Advice on investment strategy please

[doobee]

Hi, am new to this forum but am humbly seeking advice on how to next invest in my porfolio.

Currently I have 3 IP in my portfolio. But have made mistakes in the past and am just starting to learn more about property investing.

Financial situation as follows:
I have $500k in equity from existing IP's.
I also have borrowing power for another $1.2m on top.

So where to go from here?

My thoughts are to buy house with land. As I am not too keen on apartments. I feel there will soon be an oversupply which will affect both yield and CG in the long run. I feel safer with house and land. And I am also more comfortable buying within Syd, or just outside, somewhere I can go see the place easily, rather than interstate or too rural.

Questions is whether to buy:
1) one property worth $1.2m and hold but most likely w v low yield,
2) two $500k properties w better yield and possible future CG
3) even cheaper places but buy more?
4) invest in a larger piece of land (eg.1500m2) with development potential, hold for now and in future when funds allow to develop, though I have no experience in this field.

Any feedback/advice/guidance will be highly appreciated!

 

[D.T.]

When and how would you like to retire?

 

[doobee]

When and how would you like to retire?

Say in 20 yrs time, and of course would be nice to be debt free and living comfortably.

 

[stumpie]

Say in 20 yrs time, and of course would be nice to be debt free and living comfortably.

doobee

work out how much you need to retire with e.g. 100 or 200k etc
then you can work backwards on how much unencumbered properties you'll require.

 

[superAndrew]

Questions is whether to buy:
1) one property worth $1.2m and hold but most likely w v low yield,
2) two $500k properties w better yield and possible future CG
3) even cheaper places but buy more?
4) invest in a larger piece of land (eg.1500m2) with development potential, hold for now and in future when funds allow to develop, though I have no experience in this field.

1) Never put your eggs in one basket.
2) & 3) Personally I don't pick one strategy since it restricts my choices in properties. I rather focus on finding good properties (yield, potential capital growth, etc). So an example could be that you buy one $500k property, 2x $250k, and one $200k.
4) Yes, this could be one of the properties but not the only one. Don't forget rule number one.

Andrew

 

[Mitch1]

1) Never put your eggs in one basket

Andrew

This comment has me curious as this is exactly what I am doing.
purchase incl. stamp duty/legals/town planner and so on up to demo approval
is 795K for 822m inner city/Herston (beside transport/hospital/university)

lodging for multi unit build ball park figures give a gain of approx 18% for 9 units to 30% for 13 units, depending on DA outcome. ( gain/total costs x100)

plan is to hold all units (strata titled, just in case) and rental return on total purchase/build cost varies from 6-6.7% (depending on units built)
I also worked the figures out on slightly lower than current rent in market and on 50wks to be a little conservative) and this is a gross figure so no rates etc

I will take a mortgage out on my currently unencumbered home, plus almost total cash assets and borrow remaining sum so effectively, everything we have is in this.

could currently sell for 1.1-1.2M now due to demo approval so 30%+ gain but want to do the above because otherwise we are back to the drawing board again and starting from scratch looking for something with a more diversified
approach.

why would you recommend against something like this?

 

[yee3890]

Questions is whether to buy:
1) one property worth $1.2m and hold but most likely w v low yield,
2) two $500k properties w better yield and possible future CG
3) even cheaper places but buy more?
4) invest in a larger piece of land (eg.1500m2) with development potential, hold for now and in future when funds allow to develop, though I have no experience in this field.

Any feedback/advice/guidance will be highly appreciated!

In depends what areas you are buying and what is your financial goals.

 

[superAndrew]

This comment has me curious as this is exactly what I am doing.
purchase incl. stamp duty/legals/town planner and so on up to demo approval
is 795K for 822m inner city/Herston (beside transport/hospital/university)

lodging for multi unit build ball park figures give a gain of approx 18% for 9 units to 30% for 13 units, depending on DA outcome. ( gain/total costs x100)

plan is to hold all units (strata titled, just in case) and rental return on total purchase/build cost varies from 6-6.7% (depending on units built)
I also worked the figures out on slightly lower than current rent in market and on 50wks to be a little conservative) and this is a gross figure so no rates etc

I will take a mortgage out on my currently unencumbered home, plus almost total cash assets and borrow remaining sum so effectively, everything we have is in this.

could currently sell for 1.1-1.2M now due to demo approval so 30%+ gain but want to do the above because otherwise we are back to the drawing board again and starting from scratch looking for something with a more diversified
approach.

why would you recommend against something like this?

There is nothing wrong with your development. Personally I would always have back up funds and never go full out on one investment. Hence "Never put all your eggs in one basket". Especially since doobee said this:

Currently I have 3 IP in my portfolio. But have made mistakes in the past and am just starting to learn more about property investing.

Have you done property development before or is it your first time?

You can estimate anything and try to manage the project the best you can but there are a lot of things that are out of your hands that could happen.

It's important to have a sensitivity analysis for your development model. It will give you an indicator of how bad it could get and helps you to have a plan in place to handle the situation.

Andrew

 

[Mitch1]

There is nothing wrong with your development. Personally I would always have back up funds and never go full out on one investment. Hence "Never put all your eggs in one basket". Especially since doobee said this:



Have you done property development before or is it your first time?

You can estimate anything and try to manage the project the best you can but there are a lot of things that are out of your hands that could happen.

It's important to have a sensitivity analysis for your development model. It will give you an indicator of how bad it could get and helps you to have a plan in place to handle the situation.

Andrew

this is a first time, so yes, lots of unknowns
I have kept aside some cash assets (50K+) included a contingency of $150k
and added 3mths to holding costs
I have also underestimated end val by 30k per unit (based on current sales)
and rental yield by $30 per wk as well as 50wks instead of 52wks

so based on the above, I technically am not putting all my eggs in one basket???

I do still expect to have other unforseens that may reduce the current yields yet! Still seems viable though.
it will come down to a builder not declaring bankruptcy/using a project mgr/good contract etc but they are risks everyone is exposed to so hopefully can contain that somewhat. from loan structure/contract pov

 

[superAndrew]

I can't specifically comment on your model since I haven't seen it but as long as you are prepared hopefully everything goes to plan if not better.

Just wanted to stress out that property development is totally different from property investment. It's a whole new game.

Andrew

 

[Mitch1]

and I haven't even played the other game before (except PPOR's to IP's when we moved)
lucky I like playing games, just as long as the project mgr knows the rules
cheers

 

[superAndrew]

and I haven't even played the other game before (except PPOR's to IP's when we moved)
lucky I like playing games, just as long as the project mgr knows the rules
cheers

It's good that you have a project manager