Good thoughts already !! Kudos.

Though your Title refers to apartments, I’m replying below as though this is shared accommodation in a house – most of these could apply to an apartment too….

Add to that the numbers may look really good with (say) 4 students paying $160 a week – beauty $640 a week instead of $450 to a family group. But wait – factor in
a. not all weeks of the year have students staying (subtract the weeks they WON’T be there, or find a stop-gap for those weeks – or lose the rental!!)
b. extra management with 4 different groups ending tenancies at once (better find four new ones!!) – four bonds, four personalities, four times the chance of people “falling out” (i.e. loss of rental until replaced, but most other students locked in for their year already – so a very limited market).
c. need to provide furnishings, then repair/replace as required.
d. any extra compliance issues (check the new housing plan if Brisbane – some changes there).

So yeah, some opportunity, but certainly some headaches too. Work it through carefully,

Benny

Hi tjamuna,

i am looking to borrow as much as i can without realizing equity ! !

Does that mean you are looking to take out a Personal Loan then? Or use a credit card? Is there a particular reason you DON’T want to draw on equity?

Benny

Hi Hiiph,
Welcome to this place. Has your brother also registered with us? There have already been some great answers posted – kudos to the posters *applause*

I figured your brother might also get some benefit from this link :-

https://www.propertyinvesting.com/forums/general-property/4349450

It endeavours to group together a lot of “early learnings” for newer investors (saves a lot of searching). I hope it is of benefit to him,

Benny

Hi SAH,

My main question was about the new unit market? Any thoughts,

Although Units often have a Gross Rental Yield higher than houses, their Nett Yield is not often positive unless you buy very well. And purchasing OTP is not usually the way that one finds positive yields. I’d be interested to see if these ones are any different – can you share some basic numbers? (price, rent, Body Corp costs, number of units in block)

CBD’s have a habit of offering many units in bulk, often leading to oversupply and a pullback in rents. Consider too, that many NEW apartments are sold to the overseas market. If for any reason they then need to sell, other overseas investors CAN’T buy them (as they are no longer new, so second-hand sales are into a smaller market.

I choose to stay away from that area – but if buying at a greatly distressed price it might work out. Give me houses first any day, or units in small boutique blocks if/when price is favourable.

Benny

Hi Wiwin,

I don’t really understand how people can buy 14 ip in a year’s time.

Well, not quite 14 in a years time, but Darryl did a pretty impressive job none-the-less. Take a look :-

https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977

While you are in that thread too, there are a number of other useful posts and links answering or discussing many of the early questions asked by new investors. Maybe you will learn about things you aren’t even aware of yet. Happy hunting,

Benny

• This reply was modified 10 years ago by  Benny.

Hi all,

First off, let me recommend that you go to the Home page, look on the right side (under Private Messages) and look for the “Strategies Explained” area. The first strategies are “Positive Gearing” and “Negative Gearing”. Have a read of both of those.

Just today, the forum underwent another transformation – what used to say “Strategies” is now titled “Training Centre”. Open that up, look under “Buying”, and the Negative Gearing articles are right there.

In case you have trouble though, here is the direct link :-
https://www.propertyinvesting.com/negative-gearing/

And, in case it is of interest, here’s the other side of the coin :-
https://www.propertyinvesting.com/positivecashflow/

I really like the “new look” and it appears to me that the articles are a bit easier to find. In the Training Centre, some articles appear under several headings (e.g. the Negative Gearing article can be found under “Buying” and/or “Analysing” – a nice touch).

Benny

Hi JZ,

I stumbled on this piece about negative gearing, highlighting the pitfalls and misconceptions and will approach this with much more caution.

It contains really worthwhile information. The main slant though (I believe) was to warn against “those that will try to sell you their new offering by using it to show how little it will cost you after Tax benefits, etc”. As Steve says, negative gearing is incurring a certain loss in hope of a greater capital gain.

Now, in your situation, with a large income, it CAN work for you. The more important things to consider are the deal itself. If you buy in a low vacancy area (lots of demand), and the property has features that make it a good deal (reno opportunity, possible sub-division, steady growth, infrastructure in place or imminent, advantageous price, etc.

I watched as Rents in Sydney soared, with renters lining up to “bid up” what they would pay each week – just to get a place. I think that was in the late 90’s. Then only a couple of years later, landlords were having to DROP rents by up to $100 a week just to get someone in. i.e. its a cycle. If you do your research and shop for IPs in the right areas, AND have enough of an Income to ride out the rough times, you will do OK.

I’ve heard Steve (and others) say buy below Median value – this puts you in a price range that is affordable to most, and perhaps buys a place that can be brought up to a Median value with some work (cosmetic reno?) thus adding Equity.

Re Units, these are something I would buy only if I bought a whole block. Though they appear to have a higher Gross Return, the Nett gets chewed up with Body Corp fees as well as the other “usual costs”. Also, as you said, what you can do is quite limited without getting the Body Corp involved. But then, I’m sure that others will have a different slant (perhaps a way that does work for them in buying Units)….

