Change of plans

Hi Brendon,

I know its a bit of a cliche response but it is honestly hard to answer that question with the accuracy it deserves. 

It is dependent on a number of factors. What type of investor are you? Are you a passive investor? I have a lot of buyers (particularly overseas buyers) that come in and want a brand new unit with minimal ongoing maintenance. They are not interested in renovating, etc. 

Or are you an aggressive investor that has the ability to dedicate time and effort into the investment? For example, by way of renovation, subdivision, etc? Calling the local council, understanding zoning, policy, etc. 

What does your cashflow look like? Can you afford negatively geared property for the sake of strong capital growth potential? 

Best to work with a 'team' of people, accountant, broker/banker and explore the option. 

Whatever you do please do the numbers – they will never lie to you.

Regards

Shahin

Hi Brendon

If you have started eyeing off rural areas, you need to decide just how rural you are prepared to go.  You need to work out if you could hold onto the mortgage in the event of a vacancy, and how long it would take you to offload the property to a buyer if you had to.  You need to understand the demand for rentals in the area.

It would be preferable you look at an area that not only had yield but also growth.

Should you sink all your cash into one property or split it into two… well… so many factors in that decision.

Should you put all your money into one property in an area with pretty good yield, growth, and demand, or split it into two and buy two properties in areas with lower demand, yield and growth?  I think you can see what I am getting at.  On one hand you want to speed up your investing, on the other hand, how much risk are you prepared to take on?

You are only 23 years old.  You could very easily just buy a property every 3 years and end up with plenty of property to live off in your old age, without compromising on having some expendible income for fun along the way.  Mortgages are long-term things.  You can tighten your belt for a year or so, but can you tighten your belt for the duration of a mortgage?  25 years?  Probably not.  You will probably want to go out with your mates once or twice in 25 years.

Don't get yourself too stressed … yes, the property ladder is an extremely good avenue for generating wealth.  Location of property is important, but it doesn't mean the property has to be on the sand at Bondi Beach.  Location can be achieved in some suburbs by simply being near the shops.  Tenants love living near the shops.

If you have decided to acquire a rental, think about what services you would want to live near if you were a paying tenant.  Shops, transport, beach if there is one nearby…. and school if we're talking 3 bedroom house accommodation.

Brendogs, you seem a bit confused. You set out talking about subdividing then renovation then buy & hold but then you shy away from it all.

If you have a good team then I wonder why you have not purchased already?

Yes, the market is a bit bouncy in Melbourne- but it is a good time to buy.

I have been pondering responses to "when to buy"…. 

A lot of people get into the market "when the market is good".. or on the way up, then they pay too much and get burned.

If you are handy- start with 1 & do some renovations. You can have all the best team in the world but there is nothing like experience.

Do the math- yes it can lie- but I was taught at University- do the sums – and you think it is a goer- do the sums again- most likely you left something out of your assumptions.

Rural areas can be very hot and cold- hard to figure prices, hard to move and hard to rent.

I would see what your $50K can buy you in Melbourne after that Geelong as JacM seems to do – as a solid investment.

I know someone who bought in Norlane & Corio for $50K years ago- the ends of the Earth it would seem but try buying for $50K in those areas now.

Geelong has a lot going for it- not just lower entry prices.

Yeah bit of a weird post brendogs.

You talk like you are going to buy any minute, but in the same breath talk about how the market is and how you don't believe in hotspotting etc.

How much do you really know?

The lack of knowledge will hold you back, it will create doubt in your mind. But information overload – eg talking about he market being "restless" will also hinder you in making a decision. It sounds to me that you don't want to be in property at all.

Why do you say that you have an aggressive investing mindset? Have you done any property deals before? And if you are aggressive then why sit back and have a smaller gain through cash flow, rather than the larger gain, if you can handle the risk.

Don't take this in any way other than trying to be constructive, but your posts are quite contradictory.

Maybe you should tell us what markets you are actually looking at, and what make you think that they are restless. If you can pin point why you don't want to invest exactly it may help.

JacM and WIPM are also  spot on with their posts.

Cheers

D

Brendon,

You've been given heaps of great advice here from everyone, esp JacM's post.

Congratulations on getting started so young!  Most people your age are not at all in the investing mindset, so with many years in front of you, you are leaps and bounds in front already.  

Good luck on your journey!

Michelle

Good reply Brendogs.

It's not that I'm questioning your intentions but I was hoping that you had already questioned yourself about what you want to gain from investing in property.

There are excellent cash flow deals to be had. If you don't have room in your life at this stage for either the extra work that comes with developing or the extra cash needed in renovating then cash flow is a good safe option.

You could, as you say, buy something to develop later, you could buy something that needs a bit off work, that is returning a healthy positive cash flow now, but you could add more value in a couple of years.

Don't worry about the kick in the guts that you get from following a property and having it not work out, this happens. If every property deal was profitable, and quick and super easy we'd all be minted (cheers JacM).

Keep some positivity (borrow some of Shell's she is wonderfully positive and try not to get bogged down in what happened previously.

In the back of the magazines as people have said previously are suburb stats. What you can do to start trying to find suburbs that may have cash cows is to have a look at the median sales prices and the weekly rent. start by looking at suburbs in the price bracket you want to invest. (The median price is just a guide for you so you don't look at suburbs way out of your prices range)

Then you can look at the rents. If the sales price is eg $400k  and the rent is $400 p/w, it's unlikely it will be CF+. How ever if the selling price is $200k and the rents are $350 you are probably looking at something good.

Then you can begin to see if that suburb is worth pursuing. And to expand on Shahins post,  Does it have infrastructure and jobs. Hospitals, schools, major chain supermarkets, fast food, what about petrol stations? Has it got discount department stores like a Target?

What about roads and rails? I personally don't look at any suburbs without rail. It can be light rail, but the rail has to be in the ground, it's easy to change a bus route, not so easy with a train.

Major HWYs, are they under construction, maybe you will get a little gain by buying while the road is being built. Are there uni's within easy commuting distance.

It sounds like a lot, and there is WAAAAYYYYY more info that you will need to gather. If JacM or someone could put up the yield calculation that would probably help you too.

Hope this helps give you a kicking off point. As for your questions as to what to buy, only you can decide what to buy after researching you options. No one on here will be able to tell you what to buy, many have tried to get that answer!

Cheers

D

Here's a thought for you Brendon.

You keep doing what you're doing and I'll guarantee you'll have around $200k+ sitting in your hot little hand in 5 years time.

If you buy say 2 properties in that time my guess is you won't have anywhere near that. In fact you may have nothing or worse still even owe the bank (underwater).

The returns on property absolutely suck at the moment. It's tuff enough for hardened experienced investors to score in this climate. The risk you as a newbie investor face far out weight any potential returns you might make. Nobody ever went bust waiting so don't let others try and hype you up or convince you to act now etc. 

You're 23 and already on the right track. Plenty of time to dip your toes in the coming years. Personally I believe we're no where near the right time to jump into this market. When you learn patience you will have cracked 90% of investing. 

Gotta love the freckle! In a couple years he Will be posting told ya so!

Yeah but it'll be "I tol ya so" about something not related to property

D

Brendon, you sound like you've given your mind a pretty good workout and are aware of more property investing concepts than the standard newbie.  Spoiled for choice can be a paralysing thing.  What if you don't buy the absolute best investment on the planet?  Wouldn't it be awful if you only managed to nail the second best?

You get the idea.  At some point you have to decide that you are confident with the knowledge that you have, and that you are comfortable with the asset you have set your sights on, and get on with it.  If I had a dollar for all the times people said "oh if only I'd bought into that suburb back when it was cheap…"