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From: Mike .


strategies for a newbie
From: Cam
Date: 21 Feb 2001
Time: 17:47:09

I am wondering if anyone could give me/us newbies some advice for finding deals. Is there something I might subscribe to, should I just be looking in the papers and if so what are some good indicators? I am feeling very inexperienced under the weight of information on real estate investing, but I am up to the challenge and am looking for a starting point.

Thanks in advance, Cam.
 
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JohnE

Reply: 1
From: Mike .


Re: strategies for a newbie
From: JohnE
Date: 21 Feb 2001
Time: 18:39:22

What can paralyse is the belief that one must get the 'the buy of the lifetime', a steal. I know some buyers do better but anything that is reasonable usually goes for market price.

First, restrict yourself to the locality you and yours are most familiar with. Get a diary, go to open houses in your price range and make basic notes. Compare and think. An independent valuation and a building inspection are cheap outlays when you've found a good prospect.

I think a 2 BR unit in a small block in an established area is the best starter buy. One that would rent for the average price for the suburb but hopefully for no more than $200 pw in most areas. Hard to go wrong if you can see that all of the other units are occupied and the whole package looks well kept. By knocking on doors you can ask a few residents about the place. Some will be renters.
 
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Cam

Reply: 1.1
From: Mike .


Re: strategies for a newbie
From: Cam
Date: 21 Feb 2001
Time: 19:25:41

Thank you, I appreciate the reply. Very helpful.
 
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Marshall

Reply: 1.1.1
From: Mike .


Re: strategies for a newbie
From: Marshall
Date: 21 Feb 2001
Time: 23:06:59

Cam

I agree wholeheartedly with JohnE. The only way I found my IP (1 and counting)is by selecting an area and looking, looking, looking. Apart from looking, it can be very useful to ask the agents lots of questions.

For example; Why are the owners selling? Are the sellers very motivated to move on? Do you have any other properties similar to this that might be of interest?

The only way I found my place was through asking questions, most of the agents were not helpful - but it only takes one.

Enough of my ramblings, go for it!

By the way - if you are from Sydney you may wish to come along to the Cashflow gathering this Sunday.....see other posts.
 
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Mike

Reply: 2
From: Mike .


Re: strategies for a newbie
From: Mike
Date: 22 Feb 2001
Time: 07:57:32

Hi Cam,

You said: "I am feeling very inexperienced under the weight of information on real estate investing"

Are you saying that information is not helping your decision-making? Or that the amount of information is confusing you?

The two essential elements to get right with property investment are the financial/loan structure and the property selection. The investment return on the property must match your financial objectives.

Some people on this forum are buying property mainly for capital growth and are willing to finance as a negatively geared property. Others require an income stream and look for property with higher yield characteristics. Others buy new property to maximise the tax advantages. Others renovate to increase tax credit on renos and to improve rental yield.

Have you worked out your investment strategy, yet?

Once you have, I suggest you use the services of a mortgage broker who understands the needs of investors. Most mortgages that are brokered are for the family home. A mortgage broker who has only experience in this sector may not be experienced enough to advise you on the correct financial structure for property investment.

I suggest a good place to start is to ask Rolf on this forum who happens to be a mortgage broker and is interested enough in this area to participate on the forum. incidentally, whatever figure the banks arrive at as your maximum borrowing capacity, doesn't mean you have to go out and buy for that much. For example, I recently bought an IP for $240,000 although my borrowing capacity was $295,000.

Once you have calculated your borrowing capacity and determined whether you want your returns mainly from rent or capital gain or tax credits, then go and find a property that will deliver the particular outcome you want.

As a newbie, I strongly advise you to engage the services of someone who understands the financial performance characteristics I have spoken about. Some people on this forum think this is an area that all people should take upon themselves. I disagree. If you don't get the right type of property to suit your financial goals, then you've wasted your time and it could turn out to be a financial disaster.

