Forum Replies Created
Hi Lpadfield,
You've fallen into the golden trap.
You havent checked out your market thoroughly enough and you've purchased in an area where there are market issues developing due to saturation and overpricing.
And as a result .. it really doesnt matter whether your apartment has silver plated taps or marble lined floors .. its competing in a very difficult sector.
Its not your fault. The marketing for the Gold Coast keeps setting it up as the playground of millionaires, and the ideal investment paradise.
Reality is .. over the years .. the market attractiveness of the Gold Coast has gone downhill … and the millionaires have found better playpens to play their golf in.
You've been left with the 'EASY INVESTMENT' spruikers .. and the middle class 'plus one' investors. Not forgetting the retirees who think its a lot better than Melbourne as a place to die.
Check the streets next time you are down around Cavill Av .. you'll see my perspective is on the ball.
I know I sound like I'm repeating myself when i say it .. but its so true .. you have to know your market before you start investment and/or development strategies.
Buying in on a unit you look for size .. position AGE OF BUILDING (what they dont mention in the Gold Coast is the avg lifespan of an apartment block is a little over 50 years now) features and presentation. Lots of areas will only settle for the latest mod-cons and trendy buildings .. because .. they can.
The best developer land projects .. are looking at some area that someone has already built something on .. and imagining something different on it that meets current market demands. Best investment I ever made was a series of shops in a country town ON MAIN ST that I turned into 3 lvl shopping with offices and a large gym.
Ask your local real estate agents. Take them out to dinner (seriously .. do this at your expense .. you'll learn a lot and you'll make 'friends'). Ask the right questions .. get the right answers from them. Dont settle for one agent .. take multiple agents and make better judgement decisions based on better information.
So really .. the answer comes back as .. measure your market .. build your team and contacts .. then find the ideal project site that works for you.
A big hint : Sometimes the market isn't the market you see. ALL PROPERTY IS AVAILABLE FOR THE RIGHT PRICE.
Negotiate.
Hello Junkyster,
You are starting out on the property journey.
You've got the starter blocks for getting stuff going .. you have strategic plusses .. and strategic minuses.
The plusses should come first.
You have a nice little asset base to start with with existing equity from your wife .. and a little movement from you on your existing property.
Thats great. A little asset base is still an asset base .. and is always a good starting block.
The minuses are .. well .. against all that .. you are balancing two rather average income scenarios.
When I say average .. i mean .. 80k isnt bad .. but once you deduct the expenses for 2 kids .. and a mortgage .. and the extras (car loan and expenses, clothes, school fees.. maybe personal loan or expenses) well .. then even including your wife's existing income of 25k .. thats not much flexibility for any interest moves on your goal of purchasing a 350k-400k property.
I would suggest for your existing situation to gear yourself towards either increasing your income flow to create more flexibility both on borrowing and any interest rate hikes.
The aim for your longer term future .. would be to create a reliable subsidiary income that would balance the existing income flows creating a much more stable portfolio overall.
Or you may also want to try to approach what you can actually afford to start with, maybe a reduced exposure by having a smaller property .. or maybe multiple properties.
Your risk remains a very volatile income situation .. that can only be remedied by creating a better set of circumstances around that scenario.
You've already got an observation as to how such a market change affects the area.
Look at the closures that took place in quick succession at Dandenong in the late 80s.
First the Watties factory .. then the Holden factory and finally the South Dandenong Cattleyards.
The area was rendered nearly empty for a period of eight years. At which time prices in the area DID NOT MOVE from their original 1986 prices.
It meant for a brief period … you could purchase houses at 60k and units at 40k (realistic unit market was just over 180k in a decent burb at the time- think 400k+ now)
in other words .. it stagnated .. and very badly until capacity for new tenancies in the area was reached.
Until then it was used by Govt agencies as cheap housing for migrants .. and low cost housing for 'undesirables' .. hence the recent reputation for the area.
Geelong isnt Dandenong .. but with a large emptying of its local workforce and surrounding dependancies .. you can expect both commercial and residential tenancies to be on a slide until the capacity is picked up by newer businesses in the area.
