Need advice with regards to property investment in Noble Park

Hi Sam,
Good on you for taking a look, and for coming on here and asking questions. It is way smarter to do that than to go ahead and purchase something and then tell us what you did. Why? Simply because there are way better ways to “start out” than to buy a new one-bedder.

Before signing anything, DO do a few things :-
1. Run your figures by one of our MBs to get an idea if you really are limited to “new one-bedders”.
2. Read the thread linked below – there are several posts, some of which will serve to give you a good idea or two about property investing. https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
3. Spend some more time just looking around in here – in particular, find the Training Centre on the Home Page and read through a number of the short Articles produced by Steve and Jason (and one or two others).
4. DON’T be in a hurry to “get into SOMETHING!” Spend some time getting educated before buying anything.

Welcome to pi.com too. We are a friendly bunch with your best interests at heart. Do pop back in to keep us up-to-date with “how things are with you” too.

Benny

Hi Sam

Welcome to the forum and I hope you enjoy your time with us.

A MB is a Mortgage Broker who arranges finance on behalf of clients

As Benny has outlined your first issue could be obtaining finance to any decent loan to valuation on such a security.

I am not aware of the complex but you may well find you can’t borrow much more than 60% of the purchase price.

Other investment risks to consider but finance certainly will be a biggie.

Cheers

Yours in Finance

I like the term “precrastinator” Pimobpi – nice one.

One of my favourite phrases is the old chestnut “If you think education is expensive, try ignorance!” I’m sure it was coined especially for precrastinators. :p

Also, can you please let me know what is an MB? How do I run my figures by an MB?

Sam, you have had a MB answer the question for you. Richard is Brisbane based, and there are others on here based in other centres. Though it is rarely necessary to have your MB resident in your city, it DOES help if you wanted to meet face-to-face in your early days. An MB is a very important part of most investors’ teams.

Though I am sure there are plenty of good MBs “out there”, I also believe that there are MB’s and MB‘s. Those on here are full bottles on all of the traps that await the unwary. I’d suggest you open the batting with one or another on here.

Good hunting,
Benny

I cringe when I hear the term student accommodation. Then I hear Noble Park a double cringe. However Student Accommodation in my opinion is bad investment. As Richard has said you will only get a 60% loan that’s if you are lucky and you will then have an investment that will be lucky not to go backwards.

So an ideal investment is one that will have the widest appeal to resell. So a standard apartment could also sell to an owner occupier.However a student apartment will only sell to another investors hence it has limited growth potential.

The best student accommodation are houses where they rent out the bedrooms. You get a great return however if the student market dropped you could always let it to a family or resell it.

Hmm, here we are 18 months later – I happened to be rereading this topic, when two comments from above fused together in my mind, and a huge lightbulb lit up !!!

Here they are:-

1. from the original poster – “From the start it is cash flow positive.”
and
2. from several reply posts – “…you will only get a 60% loan and that’s if you are lucky…”

Bing !!! On came that lightbulb.

Did it shine for you too, having read those two points close together?

For those who are newer, this is a very important point (often put to good use by those who are marketing OTP properties):-

“One of the main reasons it is cash-flow positive is because you have put down such a large deposit.”

So, ANY purchase looking like being a highly negative geared property can become cashflow positive if you only put down enough deposit. How much? Well, let’s see – we’ll start with purchasing a house that is looking like being negative geared right off the bat:-

Purchase price is $600k, and it will have expenses of (say) $10k pa for Rates, Insurance, Maintenance, RE fees, and other costs and then a mortgage (Interest Only) of $30kpa at 5% Interest Only. Rent will be $600 per week, so allow 50 weeks to get $30k in rent per annum. (You plan to use equity in your own home as the deposit, so your total mortgage is $600k). From those numbers you are going to be losing $10,000 a year (roughly $200 a week).

OK, so let’s pay more of a deposit – let’s say you had $50k in savings, so you put that down to lower your Mortgage Costs instead of borrowing that extra $50k against your home. That reduces your Mortgage cost by $2500 a year. Still $7500pa in the negative. Damn.

So instead, you sell the $250k you had in shares (watch out for Capital Gains?) then put $200k of THAT down as a deposit and don’t borrow against your house at all (the extra $50k hopefully covers any CGT). This reduces your mortgage to $400k and your mortgage interest drops to $20k per annum. Right at that point, your income and outgoings are in balance. Put more than that into the investment, and it becomes positive geared – finally!

BUT, you’ve had to put down 33% of the total cost to get to that – put down 40% (as in the original example) and yes, it will be cashflow positive by about $2000 a year ($40 a week – whoopee).

Spruikers conveniently leave that bit out when telling you how “positive geared” their investment property is going to be. They talk you into a 40% Deposit on a little apartment and massage your ego with stories of what a great investor you are going to be (to get you to sign the contract).

OK – you usually won’t need to put 40% down on a house and land. 20% is common as a deposit and not too hard to get this.

My main point was to show how you can FORCE any purchase to become positive geared if you only throw enough cash at it. Before taking that path, consider the poor return you might now be getting on all that cash you’re putting in.

And consider too the opportunity cost of releasing all of that cash. Will it prevent you from locking in some other screaming-hot deal that pops up if you’ve used up your cash to do something else?

In short, for sure any property you buy can become positive geared – but, at what cost?

Benny