Author Topic: Property Strategy : Never sell makes sense?  (Read 678 times)

MustachianNoob

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Property Strategy : Never sell makes sense?
« on: October 02, 2018, 07:10:08 AM »
Hello,

I've been in touch with a couple of property investment companies. Their strategy appears to be the following :

1. Buy a new build in a sought out area
2. Rent the property to cover interest only (Buy to Let - interest only mortgage)
3. Wait for the Property to appreciate in value
4. Remortgage the property at 75% of it's new value
5. Use the equity to buy a new property : repeat steps 1 - 5

Now the above seems all well and good with the exception that they "advise" to never sell the properties. This is the one part I can't really get my head around. Does this make sense for mustachians or am I better off putting the money in the stock market and not having to deal with huge mortgages.

I have a long term view on the investment - say 10 - 15 years.
 

What say ye Mustachians?
Does it make sense to buy properties, remortgage them every 5 years and never ever sell them?

waltworks

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Re: Property Strategy : Never sell makes sense?
« Reply #1 on: October 02, 2018, 07:43:43 AM »
Works great over the last 10 years or so when there's constant double-digit appreciation.

Loses you your shirt quickly in a normal RE market.

-W

Jon Bon

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Re: Property Strategy : Never sell makes sense?
« Reply #2 on: October 02, 2018, 11:32:31 AM »
Sure it makes a TON of sense for the PM Companies!

More properties = more management revenues.

That strategy sounds like something you would hear on bigger pockets or one of those 'gurus' I can't tell you what prices will do tomorrow, but they are at near all time highs today. So YMMV on when and what you buy.

Good luck out there.

MustachianNoob

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Re: Property Strategy : Never sell makes sense?
« Reply #3 on: October 02, 2018, 03:27:30 PM »
Thanks for the responses. The companies seem to paint a rosy picture that everything will just increase but it still seems like a unhealthy level of debt.

There were a couple of podcasts that were talking about recent situation.
https://www.thepropertyhub.net/whats-brexit-done/ (skip to 5 minutes )

This podcast talks about over the last 50 year there were only 3 times a 5 year duration lost money.
https://www.thepropertyhub.net/are-buy-to-let-investors-turning-their-backs-on-property/

It's food for thought. I will research further and let you know how I get on if I go ahead with the off plan investment.

waltworks

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Re: Property Strategy : Never sell makes sense?
« Reply #4 on: October 02, 2018, 03:47:25 PM »
It's really not the level of debt (it's common to lever up) that is the issue here - I think you're misunderstanding. The issue is that you are *counting* on massive property appreciation to make any money. If the property doesn't appreciate, you lose money like it's going out of style. That's been a great bet for the last decade or so (in the US) but it also means people are now convinced property prices never stagnate or drop, and have decided they're geniuses. They're not, they were in the right place at the right time.

Second, if someone else is trying to sell you a system or idea, you need to stop and think about why they're trying to make money by selling you those great ideas- rather than just doing it themselves. Why do they need you? Answer: because it's a big scam (99% of the time).

-W

tralfamadorian

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Re: Property Strategy : Never sell makes sense?
« Reply #5 on: October 03, 2018, 06:33:24 PM »
1. Buy a new build in a sought out area
2. Rent the property to cover interest only (Buy to Let - interest only mortgage) Rent the property to cover PITIA, vacancy, management, maintenance, capex and profit margin.
3. Wait for the Property to appreciate in value
4. Remortgage the property at 75% of it's new value
5. Use the equity to buy a new property : repeat steps 1 - 5

FTFY

MustachianNoob

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Re: Property Strategy : Never sell makes sense?
« Reply #6 on: October 13, 2018, 09:33:16 AM »
Thanks tralfamadorian

Although covering the principle would reduce the ROI to <2% so then I may start to question whether it's worthwhile and would I be better off sticking the money in low fee tracker fund?

SwordGuy

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Re: Property Strategy : Never sell makes sense?
« Reply #7 on: October 13, 2018, 06:14:37 PM »
Thanks tralfamadorian

Although covering the principle would reduce the ROI to <2% so then I may start to question whether it's worthwhile and would I be better off sticking the money in low fee tracker fund?

If you're only making 2% for a ROI on a rental property, you're buying the wrong properties.   I'm making 10%-11% ROI just on the rent, not counting any appreciation.   (That's after subtracting all the costs, current and future, that should be subtracted.)

In my market, I get a one time 50%-60% jump in property value over full after-repair cost when the property is ready to rent.  Then I'm subject to the vagaries of the market.  We're not a high-appreciation market like the big coastal cities with booming high-wage job markets.

I know people who do much better than I am, but they're smarter about it, better connected in the industry, and work harder at it than I do.    They also leverage their property purchases and I don't.  I could do better if I borrowed, but I'm not willing to do that.  For us, the extra risk isn't worth it despite the potentially much higher return.


I view our rental properties as our bond portfolio, giving us a steady income that's not directly tied to the stock market valuations.

tralfamadorian

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Re: Property Strategy : Never sell makes sense?
« Reply #8 on: October 14, 2018, 07:19:09 AM »
Thanks tralfamadorian

Although covering the principle would reduce the ROI to <2% so then I may start to question whether it's worthwhile and would I be better off sticking the money in low fee tracker fund?

With the numbers you have mentioned, yes, you would have much better return on index funds.

monarda

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Re: Property Strategy : Never sell makes sense?
« Reply #9 on: October 14, 2018, 08:23:32 AM »
Thanks tralfamadorian

Although covering the principle would reduce the ROI to <2% so then I may start to question whether it's worthwhile and would I be better off sticking the money in low fee tracker fund?

If you're only making 2% for a ROI on a rental property, you're buying the wrong properties.   I'm making 10%-11% ROI just on the rent, not counting any appreciation.   (That's after subtracting all the costs, current and future, that should be subtracted.)

In my market, I get a one time 50%-60% jump in property value over full after-repair cost when the property is ready to rent.  Then I'm subject to the vagaries of the market.  We're not a high-appreciation market like the big coastal cities with booming high-wage job markets.

I know people who do much better than I am, but they're smarter about it, better connected in the industry, and work harder at it than I do.    They also leverage their property purchases and I don't.  I could do better if I borrowed, but I'm not willing to do that.  For us, the extra risk isn't worth it despite the potentially much higher return.


I view our rental properties as our bond portfolio, giving us a steady income that's not directly tied to the stock market valuations.

This is us, too.  We don't work very hard and don't leverage a lot.
We plan to pay down our loans- We're currently less than 40% LTV
Steady income that we pretty much are living off of now. 
Yeah, like bonds. That's a good way to think about it.

Blindsquirrel

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Re: Property Strategy : Never sell makes sense?
« Reply #10 on: October 14, 2018, 05:25:19 PM »
 Swordguy is spot on!  Paid off rental property is a great way to get mostly passive income. Yes it is more of a PITA than bonds but the yield is much, much better. Also, rental income is treated much better than W2 income with the tax man.