Another New Investor

[The Fisherman]

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

Cheers

Thanks and I expect you to do the same..

 

[Glucose]

With more cheaper IP's you also have the extra costs of more rates to pay. Rates generally are much the same regardless of value of house (except e.g. some beachfront properties etc).
Even so, I feel you're better to just jump in and get started.
Good luck & welcome to the forum.

 

[alexlee]

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 didn't either when I first started. That's why I started with buying new townhouses and units, but now I would prefer older houses. Nothing wrong with changing your plans as you go along.

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.

Nothing necessarily wrong with buying new. However, a property isn't better just because it is new, either. You have to look at the price. e.g. if you have 2 properties with the same price and same location but one is newer, then the newer one is probably the better buy. But if the newer property is $20k more, say, you have to ask yourself whether the extra depreciation, maybe higher rent, etc is WORTH the $20k.

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?

What you're doing is recycling debt. e.g. the $1,000 that you would have paid from your salary, say, now comes from your equity, while you pay that $1,000 from your salary into your mortgage. Your net debt position is actually exactly the same, but you're reducing non-deductible debt and increasing deductible debt.

As for eating into CG, I don't understand your point. CG for buy and hold comes from appreciation of assets. It's based on how much in assets you have, not how you fund it.

That is, if you have $500k in property, say, your CG would be the same whether you have $500k in loans against it or NO loans against it.

I think what you're thinking about is 'if I capitalise costs into the IP loan, aren't I using up equity that I could be using for another IP'? Yes, but you're also reducing your PPOR loan and THAT can be refinanced at a later date too.
Alex

 

[The Fisherman]

I think what you're thinking about is 'if I capitalise costs into the IP loan, aren't I using up equity that I could be using for another IP'? Yes, but you're also reducing your PPOR loan and THAT can be refinanced at a later date too.
Alex

yes this is what I was thinking and your explaination of recycling the debt makes things clearer. Told you I was full of dumb questions

Darren

 

[alexlee]

yes this is what I was thinking and your explaination of recycling the debt makes things clearer. Told you I was full of dumb questions

Darren

The only dumb questions are the ones you don't ask.
Alex

 

[alexlee]

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.

The issue is, what if you don't make such a good buy the first time? As a first-time buyer you're more likely to get emotional and overpay. And I would argue that it's easier to overpay on a 'nice' property because there's more to get emotional about.

Of course, the bigger issue is that many people keep looking for a 'good' IP and end up not buying at all. Meanwhile, those who just went in and bought some 'ordinary' IPs are seeing the gains.
Alex

 

[The Fisherman]

As an investor we could use Navra's Rental Reality check to calculate the price we should pay for an IP in a particular suburb. Of course the market will dictate the asking price at the time, which can be driven by emotion and non investment buyers. If the market price is too high at the time we move to a different area.

This probably sounds a bit simplistic but the way I see it, it's not just about accumulating nice properties, they have to earn their keep as well.

I have a question about rental reality check. As I see it the five year average calculation tells us the earnings potential of a rental property. This would really only take into account organic growth of an area wouldn't it? If there were major infrastructure changes in an area "overnight" which made the area more appealing to the tenant base and made them able to afford a sustainble increase in rent then we would have to factor this future earnings potential in the purchase price. But the changes would have to attract the higher earners. So in regional areas where mines are springing up the housing would be worth more. I guess in major cities the changes would be more gradual so the five year average would accommodate changes like new shopping centres and new motorways which make an area more desirable but doesn't necessarily attract higher wage earners.

Just random thoughts from a beginner. Feel free to shoot holes in them.

 

[steveadl]

As an investor we could use Navra's Rental Reality check to calculate the price we should pay for an IP in a particular suburb. Of course the market will dictate the asking price at the time, which can be driven by emotion and non investment buyers. If the market price is too high at the time we move to a different area.

This probably sounds a bit simplistic but the way I see it, it's not just about accumulating nice properties, they have to earn their keep as well.

I have a question about rental reality check. As I see it the five year average calculation tells us the earnings potential of a rental property. This would really only take into account organic growth of an area wouldn't it? If there were major infrastructure changes in an area "overnight" which made the area more appealing to the tenant base and made them able to afford a sustainble increase in rent then we would have to factor this future earnings potential in the purchase price. But the changes would have to attract the higher earners. So in regional areas where mines are springing up the housing would be worth more. I guess in major cities the changes would be more gradual so the five year average would accommodate changes like new shopping centres and new motorways which make an area more desirable but doesn't necessarily attract higher wage earners.

Just random thoughts from a beginner. Feel free to shoot holes in them.

Is this available online?

 

[The Fisherman]

It's on the InvestEd forum. Click on the Realestate topic on the left then go to the articles half way down the page. Nice simple calculation, just the way I like 'em.

Not sure if it's ok to link to the other forum in here?

Darren