Another New Investor

[The Fisherman]

Hi Guy's

First up let me congratulate everyone here on an excellent forum. The posts here are full of information for new and seasoned investors and the willingness of people to get involved is admirable.

I'm at the stage where I need to get started on investing for a better retirement before it's too late. I have a chunk of equity in my PPOR and a moderate income with minimal debt. Having read several books (Sommersoft, Lomas and others) and seen the success of a few around me I'd liked to build a solid foundation with IP's to start with.

Having read many posts on here already and being in danger of information overload I can see a path through the haze and am starting to form a loose strategy, based on accumulating median houses for capital growth. Possibly starting in inner city Brisbane until serviceability becomes an issue. But I still have a way to go.

A lot of info has already been posted which is a big help however I hope you don't mind me posting a few dumb questions to help clear things up.

Sorry for the long first post.
Cheers
Darren

 

[Watermelon Man]

Hi Guy's

First up let me congratulate everyone here on an excellent forum. The posts here are full of information for new and seasoned investors and the willingness of people to get involved is admirable.

I'm at the stage where I need to get started on investing for a better retirement before it's too late. I have a chunk of equity in my PPOR and a moderate income with minimal debt. Having read several books (Sommersoft, Lomas and others) and seen the success of a few around me I'd liked to build a solid foundation with IP's to start with.

Having read many posts on here already and being in danger of information overload I can see a path through the haze and am starting to form a loose strategy, based on accumulating median houses for capital growth. Possibly starting in inner city Brisbane until serviceability becomes an issue. But I still have a way to go.

A lot of info has already been posted which is a big help however I hope you don't mind me posting a few dumb questions to help clear things up.

Sorry for the long first post.
Cheers
Darren

Mate Darren - You arrived at the best time on this forum; lots of heated discussions here (yes, i'm being sarcastic!!)

Been to see a finance broker yet to ascertain how much you could borrow?

 

[The Fisherman]

I have one letter from a broker based on a rough valuation of PPOR after attending a PI workshop but I'll be contacting other brokers to get a better idea of what I have available to play with.

And WM I don't mind hearing "other" points of view to try and keep ones perspective real. The debate on this site is tame compared to some heated discussions I've seen on other non-investment forums.

 

[Watermelon Man]

I have one letter from a broker based on a rough valuation of PPOR after attending a PI workshop but I'll be contacting other brokers to get a better idea of what I have available to play with.

And WM I don't mind hearing "other" points of view to try and keep ones perspective real. The debate on this site is tame compared to some heated discussions I've seen on other non-investment forums.

Tame: You've had more experience than me in that field. I see the median house price in Townsville has surpassed Cairns now I think. Are you looking to buy a house or unit; what sort of price range? I would think you would be able to borrow quite well with lots of equity in your PPOR. Quite a few brokers on this forum that'll be able to give you advice as well.

 

[The Fisherman]

At this stage I'll say house around 400K, until I get some more concrete offers on finance. Still not sure whether I should aim a bit lower for my first IP, treat it as a learning curve. Starting low makes me feel like I'm missing out on some CG in a rising market. And yes, prices here have taken off again. A bit heated for my liking. Good to already have a house here tho.

 

[Watermelon Man]

At this stage I'll say house around 400K, until I get some more concrete offers on finance. Still not sure whether I should aim a bit lower for my first IP, treat it as a learning curve. Starting low makes me feel like I'm missing out on some CG in a rising market. And yes, prices here have taken off again. A bit heated for my liking. Good to already have a house here tho.

Personally I would invest in your typical blue-chip suburbs which have had excellent capital growth long term (that's what I've done personally & obviously what a lot of other very experienced investors like Jan & Ian Somers, Peter Spann...) - go for the property with a decent return of around 6.5% gross; & see if you can find a property & buy it under market.

 

[The Fisherman]

Sound advice, thanks WM. I would love to find a blue chip inner cuty house with 6.5% yield! Might take a bit of searching for that one.

I am prepared to work for another 15 years (not ideal but thats worst case scenario) so hopefully that will get me to where I want to be and allow for mistakes along the way.

 

[Watermelon Man]

I would love to find a blue chip inner cuty house with 6.5% yield! Might take a bit of searching for that one.

Best to find a "good deal" (even if it takes you a while); better to do this then end up with a lemon (that is; paying too much; not enough capital growth in the area), etc.

 

[alexlee]

I have a different opinion. I think you should buy a 'cheapie' (way below your borrowing capacity) and don't worry too much about where you buy. Just get a residex report and buy at or around what others have sold at. Don't get too worried about buying a 'bargain'.

Why? You need the experience. You need to deal with brokers, banks, agents, PMs, tenants, etc for real. That's why I suggest buying a cheap IP: even if you pay too much, it's not a big deal.

If you wait, looking for a blue chip suburb with a 6.5% yield, you run the risk of not buying anything at all. Even buying above 'value' and holding for the long term is better than not buying at all.
Alex

 

[Twitch]

Welcome Fisherman. 15 years is plenty of time to make a big difference to your financial health. In the meantime don't be afraid to ask the "dumb" questions.

