First post: new to IP and buying in Perth

[Apex]

Hi everyone,

I've had the good fortune to stumble across this forum while doing my research on IPs and would like to say what many others have said before, what a wealth of knowledge and information to be found! I've been lurking for a while now reading the old threads and this is my first post. I have no experience in property investment but am very keen on acquiring my first one this year.

A little on my background - I am 24 years old, been working full-time for 2 years and have saved ~100k for a property. I have a gross income of ~80k a year and no debt (no car loan, HECS, credit card). I regularly save >$3000 a month, am still living at home in Perth and offer a monthly household contribution, which keeps my living expenses to a minimum. My parents are willing to help me out if needed as they have paid off their mortgage.

My plan is to buy one IP this year and rent it out, raise equity within 12 months, which will hopefully enable me to buy me a PPOR next year so I can move out from home. Then I will continue acquiring more properties from there. My ultimate goal is to do what other investors (such as westminster) are doing - developing blocks with apartments/townhouses/units, but I am a long way from doing that

As I am new to IP I might be thinking about things the wrong way so please feel free to let me know if any of this sounds silly

I'm not sure what property types I should be looking at for maximum capital growth. I have been looking at all sorts of properties NOR:
- 4x2/3x2 houses within 10km radius of the city, with potential for subdivision for (eg Girrawheen, Koondoola).
- established family homes close to amenities (Warwick, Hamersley, Padbury, Alexander Heights, Ballajura).
- areas with potential for future development such as Bassendean and Ashfield.
- houses within boundary of Mitchell Fwy, Morley Dve and Tonkin Hwy are desirable but generally out of my price range.

Another thing I have considered is building - is now a smart time to buy a block of land (further from the city) and build with the intention of selling for a profit? I guess what I want to know is how to best utilise the money I have now for maximum gain.

Any advice or suggestions would be greatly appreciated, thanks

P.S. Is there anyone on this forum who was at the Residential Property Outlook breakfast on Wednesday at the Convention Centre?

 

[Rixter]

Apex, this is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve and in the time frame you want to do it in.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

I've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Babyboomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of
tax free income indexed for life!

For further information please follow the link to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

 

[westminster]

Hi Apex,
Welcome to the forum - I guess you must have been reading my drama filled threads

Rixter has outlined a great strategy which has worked well for him.
I don't have a name for my strategy as I'm still learning my way and haven't been doing it as long. I love building and I feel that building is an excellent way to get growth and also reduce stupid taxes like stamp duty - for example if you buy a block for $100k and build a $200k house you only have to pay stamp duty on the $100k not the $300k it might have cost if you buy established.

Have you considered using the FHOG to help out a bit well? You already have an awesome deposit but it has excellent stamp duty savings. You need to move in before 12mths is up then live in it for let's say 6-12mths then you can turn it back into an IP. I would highly recommend seeking one of the brokers on here for advice on this to set it up in the best way.

I think it's a pretty good time to buy a block and build. You don't have to go too far out but if you do stick to train lines. Check out the various infill blocks in the 10km radius or check out near major new infrastructure like the new Swan hospital, murdoch hospital

 

[HD_ACE]

as you have already mentioned subdivision is a popular strategy.

you could buy a retain and build block where you subdivide the backyard. you could then sell the extra block, build on the block and sell or hold and now you have two ips. You could now access the equity for your ppor if this is what you wish. There is also oportunity to reno the existing house for more value or rent. you could sell the existing house and keep the new house to take advantage of the higher rent and higherdepreciation.

Ofcourse this strategy will take some time for approvals and the build which seems you have. And it will also take some capital for subdivision costs etc so you would have to plan it right from the start knowing how much deposit to use on the first purchase so you have enough left over. It may require lmi etc.

If you start off on retain and builds, it requires less outlay, and you can still recieve an income while you subdivide and build. you also dont have the costs of two or three build plus demolition etc. Rinse and repeat a few times to build your equity and you can then start on bigger developments ie triplex or multipledwelling such as westminister is undertaking.

This is my strategy of choice at the moment. Ofcourse it will depend on your end goals and your expected income in the future but anything can be mixed and matched.