I strongly recommend you don't get advice from real estate agents who have a vested interest in off-loading properties on their list. I would engage a Flipper or a Buyer's Agent. Another alternative is a reputable Property Management company who source new or off-the-plan property for their investor clientele.

Regards, Mike
 
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Cam

Reply: 2.1
From: Mike .


Re: strategies for a newbie, my thoughts
From: Cam
Date: 22 Feb 2001
Time: 13:19:39

I regret that I did not keep up with all the replies. Thank you.

Mike>"Are you saying that information is not helping your decision-making? Or that the amount of information is confusing you? "

>It is more like, every time I learn something new I find out how much more I don't know. It's like the roots of a tree, it just keeps expanding. I think this is what has made me clutch for a starting point.

The information is helping me to formulate my decisions and it is making me look into things I was unaware of. I am enjoying the learning process and I couldn't pay the opportunity cost for not pursuing this course anyway, so I am definitely in it for the long haul.


Mike>"Have you worked out your investment strategy, yet? "

I am still looking for ideas but I have a basic formula.

my investment strategy : *Situation*: I am 22, doing business studies to become financially literate, no income, no savings.

The plan (when I can start it): • Buy positive cash flow IP's. Use equity to purchase more IP's. Watch realestate cycles closely, sell some properties at the end of a cycle, re-invest at start of new cycle. Very simple I know, I'm sure it will change as I gain more knowledge.

The process: • My first step is to get a feel for the property investment environment, find out the criteria for different types of IP strategies. Learn to find properties that meet the criteria for the various strategies, learn to find undervalued properties.

• Step two when I am in the financial position I will take your advice and go over my plans with professional advisors, go over the due diligence on properties with potential.

• Step three go get it.

Thank's again for the priceless advice,

Cameron.
 
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Jacques

Reply: 2.1.1
From: Mike .


Re: strategies for a newbie
From: Jacques
Date: 22 Feb 2001
Time: 08:46:51

Hi Mike,

An excellent post!

You wrote to Cam, but I take it for me, too: "Have you worked out your investment strategy, yet?"

I am looking for an income stream, so the high yield. I intend to buy and hold, and to that extent, I need the capital growth to raise more equity. I would prefer not to negative gear, and would certainly want a positive cashflow as soon as possible. I would prefer a new, near new or off the plan to maximise tax deductions (every bit helps in making the cashflow positive). I don't yet feel comfortable with renovating, but it will no doubt come!

You also wrote: "I would engage a Flipper or a Buyer's Agent. "

I am currently in discussions with two buyer's agents. When I mention positive gearing, positive cashflow, it all appears too hard for them! An easy task to find the average IP with a reasonable yield negatively geared, but put the buyer's agent through a hard task, and there is a lot of umming and aahing. A flipper in this forum might be the better way to go! Flippers in Melbourne?

You also wrote: "Another alternative is a reputable Property Management company who source new or off-the-plan property for their investor clientele."

Isn't there also a risk of such a company having a vested interest in off-loading properties on their list? And wouldn't they market their property in such a way that there is little way of negotiating a lower price? One example would be the DHA, wouldn't it? Elsewhere in this forum, members have written that their prices carries a premium. How do I get their price down? Have you had experience with good Property Management companies, Mike?

Would any member of this forum have a recommendation for a good quality reputable Property Management company?

To close off, I would add (it's a hobby horse of mine :) ): there is a further alternative to newbies; get a great mentor!

Cheers, Jacques
 
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Mike

Reply: 2.1.1.1
From: Mike .


Re: strategies for a newbie
From: Mike
Date: 24 Feb 2001
Time: 01:48:47

Comments
Hi Jacques,

You raised a number of issues in your post so, with my limited experience, I'll attempt to address them. If you're not satisfied, don't hesitate to make further enquiries on this forum.

You listed the performance factors required of your IP. They being: high rental yield giving positive cashflow, solid capital gains over the long term, and new or near new for max depreciation.

To be honest, I think you'll find it difficult to obtain all those characteristics in residential property. Why? Because residential property has the lowest total return of all the property classes. Why? Because it is perceived to be the safest property investment. Some banks are willing to lend up to 90% for this reason.

