Active Property Investing: Why Holding Your Property is Costing You Millions

In this episode of the Follio Property Podcast, hosts Reece Beddall and Lachlan Delahunty discuss navigating uncertain property markets by shifting from a buy and hold strategy to active portfolio management. By reviewing a real client case study from 2021, they unpack how strategically selling off underperforming or overexposed assets, such as properties in regional Victoria and Pakenham and redeploying equity into high-growth markets like Perth and Brisbane generated over $1.5 million in additional equity compared to holding the original portfolio. The hosts emphasise the importance of monitoring debt-to-income (DTI) ratios, diversifying across state markets and timing economic cycles to de-risk investments while maximising long-term returns.

Key Takeaways & Market Insights

• Strategic Restructuring Outperforms “Buy and Hold”: Reallocating capital over three years bumped the client’s equity from $660,000 up to $2.25 million – a $1.5 million equity increase compared to holding the original Victorian portfolio.
• High Transaction Costs Yield High Equity Swings: Even though total entry, exit, tax and stamp duty fees exceeded $150,000, decisions like selling the Pakenham property to purchase in Mount Lawley generated a $700,000 equity swing alone.
• Managing Risk at Debt Limits: The client was capped at a 6 DTI ratio on a $220,000 joint income, making selling underperforming assets essential for growth without exceeding leverage limits.
• Market-Specific Returns: Selling down regional Victorian properties (such as Ballarat and Bendigo) enabled purchases in Perth (Mount Lawley House, Victoria Park Unit) and Brisbane (Ashgrove House), dropping overall loan-to-value (LVR) from 76.1% to 52.2%.
• Next Phase Execution: The strategy involves selling the Brisbane property (Ashgrove) to reallocate equity into a Melbourne wholesale asset while reducing total portfolio leverage to a 50% LVR.

Moving Beyond Buy and Hold Investing 

Active portfolio restructuring creates significantly better wealth outcomes than sitting on assets through market cycles. By selling underperforming Victorian properties and redeploying that capital into rising markets like Perth and Brisbane, the client added $1.5 million in equity.

“The whole buy and hold, never-sell approach… is lazy investing. Being sharp, being nimble, taking money off the table when you need to, but investing in markets that represent value and have a clear runway is the more sophisticated and modern way of investing.” – Lachlan Delahunty

“If they had kept that original portfolio… as of today, the portfolio value would be $2.76 million with about $660,000 equity… However, due to restructuring that portfolio, selling down at the top of the cycle and buying somewhere near the bottom, the current equity position was at $2.25 million. They’re $1.5 million better off from an equity position than they would have been if they had held onto those particular assets.” – Lachlan Delahunty

Navigating Leverage Limits to De-Risk Portfolios

When borrowing capacity is capped, taking equity off the table allows investors to lower their exposure while keeping momentum alive. Strategic transactions enabled the client to bring their overall loan-to-value ratio down from 76.1% to 52.2%.

“They had probably ridden the Victorian market pretty hard… Debt-to-income was at six. And this is a joint income of about $220,000, and they had maxed their exposure.” – Lachlan Delahunty

“So the idea of holding this portfolio and then continuing to add to it wasn’t a possibility… But that freed up the equity to get into other markets. Firstly, to diversify, but the data was clear.” – Lachlan Delahunty

“LVR, though, has gone from the high 70s down to 52.2%.” – Lachlan Delahunty

Absorbing Transaction Costs for Massive Equity Swings

High entry and exit friction, such as stamp duty, agent fees and tax, can be daunting, but the potential gains from rotating into higher-growth assets far outweigh these overheads.

“Fees, taxes, stamp duty, entry costs, exit costs – for that to take place, there was just north of $150,000, which is a lot of money… But the difference in their equity position is just over $1.5 million. So that $150,000 has gone a long way.” – Lachlan Delahunty

“They pretty much sold at almost a loss when you look at the transaction costs of buying and then selling through agents. They would have covered their costs, but only just. But that freed up the equity to get into other markets.” – Lachlan Delahunty

“Sell down Pakenham to buy Mount Lawley… we’re talking about a $700,000 equity swing in that one decision alone.” – Lachlan Delahunty

Future Predictions & Market Outlooks

• Melbourne Approaching Cycle Bottom: Victoria is currently positioned at a low point in its property cycle (similar to Perth in 2021), making wholesale assets in Melbourne a strong buy target for the next growth phase.   
• Perth Units Outperforming Houses: While Perth house prices are maturing, the Perth unit market retains a longer growth runway over the next 12 to 24 months due to strong underlying demand data.   
• Timing the Exits in Growth Markets: Capital growth in markets like Brisbane is topping out, making it an opportunistic time to lock in gains and redeploy equity into lower-priced, high-upside locations.   
• De-Risking Through Debt Reduction: High interest rate environments favour taking capital off the table to reduce overall portfolio leverage down towards 50% and protect cash flow.   
• Stagnation Risk in Saturated Regional Markets: Highly saturated regional markets carry severe risks of price stagnation or negative equity over the next 3 to 4 years, making multi-state capital diversification essential.

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