Buying a portfolio on the Sunshine coast?

[murrayo]

Hi ,

I have started investigating (ie financial planner & MB meeting etc) organising a property portfolio, starting on the Sunshine Coast.(As this is where we have settled & I would prefer somewhere I can keep my eye on)

I have $500k cash (dying a death in a term deposit ATM!)
with which I plan to buy 4 properties at approx $300k-$350k each
($100k deposit on each with a $200k-$250k mortgage on each)

I figure this way the mortgage payments will come in at approx.$350pw which could be covered by the rents therefore Neutrally / +ve geared.

I tend to prefer the bottom end of the market as I feel that there will always be a demand for these. I have 3 properties in the UK that are small apartments, always rented (10yrs now!) & v.good CG over the yrs.

I plan to buy 1 or 2 on the Coast, the remainder in Brisbane, close to CBD etc
as I am seeing an increasing amount of auction properties passing in & being sold post auction by 'motivated' vendors at seemingly 'knockdown' prices , which is getting me thinking about getting in now & lowballing offers, until I get lucky.


My questions to the forum are;

Do you think that the Sunny Coast is a good area for IP?
Do you see a serious flaw in my plan?
What would you do with $500k cash now?

Thank you in advance for any advice!

Murrayo.

 

[murrayo]

Ps. By 'Sunshine Coast' I mean the Mooloolaba, Caloundra, Alexandra Headland area

 

[Trogdor]

Hi ,

I have started investigating (ie financial planner & MB meeting etc) organising a property portfolio, starting on the Sunshine Coast.(As this is where we have settled & I would prefer somewhere I can keep my eye on)

I have $500k cash (dying a death in a term deposit ATM!)
with which I plan to buy 4 properties at approx $300k-$350k each
($100k deposit on each with a $200k-$250k mortgage on each)

I figure this way the mortgage payments will come in at approx.$350pw which could be covered by the rents therefore Neutrally / +ve geared.

I tend to prefer the bottom end of the market as I feel that there will always be a demand for these. I have 3 properties in the UK that are small apartments, always rented (10yrs now!) & v.good CG over the yrs.

I plan to buy 1 or 2 on the Coast, the remainder in Brisbane, close to CBD etc
as I am seeing an increasing amount of auction properties passing in & being sold post auction by 'motivated' vendors at seemingly 'knockdown' prices , which is getting me thinking about getting in now & lowballing offers, until I get lucky.


My questions to the forum are;

Do you think that the Sunny Coast is a good area for IP?
Do you see a serious flaw in my plan?
What would you do with $500k cash now?

Thank you in advance for any advice!

Murrayo.

Do you own your own house (i.e. that you live in), and do you have a mortgage on it?

I'd pay that out if you do have a mortgage (if you are planning on not moving for a while and are settled or plan to be), then borrow against it to buy the IPs.

 

[sunshine]

with which I plan to buy 4 properties at approx $300k-$350k each
($100k deposit on each with a $200k-$250k mortgage on each)

Units or Houses for these $$$

Do you think that the Sunny Coast is a good area for IP?.

Absolutely - IMHO not all areas though.

Do you see a serious flaw in my plan?

Looks OK to me, but it is your plan and you need to be comfortable with it.

What would you do with $500k cash now?

I reckon I would be buying a few more up this way and adding some value.

Good luck

Sunshine

 

[murrayo]

Do you own your own house (i.e. that you live in), and do you have a mortgage on it?

I'd pay that out if you do have a mortgage (if you are planning on not moving for a while and are settled or plan to be), then borrow against it to buy the IPs.

Hi Trogdor,

No , I am happily renting a lovely new apartment (with pregnant wife!) that must be a bloody awful IP considering that we pay 450pw v.large 2 bed with ocean views & it must be 'worth' $700k+

We are fine with renting for ourselves, & not bothered with the usual arguments people have with renting (ie the warm fuzzy feeling, not putting pictures up, being moved on by LL selling up etc) We are v.good tenants, I usually pay 6 months up front, make sure (as much as possible) that the LL is looking for a long term tenant etc.

We are happy to Invest in property & rent a place we couldnt afford to buy. I am sure we will buy a 'home' one day, but not just now.

What do you reckon?!

 

[murrayo]

Units or Houses for these $$$




Absolutely - IMHO not all areas though.