What is your overall plan. passive income? ppor payed off etc? then we can look at how you can get there.

cheers

 

[MTR]

Hi everyone,

I've had the good fortune to stumble across this forum while doing my research on IPs and would like to say what many others have said before, what a wealth of knowledge and information to be found! I've been lurking for a while now reading the old threads and this is my first post. I have no experience in property investment but am very keen on acquiring my first one this year.

A little on my background - I am 24 years old, been working full-time for 2 years and have saved ~100k for a property. I have a gross income of ~80k a year and no debt (no car loan, HECS, credit card). I regularly save >$3000 a month, am still living at home in Perth and offer a monthly household contribution, which keeps my living expenses to a minimum. My parents are willing to help me out if needed as they have paid off their mortgage.

My plan is to buy one IP this year and rent it out, raise equity within 12 months, which will hopefully enable me to buy me a PPOR next year so I can move out from home. Then I will continue acquiring more properties from there. My ultimate goal is to do what other investors (such as westminster) are doing - developing blocks with apartments/townhouses/units, but I am a long way from doing that

As I am new to IP I might be thinking about things the wrong way so please feel free to let me know if any of this sounds silly

I'm not sure what property types I should be looking at for maximum capital growth. I have been looking at all sorts of properties NOR:
- 4x2/3x2 houses within 10km radius of the city, with potential for subdivision for (eg Girrawheen, Koondoola).
- established family homes close to amenities (Warwick, Hamersley, Padbury, Alexander Heights, Ballajura).
- areas with potential for future development such as Bassendean and Ashfield.
- houses within boundary of Mitchell Fwy, Morley Dve and Tonkin Hwy are desirable but generally out of my price range.

Another thing I have considered is building - is now a smart time to buy a block of land (further from the city) and build with the intention of selling for a profit? I guess what I want to know is how to best utilise the money I have now for maximum gain.

Any advice or suggestions would be greatly appreciated, thanks

P.S. Is there anyone on this forum who was at the Residential Property Outlook breakfast on Wednesday at the Convention Centre?

Hi
and welcome....
I will only talk from my experience, investing over the last 12 years now, how time flys...

I would buy as close as possible to city, ouch, it will hurt, not if you purchase in areas that are on the nose, Girrawheen and Koondoola, you are on the right track, cheap to hold and rezoning in approx 18 months time. Nollarmara, Westminster and Balga were also on the nose 10 years ago, history repeating itself.

Land and house packages, have been researching this North (in main) but not too exciting, with depreciation you will probably be neutral but plenty of stock so dont expect immediate growth.

MTR

 

[HD_ACE]

Also just to mention if you do buy an ip first and refinance the equity for your ppor, this portion will not be deductible tax wise. So it maybe wise to use as little deposit as possible then use your cash for the ppor deposit. Or develop to sell to release the profit to be used. Or buy ppor first and then refinance for deposit for ip as it will then be deductible.

Many options which im sure a good broker can plan for from the start.

Some food for thought.

Cheers

 

[Aaron Sice]

my advice is rent and buy IP or buy a 2bed unit/apt close to transport.

 

[Apex]

Thank you everyone for your responses and for welcoming me to the forum. I have been thinking about what you've all suggested and advised so that's why I've taken so long to post again.

I've listed some questions below (possibly very basic but I'm just starting), mostly for my reference, They are not aimed at anyone in particular, just came out from reading your posts. I will attempt to find the answers myself, but feel free to answer.

Rixter

- How do I determine if a property is at or below market value? I know you can get independent valuations from a property valuer but are there any other ways?
- What does having a >30% land component mean?
- Where do I find data for historical capital growth?
- Apart from keeping an eye on the news, how do you know if the government, commercial, retail and private sectors will inject money into an area? All I've been looking at are the local council websites andthe DPI for plans.

westminster

Yes I have been reading your threads, what you are doing sounds so fun and exciting (albeit stressful)

- I have considered using the FHOG, but always thought I would be better off starting off with IP as most people on this forum
- What is the average time taken to build a house in Perth at present?

With the infill block there's a few around in the northern suburbs which I've driven past, lot sizes are small and I think in the 300-400k range. Also many new units in the area going for very high prices - are these desirable? Who can actually afford these?

