Am I ready to buy again?

[aw1]

My logical brain is saying yes! but the cautious part of my brain is saying slow down and pay down some of the existing IPs I have.

I'm 28 and trying to accumulate rapidly (bought in 2005, 2006 and 2007).

A run-down of what I have now:

PPOR (bought 2005) owe $350k worth $550k (LVR ~63%)
IP1 (bought 2006) owe $510k worth $700k rent@$700pw (LVR ~72%) fixed @ 7.1%
IP2 (bought 2007) owe $330k worth $390k rent@$370pw (LVR ~84%) fixed @ 7.59%

I am not hunting for a property now per se but have just spotted an excellent cashflow positive one here in Darwin.. (same suburb as my other 3 properties actually). I feel like I know the inside area out.. the dwelling itself is excellent (well spec'd, good number of bedrooms, nice location, close to Inpex plant).

Purchase price is $421k should rent for $500pw and I would borrow the full $421k. Whether the bank will say yes or no is another matter.

$421k, $500pw rent, 5.49% fixed for 3 years - my calculations say after tax and depreciation it is cashflow positive. My marginal tax rate is 40%. Depreciation should be high as its a new dwelling.

I feel the risks are:
- If the property market collapses completely here I could be completely wiped out being over $1.5m in debt. Not likely but I do feel a small correction is more likely (10%?)
- Everyone deserts Darwin in droves and I'm left with substantially reduced rents. I do feel rents here have become a bit overheated... so I think this is a real risk. If I factor in a 20% drop in rents I can still get by...

Too much too quickly?

 

[Property Meister]

regardless of what you do, congrats on being in such a good position at such a young age!

 

[Rolf Latham]

Hiya


Depending on other income and expenses, a lender may lend you the dosh.

To manage your risk partly, do NOT plae this new loan with the same lender as your current loans.

While this may look and feel convenient, over a mills exposure with the one lender, in the "one" market if things go bad isnot a great position.

There are ways you can ( probably) structure things so you can pull some equity from your existing IPS to still borrow 100 % of the new purchase.

As to if its a wise move to buy again ? I will leave that to others that have a better idea of that specific market.

Note that a short term market correction per se usually wont affect you unless you need to borrow further during that time.

ta
rolf

 

[Ajax]

aw1,

that's a great position to be in at 28. You are doing something different and better to me...maybe its the size of your purchases and commitment when you decide to go ahead.

Depends quite a lot on the income you receive. You had previously posted details of income of 95k p.a. which is a strong income when rent from properties go close to servicing the mortgage.

I bought a cottage in Gunn in mid 2005 for 250k...now worth about 390k. But you bought a more expensive property (I presume Palmerston area) now worth 550k.

I also presume you are again looking around Durack for next purchase. The yields here make a lot of sense.

There is no right answer. I don't want to affect your decision making because it has been good so far. Some would suggest you need to diversify and be in another city.

Depends on where you see Darwin's economy being in a few years time. Inpex proceeding with final commitment could be a big factor here.

Are any of the properties you own or the one you are looking at D.H.A.?

 

[aw1]

Hiya

Depending on other income and expenses, a lender may lend you the dosh.

To manage your risk partly, do NOT plae this new loan with the same lender as your current loans.

While this may look and feel convenient, over a mills exposure with the one lender, in the "one" market if things go bad isnot a great position.

There are ways you can ( probably) structure things so you can pull some equity from your existing IPS to still borrow 100 % of the new purchase.

You are correct in thinking that I currently have them all with the same lender. (BankSA/St George).

I was actually looking at Westpac because of its low 3-year fixed rate ...

Can you give me a run down of the risks of having it all with the one lender if you don't mind - would really appreciate it? I am investing for the long term so I would really not enjoy it if loans got called in.

As to if its a wise move to buy again ? I will leave that to others that have a better idea of that specific market.

I'm pretty happy that it is the right property to buy. I'm mainly concerned about the level of debt, LVRs and whether it is reasonable or too aggressive.

regardless of what you do, congrats on being in such a good position at such a young age!

Thank you. It's weird looking back thinking I have almost bought one per year!

There is no right answer. I don't want to affect your decision making because it has been good so far. Some would suggest you need to diversify and be in another city.

