Hello all you informed people. I've been watching this forum from afar for a while, but am now at the point where I'm ready to start making some investments so want to get some advice on my situation and whether I am making the right assumptions.
Due to a recent property sale I am now in a position where I have $300k cash to invest. I can additionally get finance of up to $700k, and am looking at taking out an IO mortgage. I am currently renting and have no immediate plans to purchase a PPOR. I want to invest in property where I can achieve a good balance between positive cashflow returns and good potential for capital gain, with a view to reinvesting any net profits into an offset account, spreading into stocks or paying down the principal.
I have been looking at potential investment properties in some of the rural towns in NSW that seem to be experiencing growth right now (Orange, Dubbo, Tamworth etc) and wanted to get some views on whether purchasing an investment property here is a sound bet?
Also, does anyone have experience in investing in serviced apartments? Are rental yields, after taking into account all fees and charges reliably strong and are resale values likely to increase?
Appreciate any insights!
Hi and welcome aboard.
Personally, I'd stay away from serviced apartments. There's quite a few posts on the forum that discuss the pros/cons.
I haven't been up to speed with the particular markets mentioned but they have been on the radar for a while now – particularly Orange.
It's good to read that you're searching for growth – sometimes people on the forum get hung up on finding nothing but CF+ at the cost of very little or no growth.
$300k is a good start – spend it wisely and structure everything correctly.
Who worked out your borrowing capacity?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie, thanks for your feedback. Will seek out the posts that discuss the pros/cons of serviced apts. I'm potentially looking at a block of 4 units that are currently serviced but has the option to be stratad and leased. Any experience on that scenario also much appreciated!
My next step really is, as you say – spend it wisely and structure everything correctly. If you had $300k to invest now, what would you do?
My borrowing capacity was really just some indicative figures based on projected rental income on this block of units I mentioned, but I would need some further advice on that.
Cheers!
Hi,
You have sufficient capital to invest in commercial property. If you are keen for positive cashflow you should have a decent look at this area, the cashflow is higher quality than that from resi property as generally the tenant pays for upkeep and expenses.
Have a proper long term IP strategy in place. Do the cashflow analysis and see what the numbers look like. Do plenty of homework on each type of property type – i.e. Serviced Apartments, Studios, Metro vs Regional, subdivision, etc.
Let's start with Service Apartment – they have excellent net cashflow however I feel (not based on personal experience but based on the experience of my clients who have previous invested in serviced apartments) that the cons outweigh the pros. Here is a list on cons associated with serviced apartments:
1. Hard to finance – you are looking a lower LVR's than 'normal' property. Usually a lenders restriction on finance shows you the actual risk associated with the security
2. Valuation – if there is a fire sale within the block then you are toast when it comes to drawing equity to refinancing
3. Capital Growth – this one is a bit arguable but CG is much harder to achieve on these types of properties when compared to other properties.
4 units on one titled is again has finance restrictions to an extend however I do like them.
Also don't be careful about using the entire $300k upfront. It may make more sense either diversifying to saving some funds for future purchases. Again this will come back to the longer term strategy.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks for some interesting responses. It is clear that I do need to carry out more due diligence. I was attracted to the SA route due to the high net cashflow and the option to Strata them at a future date – but I need to understand what are the financial implications of doing so.
I hadn't considered commercial property, where would I begin with my research on that?
Essentially my longer term IP strategy is to build up a portfolio that will deliver a passive income that will ultimately replace a salary circa $150k. So any advice on how to start on that road is what I'm seeking now.
I hear where you are coming from. Maybe start with half a dozen strategies and research them, understand their pros and cons and start eliminating the strategies that do not work for you.
Also start understanding the tax and finance side of things as these are very important aspects of any of the strategies you choose.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
sharpe123 wrote:Hi Jamie, thanks for your feedback. Will seek out the posts that discuss the pros/cons of serviced apts. I'm potentially looking at a block of 4 units that are currently serviced but has the option to be stratad and leased. Any experience on that scenario also much appreciated!My next step really is, as you say – spend it wisely and structure everything correctly. If you had $300k to invest now, what would you do?
My borrowing capacity was really just some indicative figures based on projected rental income on this block of units I mentioned, but I would need some further advice on that.
Cheers!
No worries.
Borrowing capacity varies quite a bit between lenders so with some careful structuring and planning you might be able to push your serviceability further.
Keep researching – forums like this are a great free resource. There's also some good books out there that will keep you busy. You'll know once you're ready to make a start.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Desired income – 150k per year
Capital needed at 8% yield commercial property – 1,875,000
Solution – make $1.875 million.
Its like when a obese person asks how lose weight. Eat better, Exercise more.
Its the How and why should i do that are more pertinent questions. Information is everywhere, this forum is full of it.
Hi,
Here is the latest statistics, according to realestate(dot)com(dot)au and realestateview(dot)com(dot)au, for the 3 suburbs you mentioned:
1. Orange
– median house price – $349,000
– median unit price – $187,500
– demand – 4 people looking per house
– median age – 35
– weekly rent – $230
– weekly household income – $1146
2. Dubbo
– median house price – $267,000
– median unit price – $257,750
– demand – 8 people looking per house
– median age – 35
– weekly rent – $200
– weekly household income – $1052
3. Tamworth
– median house price – $479,000
– median unit price – $132,000
– demand – 3 people looking per house
– median age – 41
– weekly rent – $220
– weekly household income – $644
Personally, if I had to choose one out of the three locations exclusively, I’d go for Orange. But there are others, more promising in terms of rental yields and cash flow, like Darwin or Perth (rental yields of approx. 6%).
Cheers,
Emil
Sunbuild Invest
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