FWIW, your idea of investing in an inner-brisse house sounds like a good one to me. Don't try and shot the eyes out on the first IP, its more important to take action.

cheers

 

[Qlds007]

Firstly welcome to the site and congratulations on taking the property challenge.

Remember everyone here started at one time in their lives so no question every posted is a silly question.

 

[firstmillion]

Hi Guy's

I'm at the stage where I need to get started on investing for a better retirement before it's too late. I have a chunk of equity in my PPOR and a moderate income with minimal debt. Having read several books (Sommersoft, Lomas and others) and seen the success of a few around me I'd liked to build a solid foundation with IP's to start with.

Sorry for the long first post.
Cheers
Darren

I may not be much of help as I myself a starter. All the best mate and do update about your IPs.

Cheers

 

[CairnsAgent]

Firstly welcome!
I'm with Alexlee on this one mate. In my opinion it is better to be in the game than a spectator, but like the majority of us here you will probably make a few mistakes along the way, better to make them cutting your teeth on a $150k unit or cheaper house than tying up all your capital or serviceability in one more expensive house.
I purchased the most expensive house I could afford as my first IP, and this resulted in tight serviceability for me, stopping me from moving on for almost 18 months, had I purchased lower end, I could have purchased 3 properties in the same time as the 1 I did buy...lesson learnt..still I have no regrets, better to have had that 1 property than none!

Cheers,

 

[Brenda Irwin]

You want something popular. If you can easily renovate without too much expense and it will rent like crazy. Popular also if you would like to sell in the future.

Do not buy a dump next door to messy noisy tenants unless you are pretty sure they will move on soon.

 

[Leandro]

Firstly welcome!
I purchased the most expensive house I could afford as my first IP, and this resulted in tight serviceability for me, stopping me from moving on for almost 18 months, had I purchased lower end, I could have purchased 3 properties in the same time as the 1 I did buy...lesson learnt..still I have no regrets, better to have had that 1 property than none!

Cheers,

If the 1 property you bought was a good one with good prospects, what is the benefit of having 3 cheaper properties worth the same amount? Can you expland a bit on what the lesson learnt was.

 

[ermen]

I have a different opinion. I think you should buy a 'cheapie' (way below your borrowing capacity) and don't worry too much about where you buy. Just get a residex report and buy at or around what others have sold at. Don't get too worried about buying a 'bargain'.

Why? You need the experience. You need to deal with brokers, banks, agents, PMs, tenants, etc for real. That's why I suggest buying a cheap IP: even if you pay too much, it's not a big deal.

If you want, looking for a blue chip suburb with a 6.5% yield, you run the risk of not buying anything at all. Even buying above 'value' and holding for the long term is better than not buying at all.
Alex

Where are these cheapies available in sydney? i reckon you would have to go out West in Cabramatta etc?

 

[alexlee]

Where are these cheapies available in sydney? i reckon you would have to go out West in Cabramatta etc?

Buy a unit. $200k will get you a decent 2 bedder near Parramatta (try next door in Harris Park, say). If you want houses go past Blacktown.

Which raises the next point: you can go interstate. Plenty of good properties in the 200s in the Brisbane / Gold Coast corridor, say, and even in outer Melbourne.
Alex

 

[The Fisherman]

Thanks for all the kind reply's.

Well everyone certainly has their own idea's about investment strategies. Thats what makes PI such a great hobby, something for everyone! I'll take all your comments on board.

One question I'd like to post to the people who are buying in a city other than where they live. Do you have your team of experts (conveyancing, finance brokers, etc) local to you or in the city you are buying? I guess it probably doesn't matter now days.

For those investing in the lower priced houses/units but buying more of them, does this increase your holding costs compared to fewer more expensive properties given a similar yield?

 

[alexlee]

For those investing in the lower priced houses/units but buying more of them, does this increase your holding costs compared to fewer more expensive properties given a similar yield?

Personally, I would say no. A few reasons, including:
1) more expensive properties tend to have lower yields (perhaps because there are more owner occupiers that drive the price up?)

2) holding costs tend to be relative to the property price. Some smaller costs (such as landlords insurance, say) will increase with more properties, but management fees, interest, etc are usually a % of the price of the property (or size of the loan).

There are higher bookkeeping costs, I suppose, but that's not a big deal. For me, the benefit of cheaper properties is that vacancies don't hit me as much, and I can redevelop one property, say, without giving up too much rent.

However that's just me. Many others have focused on more expensive properties and done very well.
Alex

 

[The Fisherman]

Alex I can see your point being able to accommodate vacancies a bit easier. I'm not really looking at redeveloping properties down the track at this stage, prefering to buy something I can hold long term with just basic maintenance. I seem to remember one of your posts mentioning buying new H/L packages as paying a premium for shiny new things which depreciate in value. That comment made me think a bit. Thanks.

Some of the girls on here have wangled some great deals buying land and building new AND getting a good yield. Nice work!

I do have about 38K residual on my PPOR loan. It was suggested I should capitalize any holding costs/-ve cashflow on an IP and throw all my dollars on my home loan to reduce asap. I can understand the interest on the holding costs being tax deductable but to me this seems to be eating into your CG or should I be looking at it as reducing my non deductable debt quickly and increasing my serviceability faster. Any thoughts?

Darren