Looks OK to me, but it is your plan and you need to be comfortable with it.



I reckon I would be buying a few more up this way and adding some value.

Good luck

Sunshine

Hi Sunshine ,

You would say that the SC is good for IP & CG !! (judging by your name!)
Why do you think it will be good for IP?? (dont be a biased 'VI' now!)

I would look for a tired but large 2 bed apt with a view close to CBD on the SC (or maybe 2, @ $300k - 350k)

Another 2 small houses in and around Brisbane, but I will have to reseach areas there more as I am unfamiliar with the areas.

I hear reasons why the SC will boom - ie. Surveys that say Pensioners all want to live/downsize here on the Coast , land shortages , etc etc

I also have reservations about it all & can understand why people say that prices just cant boom here anymore as wages vs house prices just don't add up here - I mean , its beautiful, but tough enough to earn a decent salary on the coast (to support a 450-500k house with mortgage) there does not seem to be many people earning strong salaries/any major employers here on thne SC ........................IMHO

Maybe living & working through the spike of the boom in London & Dublin from 2002-2007 has me spooked! The wheels seem to have well & truly come off there!!

 

[Trogdor]

Hi Trogdor,

No , I am happily renting a lovely new apartment (with pregnant wife!) that must be a bloody awful IP considering that we pay 450pw v.large 2 bed with ocean views & it must be 'worth' $700k+

We are fine with renting for ourselves, & not bothered with the usual arguments people have with renting (ie the warm fuzzy feeling, not putting pictures up, being moved on by LL selling up etc) We are v.good tenants, I usually pay 6 months up front, make sure (as much as possible) that the LL is looking for a long term tenant etc.

We are happy to Invest in property & rent a place we couldnt afford to buy. I am sure we will buy a 'home' one day, but not just now.

What do you reckon?!

I understand completely - Im also renting and investing.

Next year Im gonnna move into one IP and pay it off and borrow out deposits to buy more IPs.

Lets do some sums. You pay 450pw now - $23,400 - pa.

You could say buy something for 500k now

Mortgage payments will be $0 (500k property) [I've neglected repairs, rates, etc, these will be a few K extra].

Assume you can "slum it" with a 500k PPOR. Zero rent instread of 23.4k pa (after tax)

Now if if you borrow back out 400k as separate loans for deposits for IPs, then buy IPs, and say you ar eon the 40% tax bracket you can buy many IPs before you "use up" 23.4k pa of after tax money!!

See where Im going with this?

If the 500k property is insufficient you can borrow a bit more and buy a 600k or 700k property. Then quickly pay down the 100 - 200k loan, and re-borrow separate loans for deposits for IPs.

What do you reckon?

 

[murrayo]

I understand completely - Im also renting and investing.

Next year Im gonnna move into one IP and pay it off and borrow out deposits to buy more IPs.

Lets do some sums. You pay 450pw now - $23,400 - pa.

You could say buy something for 500k now

Mortgage payments will be $0 (500k property) [I've neglected repairs, rates, etc, these will be a few K extra].

Assume you can "slum it" with a 500k PPOR. Zero rent instread of 23.4k pa (after tax)

Now if if you borrow back out 400k as separate loans for deposits for IPs, then buy IPs, and say you ar eon the 40% tax bracket you can buy many IPs before you "use up" 23.4k pa of after tax money!!

See where Im going with this?

If the 500k property is insufficient you can borrow a bit more and buy a 600k or 700k property. Then quickly pay down the 100 - 200k loan, and re-borrow separate loans for deposits for IPs.

What do you reckon?

Hi,

Thanks for the replies, much appreciated.

Would you mind explaining a bit further - the bit about the 40% tax bracket, & buying many IP's before using up 23.4k please ? I dont understand fully.

A 500k PPoR would suffice for now, if it made sense to buy it. We're not that posh !

Thanks !

 

[yo yo ma]

Do you think that the Sunny Coast is a good area for IP?
Do you see a serious flaw in my plan?
What would you do with $500k cash now?

Absolutely agree that it is a great area because of the population growth and infrastructure improvements.

Your plan sounds good to me. Keep renting and invest the cash.

I would be buying blue chip shares but I am happy to live with the increased risk.

