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We’ve been backing up our desktop machines that we barely use now. As we were doing so, we found a file from 2012, called “Property Twins Investment Strategy.docx”. Early in our journey, it didn’t make sense, what the hell strategy meant and why was the term thrown around so much without much context and realisation that newbies couldn’t understand. Every person we spoke to suggested “it depends on your strategy!” Well, we didn’t understand what “our strategy” was; However, figured that strategy needs to be TWO fold 1) what purchasing criteria ticked our boxes and 2) what we intended to do with our portfolio.

Strategy evolves overtime and is likely to change at different points in the property cycles.

Do you have something similar documented? If so, what is it? If not, would it be worth putting something down on paper which may act as a framework for your purchasing. Else if you don’t know what you are looking for, then all houses look the same!

POTENTIAL PURCHASING CRITERIA

What?

Houses / Units / Villas / Townhouses (Metro capital cities $160K – $300K and Regional $1 – $160K);

  • Yielding at least 7% (metro) and 10% (regional) in gross rental return;
  • Smaller blocks due to ‘unique’ factor;
  • At least 2 bedroom, with parking space / garage;
  • Maximum age 20 years (strata properties), due to depreciation, which would facilitate with the property’s cash flow due to tax return;
  • For houses, block size >= 600sqm
  • Properties which require minimal work, and may require cosmetic value add to increase market value;
  • Below market value to comparable properties (5% – 10% discount)

Why?

  • Low entry price, high return for units/townhouses/villas into high Capital Growth (CG) area, low entry level means greater number of holdings across more market areas hence minimising exposure and diversifying for high CG;
  • Low maintenance as external covered by strata;
  • Low land value for land tax purposes;
  • Building insurance is covered by strata;
  • Depreciation benefits;

Where?

  • Proximity to transport, and access to other areas in the city (trains/buses/ferries/trams);
  • Shops / Large shopping centre;
  • Schools;
  • Hospital;
  • University/TAFE;
  • Further away from industrial / commercial areas;

Indicators to consider:

  • Growing population (minimum population of 10,000)
  • Infrastructure;
  • Private investment/spending;
  • Government investment/spending;
  • Industries supporting jobs in the region;

Other metrics

  • Manage interest rate risk;
  • Leverage Lenders Mortgage Insurance (LMI) to ensure maximum borrowing to ensure maximum exposure to the real estate markets
  • Initial LVR 88% based on market value;

POTENTIAL STRATEGIES

  1. Buy and Hold – cash flow neutral/+ve and capital growth comes second [helps if you are starting out with low capital / income] – helps you hold more assets than otherwise. The property may have future potential for development also
  2. Buy and Hold – potential for capital growth and -ve cash flow – could be a drain unless you’re on a high income and it may inhibit the expansion of your portfolio and therefore limit your exposure to the market
  3. Buy, Renovate and Hold – Renovation may just be cosmetic or even changing the floor plan to squeeze in an additional bedroom to increase value. Followed by a valuation, extract equity and buy the next property
  4. Buy, Renovate and Flip – has anybody made money on these (not just equity gains, I mean selling in a short space of time)? I saw these working well in a rising market in particular
  5. Buy and Develop (Development Approval (DA) for Subdivision / Build or DA and then Building) –typically development sites have low returns and therefore negatively geared. However, if the numbers work, these do allow for significant future gains through sale / equity
  6. Commercial Property
  7. Defence Housing
  8. National Rental Affordability Scheme (NRAS)
  9. Self Managed Super Fund (SMSF)

Please seek professional investment advice and do your due diligence for all your investing decisions.


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2 thoughts on “Investment Property “Strategy” – What does it look like?”
  1. kim

    Very interesting and welcomed information.

    I wonder if this still apply – particularly with some of the criteria – yield 7% (metro) Max 300K

    Love your site btw!

    • admin

      Kim,

      Glad you liked the site & the info.

      You could still get 6%+ returns in some markets – definitely not in Sydney & Melbourne in our experience.

      Where are you in your journey?

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