That can be quite a while unless the council and state governments do something appropriate.
In other words .. it will be quite a while.
Hello CojoCojo,
There is another factor you haven't addressed in your question .. and thats the current amount of money coming in the door .. either through your efforts at work or your husbands current occupation. That in turn would affect the situation as to what your capabilities for borrowing more money are.
Another thing .. if you have someone who will lend you 200-300k to create a sensible nest egg investment for yourself .. why not take advantage of it thoroughly !!!!
Explore your flexibilities and limitations with the banks and or mortgage brokers. Ask the right questions to get the idea as to what your ACTUAL borrowing potential is. Know your capabilities for borrowing and repayments before you explore your further options.
Now the last bit comes down to timing. Can you see a good time or a bad time ahead for property in the next couple of years? Can you see your townhouses selling easily at the desired level? Do you think that the quoted level of 700k+ is outside the standard budget for most people who live in the area?
When I start my developments … I have this type of research behind me even before I approach the banks. In other words .. before I start .. I know almost precisely who I will be selling to at the end of the day, because I have done my homework on the area.
I'm lucky enough to have seen exactly the type of situation you propose happen to one of my friends last crash of the markets in 1991. Three gorgeous townhouses in a nice inner suburb of Melbourne, a prime block of land. And he held out for his price .. which wasnt available on the markets because for the next 3 years there was NO money floating around the economy. And the banks stepped in .. and took hold of his properties and sold them off .. for firesale prices.
I would suggest you approach your ideal situation with caution and work within the parameters of what you see being the situation in the next couple of years. The markets have taken a swing upwards .. but there is also an undercurrent of low rates backing unsustainable pricing.
As a seasoned investor I would suggest gearing conservatively for the next couple of years .. at only a C33/67B ratio rather than an C20/80B or C10/90B ratio. It may sound conservative .. but it allows a market drop of 33% before the banks step in and ask for their dues.
Dont take my words for any of this.
Step in by yourself .. make the market condition observations by yourself .. and then finally .. make your best judgements .. by yourself.
If there is anything I could pass on to you about investing in property .. its learning to understand the market conditions in your own right .. is priceless advice.
Here is Drew's rule of thumb that works wonders for him.
WHEN YOU BUY A COOKIE .. EXPECT A COOKIE.
In other words .. if the land has the 'potential' for subdivision and nothing has happened or its up in the air at the moment .. step back and do your due diligence.
Just because there is potential for subdivision .. and there isnt anything yet … doesnt mean you are sitting on a good thing.
A COOKIE is when you buy a unit .. you get a unit .. when you buy a house .. you get a house .. when you purchase land you have at least permission to do the things you want on it.
An off the plan proposal .. a 'scheme' drummed up by a developer .. a beautiful set of proposed plans IS WORTH NOTHING without the correct approval from the required authorities. And you should be aware of that before entering into any fixed term agreements.
Melton has leapt ahead in leaps and bounds from what it was .. but the query as to its long term potential for future growth is very much up in the air.
I would suggest there are better places to stamp out a 10 yr investment plan with potential for genuine growth.
Majic .. you are at the wrong end of the market to chase the cashflow positive deal unless you are prepared to creative it from an unrealised potential.
You see .. cashflow positive properties are tough to find in a sellers market, easy to find in a slack market .. and near impossible to find in a boom market.
We are at a point where the weekly turnover at auction just hit 80%. Thats a boom market scenario. Not only is 4 in 5 properties selling .. they are achieving advanced expectations.
The important credentials for a property still apply. Just dont get too hesitant if you come across the right thing in this market .. as things get snapped up fast.
Do your due dilligence .. but quickly.
And always remember that a property must match the actual fundamental market requirements.
And rates have never been lower. Take advantage of that now if you can.
The technicality is very slight.
I would tend to class this particular property type as geared to neutral with potential.
However it is deadly important to realise you are banking on the stability of those owner expenses for the longer term. People who gear neutral without accomodating movement in any ownership expenses or rates (allow a 2% buffer on rates at least) are just asking for trouble.