 

[sunshine]

You would say that the SC is good for IP & CG !! (judging by your name!)
Why do you think it will be good for IP?? (dont be a biased 'VI' now!)

We moved here from NSW almost 2 years ago. We hold some IP's in NSW. We purchased 2 last year up here. One we made our PPOR (for the moment).

My personal opinion is that I think Sydney is getting ready to take off. Our strategy is to purchase undervalue, OR be able to add value either with reno or subdivision, so that is why I like to purchase in my own backyard. I can't cope with long distance renos. (Did one last year).

The people I have come across since moving here either have good jobs or no jobs (as in don't need to work anymore) and have moved here for the lifestyle. No mortgage stress. Sold up wherever and are cashed up and living it up where they want to be.

Lifestyle brought us here. I guess the people I have mainly met appear to be on high paying salaries, merchant seaman, pilots, engineers or self employed. It appears to be the place where the wife and kids are happy and hubby can fly in and fly out to work.

Also, like yourself, immigrants seem to fall in love with this place and do whatever it takes to live here. Can't say I blame them either.

On a recent OS holiday, I met some people from Vic, and they had been doing a bit of research on the Sunny Coast and thinking of moving the family up here. They could not believe that you can get a house 1 or 2 streets from the beach for $500k or so and not be in the middle of woop woop. I am sure they are not the only ones...

Sunshine

 

[Spectre]

IMO - units have taken a decent hit in price in the areas you are looking at. IF i was putting in offers on them now I'd be starting way under list - i.e. list at 350 offer 290750 and wait for the counter offer from the vendor.

In one of the buildings I own in theres 2 units on the market >3 months. But IMO the owners are dreaming to think they'll get 500k for them and would think 410-420 would be a more realistic price.

Point here being these are also the older stock units and not renovated, building is in bad condition. But on the flip side many of the older ones are in prime locations.

We just financed a client on a purchase in Mooloolaba and val fell $40k short.

The way I look at it though - would way rather have $ in property than in the stock market with a margin call coming to wipe you out.

 

[DadOfSam]

Hi ,

I have started investigating (ie financial planner & MB meeting etc) organising a property portfolio, starting on the Sunshine Coast.(As this is where we have settled & I would prefer somewhere I can keep my eye on)

I have $500k cash (dying a death in a term deposit ATM!)
with which I plan to buy 4 properties at approx $300k-$350k each
($100k deposit on each with a $200k-$250k mortgage on each)

I figure this way the mortgage payments will come in at approx.$350pw which could be covered by the rents therefore Neutrally / +ve geared.

I tend to prefer the bottom end of the market as I feel that there will always be a demand for these. I have 3 properties in the UK that are small apartments, always rented (10yrs now!) & v.good CG over the yrs.

I plan to buy 1 or 2 on the Coast, the remainder in Brisbane, close to CBD etc
as I am seeing an increasing amount of auction properties passing in & being sold post auction by 'motivated' vendors at seemingly 'knockdown' prices , which is getting me thinking about getting in now & lowballing offers, until I get lucky.


My questions to the forum are;

Do you think that the Sunny Coast is a good area for IP?
Do you see a serious flaw in my plan?
What would you do with $500k cash now?

Thank you in advance for any advice!

Murrayo.

I'd be cautious. There's plenty of desperate vendors having a lot of trouble selling their SC places. Not as bad as the Gold Coast, but check out the auction listings on realestate.com.au (the "Auction Times" search is easiest) to gauge the markets' sentiment. Auction's are what I've been monitoring and it's been a bloodbath there for most of this year. I'm not a fan of seeing "Must Sell!" auctions getting routinely passed in, and that's been the reality. There are usually more than one midweek mass auction around where you are looking, so I'd recommend you take the time to sit in on one or more, try and coax the locals to reveal their true thoughts on the market and gauge price trends.

But if you are going to get into this market, ignore the local sales guys' advice, buy only at a heavy discount, and keep the LVR within a manageable level and plenty of cash for any cash flow shortfalls. The local economies are going to be at the sharp end of any national economic downturn so there's plenty of time to pick your targets and walk away if the vendor won't meet the market.

 

[sunshine]

I'd be cautious. There's plenty of desperate vendors having a lot of trouble selling their SC places.

