Help getting started

Matt, congratulations for taking off the blinkers and looking for what you need !

If you've had a rough trot as far as jobs go .. I'd suggest seriously going for either a two or more unit .. property investment to start with. At the moment banks will take up to 4 units without turning to a commercial loan situation .. so .. why not take advantage of that?

The reasons are stated as such.

You'll be less exposed to vacancy rates as you are not wholly dependant on a single income.
You'll have tenants who are paying little to start with .. so .. wont have issues with paying it.
You will have several tenancies paying your bills .. which leads to them getting paid off sooner …….. its nice having people who pay your bills for you.
In the event of a price movement or rental movement .. the figures move in multiples too. In your favour.

Just remember .. at the moment we are facing tougher markets, simply due to timing. That doesnt mean that good deals arent out there .. it just means you need to search more thoroughly and be more fussy. In good times .. people will buy almost anything, but when the dust settles … they'll go back to preferring decent property and quality property over … not so good.

Get to be familiar with your area of choice 100%. Dont be afraid to study it first. Grab the local paper, its a most important guide to whats going on in the area. Become an expert in your area, know what a 3 bedroom brick veneer sells for .. a 2br unit .. a 1br unit .. a decent block of land (700m2). So when the value comes … you can see it.

Look for the possibility of buying something under market .. or buying something that has upwards potential. Too often people try to purchase an item that is at its maximum potential (barring inflationary pressures) and look upon this as a good investment. The best money is made when an item is understood to be one thing, and a visionary comes along and transforms it into something else with more potential. Thats how real money is made in real estate.

This is the way to your journey .. to find that house .. that you can live in and enjoy. Think creatively and not only will you have enough to live well, you'll have the lifestyle you will have earnt.

Hi Matt,

Some comments in direct response to some of your points.

1. The issue of 'how long in this job' is absolutely critical.
I assume you are on the mines somewhere in WA (whereabouts ?) and are currently earning a tidy packet because of this. No point doing all of your planning and spending based on a $140K income if in a few years time you drop down to $65K. All the numbers change and this may have a significant effect on your plans and what you have acquired. If this scenario transpires your plans and reality are poles apart and it probably wont work unless all of your props are paying for themselves.

The next question is what are you trying to achieve? Is it 'wealth' from cashflow or growth. The answer to this will determine which property and where it is.

2. CG highly likely to be very different. Your $500K property will be in a much better location and will outperform the 2 X 250K props. Just check the median price records for Perth suburbs to see which are the better performers.

3. I heard Peter Spann suggest individuals should consider the buy investment properties first and use profits to then buy a home at a later date. Will need a few IPs to do this as median price in Perth in 12 yrs should be above $1m based on previous growth rates. 

Hi Fully,

When lending banks look at 2 things. The first thing is deposit or equity and the second in cash flow or servicing. A client of mine in a very similar position, he has great servicing.

He purchased a property with a 6.5% rental yield in Armadale, WA for around $300k a little while back. In that time it has hardly moved. He still has good servicing; however he has no equity to purchase his next property. Even at a 6.5% yield, when you take away costs, loan, management and so on and so forth. He is still out of pocket reducing his ability to make savings. Also banks are more reluctant to make more and more 95%+ loans as you have more debt. After 3.5 years of having this property, he has finally saved his next deposit which he thought would only take him 6 months – like it did in the past. He came to me and asked for his advice.

This is what I suggested: Go for a property around the 400-450k mark in a high capital growth area. Look for something you can add value to and save up an extra 30k to do this renovation. Don't be afraid to negotiate hard and know what market value is. One settlement of the property complete a speedy reno (subbing out the work). Stick in a tenant. After this has been done instead of taking 3.5 years to save for your next deposit he had an extra $45k in equity in his property after waiting 6 months for a bank re-val (still nothing is his CF property). I think the first property is costing him around $70 per week and this other property is now costing him $120 per week (as the reno pulled the yield up). Roughly and extra $2600 neg gearing loss a year for $45k equity 3 years quicker, I'd say it's worth it? 

He has seen the light:
~ Target Capital Growth (which pulls rents up over time)
~ Negotiate well
~ Add Value (improve equity AND yield)
~ Bank re-val
~ Go again 

When servicing becomes an issue we can then start looking at CF properties for him, but his main concern at the moment is servicing.  

P.S. Not to mention the tax concessions.

It's interesting to read through the posts and notice that the most emphatic points are to increase the value of the property either by buying astutely ( negotiate HARD) and then reno to increase attractiveness. The increased capital value will result in increased rental yields further supporting an increased valuation.
It seems so much like common sense yet in many of the other threads, many of the investors are ONLY focused on CF+ investments.

I agree that the best investment is one that you can rapidly add value to with a resulting increase in market value (thereby increasing your equity value) AND that can be well serviced in terms of rapid repayments, ideally generated by increased CF+ rental income.

I urge anyone reading this thread to pay close attention to Ian's post ( Sapphire 101)

Happy trails

Welcome the investment world, once you start you can't stop!

Try and read as much books as you can and learn from other investors who are in the property industry.

Fully,
               Congrats on taking a big step.  Property can be a wonderful thing but at time an annoying stressful vehicle.  If you are comfortable with Perth than look there.  Maybe look at suburbs that are on the UP close to amenities and the beach etc.  This is always a good way to make a buck.  Even if Perth is flat at the moment there will always be areas doing a little better than others and where people are prepared to pay that little extra rent.

You could even buy a one or two bedroom unit and give it a quick tidy up inside a month to make a bit of equity.  Or alternatively buy a unit with a long settlement, is vacant and the vendor is happy with you to tidy it up before it settles.

Also if you are concerned about your wage dropping I would look at the unit option cause if you get to say four units, then your wage drops you could put the rent up on all four or sell one to help paying the other three mortgages.

I hope you do well and achieve what you are after.