1st investment property - Victoria - up to $165k, cashflow neutral if possible

[DavidMc]

Hi guys,

My girl (with some wonderful help from Kristine!) is looking to buy her first investment property.

The max she can borrow is $165k. Not much, I know.

I'm trying to evaluation her best options:

- A 1 bedroom place in Footscray?

- A regional house; Ballarat or Mildura? An old house on a big block right in the middle of town, possible subdivide in 15-20 years.

- Student apartment in Carlton or Brunswick? (like the high yield but unsure about lack of control / growth).

I am also going to check out buying a cheap block of land ($40k) and building a small house on it $100k, although I'm unsure about this.

Any other options to consider? Or are all of these options substandard and should she put it off a year in order to save more to increase her capacity to say the $220k mark (whilst I don't think there is any need to rush I'm thinking lending is going to get harder before it gets easier).

What would you go for if this was your budget?

Being a first IP on a low income the closer to cashflow neutral the better, although still want the best growth prospects.


David.

 

[THEHEATH]

I'd go the flat in footscray. Lots of potential tenants, close enough to city, hospitals, schools, shopping etc. I think being closer to the city she'd be able to build up equity faster for the next purchase than the regional option. Personally I wouldn't go near any student accomodation.

 

[Propertunity]

I'm trying to evaluation her best options:

- A 1 bedroom place in Footscray?

YES. THIS ONE.

- A regional house; Ballarat or Mildura?

An old house on a big block right in the middle of town, possible subdivide in 15-20 years.

Not for her first one. That is more for a long term buy & holder / land banker. Might work - but she'll get bored waiting. Once she has a half dozen IPs under her belt, then maybe.

- Student apartment in Carlton or Brunswick? (like the high yield but unsure about lack of control / growth).

Depends on her personality but its not for me. If it is wrong for her, you risk putting her off PI for life (or a long time)

I am also going to check out buying a cheap block of land ($40k) and building a small house on it $100k, although I'm unsure about this.

There are 4 problems with this as a first IP:
1. If it actually comes together and works for her, she'll think this is THE way to make money in PI. Friends of ours did this 2 or 3 times and did make money. But got burned on #4 in a falling market. Although to be fair they were only doing it to sell and make cash.
2. Site costs are unknown until you get out of the ground.
3. Builders are still going broke. We had one go bust on us mid-way thru a build 2 booms ago.
4. Builders want progress payments. Interest is paid on the draw downs adding to holding costs during the build period.

I trust it all goes well for her. Kristine will look after her.

 

[buzzlightyear]

David, a few thoughts.

For her first property, I believe a modest, vanilla buy and hold is the best option. And, I believe it should be local or relatively close to where she lives. ie same city/town. I think it is important to be able to physically see the property. It connects you to the IP and your investing path. Anything more complicated, however much help you may give her, is probably a touch too early for her IMO.

As for your suggestions, that would mean something like the Footscray option. Although I would be surprised if it didn't go a touch more than the ESR. THEHEATH made some good points about the attributes of the property that are desirable.

As for student accommodation, definitely not in the initial or early stages of a IP accumulation. It requires to much initial outlay due to restrictive LVR's and I personally don't think you will see decent capital growth.

The regional option is an interesting but not for the first property.. I know Ballarat somewhat as I used to work there. If down the track this is an option, make sure you choose a period home with original features (eg cornices, fireplaces, original timber windows not replaced by aluminium ones) and close to Sturt Street as possible. I have no knowledge about Mildura.

Again your land and then build option, is probably maybe from the 3rd property onwards IMHO. Too early and too soon. But then she may very well be in the headspace to take on that type of project earlier than others.

 

[stumunro]

Footscray is my pick!

a) i love the area for potential / location
b) it already has but will continue to gentrify
c) is probably is the right price (though I haven't looked in the area in about a year)
d) is better then your other options for a first purchase IMHO. Definitely don't do student accomodation for the first purchase, at this stage you just want everything to run smooth - as buzz has mentioned.

When she understands property better and can get her head around the lending / growth versus cashflow concerns she can make that decision herself.


Good luck David

 

[Belu]

hold up guys, footscray is an interesting market.

Empire street, and the few streets around it, are all full of old post-war housing blocks. Whilst not a high-rise it might as well be, with the number of similar units in the same area, there is always 3-4 up for sale at any time.

