Back to basics, Newbie..

[Rafa]

Hello all,

as a newbie who is after his first Good investment (I did some OK to bad ones already.. I would like to go back to basics and ask, probably the Million dollar question...

How do you choose where to buy? I know it varies for each strategy but I am very interested to know what is it that pulls you towards a specific place? is it some sort of rating/ past performance/ analysts opinions/ specific character (i.e. mining town etc.) /Crystal ball/ gut feeling?

I am still establishing my strategy but it very much depends on the amount required to be spent and that, of course depends on where I want to buy - sort of vicious circle that sees me reading this forum in the last three months, meeting some advisers, going to a 'Real estate Guru' lecture tomorrow (Dymphna Boholt, Melbourne) and really want to start moving rather than keep waiting...

Great forum which taught me a lot, thanks to all those who contribute - awesome source of knowledge.

Best regards,

Rafa

 

[strongy1986]

I think there's a few ways to look at it

What to buy?

They don't make any more land...
And you can always keep building up (not a massive fan of apartments)

I try to buy as close to land value as possible (why spend money on a fancy house when really you are investing in the land

Holding costs ?? - if it's a sub divisible block then you can handle a lower yield but on your next property maybe look for a higher yield to cancel out your last purchase
5% yield for your portfolio should enable you to still live comfortable and you will be able to borrow more money!

Where to buy??

Near the water
Near the CBD
In a town with a good economy (must be near CBD to counteract the ease of land supply)

Look for a suburb or town that you think is

Undervalued in comparison to similar locations
The people who live there earn a good income (census)
If regional - the population is actually increasing (census)
Low supply of rentals - might be a precursor to capital growtg

 

[j_p]

I'm still starting out, but here's my view. Like many people I know I've bought my first property in areas I've lived near and know well. It's very easy to get caught up in complexity I don't believe you need to worry about starting out. I made some simple criteria for my buy and hold strategy like.
- not a cash flow drain
- good prospects for future growth
- an area and house I would be happy to live in


Once you're invested it's much easier to see how you can fine tune next time. I've now got #2 almost done and am planning on a 3rd with each deal hopefully improving.

 

[Aaron_C]

Property is always a waiting game. You wait for the rental, you wait for the capital growth, you wait for the council to approve your DA/permit. I find that purchasing in blue chip areas always seems to do well but you really have to time the market properly. I see that you are in Melbourne - the time to buy was in 2011-12 when the market was bad. Now it has already moved in 2013 and might move again further this year. If you bought in 2011-12 you would've made 10-20% gain easy.

 

[Chris B]

I'm still starting out, but here's my view. Like many people I know I've bought my first property in areas I've lived near and know well. It's very easy to get caught up in complexity I don't believe you need to worry about starting out. I made some simple criteria for my buy and hold strategy like.
- not a cash flow drain
- good prospects for future growth
- an area and house I would be happy to live in


Once you're invested it's much easier to see how you can fine tune next time. I've now got #2 almost done and am planning on a 3rd with each deal hopefully improving.

Agree with the above, at least for the 1st investment. For most people, I think it is better to keep it simple, focus on areas you know and can easily keep an eye on. Of course this might mean that you don't get the absolute best return in the country but there will be much less risk of making a bad investment and you are close at hand if something does go wrong. It is unreasonable for most people to have the time required to become an expert in different parts of the country.

 

[Brady]

Agree with the above, at least for the 1st investment. For most people, I think it is better to keep it simple, focus on areas you know and can easily keep an eye on. Of course this might mean that you don't get the absolute best return in the country but there will be much less risk of making a bad investment and you are close at hand if something does go wrong. It is unreasonable for most people to have the time required to become an expert in different parts of the country.

I disagree.

Keeping it simple is great but what do you actually know about your local area in terms of investment, you purchased there as a PPOR for personal reasons which are emotional. I find that purchasing in the same area as you live in you usually make the same decision and end up making an emotional decision. The OP has already made critical error I'm my mind and that's buying a property that they would be happy to live in, that is irrelevant. You want to be purchasing something that is in demand.

Another critical error can be just purchasing whatever, whilst yes in the past it has worked well and can its a gamble. Which can often put major hurdles in someone's investing or possible even stop it.

You want to be making the best purchase you can at the time, whilst I'm not suggesting you wait forever (china) I think you should be researching and trying to buy in an area that you think is going to perform the best.

Having a house that I can look at doesn't make me sleep easy at night, knowing that I've purchased in a area I believe is going to perform well is.

 

[vaughan]

...I am still establishing my strategy but it very much depends on the amount required to be spent and that, of course depends on where I want to buy...

IMHO strategy is important. It answers the question "How will you make money out of the deal, and when?"

My purchasing criteria are:

1) must have potential to be cash-flow neutral or very close.
2) must be able to immediately add value and increase rent through renovation or development.
3) must be in an area that is at, or not far from, the bottom of the growth cycle, NOT near the top.

Your criteria should vary, because your wants, needs and risk profile will be different to mine.

 

[Rixter]

How do I choose where & what to purchase?

I have a macro & micro dd purchasing checklist I tick off.

It minimises the emotion and maximises the business decision making process.

Then I ask myself the following 4 questions -

1. DO I WANT TO be, do or have this?

2. Will being, doing or having this MOVE ME IN THE DIRECTION OF MY GOAL?

3. Is being, doing or having this IN HARMONY WITH GOD’S LAWS OR THE LAWS OF THE UNIVERSE?

4. Will being, doing or having this VIOLATE THE RIGHTS OF OTHERS?

If the answer to the first three questions is YES, and the answer to the last question is NO, I make the decision and get going.