Personally I don't even look at a place unless it has a motivated vendor. So for me now is the perfect buying time, and coming in to the ideal renting time.

I don't think there is as much stock around compared to 05/06. This year the auctions seem to be in correlation with the stock market drop. I don't see as many Mortgagee in Possession sales at the moment compared to earlier this year though (or maybe that should be yet!)

It would also appear (according to the Saturday Sunshine Coast Daily Property Auction Section) that most properties being passed in at auction are under contract very soon after.

I am not really talking the market up, as just like everywhere else, there are certain areas that I would steer clear of.

Sunshine

 

[murrayo]

Hi Sunshine,

Where would you steer clear from , out of interest? (maybe best to PM me!)

I think anything 'surfside' of the Nicklin way that I could add value to (& buy at heavy discount from a motivated vendor) would be good- but not apartments - too many I feel.... (unless it was a cracker with a view & great price)

I'm thinking more along the lines of a 400k house (3 bed) for 350k cash & add value (ie re-dec reno) these would be neutral/barely CF+

ps.I have got the hang of buying a PPoR for 500k & buying 2 or 3 IPs now, & how that works (tax breaks & write offs etc)!! I think i'll go about it that way.......

Any other ideas guys ??

 

[Gatoblanco]

Any other ideas guys ??

I would definitely get something surfside of Nicklin Way.

 

[Sydneysider]

To the OP:

Hi, I'll admit firstly that I'm a bear and visiting from an unpopular forum, but I noticed this thread since I holiday and have very good family friends living in SC QLD, including an uncle and aunty who work for a RE body corporate up there.

They have mentioned that they think the market will be flat for a few years, but they don't share my opinion that it will fall.

I think in light of the current economic events rocking the financial landscape (a looming recession, commodities bust and falling house prices in QLD) that taking on significant debt (in your example, $1 million) would be a mistake.

Your position would be to go from owning $500K of assets which generate $35K of income to being $1 Million in debt and generating $72800 p/a, which from your opening post seems to indicate it will only break even or perhaps generate very small amounts of profit (income ahead of interest payments).

I think to voluntarily destroy your balance sheet from

Assets
$500K
Liabilities
$0
Income
$35K
Profit
$35K

to

Assets
$1400K
Liabilities
$900K
Income
$72800
Profit
~ $18K (6% p/a)
~ $10K (7% p/a)
~ 0 (8% p/a)

Is very risky.

Also, consider what has happened in the past, if interest rates were to rise rapidly, above 8% in the example I offered, your balance sheet would actually be in a deficit.

At the moment cash rates are paying pretty good rates (~7%) so I don't see why you think your cash is dying in a TD.

I know you believe that the assets will go up but there is also the possibility that they will stay flat or decline. The big thing to watch is that debt column. I also understand that you can claim tax breaks from negative gearing but keep in mind you also pay capital gains tax on any profits made also from CG.

Paying tax is a sign that you are making money. I think that leveraging up your position in the current market is a big risk to take.

Also if you wanted to play on the safe side, why not buy a single IP outright? You would be servicing no debt, still have $150K in the bank and have a combined earnings of rent + interest of $28700 and your $350K asset. People would kill in the current climate to have an all assets all income no liabilities balance sheet!

 

[yo yo ma]

Hi and welcome Sydneysider; Nothing wrong with different opinions here and thanks for giving yours - You raised some good points.

At the moment cash rates are paying pretty good rates (~7%) so I don't see why you think your cash is dying in a TD.

The interest in the term deposit is being eroded by inflation and taxation; hence, this is why the OP said the TD is dying. Also interest rates are heading south which is not good for people with TDs.

I know you believe that the assets will go up but there is also the possibility that they will stay flat or decline.

That is true but if you wish to invest in property, there is always going to be that risk. If the OP has a short term investment strategy, then I would agree with you. If it is for the medium to long term (7 years plus), then there is a probability that the property will increase.

The big thing to watch is that debt column. I also understand that you can claim tax breaks from negative gearing but keep in mind you also pay capital gains tax on any profits made also from CG.

Paying tax is a sign that you are making money.

True that you must be careful with debt but it can benefit you if handled well. You only pay CGT when you sell and paying that tax is a sign you are making money.