As I have previously stated .. a small reserve of about the equivalent of three months rent should be considered for any property you own (index it to inflationary pressure and present day rental too). Its that buffer that prevents a small hiccup in the market becoming an issue between you and any third party.
As to the actual property .. traditionally a studio apartment tends to be the poorer performer in most market conditions, with intermittent tenancy resulting in multiple property re-letting fees, making it a less attractive proposition to the investor who demands stability in his residual income.
Hence .. why it almost always attracts a significantly better return.
The best cashflow postive properties are the ones where the rents are significantly under market .. making it easy to work out what bringing it up to the current market rent will achieve (CHECK YOUR MARKET CONDITIONS – dont toss out a good underpaying tenancy in a dud market). Or a property where the presentation and value is hidden due to the current state of the presentation and overall condition of the place. These two options are usually the best way to achieve a GENUINE positive cashflow return.
The market for property is generally sound in what it knows. If there is a deal and it is significantly above the average rate, there is usually also a genuine reason for that.
But sometimes .. even the market and the agents can make a mistake in valuing what a property might be worth. Thats when you pick up your genuine GEM property deals.
I dont think anyone WANTS to be financially free.
You see .. the more you live .. the more you see .. the more you want to see.
I think what most people want are better options. Money and the access to money creating facilities increases these options.
Financial security and FLEXIBILITY produces these options.
You'll always have the bills that rock in .. just for breathing air every couple of seconds. Those types of things are unavoidable.
But what you may really be seeking is a better financial education. And in the longer term .. that sort of skill .. is priceless.
I have old friends from high school that cannot believe in a world where they wont be receiving their ALLOWED benefits from the government.
That sort of idea really shocks me. To rely on an initiative that in itself is only meant to be a temporary measure .. not a lifestyle.
With a good financial education YOU steer the ship towards your familys' success and progress.
DONT BE SCARED OF DEBT. Be scared of unregulated and uneducated debt.
DONT BE SCARED OF SUCCESS. Be afraid of never having tried.
Even a failiure is still an education towards getting things right.
I agree with most of those postings on the actual article.
First you have to realise that Detroit pre 67 riots had a series of tensions due to race issues bubbling under the thin veneer of civilisation it put on.
And after the 67 riots there was an intense effort at 'appeasement' by Democrat factions to reduce the 'oppression' felt by blacks in the city.
Chicago has issues yes, but they are neither the same issues .. nor can they be dealt with in anywhere near the same way.
America as a whole needs to grab a backbone .. stand up to union demands and make itself a place where business, manufacturing and research take place.
As such it has a very limited timeframe in which to do so.
Maybe less than 15 years. After that it will be classed as irrelevant by other nations, the loss of its superpower status will be guaranteed and business .. finance and investment will happen elsewhere with the resulting benefits and remuneration systems happening elsewhere.
Not inevitable .. just most likely to happen due to the intense infrastructure for failiure that America has been so busy setting up.
New or Old?
DEPENDS WHAT YOU GET !!!!!!!!!
If I'm presented with a brand new high quality good finish home with a class A builder, in my money its just as good as having a property that will be there to appreciate in the longer term thats secondhand and might need sprucing up.
If you buy lousy cheddar to start with .. dont expect to make a great fondue out of it. BECAUSE YOU CANT.
Same with housing. You buy in an area with good transportation .. facilities .. and a quality build. Any single one of these components is missing from the piece ..
Then you are entitled to question your prospective purchase.
The end result of the investment game is you want a tenancy that will stay in the property, and pay your bills for you. The longer the better.
Moving costs money .. renovation costs money .. and a new tenancy will cost you as well (up to a weeks rent)
So your decision should be based on what you'll get out of the deal that will enable you to meet the criteria of keeping a nice happy tenancy for as long as possible.
With all the possibility of smart ideas you are staring into the face of fantasy when you talk like this.
First of all .. the only boom in food is in the premium organics range .. which despite appearance is actually a very tiny section of the market.
