Hi Sam,
Well my friend, you have very good reason to smile when you think of that 1 bedroom student apartment – that is, it was the catalyst got you interested in Real Estate and its possibilities – and those then brought you here !!

This thread has been a really good combination of “early learnings”, thus I want to add a recent Article that Jason Staggers provided us. I reckon you, Sam, have already caught sight of it, but I post it here for all those that read this thread in future years:-

https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/

Jason outlines five very important points re purchasing any OTP (Off The Plan) property, and why the latter can be a very bad idea.

Unfortunately, for many new investors, their entry into RE investing is often via a marketing firm that convinces them that they should “secure their children’s future by investing in Real Estate”. Now, the idea of investing in property is great – but the opportunity on hand can be far from great. Jason’s article, and those earlier replies to Sam’s questions, explain why !!

Benny

• This reply was modified 7 years, 5 months ago by  Benny.

Hi again,

King wrote:

But again, if I were to buy an established property with the plan to renovate and sell, I wouldn’t be able to live in it while I am renovating – which could prove a little difficult. I could live in the IP during renovations, but I just wouldn’t be able to claim the FHOG in the future – but is that really all that bad??

Not that bad at all, as you then have the option (and BENEFIT) of being able to NAME it as your PPOR, and that means you may be able to enjoy a CGT exemption upon sale…. (Lots of conditions, but quite feasible).

It’s all swings and roundabouts. Main thing is that you KNOW how these all work, or take steps to FIND OUT how they work before getting on them !! ;)

Benny

Hi King,

King wrote:

I have a lot of questions but I guess a good place to start would be this one.

And what a good question it is, King. You are obviously no stranger to the tenets we hold in this place, as you nicely presented the pros and cons of the situation. A good discussion around this area would help many, so let’s go……

The QLD First Home Owners Grant is being boosted to $20k after July 1st 2016. Now, the catch is that it needs to be a new property and I have to live in the property for 12 months in order to qualify.

I think it was Robert Kiyosaki that said “We pay a huge premium for wanting to live in our own home.” By that, I think he meant that there is litte in the way of Govt incentives for us unless we are providing accommodation to others. This FHOG is only a little help aimed at the “battler”.

But wait, how many battlers can afford to buy a new home? Perhaps only those who already have equity in their old one, hence no longer a “First Home Owner” anyway. And then, when large development marketers get wind of Govt assistance, it allows them to lift the selling price somewhat (all paid for by the Govt – or read “You and me”). So who really is winning through this?

This means I would be buying a property with no manufactured growth potential and I don’t see there being too much capital growth in the near future as the areas I would need to buy in would be saturated with new homes.

King, you really have been paying attention – well done. So yes, you would get a $20k “leg-up” to buy a new property that will have had its price lifted by $20k and more, and be liable to “no equity growth” for a few years after that. Sounds awful !!

What of other options?

Instead, have a chat with knowledgeable people about the FHOG – could it be that (if you are NOT buying a new home now, but an Investment Property instead) you may be still eligible for a FHOG in years to come once you have built up a deposit of your own via equity growth in the IPs?

Instead, if you buy an IP that is NOT new, you may well be able to purchase it at the kind of price that will have you gain $20k (and more) in equity immediately you settle on it. Of course, you would need your own deposit for this – but there can be other “ways” this can work. Since you are employed, that is a great start.

FHOG rules tend to “move around” depending on the Govt in power and the economical climate at the time. I was able to use the FHOG to purchase an existing property as our first home over 30 years ago….. Also, both State and Federal Govts have a part to play, so other State Govts right now might have a scheme more beneficial for you, if a move there suits your situation !!

Food for thought….

I’m sure there are MANY other sides to this that I haven’t mentioned. Let’s see what others bring to the table……

Benny

Hi Peyton,
Sorry, I must have missed this reply from you back in March. Your current post about Craigieburn tweaked my memory and had me look for this one…..

OK, with $500k possible, that is a good start. Logan is OK for $350k or so, but I am not sure you would get “newish” for that price. And if you did find something new around those numbers, it would likely be on a pocket handkerchief sized block – thus little Capital Growth.

Personally, I found that “older” worked better for me. You can still buy “old and good” as opposed to “old and wrecked”. These would be on worthwhile blocks of land (around 800m2) that give you development options further down the track. But anything new is likely to be on 300m2 or so.

Keep in mind that house prices in outer areas grow too – even if older. It works something like this :-
1. Properties in a capital city rise as circumstances permit.
2. As Inner-city properties grow, buyers start looking at “next suburb out” and start to lift its prices, and push out those already buying in “next suburb out”.
3. Meanwhile, those that were buying in NSO (next suburb out) are likewise pushed further out.
4. Each NSO pushes on the next NSO, lifting prices in all suburbs over time.
5. It is the land content that grows in value while the building depreciates !!

Even though outer may not grow as much, the cost of “outer properties” mean that it is possible to own more of them – this reduces risk, makes “cashing in” easier (selling one $300k property instead of one $1.5m property). The land sizes are typically bigger out further as the land values are less – again making development a reasonable option.

