Advice to 23yo wanting to build an investment portfolio

[cmack]

Hi Lynchy,

Thanks for the post and sharing your story, its great to see a bunch of young investors on here

I think what differs between you and I and our dealings with getting a bank loan and serviceability is your property was 340k mine was 500k (median unit price for suburb is 650k so this helps me), my property is an investment property and I have tenants signed up until oct 2013 (this income is included in banks calculation which helps me), I have a good savings history and now a good mortage repayments history.

I do realise the benefits of still living at home and will be working hard and saving hard until i am in a position to move out. Unlike in your story, my purchase and repayments have not prevented me from doing anything I have wanted.

I have not done any research into my next purchase as yet as my plan currently is purely saving, but I did do plenty of research into the property I bought and am still extremely happy with the purchase. Although for my next purchase I will place more emphasis on yield and not just location and potential for capital gain. As I have said... I'm always learning and happy to listen to anyone's opinion on here. Cmack

 

[Lynchy]

Great post, Lynchy, - good to see you made a profit from the property.

But just a little curious as to how you can justify calling the bank irresponsible for loaning you the money, when you lied on your application in the first place??

Regards Jason.

Good point I was 21 and wanted to be the first of my friends to purchase a property. The property was located in one of the most desireable suburbs in Perth so I was desperate to get in, so I lied. I made an offer without even consulting the banka s to whether I would qualify for a loan or not. The vendor was asking $429,000 and I put an offer in of $340,000, being my highest offer based on an online loan calculator. Fair to say I was a newbie

The repayments were 3 quarters of my wage at the time, I'd call that irresponsible lending from the bank. Because I worked for a large corporate client of theirs so I guess the loan manager pulled some strings. They based the loan on a purchase price of $385,000 (the valuation) with a loan of $312,000 and the difference was my savings when in reality that was far fromt he truth, I was just getting the property for under market value with minimal savings ($14,000 of which $10,000 was provided by my parents) and the $14,000 1st home owners grant

The 12 months I lived in the IP I was realllly struggling

 

[7smurfs]

Although for my next purchase I will place more emphasis on yield and not just location and potential for capital gain.

Capital gain with negative gearing was a strategy common during the boom period.

However in todays turbulent economic environment, most of us have tried to mitigate investment risks by going for neutral/positive cashflow + capital gain IP's

 

[sanj]

i still dont get how that was the banks fault

you bought a property that you:

a) did no research on
b) did not work out if you could afford
c) lied on the application



yet the bank was the irresponsible one?

 

[MTR]

Capital gain with negative gearing was a strategy common during the boom period.

However in todays turbulent economic environment, most of us have tried to mitigate investment risks by going for neutral/positive cashflow + capital gain IP's

Yes, this is a good point.

I found the biggest mistake I made when I started investing was accumulating property with no end plan. Just building debt with capital growth as the end goal. How many of these can you buy before you hit the wall and sacrifice your lifestyle.


I don't buy properties for growth anymore which does not mean I buy lemons either. I only buy properties that I can turn into cash cows by either developing, renovating etc.

Lesson learnt - balance your portfolio, too many negatives will really hurt sooner or later and "take some money off the table" a hard one when you get too attached.

Cheers MTR

 

[cmack]

Yes, this is a good point.

I found the biggest mistake I made when I started investing was accumulating property with no end plan. Just building debt with capital growth as the end goal. How many of these can you buy before you hit the wall and sacrifice your lifestyle.

I don't buy properties for growth anymore which does not mean I buy lemons either. I only buy properties that I can turn into cash cows by either developing, renovating etc.

Lesson learnt - balance your portfolio, too many negatives will really hurt sooner or later and "take some money off the table" a hard one when you get too attached.

Cheers MTR

Great post MTR!!
I think it would be a fair comment to say not many people would get things 100% right the first time. Can I ask what your end plan is now?

 

[Lynchy]

i still dont get how that was the banks fault

you bought a property that you:

a) did no research on
b) did not work out if you could afford
c) lied on the application



yet the bank was the irresponsible one?

I did plenty of research - Property was pretty much cash flow neutral WHEN RENTED, close to the beach, public transport, the city, fremantle and in a highly desireable, $million+ suburb and purchased below market value. As shown by 30% odd capital growth in 3 years I'd say it was a great purchase

I'm not complaining or unhappy with the bank or anything like that as I made a nice profit and with that profit I have been able to invest in something I never dreamed possible.

I'm just saying a $312,000 loan for a 21 year old on $50,000 - $55,000, partly comission based, who had never saved more than $5,000 was irresponsible...I do thank them for it though and lesson learned.

If they were to do the same in the current climate I would be very worried as any negative growth could leave the buyer in serious trobule

Edit: That reminds me, I should edit my signature

 

[MTR]

Hi cmack
Thanks for asking.
My end plan is to continue to accumulate properties that generate income. I was fortunate enough to retire from my day job about 5 years ago from my property investing.

When you are passionate about property I guess you never stop..... I just renovated my 8th property in Atlanta, GA, all generating over 20% gross yields and just purchased a development property in Perth where I will retain front property and build at rear once zoning has been finalised.

Cheers, MTR

 

[cmack]

Hi cmack
Thanks for asking.
My end plan is to continue to accumulate properties that generate income. I was fortunate enough to retire from my day job about 5 years ago from my property investing.

When you are passionate about property I guess you never stop..... I just renovated my 8th property in Atlanta, GA, all generating over 20% gross yields and just purchased a development property in Perth where I will retain front property and build at rear once zoning has been finalised.

Cheers, MTR

Great stuff MTR sounds like your flying!!!