well-Known Member

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    Hi everyone!

    Just wondering what strategy would you do first.

    would you first invest in property and build up your portfolio then build a share portfolio.

    What does everyone do?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    For me it depends on my goals and where we are at in the cycle.

    I would always tend to go for high quality property - but the problem is that it costs a lot to hold, so at some point you will need to generate additional income if you want to buy more.

    My approach is in general:

    1. buy as much quality real estate as you can comfortably afford to hold
    2. wait for the equity to grow
    3. refinance to draw out equity - if you have the servicability, buy more real estate
    4. if you've run out of servicability, look to increase your cashflow by either adding value to your real estate, or by using your equity to invest in shares/managed funds (or do both!!).
    5. once you have built sufficient cash buffers to see you through the bad times, use your surplus cashflow (doesn't have to be "income"!!) to buy more real estate
    6. go to step 1, rinse, and repeat

    However, right now with rising interest rates (and no real idea where the peak will be), I'd be a little reluctant to buy investment property ... I think the market will weaken as interest rates rise and the economy starts to slow (although this may take another 12 months or so before we really see this ??).

    Personally I'm at step 5 right now - consolidating my position ready to buy more real estate sometime in the next couple of years.
     
  3. Triu

    Triu Well-Known Member

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    Thanks Sim that is really good for me to see where i am going wrong. Made a few mistake before and now have to sell a Property which heavily negatively geared and start all over again.

    Thanks for the input

    my clear goals are to build up my property portfolio and the use the equity to build a share portfolio after then make enough money to open my small business with the wife.

    thanks again just need that reassurance.
     
  4. tailcat

    tailcat Well-Known Member

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    I would word this more like:

    4. Just before you've run out of servicability, look to increase your cashflow by either adding value to your real estate, or by using your equity to invest in shares/managed funds (or do both!!).

    It can be difficult, depending on your bank, to get at the equity to buy your MFs or shares. Banks do not take distributions into account as much as they take rent into account when determining how the interest on the new loan will be paid.

    I fell into this trap. Westpac need to see the distributions on your tax return before they consider them to be income.

    Tailcat
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Good point ... you should always draw out equity while you still can - it gets harder (although not impossible) to do so later.
     
  6. bennymarsh

    bennymarsh Well-Known Member

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    I'd be worried if a single post from someone is enough to reassure you about this strategy. I'd be worried about getting myself into a situation where serviceability was ever a problem, and that is much more likely to occur with a property investment than a share investment.
     
  7. samaka

    samaka Well-Known Member

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    Yes and no. Once you've got a investment loan over a property it doesn't matter what happens to the value of the property in the banks eyes. As long as you pay that same dollar figure every month or week, etc, you're fine.

    With share investments you've constantly got the threat of margin call in the background - especially if you're geared high. You need a considerably cash buffer for such an event, something that you don't for a property loan.
     
  8. AsxBroker

    AsxBroker Well-Known Member

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    Only in a Margin Lending account...You can borrow 100% (eg, PPI series or Fusion) or through a LOC (Yes I know it's secured by property) and never have a margin call as it is not a margin loan account though you've borrowed to invest in shares/managed funds.

    Similarly to LMI which is charged on your loan unless your LVR is less than 80% this is the lenders "buffer"/insurance. The lower the LVR the larger movement in price which is needed to get a "called" on your margin account.

    Cheers,

    Dan

    PS This is general information and not investment advice. Speak to your FPA registered Financial Planner before making an investment decision.