-=** Help needed for first deal in PI **=-

Hi gaga,

"== CONS ==

 – It's far and It's in the west  (seems a lot ppl don't fancy west and they do have fair reasons)
 – Value growth and rental return might not as good as inner suburbs (I can get one of those, but it pushes the limits too hard)
 – If the richer get richer in the near future, It might been even longer and harder for me to grow my portfolio.

Thanks you all so much just for reading this far, really do appreciate if you can give some advice and share some knowledge.

Johnny:)"

you sort of anwered you own question in part; my concern is all of the above, AND you are going for a 100% finance deal. This is a very dangerous level of exposure for your first deal.

One of the big dangers with "off the plan" purchases is buying at the right price in relation to the market. All new projects have a profit margin built into the purchase price for the developer, and quite often these sorts of projects are bought up by investors. The problem here is if they get into trouble, or there is a shortage of tenants, or both, they have to either sell, or drastically reduce the rent to get a tenant, and if you are also an owner in the complex then it directly affects the value of your unit and your rent returns should you need to sell or find another tenant. At 100% finance this is very dangerous.

This scenario happened in Melb with the inner-city apartments around 2003-04. Many were re-sold at big losses because there was an over-supply, no tenants to be found, so the rents dropped, many investors couldn't fund the extra neg cashflow and had to sell.

The SECOND buyers were the ones who did well.

Don't go into this deal purely for the tax advantages. They are the icing on the cake. The deal should stand on it's own before you apply the tax benefits.

What is the rent return? Is it at least the same as current loan interest rates? Check the actuals against other existing newer complexes in the area.
What are the comparable prices of a 5 year old complex (or younger- but not brand new) in the immediate area? This is the true value of a unit in the area. Brand new ones are invariably over-inflated, and if you have to sell, your unit is second hand and only worth what the existing units are worth in the area.
Lots of Depreciation and tax benefits are nice, and what I look for, but they only soften the blow of a loss; they won't always cut out the (cashflow) loss.

If you have a poor rent return (less than current loan interest) and are planning to buy and hold, have a 100% finance, and there is limited cap growth, you are going to be out of pocket (even after the tax benefits) for a long time to make no money. Not my idea of investing.

Hi, im new to the property investment game as well, but after reading through i thought i'd point out one thing that glared at me –

Quote – " – Low vacant rate (according to local agencies)"

I would double and triple check this.  Local agencies obvioiusly will tell you its a low vacant rate, especiall if you're an investor. check this out. What is the rental percentage, the vacancy rate in the area?

my friends were also planning on buying in melbourne's west, in melton. it looks good, the prices of the houses are really cheap (200k) and land is fairly big. so i thought we share a similiar situation.

also, does your place have good public transport/train lines? people that live in the west complain about having to drive to the city eastward in the morning, facing the sun, and driving home westward, also facing the sun. i know this has prompted one board member to relocate – thus the hosue that you rent will have to be a fairly cheap, "starter" house as people would eventually want to move eastward, unless they catch the train evreyday to work.

Hi Johnny,

I live in Sunbury and was recently looking here to buy our first IP. We ended up buying a place in Ipswich instead but I have spent the last couple of months talking to property managers and real estate agents in Sunbury. I take it that you don't live in Sunbury so if you have any specific question let me know and I'll see if I can answer them.

Is there any reason why you are looking at buying an off the plan place rather than one of the newer established houses or completed house and land packages that are around? There is a newish estate in Sunbury that has a few houses under 4 or 5 years old for between $250K and $280K, I'm not sure how much the place is that you are looking at.

There was an article in the local paper this week about Sunbury's stagnating house prices saying that the median price only rose 0.9% in the last financial year from $251,000 to $252,250. The article blamed oversupply, high petrol prices and interest rates.

From speaking with the property managers here it does seem that rental demand is strong at the moment, but they always add the proviso "at the moment, can't guarantee how it will be in 2 months time when you settle". I also found that the rent estimates from various property managers seemed to vary quite a bit.

The train travel to Melbourne from Sunbury is generally 45-50 minutes for most peak time trains. There are a few Bendigo trains stopping in Sunbury that take around 30-35 minutes.

I think its a good place to live. Coming from Bendigo and resisting a move to Melbourne for as long as possible Sunbury seemed like a good place for a country lad like me. We knew some people who lived here so we had spent a small amount of time in Sunbury. We originally rented for a while before we bought a block of land and built here. It still has a bit of the big country town feel about it which suits me, but I know that it puts a lot of people off because they think it is "out in the sticks".

I don't really find anything inconvenient about living here, but many people complain about the public transport. I think wherever you go people will be complaining about the public transport. The trains from Sunbury are V/Line so they don't run as regularly as Met trains, but that has improved a lot in the last 2 years.

It has been said that there isn't much to do for younger people (15-25 year olds) in Sunbury and there has been some talk about youth related problems, although I have never noticed that.

I think the area really suits people starting a family and those with younger children and that seems to be the types of people that are coming to Sunbury.

It gets pretty windy here and sometimes it is bloody cold, but I don't think that is too different to many parts of Melbourne.

I'm not sure, but I have the following figures from another forum

Median House Price 1994: $110,000
Median House Price 2004: $240,000
118% increase.

I don't know how accurate these figures are and I know that in that 10 year time frame there was a lot of new land released and a lot of new houses built which I seem to recall skews the figures somehow.

The main reason we wanted to invest in Sunbury was because it was going to be our first IP and we wanted something close to home to get the hang of investing. We offered on one place but didn't get it and then a buyer's agent that we had engaged showed us the place in Ipswich which we liked. We had thought we might get something in Queensland eventually so we thought we might as well get our first IP there. Now that we have our first property our main reason for investing in Sunbury has gone so it is likely our second won't be in Sunbury. I'm keen to build an IP at some stage so when I'm ready to do that I will look at Sunbury again because I would like to build somewhere close by.

Because of the low growth and the fact that there is still a fair amount of land to be released I don't think I need to rush to buy something in Sunbury.

Do you know the name of the estate where you are looking to buy and is it through one of the local real estate agents or directly though a builder?  Have you spoken to one of the property managers in Sunbury that aren't affiliated with whoever you are buying through?

HI gaga,

I notice you mention you 'checked out the data' for Melton & Sunbury. Could you tell me what or where that data is? I wouldn't mind checking it myself.
BTW,one thing that is a drawback with Sunbury is access to the CBD.  The old Sunbury to Tullamarine Airport road is absolutely terrible in peak times as is the Calder Hwy if you enter the CBD the other way.
I'm not saying the Western Hwy is a dream either, but as I mentoned in the last post, the new by-pass should help alleviate that problem.

Anyway keep on looking, coz I know I am.

Russ

Hi Johnny,

Thanks for that, I will look those figures up.
As far as the by-pass, it's called the Deer park by-pass and will supposedly shave off 10-15mins driving time to the city and will join up with Ring road when it is completed. It has been mentioned in the local papers here for quite a while and I think if you check the Shire of Melton website or any others along the Western Hwy you will get the info you need.
If I am correct, try checking a current Melway  and I think you will find it marked as future road works at Deer Park.
 If you do decide to look over this way, drop me a line, I'm more than happy to have a chat with like minded people.

Russ