Property is a funny thing, it’s generally not hard to make some money but it’s dam hard to make good money.
To achieve this you must think outside the box… I like to think of myself as a person who does exactly this.
When explaining this to a mate recently over a beer, he came up with the perfect analogy for how my brain works… Zig when they Zag…
It’s an analogy I live by with my investing. I buy when no-one else does… in the hard times, and I sell when everyone is buying… when times are great.
This way I buy cheap and sell in the high… makes a world of sense but not many investors do this.
Now for the first time in my life I have been feeling that Sydney has finally gone beyond the realms of affordability of the 95%’ers…
Yep that’s most of us… and it’s not getting any cheaper.
Not that I think that Sydney’s property market is going to burst, like the bubble some so called experts are using, but I do believe it will cool off with some pace…
This will be the case for Melbourne as well, but in a slightly lesser degree…
This will start this year and probably sooner than later. I did a recent Blog on Six & a Half is the new Nine that also spoke about this…
/blog/is-six-and-a-half-the-new-nine/
It outlines how many homeowners have some whopping home mortgages… with no plans of reducing it… except through hard slog over 30 years.
Bucking the trend, a smart property investor who has owned a home for 3 years or more has probably made some decent gains on their home.
So why wouldn’t you sell your home now while the market is great???
This would mean that you would capitalize of the huge tax-free gains you have made and open the world of possibilities up to you…
Now you simply don’t sell so you can re buy in the same market, that wouldn’t make any sense…
You need to become a tenant again… yes, that’s what I said…
I can hear you all saying WTF???
No way we want to go back and rent again, we have worked hard to get this far…
Yes you have but are you still moving forward at a fast pace financially???
Probably not…
So hear out my plan…
You sell, make some great money but jump back into the market again in a few investment properties that you can make “some” gains on.
Invest in markets that are in the doldrums where you can grab a bargain and make some returns in short to medium term.
Now I’m not saying you need to making a killing in the short time, you simply go back and invest to increase your capital, ready for when you do buy a home again… What you are trying to achieve is to beat the cash market where currently you can get around 4%. You need to factor in stamp duty and exit fees when doing your numbers…
Not that difficult… that can be achieved quite easily.
This investment term is for around 3-5 years. Then those properties are also sold, for a profit.
Then with your, now even larger deposit, you jump back into the Sydney market when it has come back down in value considerably and grab yourself the bargain of a lifetime.
You see, this next round on the property cycle, will see far fewer property purchasers that will be in a position to purchase… as many home owners are mortgaged to the hill, allowing you the pick of the bunch.
Cash is King as they say…
Now I know why 99% of you will never do this, as your home was a love purchase, but it makes a whole bunch of financial sense to take the money and run…
Now that’s all well and good for me to say… am I going to do the same? Well no I am not, I don’t need to… I own my home – but I did very similar in the past…
Until 2009 I was a tenant as well as a very active investor… I sold a bunch of investment properties when they matured…in the prime of their cycle for maximum profit and then waited for the Sydney property market to plummet… Yep right in the GFC… in 2009.
I was ready to buy in early 2008 but couldn’t find the right vendor… that’s right, not the right house, the right vendor.
This process almost took 2 years in which I was a tenant at this time. But then it happened… the right vendor reared their ugly head and presented themselves to me… and I was cashed up ready to pounce.
Let me tell you how much I saved… the property was advertised for $2,299,000. The first viewing I discarded the house because I was looking through love goggles.
I sat for a month and then thought to myself that the house was in the location I wanted to live in and was structurally sound… it was a big reno job though…
To give you an idea, the house was an investment property for ten years. From the street you could see the 3 story house from the jungle in front of it… then on the waterfront side, the pool had an island of growth that allowed you to walk from one side to the other right across the middle… it looked similar to wHere Shrek would live… no kidding!
But the vendor was desperate to sell… And had no cash to get the house back up to a sellable state… and needed to liquidate.
So I was happy to help… Yes I know, Im so obliging…
First offer was $1,600,000… yep that’s right $700,000 under what they wanted and where the true value was had the property presented well…
They rejected… second offer $1,680,000… once again it was rejected but the decision came over 24 hours later… Hello… they are now considering my offer seriously…
Now for the kill strike… My Last & Final offer was presented with a signed contract and a cheque for $172k attached @ $1,720,000.
The offer was accepted 24 hours later…
So yes it can be done… but had I not been cash ready to strike, I could not have played hard ball as hard as I did…
The current Sydney environment is showing the same signs as it did in the GFC where we will see a considerable price correction in the property market…
But the remainder of the good buying must come from you in your negotiations. If we have a 10% correction, you can still negotiate another 15%+ on top of that… if you get the right vendor.
Those kinds of savings, using the above plan, can step you into a similar style of home that you are currently in with a substantially smaller home loan… now that’s worth considering…