We set about either proving or disproving a common property myth to do with buy and hold or flipping. What is best? In today’s show Nhan Nguyen, from Advanced Property Strategies, will give us his opinion.
Kevin: I’ve met a lot of investors over the years – some very, very savvy ones – and some will say to you that you should never sell a property. In fact, some of the richest people I’ve ever met are people who have still got the first property that they ever purchased.
But what about the buy-and-hold strategy? Is that the best way to go, or should you be looking at flipping? Has the market changed? Nhan Nguyen from Advanced Property Strategies joins me.
Nhan, what’s your view on this? Are you a buy-and-hold believer?
Nhan: Look, I think that buy and hold is part of a bigger game, and I do believe that buy and hold is important, however, it’s not the be all and end all and the only strategy. I have two or three strategies, one of which is buy and hold, and the other one is development – doing land sell divisions or townhouses.
Buy and hold… For example, Warren Buffett, an American investor, advocates buy and hold and hold forever. That’s great, however, the thing about property is that there’s debt involved and there’s negative cash flow. If you paid everything with cash and you had a lot of money, buy and hold is a great strategy, however because there’s debt involved and people have to go to the bank to borrow money, there’s negative cash flow.
I generally only hold stuff that is positive cash flow and pays itself off or is a strategic land bank for a rezoning in the future, development sites for units, or land sub-divisions.
Kevin: Nhan, I sometimes wonder whether the different strategies – buy and hold or flipping – is dependent on the property, or is it dependent on what’s happening in the market at that point in time? What’s your view on that?
Nhan: I think it’s absolutely both. For example, if you’re going to buy and hold stuff and, one, it doesn’t grow that much, and two, the income is very low, it may be more of a headache than anything else. Positive cash flow is critical. Also the growth is critical.
In a market that is hot, I do believe that if you have some stock and you want to get some extra cash, selling it is not a bad idea to take in the opportunity of the market being hot. But the thing is you have to replace that asset – you have to roll that money into another property – and some people are not patient enough to roll that money once the market has corrected.
Kevin: It could also have a lot to do with the individual, couldn’t it? Their age, as an example, their income as to whether they can afford to hold a negatively geared property. As I said, what age they’re at: it doesn’t make a lot of sense in your 60s to be buying a property thinking that in 10 or 15 years’ time, it’s going to be worth a lot more than it is today.
Nhan: Yes, exactly. Buying and holding or flipping is also relevant to your time that you have in the marketplace and your skill level. Some people are just too busy, so they just want to buy one property a year every year for the next 10 or 20 years. That’s great if that’s where the capacity is at. Other people want to put more time in, and so they want to be more active. If you’re more active, it gives you more opportunities to turn it over and create it as a business not just buy and hold.
Kevin: Nhan, when you’re looking for a property, do you look for properties that have a twist – in other words, you can do different things with them because that probably opens up more possibilities for you as to what you can do with it?
Nhan: Absolutely. Look, for example, a townhouse project that I’m going to be developing at the moment, I’m going to be holding. I bought a, let’s say, 700-square meters house at the front, and it’s zoned for townhouses and units. I just got an approval to put a triplex at the back. Once that’s finished, it will have four sources of income – four tenants – and that will be a great cash-flow-positive hold for me.
Kevin: So this myth is not one that we can necessarily rule a line through – the myth being buy and hold is the best strategy – because it really depends on so many different variables, doesn’t it – the market, the property, even you as the individual, Nhan?
Nhan: Absolutely. Even interest rates. At the moment, we have low interest rates. If the interest rates were 10% per annum, I don’t think I’d be holding as much because you’re losing all your rent to the bank, and you’re maybe better off just putting the money in the bank and getting 10% return. It is very variable on suburb, individual, and strategy.
But overall, the principle is just that – it is a principle, and you have to adjust it to your personality, your budget, your appetite, your age, your risk level, many things.
Kevin: Many things indeed. There are lots of things to be considered.
Nhan, I want to thank you for giving us your time today and your wise words of wisdom there as we are looking at these myths, and this one buy and hold being the best strategy. Some people say, “Never to sell a property,” but you heard there from Nhan that it really depends on so many variables, including the market and yourself, as well.
Nhan, thank you so much for your time.
Nhan: My pleasure, Kevin. Any time.