HD_ACE

Also just to mention if you do buy an ip first and refinance the equity for your ppor, this portion will not be deductible tax wise. So it maybe wise to use as little deposit as possible then use your cash for the ppor deposit. Or develop to sell to release the profit to be used. Or buy ppor first and then refinance for deposit for ip as it will then be deductible.

Many options which im sure a good broker can plan for from the start.

Some food for thought.

Thanks HD_ACE, I hadn't thought about this. There are so many options, I need to sit down and re-think my goals and strategy.

MTR

Should have looked into KGB last year when there was less attention on it. Demand on the area has pushed prices up and I think I can get better value elsewhere. Also, re-zoning has been on the cards for a while but it's taking so long for it to happen.

Also looked at Alkimos and Catalina, I think there will be growth in these two but like you said will be years later from now.

- Are there any merits to buying an established family home for rent in the suburbs, are the gains to be had from this type of IP nowhere near what you would get from smaller dwellings?

I'm being overwhelmed by all the information but I am loving it. I don't want to rush in too soon without being equipped with the right knowledge so will continue with mapping out my plans and doing more research. Thanks for the input all

 

[westminster]

The reason I suggested the FHOG is the savings the govt is willing to give you - it's a one off opportunity though.

Done smartly you can quickly turn it into an IP. I believe the rules are that you can rent it out at the beginning as long as you move in before 12mths is up. Then you need to live in it for awhile - let's say 6-12mths then you revert it back to IP again.

http://www.finance.wa.gov.au/cms/content.aspx?id=2011

There is the $7000 FHOG plus if you buy land up to $300k it is stamp duty free or if you buy established home up to $500k it is stamp duty free.

If you were to buy a $500k property the duty is $17,000. If you buy it as a FHO then it's $0

Building a house takes around 9-12mths depending on how long you and your builder faff around

Builders and Land Developers are still pretty hungry for deals but won't be for too much longer.

 

[MTR]

Thank you everyone for your responses and for welcoming me to the forum. I have been thinking about what you've all suggested and advised so that's why I've taken so long to post again.

I've listed some questions below (possibly very basic but I'm just starting), mostly for my reference, They are not aimed at anyone in particular, just came out from reading your posts. I will attempt to find the answers myself, but feel free to answer.

Rixter

- How do I determine if a property is at or below market value? I know you can get independent valuations from a property valuer but are there any other ways?
- What does having a >30% land component mean?
- Where do I find data for historical capital growth?
- Apart from keeping an eye on the news, how do you know if the government, commercial, retail and private sectors will inject money into an area? All I've been looking at are the local council websites andthe DPI for plans.

westminster

Yes I have been reading your threads, what you are doing sounds so fun and exciting (albeit stressful)

- I have considered using the FHOG, but always thought I would be better off starting off with IP as most people on this forum
- What is the average time taken to build a house in Perth at present?

With the infill block there's a few around in the northern suburbs which I've driven past, lot sizes are small and I think in the 300-400k range. Also many new units in the area going for very high prices - are these desirable? Who can actually afford these?

HD_ACE



Thanks HD_ACE, I hadn't thought about this. There are so many options, I need to sit down and re-think my goals and strategy.

MTR

Should have looked into KGB last year when there was less attention on it. Demand on the area has pushed prices up and I think I can get better value elsewhere. Also, re-zoning has been on the cards for a while but it's taking so long for it to happen.

Also looked at Alkimos and Catalina, I think there will be growth in these two but like you said will be years later from now.

- Are there any merits to buying an established family home for rent in the suburbs, are the gains to be had from this type of IP nowhere near what you would get from smaller dwellings?

I'm being overwhelmed by all the information but I am loving it. I don't want to rush in too soon without being equipped with the right knowledge so will continue with mapping out my plans and doing more research. Thanks for the input all

Satterley are involved in renovating properties in Girrawheen and Koondoola as part of government program, these houses are considerably cheaper (perhaps as much as 20-30% equity) but only for first home buyers (conditions apply).

Am currently looking at this for my daughter. Something u may want to research. Buy now, develop rear in 12-18 months.



Mtr

 

[Rixter]

Rixter

- How do I determine if a property is at or below market value? I know you can get independent valuations from a property valuer but are there any other ways?

