Crafting your investment exit strategy
Deciding whether to hold or sell an investment should involve careful consideration of whether the property will pay off better now, or in the long run.
During a recent episode of Investing Insights with Right Property Group, Phil Tarrant, Steve Waters and Victor Kumar explain why making this decision depends a lot on weighing up whether the property is in positive cash flow, and what optionality exists in holding on to it.
“So, whether that be something that needs a renovation, whether it’s a land bank opportunity for future development, the optionality is exactly that is, what options do I have in all markets?” Steve Waters, director of Right Property Group, said.
If a property has good optionality, there are more opportunities to manufacture equity, the trio explained.
Mr Waters emphasised that in creating a portfolio, “you need that ability to be able to force the market and not just rely upon organic growth”.
But at the same time, he also warned: “Whatever the option that you want to take at that given point in time, make sure that the asset class and the way that you create it caters for that rather than pigeonholing you into a certain moment in time in your life or economy.”
Phil Tarrant explains that it is important to have a strategy that you form and organise to have plenty of flexibility to be able to cater for potential changes. It should have enough flexibility to change, but with a rough goal in mind.
“You’ve got to actually have a principal purpose for the strategy and then really just trade around the edges. Because if you create a strategy that gives you the options to do everything, you will never go anywhere and you’ll probably end up blowing all your dough,” Mr Tarrant said.
He added that the aim for the money made from investment properties is that it goes into the person’s back pocket rather than paying down a mortgage.
Victor Kumar, director of Right Property Group, noted, however, that the reality is as an investor, there is some accumulation of investment debt.
One way to enhance your asset is by looking at an investment property and determining what it needs to stump up in terms of the differential between the money coming in, the rent and the money going out.
An example Mr Tarrant shared might be buying at Cambridge Park, in western Sydney, where it looks rough and ready, “but you’re making it nice and pristine and more attractive to the owner-occupier”.
“Because ultimately that’s your end buyer.”
The end goal is to leave the investment with positive cash flow.
And as the trio reminded, when investing in property, the end must be thought out at the beginning, even if that goal shifts over time.
“The end in mind for me continually changes irrespective of what’s happening in business or my property portfolio,” Mr Tarrant said.
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