$450k budget. First IP. Where to buy in Melbourne?

[hawko79]

Hi all,

Been a long time lurker on the forums, gathering as much information as I possibly can.

Here's my situation:
I have $500k in cash and want to start making better use of it as its just sitting in a "high" interest savings account. My long term goal is to have $100k passive income from property through rent. Thought a first purchase at $450k is comfortable for me to get started.

I've read a lot about the various strategies people are using on this forum, but I think for a newbie like myself a solid buy and hold investment (with good CG) within 10kms of Melbourne CBD will be a good start on my property investing journey. I strongly considered employing a BA to help me for my first purchase, but eventually decided against it.

The suburbs I have identified are Elwood, St Kilda, Brunswick. Started looking around the Elwood area a couple of weeks ago. Anyone have any thoughts on these areas, or any other areas that I should be looking at with that budget.

As for resources, I have signed up for a 7 day trial with Real Estate Investar. Its $1970 for the yearly subscription, which is really expensive, but are there less expensive alternatives out there? I was interested in getting a shared subscription to PriceFinder but the thread seems to have died down. Does anyone have any good value suggestions for data sites?

Thanks in advance for your help. I have been stuck in an analysis paralysis stage with decisions regarding strategy and whether or not to use a BA. Your comments are welcome, just looking to move forward. Thanks in advance.

 

[Pins]

Terry Ryder did a Webinar yesterday on Property Observer on the Melb market. I think they'll publish a link today so look out for it.

What is your criteria? Why those suburbs?

 

[MelbGal]

If you have $500k cash don't put it all into one property I would be looking at several.

Those areas are OK. Here are my opinions, some may disagree...

Parts of St Kilda can be dodgy but there are nice parts. There are lots of apartments in the area and it tends to be a cheaper area to rent - lots of young renters from Europe so more of a transient population, may have more changeover in tenants.

Elwood very nice but someone told me it would be under water with climate change lol so that has always stuck in my mind. Otherwise a very nice area. Lots of other very nice suburbs around that side of town.

Have some friends that live in Brunswick, never really felt safe around there and less so now with all the reported attacks on women (same with Coburg and anything in that direction). Doesn't mean it won't be a good investment but just giving my opinion and that of other females I know. Prefer Brunswick East, Fitzroy, Fitzroy North, Collingwood, Clifton Hill, and further out Northcote, Preston if looking around there.

If you can share more re your strategy and what you are looking for then perhaps more people can assist..

 

[spludgey]

If you have $500k cash don't put it all into one property I would be looking at several.

I agree with this.
Also if you have $500k then you should be able to borrow a lot more than that. So if you were looking at residential, then you should be able to purchase properties of combined value of around $2M.
Personally (not saying you should do this, but it's what I would do), I'd look for positive cash flow properties, so that you get a bit of money in your pocket each week. A $100k/year cash flow is definitely something that's not unrealistic in the next ten years or so, but I'm not sure it will happen if you purchase close to the Melbourne CBD.

 

[hawko79]

Sorry, I meant to say that I would be putting down 20% and borrowing the rest for my first purchase. And then would be looking to buy IPs further down the track.

Obviously my strategy is to have passive income, which would indicate that I should be focusing on cashflow positive property. However, I want to buy my first IP in Melbourne because I feel that its a safer bet (closer to home etc). I think its almost impossible to get positive cashflow in Melbourne at the moment (happy to be proven otherwise!).

Pins/MelbGal: I identified these areas as they are close to CBD and should have strong growth prospects because of that. Also, I shouldn't have any problems getting tenants for these areas.

Thanks again for your feedback, much appreciated.

 

[norwoodman]

Is buying based on the fact you can drive past the property really a sound strategy for choosing a place?

 

[HD_ACE]

Have you got a ppor? Debt against it?

Cheers

 

[hawko79]

norwoodman: I guess if/when things go wrong then its easier to address those issues if you are reasonably close by. Also, if i was to buy interstate, it would take more time to get to know the area properly.

HD_ACE: No PPOR, no other debts (just credit cards which i pay on time etc).

Thanks again.

 

[2jzzzz]

What about inner west, south west? Williamstown, spotswood, south kingsville, altona north, altona, altona meadows?

 

[James Bond]

Is buying based on the fact you can drive past the property really a sound strategy for choosing a place?

I personally believe that if you are planning on building a multi-property portfolio, then having your first one or two within a short drive is no bad thing. Not necessarily in your own suburb (!) but say within 30 mins drive. Once you get a bit more experienced you can buy further afield.