For example, properties with the characteristics you are after would easily be found in commercial or industrial property. However, they are perceived to be riskier bets by the banks who will only lend up to 70% and probably a higher interest rate.

So, here is where you have to assess your risk tolerance. If you want a good positive income stream from commercial or industrial property then be prepared to put more of your own equity into the investment. If you do go this way, you will most certainly need an expert to find the right property for you.

This brings us to the vexed question of locating a suitable property. It's hard enough finding someone to locate suitable residential IP's, who is able to locate suitable commercial property? How do large syndicates and property trusts do it? And do they get it right all the time?

I'm glad that you're putting the buyer's agents to the test. I suspect that, currently, they are stronger in the home market than the investor market if only because the home market is so much bigger. It will take time for good investor oriented buyer's agents to appear. Even in America only a small percentage of agents specialize in the investment field.

They are called investment Realtors or Counsellors. Here is a description of them I found at:

http://nar.realtor.com/about/home.htm

Careers in Real Estate Counseling

Real estate counselors are in the business of giving advice about property. They are the experts others seek when they want answers to real estate questions.

Counselors must know every phase of the real estate business because they use that knowledge in nearly every consultation. Often they will be asked about income opportunities and productive uses of different kinds of properties. There are relatively few brokers specializing in counseling, but the field will grow as investors and owners realize the value of expert advice in developing property and improving income.

While accumulating experience in other real estate specialties, people planning to become real estate counselors also continue to study in continuing education programs in financial management. Contact the Counselors of Real Estate at at 312-329-8427 or http://www.cre.org/.

As you can see the Counsellors have a web site which provided the following information at:

http://www.cre.org/whatis.htm

About The Counselors of Real Estate (CRE)

WHAT IS REAL ESTATE COUNSELING?

Unlike management, appraisal, or brokerage, real estate counseling is not a discipline but a process. Counselors of Real Estate (CREs) provide this advice on a non-contingent, fee basis.

DEFINITIONS:

Real Estate Counseling

The act of providing advice or guidance to clients which significantly impacts their real estate decisions. Such advice must be rendered solely for the use of the party(ies) receiving the advice and without personal bias and/or conflict of interest. Unlike management, appraisal, or brokerage, counseling is not a discipline but a process.

Real Estate Counselor

A real estate counselor is an advisor who brings a broad range of real estate experience and technical competency to assignments for clients. While objective in analysis, the counselor directs his/her efforts toward the clients' best interest through evaluation of options, advocacy of the client's interest and/or development of appropriate strategies.

Counselor of Real Estate (CRE)

Those designated a "Counselor of Real Estate" (CRE) are recognized by their peers as having consistently demonstrated the highest levels of knowledge, experience, competency, integrity, and judgement in the practice of real estate counseling.

Counselors of Real Estate make it a business of:

Gathering the facts behind the real estate situation. Analyzing the problem or opportunity. Recommending courses of action. Executing the selected course of action chosen by the client. When providing professional advice to clients, CREs focus on the relevant issues and propose the most favorable course of action. By identifying and quantifying the changes occurring in the industry, sound judgments and expert advice can be rendered to the client.

Regular users of counseling services include accountants, attorneys, pension funds, developers, financial institutions, public and private investors, insurance companies and governmental agencies.

Typical questions CREs are called-upon to answer include:

What is the best use of this property? Should I keep the property, rehab it, sell it or rent it out? How should I go about disposing of the property? How should the property be marketed? What kinds of financing are available? How do I deal with toxic substance problems on the property? What can I do to make the property more attractive? Should I rezone now or let the buyer do it? What impact will it have on the community?

Me again: I think it's fair to say that this is the kind of service that would benefit all investors, but particularly newbies. Does this kind of unbiased advisory service exist in Australia? Maybe there is an informal group of experienced property investors out there who will provide this service. Are they Flippers or someone else. The Sydney Cashflow is on this weekend, so I'll try and get a few leads if I can and post anything useful in this regard.