Conducting your own market research. Subscribe to rpdata, pricefinder, residex etc for the latest sales figures, and property inspections on comparative properties.

- What does having a >30% land component mean?

Total Lot area ratio to courtyard area
Basically purchasing a villa or townhouse which has a courtyard out the back. There by eliminating highrise apartments which have a balcony only.

- Where do I find data for historical capital growth?

Sales data supplier, Various property magazines also list data in the back of their publications etc

- Apart from keeping an eye on the news, how do you know if the government, commercial, retail and private sectors will inject money into an area? All I've been looking at are the local council websites andthe DPI for plans.

Here are my tips I have found that work very well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Look to invest in areas that are planned for and/or are about to go under gentrification.

Typically look to where all the following 3 sectors are injecting money -

1/ State/Federal Government. ie Major arterial roads, New Public Transport, Hospitals, Suburb Redevelopment Authorities being formed. etc

2/ Big Multi National Retail & Commercial type companies. ie Major Shopping Centres, McDonalds Hungry Jacks, KFC, Bunnings, Harvey Normans, Good Guys, etc. These companies spend $Millions on market research before going into and setting up shop in an area. If there was no current or immediate future demand for their products and services they would not be moving in, so leverage off the back of their research.

3/ Private People/Investors. ie Owner occupiers and Investors bowling over old houses then rebuilding new modern homes and redeveloping town houses / villas.

All these ultimately beautify and uplift an area. People are attracted to the new look/feel so start moving in creating demand.

These were the foundation I used in my early days of building the multi $million portfolio we hold today.

I research online & offline.

Check out all the federal/state/local government planning & development websites at this one convenient link http://www.oultwood.com/localgov/countries/australia.php

Other sources I use to gather info are local newspapers, community news, local businesses, and people in the area.....general networking etc.

I hope this helps.

 

[INVSTOR]

You Perthites write long posts

 

[Apex]

Update

Just wanting to post an update to share my experiences as a first home buyer, and will continue to post to this thread to track my thoughts and progress, evaluate my findings, and to make myself accountable.

Since my first post I’ve had to backtrack to really think about and better define my financial and life goals. After reading one of Jan Somers’ books I now have an understanding of why people invest in property. I have a clearer idea of my overall financial position as I have summarised my yearly income and average expenditure, plus what I expect my biggest spends for the next 2-3 years will be realistically (apart from property). I kept telling myself it would be minimal to zero, and that I can live without the odd luxury but I was just fooling myself!

My research has included
-Reading articles on SS
-Looking at properties on realestate.com
-Talking to friends/family and RE agents about property
-Development plans in Perth
-Reading about the factors that affect the property market

All this research has given me a better feel for the Perth property market that people always talk about.

I’ve encountered lots of sleepless nights because my mind is always churning away! I am probably going through the same thought processes that any nervous FHB would - the 400k purchase will be the biggest spend of my life and I don’t want make a poor choice in terms of my investment (what, where, why and when), where I suppose the worst outcome will be negative to little growth.

After all this thinking, I’ve come to the conclusion that I can only do so much research as I am capable of, I have to consider my own circumstances, and no one can predict the future. So the final decision that I make will be the best one for me at that point in time. If it’s a mistake, I will find some way to deal with it. Exactly what several people have pointed out already

My homework for the next month:

-Speak to a broker to set me on the best possible path to begin with – hopefully one on SS with knowledge of the Perth property market – if this is you please send me a PM I have decided to buy my first property as a FHB and then turn it into an IP to take advantage of the FHB grant.
-Go to more home opens and auctions
-Speak to local councils

Anyway some questions I have…

1. How often do local councils delay their development plans and what factors cause them to defer or completely cancel plans? I am referring to rezoning and shopping centre upgrades in particular.

2. Increasing my budget will broaden my available property options, but will this increase the magnitude and potential for capital growth in general? (Assuming that I will be able to service the loan and that I make a good investment choice)

3. How can an accountant help with finances and property investments? (Other than help with making claims relating to rental property expenses)

Sorry for the massive post and thanks for bearing with my thoughts and questions!

