Newbie - Help with PI questions

Hi all.
I am new to this forum and new to Property investing. In the last 6 months I have attended free seminars (you know the kind!!) and managed to escape with my bank balance intact. I've gone through this forum with its wealth of info and also gone through a few of the bestsellers on PI. I am on a steep learning curve.
I nearly put my money down on a 350k negatively geared apartment in St Kilda area but opted out after reading about the positive cash flow PI.

I would like help of all you fellow forum members on the following questions, which are by no means exhaustive.

A I find that it would be very difficult for newbies like me to get their hands on a positive cashflow property in the present climate. I see from a poll in a separate thread http://www.somersoft.com/forums/showthread.php?t=14014
that over 66% of forum members are investing in capital cities. I guess all these would be negatively geared. Does this mean NG props are not as bad as projected by proponents of pos cash flow PI. I am paying highest marginal Income Tax and so can benefit from tax deductions with NG PI.

B For max capital gain I hear one should buy within 10km of CBD. What are the best suburbs in your view to buy PI today.

C I have been looking at units, townhouses and apartments in low rise bldgs. I know that apartments in high density complexes are bad news for investing. What do you recommend as the best form for PI - units, townhouses or apartments.

D Are there any red alerts for buying off the plan. Can independent evaluation be done for OTP purchase.

E Are there any red alerts for buying through companies like Heritage Financial Group or John Hopkins Group. I appreciate that there is no substitute for doing your own groundwork and am willing to do it.

Apologise for the long post and the list of questions but I just want to be well armed before jumping into the PI arena with a little help from you all.

Great forum. Thanks in advance.

Cheers!!

Hi Renovice,
not sure what books you have read but, I think as the market stands at the moment you are looking in the wrong direction.

I try not to advocate any products, so go to the Library and borrow "7 Steps to Wealth" by John Fitzgerald.
Only go down the Unit/Apartment road if you stand to get a large discount on the market price (10% or more), they will eat up your income faster than houses. Remember you only get 50c back from every dollar you spend on yearly costs.

cheers Bicko

These are my opinions on your questions:

A) Most of us here own property in capital cities, true. This doesn't mean that we are negativly geared. Whilst it's hard to buy positive geared property in captial cities at the moment, it wasn't so hard 5 years ago. Eventually rents will increase and more positive geared oppertunities will become available. It's all part of the cycle.

B) The biggests losses being made at the moment are probably within 10km of the CBD. The 10km rule is one promoted by investment companies. When I started it was 5km, then 7km. The reasoning is that people want to live close to where they work. It's actually quite a good rule, but it may not help you to make the best buy at this point in time. The inner suburbs are also more crowded and expensive. They're very hard to afford these days, so there's fewer people who can buy property in these areas. You might want to consider that people also want to live close to schools, shops and public transport.

C) The thing that gives capital gains is land value. How much of the purchase price is for the land and how much is for the building. Units and townhouses usually have lower land value than houses on a full block. Land goes up in value, buildings go down in value (which is why you get depreciation on the building).

D) OTP purchases can work very well, but you've got to be very sure that it'll be worth more than what you paid for it when you settle. Many people who committed to an OTP purchase in the last two years are facing massive losses. Read the newspaper, there's usually a story at least once a week talking about this sort of thing.

E) If someone else is doing the research for you, make sure you trust them completly. They may point towards all the money they've made for people in the last few years, but ALMOST EVERYBODY has made money in the last few years. The exception is those who paid too much in the first place. You'll be far better off if you do the research yourself. Independant valuations can (and should) be done for any purchase. If the person selling you the property is also providing the valuation, it's not indepenant.

I think you did a good thing not buying a negative geared property in St. Kilda for 350k. There's plenty of appartments in St. Kilda which aren't even attracting bids of 200k and they've been recently renovated! It's very easy to buy a negative geared property, you just have to pay too much!

At this point you should probably sit back and continue to do a lot more research. Free seminars are a good way to get an introduction, but they always have their own agenda - to make money for themselves. Find an area you like, go to lots of open for inspections, go to lots of auctions. Get to know what properties in the area are worth, both for price and rent. Only then should you consider purchasing.

Thanks guys.

I am glad I posted the query. I would take your counsel and do a lot more research before going for it.

Meantime, this forum is hugely educating to newcomers like me.

Thanks all once again.