Our major food and produce markets are being trounced by better low value imports from foreign countries that continue to subsidise those sectors.
Our produce goes out into the world market and remains uncompetitive. Thats why we are shipping to places that pay a higher dollar … such as the middle east.
A lower dollar would make our produce a lot more attractive.
Holden staying in this country is a boon to our local economy in that a working car industry in some format is worth preserving as not only do you get the direct benefits of employment, but also the feeder benefits of every institution that would have some reliance or dependance on a working manufacturing line in this country.
So yes in dollar terms 100 million may seem like a huge amount .. but i'm guaranteed that the fringe benefits from having kept an industry in Australia (ask Geelong what life is like without Ford Motors) will make that investment worthwhile.
The whole car industry is in shambles at the moment, not just the American car manufacturers. Saab Auto is history (GMH would sell the company but not the tech), Opel Australia just pulled up stumps, Daewoo died a couple of years ago, and Mitsubishi pulled a winner out of a hat with the 380 to save its ass from bankruptcy.
As an investor in this country .. I would tend to agree with your smarter Australia totally. I have been approached by people consistantly on certain ideas they want to get started and I consistantly shoot them down when it comes to the idea of manufacturing in Australia.
I tell them that at the moment thanks to Government Policy largely, its too expensive to do business in Australia. And I point out to them where to go.
To drag back the money that is being piled into real estate .. the government needs to offer better strategies to make working Industry effective in this country.
Because .. despite me being an investor in Real Estate .. i can tell you .. long term .. unless there is a supporting income base from other industries to feed the rental demand .. my real estate is not worth a cent if there is nobody who will want to sit in it.
I would suggest using the million to create a couple of little assets rather than one big one.
You see .. in any investment portfolio .. the worst situation is to be subject to a SPOF – Singular Point of Failiure.
Thats a property that promises high returns and doesnt deliver. Which in turn carries down the rest of your portfolio.
Better to have a reasonable mix of smaller assets to start with (albeit reliable ones and bank friendly ones) than the weight of your whole portfolio being lost on one or two major holdings.
You'll have multiple assets to lend on, and you can borrow against ANY OR ALL of them for further incremental progress in your portfolio.
Consider the house a last point backup, not a cash realisation. Thats the Ace in the Hole you have should any part of your investing turn bad.
Its an observation you've made Tamara43 .. and I would consider it right and wrong.
People graduate to a comfort zone. They learn tricks and trades from their parents and family members that can not only be bad .. but inherantly wrong.
More importantly .. people brought up on these ideas only feel comfortable working within that comfort zone .. most of the time.
You see .. in the aspect of you being somewhat right .. people will work within comfort zones and there will always be people who breach those comfort zones with new or original ideas, in areas such as property acquisition .. property maintainence .. property requirements and of course architectural design.
BUT .. delving back to the comfort zones .. there is also a larger market of people who will only find acceptable what they have traditionally dealt with previously.
So its ok to be a radical, but you have to work a lot of the time within an intense conservative framework in one way or another.
As a regular property radical I find some of the bank and financial institutions approaches to certain types of property difficult to accomodate. But on the same basis .. its their difficulty in accomodating that propety that makes that sector JUST THAT BIT MORE ATTRACTIVE TO ME. Hence my ability to deal in what other people would find … difficult sectors of the market.
You want to change the world with your ideas? Change it !
But you just might need to recognise in your radicalism that other people got there first. And that conservatism not only drives existing markets .. it allows radicals a BASE to start from.
I'm going to sound Freckle'ish on my next statement .. but its about time someone said it in this context.
Australians have been brought up with the concept of a continually incrementing property market as something that has existed for as long as they can possibly remember.
And yet they forget the key fundamental of any property market. The one that I keep on harkening back to .. the one that I think remains most important.
Any property area, any basic property construction, any commercial zone .. any business area, NEEDS TO REFLECT THE EXISTING MARKET AROUND IT.