Thats what I did anyway!

JB

 

[Brady]

I personally believe that if you are planning on building a multi-property portfolio, then having your first one or two within a short drive is no bad thing. Not necessarily in your own suburb (!) but say within 30 mins drive. Once you get a bit more experienced you can buy further afield.

Thats what I did anyway!

JB

My first property was 20mins drive, but that was irrelivant. Didnt buy because its close.

Infact I've been there maybe 3 times in 18months.

Once to show a tradie (who is a mate) what I wanted done, didnt really need to be there. Was more so to see my mate.

Other two times was a drive by just because and really that was pointless as well.

All three times didnt even go in.


Other two properties are interstate, have never seen them before.


Paid for B & P inspection, got different agents opinions, ticked my boxes for my purpose so sold. Dont need to see them, might have a look one day

 

[strongy1986]

My first property was 20mins drive, but that was irrelivant. Didnt buy because its close.

Infact I've been there maybe 3 times in 18months.

Once to show a tradie (who is a mate) what I wanted done, didnt really need to be there. Was more so to see my mate.

Other two times was a drive by just because and really that was pointless as well.

All three times didnt even go in.


Other two properties are interstate, have never seen them before.


Paid for B & P inspection, got different agents opinions, ticked my boxes for my purpose so sold. Dont need to see them, might have a look one day

Hmm, I looked at a place on the weekend that was in a great suburb but unfortunately it was down the bottom of a hill and was a damp location. Interior walls were actually wet in places
Wouldnt of seen this if I didn't go look

Off that topic Brady, I've been watching Adelaide and it appears to be sneaking under thee radar. Bugger all stock on market in a lot of the coast suburbs
Could surprise

 

[spludgey]

Sorry, I meant to say that I would be putting down 20% and borrowing the rest for my first purchase. And then would be looking to buy IPs further down the track.

So you have $100k in cold hard cash? This is not as great a position to be in as $500k, but still very good to make a start.
Personally, I would buy properties totalling a value of around $750k (90% LVR) that have high yields. You would have to pay LMI that way, but that can be capitalised on top of the loan and should total just under $10k.

Buying three crappy properties requires much more work than buying one reasonable property, but in my opinion this aggressive strategy is a better starting block.

But obviously each to their own and you shouldn't do anything that you can't get comfortable with.
A good investment that you don't like is a bad investment.

 

[hawko79]

So you have $100k in cold hard cash? This is not as great a position to be in as $500k, but still very good to make a start.
Personally, I would buy properties totalling a value of around $750k (90% LVR) that have high yields. You would have to pay LMI that way, but that can be capitalised on top of the loan and should total just under $10k.

Buying three crappy properties requires much more work than buying one reasonable property, but in my opinion this aggressive strategy is a better starting block.

But obviously each to their own and you shouldn't do anything that you can't get comfortable with.
A good investment that you don't like is a bad investment.

I meant I have $500k cash, but was intending to purchase a $450k property putting down a 20% deposit and borrowing the rest.

I'd like to get cashflow positive, but I guess I'd have to go regional, which means I cant get to know the area as well as I can if I started out locally.

 

[Brady]

Hmm, I looked at a place on the weekend that was in a great suburb but unfortunately it was down the bottom of a hill and was a damp location. Interior walls were actually wet in places
Wouldnt of seen this if I didn't go look

Off that topic Brady, I've been watching Adelaide and it appears to be sneaking under thee radar. Bugger all stock on market in a lot of the coast suburbs
Could surprise

I would hope that if there was some damp that the building inspection would pick up on this, along with moisture can offend come pests so again hope they would of picked this up. As a last resort the different potential agents that I get to look at the properties would hopefully mention this as they would be the ones trying to get a tenant into the property.

Well I can tell you that I'm a personal lender for one of the big4 and I've been extremely busy for 14weeks. That the last 14weeks I wrote just as much business as the first 6moths of last financial year. Have worked 50hour weeks every week just keeping up with demand.

From brokers I've spoken to (clay from here being one) they have told me that they are the same.

Agents I've spoke to tell me that markets are improving, more so due to vendors being more realistic with price and those looking are now thinking its a good time to enter the market.

I have noticed that stock I was watching in the Christies downs area has moved or low stock as I'm not getting many email alerts for my saved searches. Whereas 6-12 months ago I was getting plenty with decent stock on offer.

I'm looking to purchase a development site in 6months, but watching the market it's tough the the entry point I want. Blocks are selling $30-50k above mine and the agents expectations.