I definitely consider that myself sometimes - am I putting all my eggs in one basket by buying in the same area? I just feel that I know it so well and for so long that it is lower risk than me buying somewhere I don't understand or taking the advice from say, a buyer's agent, who has no real incentive to find me the best deal.

Depends on where you see Darwin's economy being in a few years time. Inpex proceeding with final commitment could be a big factor here.

Are any of the properties you own or the one you are looking at D.H.A.?

I see Darwin's economy as fairly stable. I try to avoid any of the Inpex hype.. I think we're close to the affordability ceiling here and it will take a while for wages to catch up. The new plant may speed this up a bit but we still have plenty of Govt workers on ordinary salaries etc. who would have almost no hope of buying even in today's market.

Yes the one that is getting $700pw is a DHA property. I was also thinking of offering the new one to DHA if the rent they offer is right. I don't see a lot of value in most DHA properties but that one was a gem.

Anyways, I went ahead and put the new property on hold. I now just need to provide them with a bank guarantee in lieu of a 10% deposit.

 

[want2bewealthy]

Good work, youve done very well! I too am in the same boat, a similar amount of borrowings and same age.

I see Darwin as chugging along for the next few years, see Andy's comments on the local market in this months edition of API, He's a good friend of mine and an excellent agent, I agree with him in his predictions of not % but he expects to see around 100k added to the average Darwin home over the next 18 months.

Prices here are still moving up and were at 'peak of the market' and have been for almost 2 years now. . no one knows when it will come off the boil again but we have all the ingredients for strong growth now and into the future, if youre comfortable with your borrowings at present and yields are pretty well neutral then maybe its time to purchase again? you have plenty of time for correction and market upheaval so the risk is minimised, Im not sure your servicability will get you through to another property just yet though, have to chat to a good broker on that one.

 

[auror]

You might be financially & mentally ready to buy again, but this bit concerns me

I am not hunting for a property now per se but have just spotted an excellent cashflow positive one here in Darwin.. (same suburb as my other 3 properties actually).

Have you thought about diversifying? That's a whole lot of money invested in Darwin right now.

 

[kina]

aw1,

I also presume you are again looking around Durack for next purchase. The yields here make a lot of sense.

There is no right answer. I don't want to affect your decision making because it has been good so far. Some would suggest you need to diversify and be in another city.

Depends on where you see Darwin's economy being in a few years time. Inpex proceeding with final commitment could be a big factor here.

Regardless of what happens with global economics in the short term within 12 months Darwin and Palmerston will again travel along an extended period of strong growth and some periods of very strong growth. Darwin despite its stellar past 5 years is as a community still coming off a very low base and has a great deal of growing yet to do. We are at the start of a very long phase of the 'serious' development of the north. I think I saw population growth slated at 30,000 and considering the existing population that is a lot of people to accommodate.

Conco Phillips is already in Darwin with their gas plant with planned extensions and INPEX either in 2009 or a year later WILL decide to proceed with their $20bn project. The project is not in doubt, only the timing which would only be delayed by a year if at all if the required funds are hard to find on the market, but by late 2009 that should no longer be an issue. But INPEX is not just attending to a putr economic project here this is also Japan and INPEX suring up future supplies of gas - it is also a strategic long term move. Usual economic factors that determine projects won't be the only deciding factors. This is also a very long term project and the short term of 2-3 years will not make too much difference to the decision except maybe delay it a year.

The Fed Govt I believe will be funding the immediate expansion of the new port as well ($100 million?) to increase capacity and I gather that their will be further military unit relocation to the north.

Darwin and Palmerston still has a lot of activity coming. The global crisis will only be a very short hiccup for them as other factors are more pressing. It also helps that the economy is partially insured by having a much larger than normal public service sector that keeps businesses ticking over.

Durack seems to becoming one of those exclusive suburbs you see develop in cities. It is ideally located for this and still quite cheap, though 500-800 might not seem cheap to some. In a few years it will seem cheap stuff. The new sections of Durack are especially interesting - The Grove and The Peninsular have some pretty good properties, good rents and very good potential for capital growth. Streets like Crown Court, Alexandria Court and Don circuit are quite interesting. I'm looking at getting one on either Alexandria or Don court. Alexandria court looks the superior street though about 2 years older I believe. These will be the top class areas of Palmerston in a few years once the newer suburbs get under way.

