Strategy Stacking Explained - With Arjun Paliwal

What property investing strategy is the best? The truth is they all have their pros and cons. One thing though that's helped me make millions in property has been something rarely spoken about called strategy stacking. In this episode, I'm going to help you understand what strategy stacking actually is, and I'll even share a real life example of how I strategy stacked a deal to make over $750,000, as well as the key questions to ask yourself to help understand which strategy might be the best fit for you, so you can start stacking and grow your portfolio. I'm Arjun Paliwal, CEO at InvestorKit.

Let's get straight into it. So firstly, to give you this example of the property I'd purchased, I've used this example in the past. I'm actually going to give you three examples in today's episode. So the first example is a property I'd purchased in Burnie, Tasmania in 2017 for $365,000. It's a unit block of four properties, three two-bedroom properties, and one one-bedroom property in that.

Now they're all on separate titles, and if you're checking out our YouTube page, you'll see an image of this property here from before, and I'm even going to show you an image from this property in the afters. Right now with this particular property here, $365,000, the rental yield was really quite high, renting for almost over 8% in terms of gross yields. Now this is a different market in 2017, but the key here is the strategy that we'd stack together, which I'll break through one by one. Now fast forward to today, that property is worth over $1. 2 million via official bank valuations in person, which is another topic on its own when it comes to bank valuations, but that's an in-person valuation.

And when that was done, that was valuing each of the units separately. So you can see that end result has gone from a $365 purchase price to over $1. 2 million from 2017 to now 2025. So eight years all up. And if you're breaking down what strategies existed, let's go through them one by one.

The first one was buying in a high growth market, and that allowed us to use data to get into this market first before the cycle took off. That's the first key element here, buying an early adopter cycle. The second one was buying a unit block that offered high yields. Obviously though, it's more suited to a portfolio in the later stages, simply because there are some cons associated with unit blocks as well. The third one was being able to buy it at a price that was a little bit cheaper than all four put together.

And the fourth part of it was renovating the unit block so I could also get that cosmetic upside. So that's strategy stacking. You're buying in a growth market, you're buying a particular asset type that fits the portfolio, you're buying it for a great price, and you're also having the renovation potential. So put that all together, that's now not only worth that much, but it's also renting for well over $1,200 together as well. So that is allowing me to keep a strong yield, the cash flow is well maintained, and the growth that's allowed me to take that equity out to multiple properties.

Now I haven't done this once, I've done this twice also in the market of Bundaberg. But to give you some examples beyond that second one of Bundaberg and go to the most important example, I think the biggest game changes are when it comes to commercial property. In commercial property, you can buy sites that have multiple tenants. And in one particular case for one of our clients, Michael, we've helped him build an over $10 million portfolio. And in his portfolio, we've helped purchase four commercial properties in recent times.

These four commercial properties together have built him a six-figure passive income based on 35% deposits, 65% loans on interest only. So it just shows you the strength that can occur in a portfolio when you have this sort of asset base being commercial. But that's commercial. Let's go deeper into strategy stacking. A particular property we bought in regional Queensland was purchased for just over $2.

7 million. And this particular purchase here had multiple tenants in there. Now the initial lease though was just a single lease. So one of the tenancies is the main lease and they've subleased it to multiple tenants. So the benefit for that tenant though is that they have their own lease in the area and they're able to get much of their lease paid back if not almost all of it.

So they're renting their place for free from the subleases that they're collecting on the other parts of this industrial complex. So now with this multi-tenanted industrial property, whilst yes, the tenant's winning in this part, let's just say there's a future that exists where this tenant no longer is in this property. That now allows Michael to actually lease out each of these sections of that property separately and that property will now yield at over 10% net, right? And that's huge because now he's purchased it at a lower net yield because of the lower returns now, but that's only because there's a single tenancy. But the upside is he can split the tenancies himself rather than having it through a sublease where the current tenant's winning.

Now that's fine to keep as is for now because that tenant will stay there. It's a high yield already and that tenant's happy because they're able to occupy their business premises without really paying much or any rent. But that's now an opportunity for Michael in the future. The second thing on that property is that the fact that the rents can also go higher. So it's not just the fact that you can go multiple rents, but you can also increase rents.

And then the third and final part, it's one of the few properties with that many tenancies in that area. So there's a little bit of a trophy asset for that region. But the other thing is, is you can actually renovate that property as well to command even greater tenants at even greater rents. So in commercial property, I do notice some of the biggest game changing results for when it comes to strategy stacking. And that's particular properties that actually have upsides in the rental structure, whether it's more leases or whether it's higher rent or renovation potential.

So that's the importance of strategy stacking in a portfolio. It doesn't have to always be that complex though. You can bring it down to even earlier examples in residential. Say you have a property that you're willing to purchase, but it's got renovation potential. Now we get two different clients here.

One person that goes, well, I don't really like the look of this property. It's old. It needs new carpets. I need to spend more money. But then another person that goes, well, I like the property because I can do all these things to it.

So it just depends on who you are as an investor. Are you going to say I need a set and forget because property isn't something I need to think about all these things on? Or are you going to want that support to go, well, I'm happy to do these things because it's going to increase the yield. And that's the big thing. Too many people look at renovation and think, well, hey, I'm not increasing the value as much as I'd like with this renovation.

I'm not a fan of it. When actually one of the biggest things of renovations is not just value increase, but rental yield increase. It's often that you'll buy a property for a little bit cheaper with the renovation. And whilst the renovation dollar cost wise might not get you in value above as where you'd like it to be, there are components where you can still renovate. And because of that renovation, the yield and the rent is much higher than what it normally was in that first state of the property.

So you're now getting a much higher yield than you paying for a new property or a newish property that doesn't have this renovation appeal. But you've now gotten a lower yield as a result. And so as you can see, as a result of the renovations and strategy stacking, the yields have increased. But you know what? This is actually one of the many reasons we don't buy units in isolation at InvestorKit.

Firstly, buying houses alone, you're going to be able to see that upside and growth. We've outperformed the market by more than 49% when it comes to data driven growth just on standalone houses that are set and forget. Now you add strategy stacking into the mix, all of a sudden you're able to get renovation potential, increased growth, increased yield, pull out equity, or have a better cash flow outcome. Or even when you're stacking it towards commercial property, you're able to go that one step further and have much higher net yields, better purchase price upside, and even renovation potential there. So the key here is that not only can you already outperform the market with houses instead of units that are data driven, but every strategy and component that you stack on, that's going to allow you to get a better result.

Whereas in that unit example, something I'm really quite strong about, you can't subdivide it, you can't renovate most of them, not all of them, the new ones especially, right? And then also on top of that, you're at the mercy of this huge supply of rents that could change in terms of vacancy rates quite quickly. And even with a slightly newer unit, you might not get that premium in rent that you'd like to just because there's so many of them there. Now with units as well, another thing to throw out there is that even though you might be in a built out area land wise, still many units can come up into the sky. So this is the core things to make sure that not only should you avoid units, but to strategy stack, let's go through houses and then let's add more depending on your comfort or also depending on your cash.

Because if you haven't got the money to renovate, that's another thing to consider too.