Its what I saw in the Gold Coast in 1994 and really had me kinda stumped. That they were building MULTIPLE million dollar plus apartments and expecting them all to be snapped up overnight. Here is an insight – a million dollars .. is STILL a lot of money .. despite inflation .. and despite the Gold Coast being desireable anyway.
Now .. just because you have a low interest rate doesnt mean you are any more safer. The major problem is .. people GEAR themselves towards a lower interest environment. Thats exactly what happened in 2008, and if its left unchecked here .. WILL happen here .. because people will gear to the max (as you would) based on low interest rate figures and not being able to support higher rates.
But .. the fundamentals still remains. Property cant be driven up into the stratosphere if there isnt a tenancy that will pay for the supporting rental equivalent. Once you introduce pie-in-the-sky figures into your rental sheet, guess what people do? ITS A MARKET .. they go shopping elsewhere. They rent in upper country woop woop .. so they can have their rent and still survive on Centrelink. They move to outer Cranberry Nook .. so they can eat as well as pay their rent. The upmarket professionals wait that extra 20 mins in peak traffic so they can enjoy the sounds of the country and support their lifestyle without stress.
As a property investor for over 25 years already .. and a very successful one at that .. I would suggest that the interest rate should NEVER be your pivotal concern in making the real decisions. It should be .. what you will get .. and how reliable AND REALISTIC that is as an investment in the longer term.
This from a person who STILL shuns the mining rental markets in all their shapes and forms .. and warned several investors off it from the beginning.
As talked about previously in another column, mould is self perpetuating and very hardy once entrenched.
You will need to track down the source of the issue, and its almost guaranteed that its a already a hidden major outgrowth to produce a continued and persistant response.
In this situation a humidifier or drying out the place just will not help at all. You need to pinpoint the source of the mould and eliminate it.
Grab a professional and get started.
Grab a property manager that does the job and wont be a pain in the ass to deal with .. or a cost you have to bear.
If you worry about finicky little things like whether a reletting fee is the issue OPPOSED to the quality of the property management you are going to get .. you may be looking at the wrong criteria for your property management concerns.
Grab a property manager that does the job properly and doesnt cost the earth to have as a utility.
THATS the important concern.
If you are fighting over a singular percentage point and ending up with a guy or gal who really doesnt know how to look after your property then your efforts for looking after your property will be increased, and so will your stress level, and so will your time and effort wasted on what should be easy sailing.
Grab a guy or gal you can trust .. who doesnt cost the earth .. and does the job so you dont need to.
Sit on interviews with the property managers until you achieve that degree of trust to hand your property across. DONT BE SCARED TO DO THIS … be scared when you didnt do this.
If you need to step in and request property management from the property manager then the property manager isnt doing what he/she should be paid for.
The best insight I can give you on the current movements in the markets comes from my experience in collectibles. When the market was hot .. people would largely buy anything and everything that had Star Wars written on it. When the market eventually slowed down .. they became more selective and only sought after the desirable and 'key' pieces in the series.
That seems to be what has been happening in property at the moment too. People have taken a step back on a lot of their property and made the actual assessment of what they have purchased and whether due to infrastructure and facilities .. neighbors … lifestyle … the position they have chosen has any merit for longer term investment.
The key areas .. the good positions .. the neighborhoods with a strong set of facilities, these are the ones that are steadily moving ahead at the moment.
As I state readily .. there is no singular property market as such. There is a statewide market .. a locality market .. a suburban market. And each of these is split into apartments, land, commercial and industrial components.
At any time, DEPENDING ON EXISTING CONSUMER DEMAND, any or all of these sectors can be active and flourishing depending on needs and requirements.
Jo this classifies as a grade B investment and for your initial purchase thats not where you want to be.
A grade A investment is one which is treated by the financial institutions (not just banks) as collateral, produces a CONSISTANT (not necessarily high) return and is easily saleable in almost any market.
A grade B investment is one which is harder for the banks to take as collateral, produces a variable return (it may be substantially higher as a result) and takes a lot longer to sell on a tougher market or more selective market.