The newer suburbs, Bellamac and etc should do well, will be cheaper I believe but will inevitably have the travel infrastructure problems that come with suburbs much further out. This will keep its capital growth levels down and rental values down. You really need to be closer to Palmerston and closer to Darwin which is why Durack is perfectly placed. Gunn is well placed as well and have cheaper places but seem to be on smaller allotments.

I don't think there is much risk in buying quality properties in Palmerston or that there will be any drop in prices this year. 2010 will see some pretty good growth again, in my opinon of course. Then again I am no expert. But better to buy in Darwin/Plamerston than anywhere in Australia at the moment.

 

[Edmond Dantes]

I'm 28 and trying to accumulate rapidly (bought in 2005, 2006 and 2007).

A run-down of what I have now:

PPOR (bought 2005) owe $350k worth $550k (LVR ~63%)
IP1 (bought 2006) owe $510k worth $700k rent@$700pw (LVR ~72%) fixed @ 7.1%
IP2 (bought 2007) owe $330k worth $390k rent@$370pw (LVR ~84%) fixed @ 7.59%

No advice here, just wanted to congratulate you on your achievements. Nice journey.

 

[aw1]

Regardless of what happens with global economics in the short term within 12 months Darwin and Palmerston will again travel along an extended period of strong growth and some periods of very strong growth. Darwin despite its stellar past 5 years is as a community still coming off a very low base and has a great deal of growing yet to do. We are at the start of a very long phase of the 'serious' development of the north. I think I saw population growth slated at 30,000 and considering the existing population that is a lot of people to accommodate.

How many years is that population growth projection for?

Palmerston is certainly a very fast growing city... an excerpt from wikipedia:

http://en.wikipedia.org/wiki/Palmerston,_Northern_Territory

"Palmerston is currently the fastest growing city in the Northern Territory and was once the fastest growing city in Australia for a short while."

Conco Phillips is already in Darwin with their gas plant with planned extensions and INPEX either in 2009 or a year later WILL decide to proceed with their $20bn project. The project is not in doubt, only the timing which would only be delayed by a year if at all if the required funds are hard to find on the market, but by late 2009 that should no longer be an issue. But INPEX is not just attending to a putr economic project here this is also Japan and INPEX suring up future supplies of gas - it is also a strategic long term move. Usual economic factors that determine projects won't be the only deciding factors. This is also a very long term project and the short term of 2-3 years will not make too much difference to the decision except maybe delay it a year.

I'm not sold on Inpex until it is confirmed. I know some are buying property hoping that it will go ahead but until it is certain I try to ignore it as a factor. Certainly a large project - the biggest private sector project in Australian history.

Durack seems to becoming one of those exclusive suburbs you see develop in cities. It is ideally located for this and still quite cheap, though 500-800 might not seem cheap to some. In a few years it will seem cheap stuff. The new sections of Durack are especially interesting - The Grove and The Peninsular have some pretty good properties, good rents and very good potential for capital growth. Streets like Crown Court, Alexandria Court and Don circuit are quite interesting. I'm looking at getting one on either Alexandria or Don court. Alexandria court looks the superior street though about 2 years older I believe. These will be the top class areas of Palmerston in a few years once the newer suburbs get under way.

I've been living in Durack for 3 and a half years now. Certainly people who live here love it.. large amounts of open space (golf course, lakes, parks), family friendly, none of the dregs of Darwin society (no liquor stores nearby). Only a year ago you could still get a small 3 bedroom house on a small block for about $320k here and I couldn't see how that could last. Things start at about $400k here now which is still a pretty cheap entry price for what is shaping up to be a premium suburb. I live in the Peninsula (don't know why everyone calls it the Peninsular!) in a private court with the second hole of the golf course at the end. You can occasionally pick up a very good property in Don Circuit or Piper Court backing on to the lake for a ridculously cheap price (I saw one go for $450k not long ago) but for the most part you are looking at $500k-$950k. I'm guessing you have specifically mention Don Cct and Alexandria Ct because at the moment there is a property on Don for mid $900's and one in Alexandria for mid $800's. I don't know how the local agent who sells most property here (Gennie Cox) gets the $$$ she does but somehow achieves it. I think the property that sold in Piper Court for mid $800's and is up for rent at $1150 a week is pushing the boundary though.. I don't think this suburb is yet ready for $800 a week plus rents.

