Change of plans

Hi brendon 

Welcome and we are all here to help. One thing I learnt from this forum is that you will get both positive and negative opinions in terms of the property market. Who is right? Well no one really, some people will make allot of money and some people won't in these times.  I'm only 5 years older then you and I sold  two out of my three investments  properties . Properties

has changed my life for ever, we are very comfortable finically. My family at the time said don't buy , it's bad to own properties but thank god I didn't listen to them. For me property does not interest me at the moment, but I invest in other things, I keep regular contact with this forum because I have met some really good people and the market is always changing so I need to ensure that my knowledge is kept up to date

Budget, learn about money, learn how to negotiate and learn to take rrisk team up with a good broker, Jamie or Richard ffrom here can help, get a good accountant  and a lawyer 

Also just because you live in Melbourne it does not mean you can invest in other states!!'

Now ladies you know I'll have to put you over my knee if you start to talk drivel. 

What they fail to tell you is that rather than confectioneries consumer goods have in the main depreciated not to mention your average property over the last few years. Statistically you have more chance of buying a property in todays market that will loose value rather than appreciate. If you do happen upon one that does appreciate it'll take on average at least 3 years just to recover your entry costs not to mention hold costs and heaven forbid you have to sell and cop exit costs.

What they also fail to mention is that term deposits are on average twice that of inflation. So given that over 5 years you're likely to see a wage increase or two hence save more and that while inflation is currently below 2% and term rates closer 4.7% my educated guess is that the odds on you having more in your pocket by holding and continuing your current path will be far more productive than burning up the property market with misplaced enthusiasm.

Oh and did I mention. Warren Buffet, one of the most successful investors in recent times key principle… the power of compound interest.

Stick to what you're doing, bide your time and keep on learning. The market is on the way down. You can make more not buying currently. There's going to be lots of opportunity in the next few years to nail cheap property if that's still your thing.

Aagh yes the old bottomed theory. Trouble is the trend doesn't agree with you. Maybe you think Brisy has bottomed because its been copping a flogging.

RP Data-Rismark December Hedonic Daily Home Value Index Results

National Media Release

Capital city home values fall over consecutive years, down -3.8%

in 2011 and -0.4% in 2012

So you would like to do a development, yet you acknowledge that it requires more cash then your current available equity. But then you go talking about putting your deposit down and getting cashflow from the property.

How about asking yourself what do you really want? Do you want a lump sum cashprofit or do want to have cashflow.

You could put all your deposit on one house and you could do a renovation on it and achieve a small cashflow outcome at the end of it. Or you could look to target a property that would make you a lump sum profit.

Easy question to ask yourself. In 1 years time would you rather turn that 50k into 100k? Or would you rather have 5k cashflow. Ie positive cashflow of 100 bucks a week. That's assuming you put all your money onto one property, most likely did some improvements to the property and picked a area with relatively high rental yields (could be regional) . I for one would be focusing on building my equity base up so that you have the cash to buy the opportunities that come up.  Which means looking for properties which would make a decent cash profit after sales. You could look at flips, buy renovate and sell, getting the DA on a land division and on selling. These strategies will require you to know your area/location of property inside out so when something comes up you can act with  speed and the confidence that after looking at sold prices in the area for the last 6 months etc you know your getting a good deal.

Here's a different idea. Don't have enought cash to do a development. Go borrow the money to do it. If you want to be aggressive or think that's your nature.

Lets be honest if you found a subdivision that you could do and just selling off the land would make you a hypothetical profit of 50k after all your costs. But you needed your 50k deposit to secure the property at 95 percent with LMI up to 97% and you had no money left to pay for the subdivision costs and mortgage for 12-18 months. Would you turn that deal down ? Why wouldn't you just go take a personal loan for the interest required/sub d costs required. If you couldn't pay the interest costs on the personal loan why not borrow a bit more to pay for that.

If you borrowed a hypothetical 50k on a personal loan fully drawn at 15 percent,  that's 7.5k interest for a year.

Your still making a profit after costs and interest on the personal loan of 42.5k.

So what would you do? Some might say that's risky and you should save up the costs for the subdivision.

But in 2 years after you've saved up that money. How many opportunities would you have missed. Food for thought mate

Wilko

I often think that when I walk past the Lotto store. But then I say to myself well there's 100% chance I'll still have my $50 if I do nothing, a 0.000002222222222222222% chance I'll win the big one and if I buy and don't win a 99.99999777777778% chance I'll have zip.

wilko1 wrote:

Well to maximize his chances of winning the big one freckle he should put $50,000 on the lottery and then he's just increased his chances of winning by 1000  

That's improved the odds to 0.1111111111111111% Boy now you're talking!

Perhaps you could create a syndication with advertising of "potential return of 70 million dollars, only $50,000 investment" get 10 members and now you have grand total of 1 percent to win.  I can see the people running to the phones now 

One of the great challenges when you start out is not only the many and varied options you can develop but what is most often lacking is how to evaluate risk and match appropriate risk to market conditions. Wilco's proposal is a legitimate play but it is a high risk play and one you reserve for hot markets.

Melbourne and Victoria in general is a cold market so you need to develop more conservative strategies to play and survive in that market. Markets like Victoria probably offer the most difficulty for newbies simply because they don't know how to mark risk to the market realistically.

As a new kid on the block you want to reduce risk where possible. For example the Sydney market offers far less risk than the Melbourne market. Start slow while you work the kinks out and progress up the learning curve.

You can have the best of both worlds brendogs. Im gonna say its a pretty easy solution just develop property for positive cashflow. Buy a house, build a couple more houses to go with that house on the block, sell a couple keep 1, positive cashflow. Life shouldn't have to be hard.  But to get to that stage, you need some money!