First Property Investment – Need Help!

Hi Firstinvestment24,

The first piece of advice I will give is… you won't achieve that rental. When the building is complete and investors put their apartments on the market, there will be a flood of available properties in the building.  If the apartment is a one bedroom with a car park and a balcony, expect a rental of $400 to $430 per week when the development settles due to flooding of the market. Also be prepared for a vacancy period.

I've seen this first hand with clients of ours who paid $480,000 for a two bedroom apartment off the plan in Carlton. The agent that sold the property to them off the plan quoted a rental of $500 per week. It went on the market at settlement (as did 40 others) and despite our recommendations that the rent rate was over-quoted, the owners were relying on achieving $500 per week. After 5 weeks on the market (and many price drops), it leased for $400 per week. We had many properties in the development, all of which leased for less than quoted by the developer's agent. This is an example of an extreme drop.

The agents pitch 'massive stamp duty savings' but a majority of what you don't pay in stamp duty is added to the cost and goes into the developer's pocket. NEVER take what you hear in a show room as the whole picture. Get advice from local agents in addition, double check the figures you're given.

The first home buyers grant only applies if it is your 'Principal Place of Residence', so you would need to live in the property to claim the bonus.

Depreciation is your friend! Every year when tax time is coming close, arrange a Tax Depreciation Schedule to be prepared by a qualified quantity surveyor ($500 to $600 cost – tax deductible) and claim depreciation in your tax. The main factor behind many of our client's choice for buying off the plan is the tax benefits that come with depreciation.

Before you invest in anything… you need to decide the type of investment you need. With property, do you want something that will be negatively geared (i.e. the expenditure is higher than the income generated and the losses claimed back through tax), neutral (no loss, no gain in income/expenditure until sold) or positive cash flow (minimum outlay, more income than expenditure).

I'm not a fan of flashy showrooms for off the plan purchasers. I have clients send me along to have a look for them after they've met a 'lovely' salesperson on the weekend and been 'wowed' by the 'great opportunity'… but if it sounds too good to be true… it is.

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Kristin Simondson
Peter Barnes Real Estate

Hi there

Welcome to the forum.

Some good advice above.

I'll keep my comment simple – off the plan and 42m2 in the current environment doesn't sound like a good investment to me.

Cheers

Jamie

Hi Firstinvestment24,

Now that we've shot you down we've probably made you feel a bit disappointed.  But we're a friendly bunch that genuinely wants others that can be bothered trying, to succeed.  Have you considered attending some local knowledge-sharing seminars, where you can watch guest speakers and also chitchat with oher people that are investing in VIC?

The APN meetings are monthly in Blackburn.  A good spot to get your head into a successful property investing zone.  http://www.activepropertynetwork.com.au/

Generally it would be awesome if you could retrain your brain to not just think "just buy a property" but instead "what kind of property should I be looking for, and what can I do to it straight away to make it worth more money?

Best regards

Jac

Firstinvestment

To approach your idea of a good investment you need to assess the three main market figures

Market Demand
Market Price
Product saleability

Market Demand is literally what is needed in the market at any particular point in time. In a tight market you'll find that even 1br studios get rented and sell because people just need a space. In a slack market however .. these may be significantly harder to rent out simply because the other options will be competing for the same dollar. In an oversaturated market .. no-one needs the lower end .. simply because there are better options to choose from.

Market Price ….. you have said HE thinks the property will rent for $450 per week. Is he the market now? You'll have to make your own judgement on whether the product actually fits into that market bracket and whether it remains a reasonable price. That means finding REAL market comparisons to your property to assess what it can be rented at. Its a bit of homework but if you are staking your hard earned money on it .. you want to know.

Product Saleability … if its a bad egg .. it doesnt change. If the bedrooms are too small .. the bathrooms badly placed .. and the views are of carparks and toxic waste dumps … you arent going to find a person to buy it at any price. Make sure the place is light without needing artificial light to brighten it up .. that the bedrooms are reasonable size and well placed and there is shopping facilities within easy WALKING distance.

Your product in demand .. is your sale in the future.

Matie I've gone with Geelong.  Solid proven capital growth, yields above 6%, and massive rental demand.  You can have yourself a brick house there for $200k. 

No need to be a property snob.  A dollar earned in a regional area buys the same loaf of bread for you that a dollar earned in Toorak would.  No point having one of a zillion identical apartments all lying empty.

Negative gearing??  Pfff.  A loss is a loss is a loss.  Why would you deliberately sabotage yourself?  I am happy to put my hand in my pocket for maybe $50 a week for the first year, but after that I want the property to pay for itself so I can get on with buying another.

How do you feel about paying for a gym, swimming pool and virtual golf for your tenants AND giving them a view to die for. Your my sort of landlord!

Seriously though, all the advice above is great. With highrise apts you have one that looks and feels like 100 others right next door. If you need to sell in a hurry, it's likely that other owners do as well and depending on circumstance, may discount more, leaving you where?  Apts are great in small boutique buildings of 8 or maybe 12 – no more, in my opinion.

The other great advice already given, was look for an IP that you can add value to that is well within your loan capacity, not on the limit. This way you are mitigating your risk and taking control of the market by the value add, not waiting for it to add to your bank balance by itself, which in these times is unlikely.

Ian
http://www.theblockblog.com
Free Property Investment Info, Tools & Resources for Investors with A Sense of Tumour.

Starting small may benefit you in so many ways:

–          Easier for a $100k place to grow in capital by 10% than a $1M place;
–          Lower repayments, thus quicker to build savings and paying less cumulative interest to the bank;
–          A small increase in rent will change the ROI significantly more than for a more expensive house;
–          Have extra capital ready to take advantage of a new opportunity;
–          Etc.

A significant portion of my mates are offered $500k+ from the bank and immediately go and purchase nice apartments in the city. Only prayers and their parents deep pockets will help them when interest go up. 

Hey firstinvestment24 you really need to meet some other people that are investing.  Having your broker as your only investing friend isn't ideal.  Seriously look at going to a few APN meetings and making some brand new buddies. 

Where are you located?

FirstInvestment24,

The most important rule of investing wisely is timing. There is no point taking on a stock at its highest level ever .. and hoping it will go higher. And then complaining loudly when it resets its price to reality. And then waiting for a clawback so you can just break evens on the stock.

Your current issue is timing.

Thats where your best of intentions are the wrong decisions for the time.

Without bringing up graphs and statistics that other people on this forum have, the evidence is presented that MOST governments are printing money to stem this loss of movement that they are suffering at the moment.

Printing money causes inflation. And we are about to experience a whole lot of it .. in a very short period of time.

How does that affect your strategy? It means that holding or saving money is not only pointless .. but dangerous. That means term deposits and bank accounts become quick losses, not of written value, but PURCHASING POWER. That means you lose big if you are sticking money in a term deposit.

Whereas OPM (other people's money) works in the other direction. You borrow with bank or vendor terms .. you are taking what should be a high liability and thanks to this rapid inflation .. make money on holding an asset while the actual money depreciates around you.

You havent seen it happen within your lifetime, most likely. I happen to have seen it at least twice, once in 1973 and again in 1982. Its a rapid change and it devalues savings and everything ends up costing more.

You need to make choices that are related to this chance timing, to make smarter decisions for your long term fiscal health.

I am in the west, send me a PM with your contact details if you like