Being able to afford what you buy is a must – so I like the idea that you will look for $350k or around that mark as a first buy. I am sure there will be some good options at those numbers even today – but not new.

Benny

Hi Don,

I assume that there is nothing that can be done.!

Going by this earlier comment from Terry, it seems like there may well be something that can be done:-

Whether they should transfer title now or just wait it out will depend – there are advantages in both.
They should seek legal advice asap.

…but what should be done might only follow a visit to a lawyer,

Benny

Hi Bon and others,

Where a company is selling H/L in “greenfields estates” (i.e. fresh subdivisions in land away from existing suburbia – e.g. Pimpama) it is highly unlikely that there will be much Capital Growth in the first few years. This is because they usually sell H/Ls for as much as they can get (and also the reason why a rental guarantee is necessary).

The 7% growth figure quoted is a pie-in-the-sky figure that is probably about right for the average property in Australia. But this is not 7% per annum linearly – it is usually 3 years of 15% to 20% then 7 years of flat/falling values. The average is about 7% over time.

A new H/L purchase in most estates is quite UNlikely to grow by 7% for at least 5 years, and even this will depend on how quickly the suburb becomes useful and desirable (i.e. has infrastructure following in quick time – schools, shops, transport, etc).

Those that do well out of H/L packages are usually Developers, so if you want to buy a H/L, you be the Developer – THEN you can get a bargain and buy at Wholesale. The Equity growth is likely to be WAY above 7% in its first year.

As Steve says “Buy problems and Sell solutions”. i.e. You buy the unimproved land and build the house on it. Or buy the house needing a reno, and you do the reno, etc.

Benny

PS Hope your H/L area gets its infrastructure up and rocking quickly, Bon !!!

Hi FXD,
I deliberately didn’t respond to this when first posted, as I have nowhere near enough knowledge, nor enough information from you, to make any kind of valid suggestion.

What I WOULD suggest is that you put this question to a Mortgage Broker or similar Financial Adviser who can look in depth at your situation, then discuss what would be the best path for you.

Maybe one of our forum MB’s might take it upon themselves to pop in to offer some ideas…..

Benny

Hi Nan,
Wadez words above struck a chord with me – the words “Be patient” are easy to say, but I wont say them to you….

What I do want to say is that I heard Steve teaching recently that the property goes in cycles, and that cycle includes a flat price period that can make up the biggest part of the cycle (70% is common). Now, when that happens, you may be forced to be patient IF you are only investing in one area. Or, you can look for other areas that are in another part of their cycle.

Search for the “Property Clock” to see which areas are at what “time” in their cycle. Areas that are at midday or 1pm have already peaked and are likely into their “flat or slight drop in value” timeframes. Instead, go looking at those that are around 5 to 6 o’clock, and even 7 o’clock and later. These are the areas that are looking at the beginning of (or are already in) the “boom” part of their cycle. These are the ones whose value can likely increase over the next year or two.

Make the property cycle your friend and it might MAKE you some money (or at least SAVE some money for you).

Good clock-watching !! ;)

Benny

Hi Mullsey,
Welcome to propertyinvesting.com – I hope you find your answers somewhere in here. First there are many useful Articles that give a new investor a bit of a leg-up. Look for the “Training Centre” on the home page. Other than that, go trawling and look for forum topics where the title sounds like it might appeal.

It is a good question you have asked, and one that many newer investors might want to know the answer to. Let me start by saying that property investing has two forms of value – one is income (Rent) and the other is growth (equity gains). A simple way of appreciating where you might find positive geared property is to look at areas where growth is minimal, but income tends to be higher. e.g. the North Shore of Sydney likely has VERY low rent compared to house values, so the Income is likely to be NEGATIVE because the Growth is so high.

For properties exhibiting positive gearing, you might need to look in areas where Growth is low (thus Income tends to be higher relatively speaking). These can be Regional areas (small towns) or in “further-out suburbs” of larger cities. Or, you might find the odd “wreck” in a good area where the owner doesn’t want to spend any money doing it up. These can also lead to being positive geared depending…..

You might try ask a local RE agent “What is the house that is inexpensive around here that other buyers just DON’T WANT?” As Steve says – buy problems and sell solutions. So, buy the house with the problem that is going cheap (but be sure YOU can provide the solution to that problem before committing to it). Try it as practice – then, with the RE agent providing “numbers” (likely sale price and expected rental income) see whether you can make this a positive gearer.

Steve was buying in Ballarat over 15 years ago – since that time, with Interest Rates changing so much, the yields have dropped too, so old “rules” don’t seem to work as well as they did. Back in the 80’s, getting 10% return was the norm – today a 5% or 6% is good.

But here is a story about one young bloke who DID find 10%-ers in 2011 thru 2013 and created himself a nice portfolio of positive geared assets. Take a look to see how he did that :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977

Maybe look in similar areas to see what you might find. And, as he did, look to renovaters to add a bit extra in equity, AND a better rent.

Benny

Hi Gavin,
We are all about education – the only sales we allow mentioned are where people have books, courses or other tools they wish to move on. That is what Buy Swap and Sell forum is for – not for IP deals. And hey, thanks for asking first !!

Benny