It’s time to start! I need genuine advice.

1 – Buy Quality NOT Quantity.
2 – If you wanna create wealth then go for High Capital Growth properties.
3 – If you wanna be able to replace your income then go for Positive Cashflow properties.
4 – Stay away from Defence Housing
5 – Remember Law of 14. If the capital growth is 10% then rent will be 4%. If rent is 10% then capital growth will be 4%.
6 – Higher property price = High growth, low rent
7 – Cheap property = High rent, low growth
8- It's the Return on your Investments that matters not how cheap the property is.
9 – There is Cheap and then there is Cheap. First cheap = Property is cheap because there is no demand for it or something       wrong with it. Second cheap = Property is undervalued. If market price is 350k and you buy it for 300k then that is CHEAP!

Tip: New investors should always aim for capital growth over positive cashflow as the extra equity will help you build up your portfolio quicker….that's if you can afford the negative cashflow as is the case with mostly high growth properties.

Hi Andy,

Congratulations on saving $100K – it's a great achievement  & you have obviously worked very hard for it.

You've asked for advice specifically on property so please forgive me from coming at your question from a different angle. I don't know all your goals & your attitude to risk (i.e., conservative vs aggressive), however my advice would be to talk with an experienced financial planner & get some ideas on property investing & on other asset classes as well. This would help you to understand the benefits & risks of each asset class before you invest, so you could see which suits your goals best.

For example, even just considering two major asset classes (property & shares), generally speaking:
 – direct (residential) property has less volatility than shares,
– there is a sense of comfort that comes with bricks & mortar & being able to see & touch your investment 
– property can produce a stable rental income
– negative gearing on property can be used to improve your tax liabilities
– property has high entry & exit costs
– property has maintenance costs
– property is illiquid – not uncommon for average settlement to be 30 days.
– whereas shares have low entry & exit costs, no maintenance costs, very liquid (get your money in 3 days), negative gearing strategies can minimise tax, plus only shares have the advantage of imputation credits, which effectively will mean that you need a lower rate of return to break even on your investment. However, shares are generally more volatile than direct (residential) property.

Of course, if you are comfortable with only investing in property then this is an important part fo the equation as well (it's just that it may limit your options for wealth creation & tax minimisation). But a financial planner would be able to suggest a balance of asset classes that would best meet your goals. There are also cost free options to get this knowledge like this forum or for shares there are free classes on the ASX website.

Also, re: negative gearing – you mentioned spending mid-$200K. If you looked at an example where you had a $200K investment, where you borrow the whole $200K as an example & were paying the same interest rate on each loan, it might look something like this:

Property:
Cost: $200K
Loan: $200K
Int rate: 9.5% (use whatever rate you like)
Income: $13,000p.a. (rent)
Other expenses: $3K

Shares:
Cost: $200K
Loan: $200K
Int rate: 9.5% (use whatever rate you lke)
Income: $10,000p.a. (fully franked)
Other expenses: $0

On property, you would need 2.3%p.a. to break even; with the shares you would only need 1.2%p.a. So you get less income from the shares but this is outweighed by fully franked dividends & the attached imputation credits.

I can give you more detailed workings on the above example if it doesn't make sense. But I guess my point is just about understanding your goals, your attitude to risk, and the benefits & risks of each asset class & how each asset class can help you achieve your goals.

Best of luck with whicever way you decide to go & congratulations again building up your $100K.    

Kind regards,
Paul.

Ok I have just read your post .
I dont come on the forum very often ,
My suggestion is to invest in a couple of books and make up your mind on your investing stratergy.
Have you read Steve Mc Knights books ,Jan somers And Peter Spann.Also a lot of good information in API.
When you have read these books you will understand  different statergies and be able to make the decision for yourself .
Leanne

Great advice there Paul – certainly help to expand my blinkered vision of investments.. btw, any advice on commercial property thrown into the mix here anyone?
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Astra

Astrawan wrote:

Great advice there Paul – certainly help to expand my blinkered vision of investments.. btw, any advice on commercial property thrown into the mix here anyone?
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Astra

Only if you can handle the risks involved. Commercial property is very much dependant on the economic and business growth of that particular area, state or country. If those two are down then there will be less demand for commecial properties meaning: lower rents, longer vacancies (upto a year), low capital growth. Usually with commecial you have to give free rent periods such as 3months or 6months and maybe 1year depending how long the lease is for.

And certainly not for newbie investors. If if you have atleast 3 or 4 residentials with a good income to be able to make interest repayments without getting any rent for those long vacancies then you can give it a try.