I am not one to baulk at an investment in a lower socio-economic area but i have looked thouroughly at the area and to be honest that pocket wont gentrificate for a LONG time. rubbish is everywhere down the street, buildings are in dis-repair, it is almost like a commission area.

I think Footscray has a lot of potential, and when my GF is ready to buy in a few years we will definitely be looking there. But i would just be a bit careful about that pocket if i were you. Unless you can make a paper gain on signing and it is CF+ i would be a bit more picky.

Just my opinion

 

[stumunro]

I think Footscray has a lot of potential, and when my GF is ready to buy in a few years we will definitely be looking there. But i would just be a bit careful about that pocket if i were you. Unless you can make a paper gain on signing and it is CF+ i would be a bit more picky.

Just my opinion

With all due respect, I'm not sure I understand what you are saying. You will be looking at Footscray in a few years but don't recommend it in the short term? Why then but not now?

While I agree that you need to be careful what your purchase in the area, fundamentally you have proximity, transport, and culture.

Gentrification is inevitable and in my opinion has already started to happen with many government projects put in to invest money into upgrading alot of the area, as well as cleaning up the streets.

The same thing happened to alot of inner western suburbs in Sydney.

Consider comparable prices to anything within a 5km radius and I think you will find that affordability won't be there forever.

 

[Belu]

hold up, you quoted me but obviously didnt read what i said.

I said i would be careful about "that pocket" - meaning Empire st and the ones around it - not footscray as a whole.

Hence why i think Footscray is a good suburb but that I wouldnt buy in those streets unless i got a paper gain on signing or was CF+.

Can we calm down now? lol

 

[stumunro]

hold up, you quoted me but obviously didnt read what i said.

I said i would be careful about "that pocket" - meaning Empire st and the ones around it - not footscray as a whole.

Hence why i think Footscray is a good suburb but that I wouldnt buy in those streets unless i got a paper gain on signing or was CF+.

Can we calm down now? lol

Always calm Belu Sorry for mis-understanding what you wrote

 

[DavidMc]

Hey guys,

Thanks for your comments. That's what I was leaning towards too. Just wanted to explore all options for that price.

Footscray right now is a bit of a dive although Richmond was 20-30 years ago too (and some parts still are, those in proximity to the commission flats). I'll have to spend a day there and check it out (I'll check Empire street, thanks Belu). Might even get something for myself.

I was also thinking Bendigo as the region hasn't produced much growth since 03/04 and the long term trend is around 10% (APM). Median house is around $235k. I think it's due for some growth and that fast rail (1hr to Melb) should start having more of an effect soon.

Note Herron Todd White also put Mildura at the bottom of it's cycle.

Still interested in any other options you guys might have.


David.

 

[DavidMc]

Good Bendigo examples:

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105607424
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105641408
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105505976 ($169k nice unit right in town)
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105502157 (would prefer closer to town)
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105506013 ($150k for a house in a good location, maybe too much maintence though)

Note discounting of around 8% is common in Bendigo.

 

[units4me]

Have a look at this one.

http://www.realestate.com.au/cgi-bi...r=&cc=&c=76786404&s=vic&snf=ras&tm=1239421425

And it's only 1 hrs. easy drive from Melbourne's outer eastern suburbs (1 hr 40min. to city) in Victoria's fastest growing regional centre.

 

[Alex P Keaton]

Price Range: $150,000 - $165,000 7 km from Melbourne

wowowow

 

[jackstar]

Units for me, you must own a jet, ot that unit.

 

[units4me]

No, it's nothing to do with me or anyone I know. I just picked an example out of RE.com.

Re the travelling times, try the drive and see for yourself. Easy drive, four lanes the entire distance.

 

[newlywed1311]

Mildura resident here

Hi everyone,
I am a resident of Mildura, also looking to purchase my first investment property. Initially I was looking around town locally, mainly because I know this area quite well. Mildura has good diversification of employment opportunities, stable population grown and quite affordable. However, a more experienced property investor suggested that it just won't get the same capital growth that a capital city will get - hence I am looking wider. Problem is affordability for a first timer... Decisions, decisions.
I am more than happy to answer any questions about Mildura if any potential investors have any.
Cheers,
alwayshappy