Apex

 

[Apex]

You Perthites write long posts

You have been proven right

 

[UrbanPlanner]

1. How often do local councils delay their development plans and what factors cause them to defer or completely cancel plans? I am referring to rezoning and shopping centre upgrades in particular.

Council delays are almost always politically driven, when it's not politics it's incompetent Council staff, when it's neither of these the job usually gets done. It depends on the type of planning though. Strategic planning (structure plans, rezoning etc) usually takes 9-12 months to get through simply due to the process. Even longer if the strategic plan is Council driven (as opposed to a developers proposal) as Councils have no sense of urgency and don't have a developer to keep them honest.

Statutory planning (development proposals ie shopping centre upgrades) usually involve a much quicker timeframe (3 months) and the introduction of Development Assessment Panels has ensured this timeframe is strictly adhered to for large developments. Delays in this case are usually due to the Council not supporting certain aspect(s) of the DA and the developer can then either work with the Council to resolve it, or take a risk and tell them to shove it as the DAP makes the final decision, with the Council only providing a recommendation to the DAP

 

[Apex]

Thanks for the info UrbanPlanner, much appreciated - I was reading about an interesting proposal by the City of Stirling to re-invigorate the Dianella Plaza. The plans were there since ~2010 but it looks like it's come to a standstill, hence my question. I also spoke to a real estate agent a few weeks ago and after hearing about my plans to buy in Girrawheen/Koondoola, she advised me against it saying that the council has been planning to rezone these suburbs for years, but the plans keep getting delayed.

 

[INVSTOR]

The proposed zoning doesn't always go ahead also. Halfway through the last upturn cycle ( Feb 2005) i purchased a property that was proposed r20/r40. It kept getting delayed and eventually was rezoned r20/r30. Then the downturn in property occurred. An investor who purchased in the same street and subdivided has had his block of land on the market for about 4 years, still unsold, and has just sold the house after being on and off the market over that period also. The house would have sold for close to what he paid for the whole property about 5 or 6 years ago, (or maybe longer) but just make sure if you are buying property not rezoned that you may need to hold for longer.

 

[MTR]

Thanks for the info UrbanPlanner, much appreciated - I was reading about an interesting proposal by the City of Stirling to re-invigorate the Dianella Plaza. The plans were there since ~2010 but it looks like it's come to a standstill, hence my question. I also spoke to a real estate agent a few weeks ago and after hearing about my plans to buy in Girrawheen/Koondoola, she advised me against it saying that the council has been planning to rezone these suburbs for years, but the plans keep getting delayed.

Unfortunately this happens with Councils, delays and more delays. BTW, I would take what RE agents say with a grain of salt.

Its a rising market and I have seen price jumps of 20% in Girrawheen over the last 6 months. Will it continue, no idea, but there is no stock, demand is greater than supply, my guess is it will continue to rise.

This property below would have sold for about $310-320K 6 months ago, wonder how many offers they will get on this, new listing, everything else is pretty much under offer. This is not even the better pocket of Girrawheen, does not matter anymore.

http://www.realestate.com.au/property-house-wa-girrawheen-113169599?rsf=emailalert-propdetails

At the end of the day it is a great time to buy in Perth wherever you choose just get in and enjoy the ride.

MTR

 

[INVSTOR]

Unfortunately this happens with Councils, delays and more delays. BTW, I would take what RE agents say with a grain of salt.

Its a rising market and I have seen price jumps of 20% in Girrawheen over the last 6 months. Will it continue, no idea, but there is no stock, demand is greater than supply, my guess is it will continue to rise.

This property below would have sold for about $310-320K 6 months ago, wonder how many offers they will get on this, new listing, everything else is pretty much under offer. This is not even the better pocket of Girrawheen, does not matter anymore.

http://www.realestate.com.au/property-house-wa-girrawheen-113169599?rsf=emailalert-propdetails

At the end of the day it is a great time to buy in Perth wherever you choose just get in and enjoy the ride.

MTR

I was looking last night at sold property prices, such a big change. I agree it's a great time to buy, still good opportunities!

 

[MTR]

Hi Invstor
It is a great time to be best friends/networking with the RE agent.

Looking at buying before something hits the market otherwise its just so difficult with multiple offers.

MTR