The newer suburbs, Bellamac and etc should do well, will be cheaper I believe but will inevitably have the travel infrastructure problems that come with suburbs much further out. This will keep its capital growth levels down and rental values down. You really need to be closer to Palmerston and closer to Darwin which is why Durack is perfectly placed. Gunn is well placed as well and have cheaper places but seem to be on smaller allotments.

The new Tiger Brennan extension should make travel to these suburbs a lot better than it is now ... but even still it is not that bad. Tends to take me about 20 mins to get to the Darwin CBD in the morning and back in the evenings.

Another suburb I am also very optimistic about is Gunn.

 

[kina]

Inpex announces next phase in Darwin

I have some family in Darwin so my information tends to be second hand but reliable, I hope.

Today Press releases from INPEX and NT Government announce the next stage of Inpex's project is proceeding. Great news for investors in the market already.

So it seems that the INPEX $20 billion project will definitely proceed in Darwin now, it is just a matter of when. They are into their FEED front end engineering and planning phase now but still have the expectation of shipping LNG in 2014/15 so it seems they will proceed as per their original schedule.

This massive plant they will be building is not too far from Palmerston so I guess it will benefit the most out of it. It will mean large amounts of cash flowing around their economy. You would imagine a number of little new businesses popping up as well I would imagine.

I also note a few properties on Don Circuit and Alexandria court Durack my current favourite area now.

They both look pretty good and the Don circuit houses the more modern but, Alexandria court is more attractive and seems a number of high priced houses are on the street. It is the sort of place you be happy to live.

I have found No. 24 sold for $745,000 in October and there are two properties for sale now. One double story place for around $800k and No.7 Alexandria have put themselves on Owner.com for $692,000 and have a mob of photos on-line, the place looks huge compared to my place. This one presents really well from the front and seems much better value than the $800k one.

There are a number of cheaper places in Wulagi and Leanyer as well but they look like they need some work to make them look their best and are away from the new action place, Palmerston.

I am tempted to buy in Alexandria court or in the Peninsular while prices are still reasonably 'low' as I get the feeling this area is going to go ahead quite strongly once Inpex and the like get going and even before once people understand what it means.

I found that the population estimate increase for Palmerston was an extra 30,000 for the period up to 2016 in the local news there - the NT News. That sounds incredible when you realise the size of Palmerston is meant to be around 35,000 now??

So I am getting near deciding on something.

 

[Y33]

aw1,

Nice portfolio coming along.

You may want to consider another city as to diversify your investments. Although Darwin looks secure economy and growth wise environmentally there are always questions of doubt. Like you I prefer Darwin but still have IP's in other places. Also nice to have somewhere else to stay when tenants vacate etc and you feel like a break.

May be better off going to another bank as well just to diversify your risk of tying everything up with one place.

 

[aw1]

Y33,

I agree - I'm not really committed to Darwin, just that I know the particular area I'm buying in so well I haven't strayed far from it yet. I would like to buy in Tassie (Blackmans Bay area) but I'm not sure if its the right time - has Tassie peaked? I'm also not convinced by rental yields there just yet.. as soon as things look right I'll jump in there. Would love to have a vacancy a few weeks a year to holiday there!

Spoke to the bank on Friday and I may well see what I can do about getting this loan with another bank. I got a rather odd look when I was asking for a better deal than the 0.7% discounted rate I'm getting on my variable home loan (I have 2 fixed loans as well so I have lots of borrowings with them!). I also got the claim that STG/BankSA never do 0.9% deals even with such high borrowings. Got me a bit offside so I might have a chat to Westpac if they still have their 85% no LMI products.

 

[Y33]

aw1,

STG, will give a better discount. May depend on who you are dealing with in the D office. Still think your better off with a second lender for safer diversity.

Tas, nice place although a little cold at certain times of the year, mainly March to October.

 

[boomtown]

How long can you survive if you lose your job?

How long can you survive a vacancy?

How big are your cash buffers?

You need to answer those before you can buy again. That being said you should be in pretty good shape to give the right answers to those questions.

 

[Rolf Latham]

Hiya

WBC still have their 85 % no lmi product.....................max discount for 2 years after settlement is 40 pts off the SVR.

ta
rolf