Benny

HI again JZ,
I’ll put my opinions re some of these – hopefully others might put counter-points, leading to a more rounded look at this complex area for you. See what you make of these thoughts :-

1) From an investing point of view, would you forfeit FHOG for a good opportunity?

Hmm, define “forfeit” !! If you mean would I NOT use FHOG to buy an IP if it was a good opportunity, I’d say a definite YES. In doing so, I believe (I could be wrong) that the FHOG might still be available to you when wanting to purchase your PPOR later on. Of course, State Govts decide when/if to offer or cancel FHOG – when wanting to buy your PPOR, the current FHOG may not be available – in that case, “forfeit” would apply I guess.

2) I’m trying to manage a safe-moderate risk profile and looking long term instead of short term and wondering if I should favour yield over growth (hopefully both). Which would allow me to grow my portfolio at a steady rate.

If a safe path were required, maybe purchasing a PPOR is better for you (as suggested by “theNewGuy” above). Certainly, you appear to have the kind of Income that would allow you to quickly pay down such a purchase, gaining Equity that could then be borrowed against for investing in IPs (and therefore Tax deductible). It also means that a later sale would NOT incur Capital Gains Tax (which, on your Income, would likely be at top marginal rate). So a safe path might be to buy a PPOR, perhaps one that could gain equity from a renovation, then sell when buying another PPOR (also with an Equity gain – another reno?). Some build their wealth in that way, and is (I believe) a very safe, if slower, way to go. The saving of CGT makes a serious difference to your final outcome.

A moderate way would be to go for positive cashflow IPs, which would earn an extra Income from day one. These are usually found in lower-priced areas (with higher yields). Growth is not usually as high, but can still happen, especially if you “manufacture it” via renos, sub-division, etc. In buying at the lower end, EVERYBODY can afford to buy/rent your place. Other demographics apply though, so don’t just buy anything in that sphere.

3) Considering I’m trying to keep it safe for now, what are your thoughts on either buying 1 place in the $500K-$600K range in a better area (e.g, inner west Syd)? Or should get 1 or 2 places in the $300K-$350K in a more remote area (e.g, west/south-west Syd)?

My answer to 2. probably covered that when I mentioned the more moderate path.

4) What are the cons of getting a 95% loan considering that I will be able to make repayments easily. i.e, Put down 5% cash even though I have enough for 10%-20%. Is it silly to do this?

Your high Income probably trumps any “cons” of a 95% loan. One major con is the extra burden when Interest Rates rise. With a larger loan, the Rate increase hurts you more than most. But these things can be mitigated – get advice before committing though – by using Fixed Rates and/or Variable, and Offset Accounts.

On the other hand, the “pros” include the capability of keeping more cash as deposits on more IPs. You could conceivably buy 2 or 3 lower-priced IPs quite quickly. If holding 3 IPs worth $300k each, you have some advantages over one higher-priced IP.

1. If you lose a tenant for 4 weeks, you lose 33% of your income for that time. With a single IP, you lose 100% of your Income.
2. Buying 1 higher priced IP might stop you in your tracks while you wait to build more deposits. With lower priced IPs, your funds can buy 2 to start, and perhaps a 3rd very soon after.
3. Should things turn sour, and you need to liquidate quickly, you can choose to sell just “the worst performing one” – leaving you in better shape afterward. With one IP, you have just one choice, and you might be selling a top-performer.

There is SO much more to it…. I hope those few thoughts are useful to you for now. Let’s see what others have to say too,

Benny

Hi Dean,
And a big welcome to you into our community. I hope joining up proves to be a life-changing event for you. :)

I can’t comment on Yale specifically as I don’t know them. But this comment of yours had me smile – it reminded me of me about 25 years ago:-

To be honest, I had not thought much about IP’s before tonight as I always viewed them as too expensive and too big a risk should it stay vacant for extended periods. What are realistic costs associated with buying an IP? To me, if $60 a week is all it took to buy a $350k IP, everyone would be doing it.

You will very quickly learn here that there are ways to have IP’s put money IN your pocket each week. And yes, $60 a week is not much to be controlling a $350k property, for sure.

First off, let me recommend that you go to the Home page, look on the right side (under Private Messages) and look for the “Strategies Explained” area. The first strategies are “Positive Gearing” and “Negative Gearing“. Have a read of both of those.

The way Yale and many others promote is Negative Gearing. It is a viable and valid choice, especially in Australia, but watch out, as not all companies have your interests at heart when promoting their product.

Then compare the Positive Gearing option. And then, to help you get up to speed on some “early learnings”, check out this thread:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

That is all for today – we will have a test tomorrow morning….. :p Just kidding – but this can be like a good book – hard to put down…. Enjoy,

Benny

• This reply was modified 10 years ago by  Benny.

Hi Knox,

PS do you know somewhere I could find information in “layman’s terms” on depreciation?

Learn it from the man himself – here’s an Article written by Steve :-

https://www.propertyinvesting.com/depreciation/

There are lots of articles on all manner of subjects – great reading for all newcomers,

Benny