Hopefully able to snap up a good site nice and early. Have a few clients who develop and they are finding it hard. Missing out on several sites, only managed to get his list property as he bought it the day it came on the market.

 

[Brady]

I meant I have $500k cash, but was intending to purchase a $450k property putting down a 20% deposit and borrowing the rest.

I'd like to get cashflow positive, but I guess I'd have to go regional, which means I cant get to know the area as well as I can if I started out locally.

Besides getting a general feel for what's happening by walking around, you should beagle to get to know the area without actually being there.

- council website for development plans, business development
- speak with multiple agents to get opinion of area, I usually speak with property managers as they usually will be a bit more honest of the areas as they aren't selling properties in the area. Is easier for them to have a better quality property to manage
- SQM research for vacancies, abs for population growth, realestate.com for comparable properties for sale and rent
- google maps to see the neighbours houses for possible developments, street view for bad neighbours maybe bomb cars out the front
- heard of people ringing the local police and asking for info on the bad areas
- abs for population growth

Just some of the things you can do without being physically there.

What more would you like to do?

 

[Jake Milne]

Okay so let's look at your long term goal... $100,000 in today's money of passive income from property in XX years.

Considering that (generally speaking) property yields about 5% in most capital cities you're going to need +$2,000,000 of property owned outright or $4,000,000 - $5,000,000 of property with a variety of LVR's against each asset.

So you could simply say you're going to acquire 12 properties at $450,000 over XX years, after which you'll either keep and pay down or sell off assets to reach your desired income. The problem you will face along the way will be inflation and as such you'll actually need to increase your purchase prices as time goes by, but I digress...

To get to that goal $100k within XX you're going to need to focus on rapid acquisition of property. There are a variety of strategies to do this which I'm sure will be talked about further by others.

The basic keys to rapid acquisition are:
1. Compounding Capital Growth (CCG)
2. Add Value (Reno, Paper gaining and Development)
3. Buying below market value

The basic limitations to rapidly acquiring property are:
1. Serviceability (Gearing, Cash flow, Risk)
2. Finance
3. Market forces

So essentially you want to focus on a property that will give you all three key components with a focus on growth (as that's the strongest performing aspect) whilst enabling you to mitigate the restrictions and limitations aforementioned.

The best way to achieve this is to:
1. Buy in an area predicted for strong CG (Elwood and St Kilda are good)
2. Buy something that can have value added to it.
3. Buy an off market property so you can negotiate a below market price.

Then once you've found a short list of properties that suits the above focus on mitigating the restrictions by:
1. Maximising rental income. (Renovation, multiple renters, short stay accom, etc)
2. Maintain a conservative LVR (less than 80%)
3. Purchase in areas with proven histories.

As you grow your portfolio you'll come to understand that managing the overall growth is quite complex and there are a lot of factors and details to be managed. The more tenacious and hands on you are the more success you'll likely achieve.

I think your initial budget should be close to $550,000 rather than $450,000 in Melbourne. Even though you're spending more you're actually being more conservative due to the increase in quality...

As far as data goes, just by your investment magazines, they have the basics.

Get a good mortgage broker, Jo Attard & Co or Sage Lending are two I'd recommend. They can give you access to special property reports.

Lastly I cannot stress how important it is to have the correct financial structure in place. DO NOT borrow through your bank, use a good broker. Also, once you've started to build your portfolio, enlist the help of a good financial planner and accountant that can help you look after the details.


Good luck

 

[2jzzzz]

Can't agree more with the broker part. Don't even talk to a bank, let the broker win your business and earn a better rate.

I have used Provincial Home Loans, great people and very good discount.

 

[hawko79]

Thanks again for your responses everyone.

Any opinions on an apartment in the inner city vs a house in the eastern suburbs?

With the new Eastland development and train/bus station upgrade happening in Ringwood, would that be a good place to look for a house with potential for subdivision?

Thanks again!

 

[The Y-man]

I personally believe that if you are planning on building a multi-property portfolio, then having your first one or two within a short drive is no bad thing. Not necessarily in your own suburb (!) but say within 30 mins drive. Once you get a bit more experienced you can buy further afield.

Thats what I did anyway!

JB

Agree - we did that too, in case we had to live in it! (We were renting and our first IP was intended to be a ppor).

Also, when it's close by, it is easier to keep and eye on the local market (reasons for selling, recent prices, problem areas that are not easily observed from "outside", ease of getting to opens in the area etc)

The Y-man