A grade C investment is one which the banks WONT lend on .. produces an intermittant return (again most likely higher), and as a result of the bank lending criteria is near impossible to resell in any market. In other words its not treated as real estate by any lending institution. Student and Hotel unit, Aged Care and Holiday accomodation meet this criteria.
A grade B investment is a higher risk level and may take more than one broker to produce finance on it. However they are good returns and as long as this can be maintained for a consistant period they can be a way of increasing your fortune rapidly.
With a grade B investment check your bodycorp, your tenancy quality, your chances of vacancy and REPLACEMENT of tenancy.
And always be suspect when the property is already fully furnished. It means the property has been pushed to its absolute limit to achieve the current rental returns, and there may not be any room for further value adding.
Historically I like stocking up on solid Grade A investment grade properties .. then using the equity held in that to purchase grade B or C property as an offset. Banks have the grade A investment to lend on, and I end up with grade B or C properties which are better at paying themselves off quickly.
Try to aim for Grade A to start with, as it gives you a reasonable financial state with the lenders. Then as you achieve a little equity or flexibility .. head out to some of the more risky propositions.
The one thing to take into account with Grade B properties is that they are harder to achieve lending on, and as a result may stop you from progressing in your endeavours as you may want to.
I'm sorry to hear about your being wiped out in the GFC. I have met a number of people that were successful before the GFC and have been let down by the way events unfolded.
However, your idea of producing a retirement 'plan' through investment in the Gold Coast is going to lead to heartache whether you can afford it or not.
Here are the variables you are bringing to the party. And tell me if i'm missing anything.
– A solid job being a teacher.
– A last bop of savings 45k ready to invest in a depreciated in value, and costly in expense area. The Gold Coast.
– A plan to retire up there and be close to the grandkiddys.
The first point of failiure is investing in a depreciated area without investigation as to why its depressed and largely becoming vacant.
The second point is reliance on both an income and the kindness of banks as your backstop to a financial and lifestyle strategy.
The third is an emotional purchase into a situation that you can barely afford. Let alone the body corp fees that are charged in the Gold Coast.
Its not that any or all of these by themselves are a pivotal point of failiure. But all of them together are asking for one or more of them to fail on you.
I have been dealing with retirees who come out of jobs and face uncertain futures at least several times now. And most of the tasking is reinforcing the fact that there is never a bad time to run an effective and workable strategy to secure your financial future.
Some listen, and some achieve it. Some come back a couple of years later complaining about the lost opportunity. I refrain from pointing out what had been missed and offer them tea and biscuits.
My suggestion for you is work out what you CAN do and what is currently possible for you to achieve with the banks and your current financial position. Banking variables change and at the moment conservative lending is more of the practise than usual, because of the GFC and its results. But given time, hopefully a better range of flexibility will be restored.
With the current banking climate I would suggest treating the 45k as your 20% and seeing if you can push through an investment deal between 220-260k with steady tenancies and steady returns. Fix your rate for 5 years and on the other side of the deal you should have a lot sounder footing for your retirement plans.
As I state .. its not an ideal deal but its what the banks will allow given both the current credit situation and your current circumstances.
Its also not the best time to speculate or heavily gear on a variable interest rate in the short term. Inflationary pressures are already here and you might as well find the best path to take advantage of that.
To sum up a multi paragraph previous statement nicely,
Dont panic on circumstance ever ! Learn whats going on, be aware of what affects your existing situation and what will change it.
Thats a trendline.
Trends can change. Fast and without much forward notice, unless you are keeping track of them.
Dont get too caught up in a single commodity, be a holder of a lot of different commodities.
Buy sizes OTHER people can deal with. For gold I wouldnt go bigger than a single ounce PER UNIT, for silver no bigger than a kilo. And a diamond .. no bigger than a carat.
Your commodities (just like your properties) must be desirable and readily available and affordable to other people. READY FOR TRADING.
And finally .. don't assume you are the first 25 year old in history to encounter the end of finance, history and current circumstance. Learn whats coming, what you'll be a part of and what the NEWER trends will be.
And finally, profit from that knowledge and knowhow.
