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A data-driven strategy designed for rapid scale
Identifying high-yield properties at an affordable price point can help investors grow their portfolios quickly without maxing out their borrowing capacity.
Identifying high-yield properties at an affordable price point can help investors grow their portfolios quickly without maxing out their borrowing capacity.
In just three years, an investor has grown his portfolio from one property to 19, using a yield-first strategy.
LEVR founder Josh Crealy said a high-yield strategy was ideal for investors who were looking to be aggressive and rapidly grow their portfolio.
“If you just keep ripping equity out of something and you want to go and buy something else, if you don’t have really strong yield, you can’t just keep doing that because the banks will stop lending you money,” Crealy said on an episode of the Built for Scale podcast.
Crealy said that while regional property markets often held opportunities, investors could find similar potential in the capitals.
He said homes in regional areas could grow in a short time but could regress quickly, with his own journey heavily shaped by investing in markets he deemed “fundamentally safe”.
“I still see how those regional markets act; they go through huge boom periods, and then you look back afterwards, and a lot of the time they actually go backwards,” Crealy said.
“Whereas when you look at the capital cities, most of the time, if you buy the right assets in the right areas, they’ll go through good growth phases, but then they’ll stabilise; they won’t actually go backwards.”
Finding the right assets
To position his portfolio for rapid growth, Crealy said that reading and understanding the data was a pivotal aspect of his strategy, particularly with those that influence market cycles.
Investors should pay particular attention to replacement costs, supply, demand, and affordability, according to Crealy.
Additionally, he said that investors needed to pay attention to development projects, as they would influence property values.
“You can’t just have falling supply and more people. If it’s not affordable, you’re going to be able to push the prices up,” Crealy said.
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“If they can’t afford it and they can’t get pre-approval and pay more, then that’s the ceiling."
Although houses offered good value on the outskirts of Melbourne, Crealy said they didn’t fit his plan to scale the portfolio quickly.
He said the older apartments in lower socio-economic areas had defied the overall movements of Melbourne’s market, and made the ideal purchase for his plans.
“People were talking about Melbourne saying ‘it’s been going backwards’, but those lower socio-economic areas had a huge run in the pockets I was buying in.”
“Most of those properties probably moved 15 per cent or so over the last year.”
By buying them below replacement value, Crealy said the assets had a natural floor that would prevent significant loss.
“In these suburbs, you can’t build because the prices are so low that they don’t cover the replacement costs. It’s not feasible for developers, which puts pressure on rents, which is why they have grown so much in a lot of these areas,” Crealy said.
He said that this would eventually translate to demand from locals, who realised it made more sense to own than rent in the area, while also bringing investors into play.
Understanding the why
Whilst building a portfolio, Crealy said investors should understand what motivates them on their investment journey.
Whether their goal was rapid growth or long-term stability, Crealy said investors needed to base their strategy on their risk appetite.
“You want to be able to build wealth outside of just relying on your income, but you don’t want it to be so high risk that if you don’t have the supporting income, then you have to sell everything.”
Crealy said his motivations had changed over the years, with his family’s security now guiding his investing journey.
“That’s why cash flow is important. If you can time market cycles, you can get both. You can get something that is low risk, recession-proof, with a good yield and good growth at the same time.”
Listen to the full episode here
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