Also if you wanted to play on the safe side, why not buy a single IP outright? You would be servicing no debt, still have $150K in the bank and have a combined earnings of rent + interest of $28700 and your $350K asset. People would kill in the current climate to have an all assets all income no liabilities balance sheet!

Depends on the persons attitude to risk - This would eliminate most of the risk but be very poor taxwise. Still, better than doing nothing though. I am more aggressive and am prepared to take on more risk but each person has to make their own choices.

 

[murrayo]

Thanks Sydneysider,

I appreciate your comments & partly agree with you, the 'bear' in me is the reason that I have the 500k in the first place! (ie;I sold to rent in an overheated market in Dublin - looks like perfect timing in hindsight! - luck/judgement - who knows?!)

I am seeing what I consider great deals presenting themselves ATM eg;

6 bed brick & tile ,completely renovated house on 1200sqm in cul de sac (good area) bought for 620k 2 yrs ago, I have an offer in for 498 cash - they havent said NO yet ! - v. motivated vendor (this could be our PPoR)

5 bed for sale @ 585k - cul de sac , brick & tile, 2 miles to beach, 1000sq m land, my offer is in for 403k & its being considered, again, v.motivated vendor - would rent for 450pw easy, render & redec would increase value considerably.....

there are more.........

I have other IP's in the Uk that are all but paid out, so income from them is good. We are a 100k income household , but this will increase in the next year, when my business expands - only been going a few months - & wife goes back to work after baby.

I know that the prices 2 yrs ago mean nothing today, but when I see a FIVE bed home (eg #2) going for 4 x $100k salary (or 2 teachers/nurses/police salaries) I think that with the gov. incentives, LONG TERM capital growth & growing SC population,..... its staring me in the face .....

any thoughts??..........

 

[Sydneysider]

a quick comment on inflation and taxation of savings:

Banks must clearly set interest rates above the rate of inflation, yet, after taxation, it is possible that savings are not increasing in line with inflation (they are deflating). How do we measure this?

Well, the CPI is measured by the cost of goods, the consumer price index, producer price index etc. Whilst some costs go up not all things in society move uniformly in terms of price. For instance the CPI is often measured in milk, bread, the price of cheese, fuel etc. However the price of computers, laptops and desktops for instance has constantly dropped. You're better off waiting longer to buy one because they constantly get cheaper or better performance for the same price.

Another thing to think about is in terms of asset classes or proportions of income. A 10% rise in the cost of food might mean that in terms of income, it costs $1000 more per year to buy the same food. If there is a 10% increase in food and you earn 40K per year, that represents a 2.5% decrease in your income. This happened recently in Australia to many people when fuel prices rose and stayed high. So if requesting a wage increase, a 10% increase doesn't have to be passed on, only a 2.5% increase.

Where am I going with this? Well, different goods have different price movements. I don't think it makes sense to measure a $500K asset in terms of the inflation in bread and cheese, the only measure that makes sense would be goods in that range of price (houses).

Now assuming that you were taxed in the highest bracket at 45%, the 500K in the TD would earn $19250, or 3.85%. The critical question is whether or not houses will increase in price higher or lower than this rate (short term, long term etc). That 3.85% is currently guaranteed, although as we have seen internationally banks can also be risky institutions.

If you look at some data for property, for instance http://www.rpdata.com/ you will find that the QLD market has stayed flat or even fallen by up to 2.63% (which would equal a drop in equity of $37K - because of the leverage, because of the extra $1 million debt).

Keep in mind that those market figures are pre recession figures.

My main point is that large fluctuations in milk and cheese prices aren't going to impact your income much. But small fluctuations in house prices will impact your balance sheet hugely.

 

[aussierogue]

Gotta agree with sydneysider.

You are in a great position and you are willing to risk it all for a minimal reward. Under normal circumstances and in a flat and rising market your ideas make sence but there are too many indicators out there pointing to a substancial asset price fall accross the board. Im not saying a deep recession or a depression is definatley gonna happen BUT why have the stress of a 900k mortgage when this hangs over the economies head? Makes great sense to keep investing but play with less. Whats the rush...Sydneysiders advise is spot on.

(BTW gotta admit your numbers sound interesting if not a bit scary for those already holding in these areas. You are offering 30 pct under the listed price and they are considering...if that uis the case it wont be an isolated incident and it wont go way overnight)

Cheers
Rogue