I hope this helps.

 

[vaughan]

3. Is being, doing or having this IN HARMONY WITH GOD?S LAWS OR THE LAWS OF THE UNIVERSE?

So you're not interested in the faster-than-light drive I'm putting together?

 

[Rixter]

So you're not interested in the faster-than-light drive I'm putting together?

Isnt that a universal law? ?

 

[impala67]

Hello all,

as a newbie who is after his first Good investment (I did some OK to bad ones already.. I would like to go back to basics and ask, probably the Million dollar question...

How do you choose where to buy? I know it varies for each strategy but I am very interested to know what is it that pulls you towards a specific place? is it some sort of rating/ past performance/ analysts opinions/ specific character (i.e. mining town etc.) /Crystal ball/ gut feeling?

I am still establishing my strategy but it very much depends on the amount required to be spent and that, of course depends on where I want to buy - sort of vicious circle that sees me reading this forum in the last three months, meeting some advisers, going to a 'Real estate Guru' lecture tomorrow (Dymphna Boholt, Melbourne) and really want to start moving rather than keep waiting...

Great forum which taught me a lot, thanks to all those who contribute - awesome source of knowledge.

Best regards,

Rafa

---
I agree with a lot of the comments, lots of good advice. For my situation, I learnt what I had to learn. My decision-making became more confident and better with each purchase and my own basic summary is:

- Know what you own and know why you own it. Justify every purchase.

 

[Rafa]

Thank you very much for all the useful advice.

Thank you very much for all the useful advice.

The way I look at it is:
1. First - Budget in place
2. Once I find several properties I check them against several possible
strategies - renovation, CG, rent straight away etc.
3. make a decision as to what I think will be the best value

I know it might be a bit unorthodox but I think that keeping open to all strategies rather than lock horns with one, is giving me the flexibility I am after.

A good example would be that although I was not into actual development (construction on vacant land), I saw a nice lot on the weekend with subdivision approved and DA as well and was toying with the idea of getting a builder on board to build it and go from there. This morning I actually rang the agent and made an appointment to inspect it and all associated documentation. I will update if it will go ahead.

Thanks again for all the useful advice.

 

[vaughan]

Once I find several properties I check them against several possible strategies - renovation, CG, rent straight away etc...

I dunno. I'd suggest you decide on the strategy, then find a property to suit.

The reason being that if your financial plan requires you to do a reno and flip in 6-9 months to get a bit of cash for a subsequent purchase, it's no good buying a property to rent and hold.

 

[gronk007]

My former boss that I still keep
In touch with always had the following advice.

Always buy a house instead of a unit.
Capital cities instead of regional.
Always buy below the area's median value - they key to replication is getting favorable valuations to unlock equity time and time again.
Never buy the PPOR until you've got some IPs under your belt. The PPOR mortgage will be like an albatross around your neck.
Never lock two home loans together with the same bank.
Try and buy new; or if you build new, find an infill area in Perth, Brisbane or Melbourne in a good part of the market cycle.

Seems to know what he's talking about. He's 45, has over 55 IPs, works because he wants to, and got bored running resi IPs so is now getting his hands dirty in CIP.

 

[Dbz_Vic]

My former boss that I still keep
In touch with always had the following advice.

Always buy a house instead of a unit.
Capital cities instead of regional.
Always buy below the area's median value - they key to replication is getting favorable valuations to unlock equity time and time again.
Never buy the PPOR until you've got some IPs under your belt. The PPOR mortgage will be like an albatross around your neck.
Never lock two home loans together with the same bank.
Try and buy new; or if you build new, find an infill area in Perth, Brisbane or Melbourne in a good part of the market cycle.

Seems to know what he's talking about. He's 45, has over 55 IPs, works because he wants to, and got bored running resi IPs so is now getting his hands dirty in CIP.

I think what your boss said is obviously the ideal, but we all know things can often be far from ideal. For eg, points 1, 2, 3 and 6 can contradict itself in today's market as it can be quite a challenge to buy a newish house in a capital city below the median value. Maybe thats why he has 55 properties, and I've only got 3

 

[Feradd]

I wouldn't let figuring out a strategy to slow you down too much in buying your first property. Time spent coming up with a strategy could easily lead to procrastination for some. At the end of the day you want a property with good prospects for capital growth that isn't going to drain your cash flow. I'm yet to hear of a strategy aiming for a capital loss.

 

[Deltaberry]

Future supply and demand. So simple.

 

[Deltaberry]

My former boss that I still keep
In touch with always had the following advice.

Always buy a house instead of a unit.
Capital cities instead of regional.
Always buy below the area's median value - they key to replication is getting favorable valuations to unlock equity time and time again.
Never buy the PPOR until you've got some IPs under your belt. The PPOR mortgage will be like an albatross around your neck.
Never lock two home loans together with the same bank.
Try and buy new; or if you build new, find an infill area in Perth, Brisbane or Melbourne in a good part of the market cycle.

Seems to know what he's talking about. He's 45, has over 55 IPs, works because he wants to, and got bored running resi IPs so is now getting his hands dirty in CIP.

That's not entirely true.

Every strategy has its own ways of working. Anyone who says only do this or only do that obviouly has no perception of the world.

 

[gronk007]

These are his criteria, perhaps why he has done so well and had to move beyond residential real estate. These are not all his purchasing criterial, just some high level ones.