Last minute jitters.

What a lot of you new investors are struggling with is understanding that you're no longer investing in growth times like the 00's but are operating in markets that for the most part are tracking sideways to down. Those few markets where growth still exists on average are precarious at best as conditions tighten.

Unless you have lots of wiggle room then investing in these times requires a more stringent appraisal of strategies. In your case Joey you are leveraging to the max on a CF- property in a sideways to down market with a high probability of negative CG growth as global economic challenges put pressure on Australian economic conditions.

Your financial profile, experience and investing approach is about as high risk as it comes. Your choice of the Illawara probably goes to lack of experience. This region is showing signs of rising unemployment and a transition away from resources to services. The only real driver in that economy is the Uni and given global challenges its impact may be constrained going forward. I don't see anything on the horizon that presents any compelling reason to invest in the region.

I tend to think you need to focus on building a stronger position for the time being. There's not a lot of point jumping into a market that is in all likely hood going to cost you wealth not increase it. You need to ensure your first property is CF+ and doesn't leave you overly exposed to market movements. With your current plan a 5% move against you would invariably see you in negative equity territory. In this climate it could take years for that position to correct while in the meantime it cripples you financially.

Some basic tips; 

• don't risk your grubstake (equity in PPOR) on high risk low margin plays
• avoid -CF like the plague or figure out how to make it CF+
• look for opportunities to build at least some equity in a new acquisition
• CG is 50% of the game – invest where there is potential for it

Didn't you say, "I am excited, but am starting to second guess myself in terms of getting my situation right from the outset and also wondering if i know enough. A bad case of Analysis Paralysis it seems."

And here's me thinking you might need a little further knowledge to help you clarify your thoughts.

Nothing wrong with buying in areas you know best and feel comfortable with. Note that while nominal rent may go up rental yield may stay the same. Yield is the return on the assets value. If its value falls and rents remain the same yield increases and vice versa.

If vacancy rates are 1% and yields 6% something is wrong. You need to be looking for yields of least 8%+

Wollongong for example and that's fairly representative of the region has seen no median house or unit capital growth for 10 years. That speaks volumes for any potential CG in a general sense. There is no substantive economic growth driver for the region. Don't confuse activity for growth. 

Sound reasoning but only part of the puzzle. If your using an IO strategy then you have to be able to push the assets value over time to improve LvR. That means an average CG of around 3%/pa. You can give this an initial shunt with a reno but be careful not to trade the reno revaluation for poor future CG because it makes the figures work today. If you can't get an average gain of 3% over the long term then the deals dead in the water unless somehow you're going to make rental growth work for you as compensation. You also need to recoup entry and exit costs in those CG figures as well

When you find areas with low to no CG over an extended period of time you have to question why you would want to invest there. This is where being a local can mean your decisions are being influenced by convenience and emotive reasoning.

Good luck with it anyway. I don't envy you.

This is a scenario where I would recommend that Joey ascertains the loan for the deposit from their current lender since she has paid LMI with the current lender. They can get valuation upfront with another lender but the val would need to come back at $500k for it to be feasible (I don't think it hurts getting a val via ANZ since they do modelled estimates a lot of the times).

Regards

Shahin

We are talking in generalisations because you haven't provided specifics.

7 – 8% gross yield is around break even and anything less you are on a hiding to nothing. If you can't find them you are either looking in the wrong places or your methodology needs tweaking or both. Over time you can develop a nose for good performers. It can take a little while to get the hang of this skill. It's one of the most asked questions, "Where do I find CF+ properties that offer CG growth?"

A reno recovers your entry exit costs for the most part upfront. You get to start off at a neutral point rather than a negative one and hope to recoup costs over time. It is helpful but not essential to a viable investment. Don't let that factor inhibit your geographical range.

If you can't find properties with 8%+ yield locally then that suggests problems with the area.

High CG increases over short periods are a red flag. It usually signifies a market driven by sentiment not fundamentals. Fundamentals are long term characteristics that underpin long term investments. Sentiment comes and goes like the weather. Beware of areas that have seen rapid revaluations. They almost always correct to the downside or trend line after a peak. The challenge is to find areas that are entering the growth phase. Urban renewal is generally a good sign this is occurring.

Beware of Port Kembla. It helps anchor economic activity but does little to drive it higher. It's always been in a constant state of change but growth has been minimal on average. It's a cargo port  in the main and given increases in automation does little to foster employment in the area. If anything higher heavy traffic flows will have a negative impact on some areas.

The wider economic picture for the Illawara is slightly negative given the 3 primary employment hubs, Port, Uni and Health are likely to see either budget constraints or volume falls as the global economic challenges put pressure on exporters and government funded service providers.

Anyone with a few dollars can be an investor but very few turn out to be very successful investors over the long haul. Only a tiny percentage of investors own more than 5 properties. These are challenging times even for the experienced guys who've built fairly substantial wealth over the last 2 decades. Most will have put significant effort into fortifying their balance sheets in the last 2 years. As a newby investing in these times is difficult because your learning the old paradigm of investing when times where idiot proof. You will have to raise your benchmarks to account for risk and take DD to a new level if you're to have any chance of getting up more than just a few rungs on the wealth ladder.