You also had a number of questions regarding Property Management companies/groups/clubs. I purchased my first two IP's from this source because they are investor oriented, they can source suitable new or off-the-plan IP's. Yes, they do have a vested interest in off-loading property on their list but the reputable ones don't offer rental guarantees and will provide a number of independent rent appraisals from local RE agents. So, as far as I'm concerned, as long as the gross rental return is normal for the area, then I'm satisfied. Incidentally, I didn't know about Flippers and Buyer's Agents before I bought those IP's but I'd be willing to give them a go if they can source suitable IP's.

You asked, were their prices negotiable? It is said that everything is negotiable. But you must appreciate that at certain times of the supply/demand equation it will be difficult for a buyer to negotiate on price with a seller. Because I normally buy just before or as the property boom is gathering momentum I don't bother negotiating because it is more important to get the property I want. I don't want the dregs and am not prepared to wait to negotiate on the last property even though I know the developer might be willing to offload it at a discount so that he can move on to the next project. I've seen these groups offer $5,000 or $10,000 rebate on third stage property when the demand is weak.

I hope some of this info is useful.

Regards, Mike
 
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quickflip

Reply: 2.1.1.1.1
From: Mike .


Re: strategies for a newbie, my thoughts
From: quickflip
Date: 25 Feb 2001
Time: 21:56:04

To newbies and experienced.

I am actively developing a small flipping business, and would be happy to deal with anyone from the list looking for IP properties to buy from a flipper, or anyone who just doesn't have the time to hunt out the harder to find deals.

As a flipper, we hunt for the good deals and then we look for quick decisions, but not rushed decisions. If you can make a quick decision, we can present you with options.

If interested, send me an email at quickflip@start.com.au with what YOU want (yes...that is important to us), and we can take it from there.

Cheers, Quickflip.
 
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Jacques

Reply: 2.1.1.1.1.1
From: Mike .


Re: strategies for a newbie
From: Jacques
Date: 27 Feb 2001
Time: 08:24:53

Hi Mike,

Thanks for an excellent post! Great info!

You wrote: "To be honest, I think you'll find it difficult to obtain all those characteristics in residential property. Why? Because residential property has the lowest total return of all the property classes. Why? Because it is perceived to be the safest property investment. Some banks are willing to lend up to 90% for this reason. For example, properties with the characteristics you are after would easily be found in commercial or industrial property. However, they are perceived to be riskier bets by the banks who will only lend up to 70% and probably a higher interest rate."

A few months back, before getting involved in this forum, I would have totally agreed. Now, after reading what gurus and newbies alike have posted, I am not too sure this is the case. Just look at Jude, who was excited about possibly flipping! Someone else mentioned 10+% return in an outer eastern suburb of Melbourne! So there are properties out there that will fit my requirements. I just have to look for them! Someone else wrote: the opportunity of a lifetime comes by every month. I just have to see it.

Cheers Jacques
 
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Mike

Reply: 2.1.1.1.1.1.1
From: Mike .


Re: strategies for a newbie
From: Mike to Jacques
Date: 28 Feb 2001
Time: 01:03:47

Hi Jacques,

I just thought you might be interested to know that Robert (who is a Flipper) told me at the Sydney Cashflow that he was going to visit Melbourne soon. If you contact him, he may be able to find something for you. Apart from the return aspects, what type of property are you looking for and are you ready to go with finance? Flippers can get a better deal if they can close the deal quickly.

Regards, Mike
 
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Jacques

Reply: 2.1.1.1.1.1.1.1
From: Mike .


Re: strategies for a newbie
From: Jacques
Date: 28 Feb 2001
Time: 13:01:31

Hi Mike,

Thanks for the info. I have been in touch with Robert via email, and I am expecting his call when he gets to Melbourne. I should have finance approved by the end of the week, and I hope to sit down with Robert before he actually flips one to me!!!

Cheers Jacques
 
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