how much is "too expensive"?
- Thread starter quintets
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Yeah...it's a good question. $1.5m of debt in one property is harder to swallow than smaller chunks of $300K. Purely on gut feel and SANF (since I'm about to hit the hay), I would be comfortable with a single property purchase around the $350K mark if all you told me was it had 'decent' yield. I'd pull the trigger no problems. The odd part is that figure is less than my PPOR. Hmmm.
I remember our second property was $186K and I really had to push my wife to get her to agree. It's turned out to be the best performing property (in a horde of two properties
). Still, you get used to having a property that expensive and then you bump the personal bar up a bit more.I know if someone told me of a $1m property returning 6% gross yield in a major city, I'd still be reluctant. I'd have to really think about that one.
Jireh
For me, it's all about perception and the SANF, not only mine, but my wife’s, who's threshold is quite a bit lower at this point. I'm going to have 'grow' into larger deals as my portfolio and equity grows.
It's also about my 'circle of competence'.
Although I voted 400k, we happily went into a 700k deal with some work colleagues a few years ago when I would have been voting 150k or maybe 250k at the time.
Just typig that I can see we've grown.
Cheers
Our limit is solely determined by the bank and what they will lend us, not by us. The properties (all now C&I) generally pay for themselves so there isn't any of this SANF. I get the impression this SANF means you haven't really done your due diligence thoroughly enough ??
Currently have two properties in our sights at the moment.
1. An office block about 1km from the CBD with a mix of corporate tenants due to be slugged with outrageous rent increases.
2. A big warehouse distribution yard on 3 acres about 8k from the CBD.
Both are about the same price - but are very different animals indeed.
Currently have two properties in our sights at the moment.
1. An office block about 1km from the CBD with a mix of corporate tenants due to be slugged with outrageous rent increases.
2. A big warehouse distribution yard on 3 acres about 8k from the CBD.
Both are about the same price - but are very different animals indeed.
In order to keep and increase its value, I believe an IP should cater to the largest segment of the population. So I would hesitate at over $400k. Once you start getting up in price, the segment for people who want those properties gets smaller, and there's less to support that market.
Just my opinion of course!
Tubs
Just my opinion of course!
Tubs
My first IP was below $100k in 2001 - now value at $205k
My second was below $150k in 2003 - now value at $195k
I would consider anything around $300k to expensive for an IP. But as dazzling suggested, its all dependant on what the bank is willing to loan.
Although, I did purchase my third this year with my Fiance for $305k. However, I chose to spend that much more, because it will eventually be the house we move in to when we get married.
My second was below $150k in 2003 - now value at $195k
I would consider anything around $300k to expensive for an IP. But as dazzling suggested, its all dependant on what the bank is willing to loan.
Although, I did purchase my third this year with my Fiance for $305k. However, I chose to spend that much more, because it will eventually be the house we move in to when we get married.
I remember being driven down Toorak road by a Rally Diver , high speed , overtaking trams the wrong side. I was scared . He said he knew what he was doing and we were perfectly safe. I wasn't going to start arguing with him in case it distracted him ....
It's a matter of perception . To some people a million dollars is a number . To some people it's a hell of a lot of money. Depends on their underlying psyhological make up , and that's not something that's easy to change regardless of logical explanations / due dilligence
See Change
When I started buying property, there was a time when I would put myself to sleep muttering "A quarter of a million dollars is not a lot of money. A quarter of a million dollars is not a lot of money". It sounds weird when I look back at it, but rationally, I knew it wasn't...I just needed to remind myself. My next purchase is going to be in the $500 area (a PPOR), and I've got very little concerns about that value. I don't know whether I'm become an advanced investor, or just a fool blind to risk.
For IPs, I think we're going to buy at or around median for a while. I think once you get used to that kind of money it's easier to "stretch yourself". I want to do a small development in the next 5-7 years so something approaching $1m total outlay is not unlikely. I just got to get myself out of the mentality of "oh sh*t, that's a lot of money". Well...it is, but it isn't, but it is.
Jireh
personality types and propensity for risk
I put down >400k. My current debt is approx that amount accross 2 ips' both of which are just abput paying for themselves (not including shares/funds etc). Which is probably conservative. Most people with my serviceablity have much more debt. The next debt i have will be a PPOR which will be substantial so what im doing at the moment is trying to set up a stable base.
A friend of mine who earns less went into extreme debt (comparitively speaking) 5 years ago (700k at 90 pct - ppor) and has spent the last 5 years doing it tough in terms of cashflow/saving every penny etc etc, and for him its paid off. He is probably 3years ahead of me in terms of Net Wealth seeing his PPOR double in value.
Heaps of people expouse the take in as much debt as you possibly can, buy as much as you can, hang on tight and you will reap the rewards. High risk aggressive approach. My personality is more conservative.
I put down >400k. My current debt is approx that amount accross 2 ips' both of which are just abput paying for themselves (not including shares/funds etc). Which is probably conservative. Most people with my serviceablity have much more debt. The next debt i have will be a PPOR which will be substantial so what im doing at the moment is trying to set up a stable base.
A friend of mine who earns less went into extreme debt (comparitively speaking) 5 years ago (700k at 90 pct - ppor) and has spent the last 5 years doing it tough in terms of cashflow/saving every penny etc etc, and for him its paid off. He is probably 3years ahead of me in terms of Net Wealth seeing his PPOR double in value.
Heaps of people expouse the take in as much debt as you possibly can, buy as much as you can, hang on tight and you will reap the rewards. High risk aggressive approach. My personality is more conservative.
Sure, more people can afford a $400k property, than can afford a $4m property.
Just the same way more people can afford to buy chuck steak and not eye-fillet.
But that doesn't stop the eye-fillet from selling, does it?
M
A couple of years ago, I saw a delicious multi-million-dollar commercial property for sale in Brisbane. The deposit would needed to have been around $1m. I even had this idea that you could get a group of people together to buy it, rather than each individual person buying a small (and not so good) deal with their money. I think I might have even suggested the idea on a few forums, but I was shot down immediately (not sure why though).
The numbers on this thing were great, much better than a whole lot of single family residential houses. The irony is that these great deals are usually left for those who already have good money, and don't really need it. Whilst the average mug investor in the street is struggling with residential stuff negatively geared to absolute buggery.
I would bought this thing in an instant if my situation was different. And that is now my aim, to be in a situation to be able to afford such quality real estate.
I think it was Dolf de Roos who made a comment along these lines, and although I don't necessarily agree with it 100%, there is something to be taken from it:
"If you owe the bank $5,000 you have a problem, but if you owe the bank $5million, it's the bank who has the problem."
The numbers on this thing were great, much better than a whole lot of single family residential houses. The irony is that these great deals are usually left for those who already have good money, and don't really need it. Whilst the average mug investor in the street is struggling with residential stuff negatively geared to absolute buggery.
I would bought this thing in an instant if my situation was different. And that is now my aim, to be in a situation to be able to afford such quality real estate.
I think it was Dolf de Roos who made a comment along these lines, and although I don't necessarily agree with it 100%, there is something to be taken from it:
"If you owe the bank $5,000 you have a problem, but if you owe the bank $5million, it's the bank who has the problem."
I with Dazzling. Your own comfort zone is the key. My initial investment was $62k block, now I got 3 blocks ($350k) under construction. My next project will be multi million dollar development.
Our first Ip was 21k, second IP was 310k, third IP was 48k,fourth IP was 65k.
Yesterday we almost bought IP #5.It was $4k.With a reno of $6k we would be getting $110 week. However, the mobile home park won't allow us to keep it there because the size is too small.(can stay until they are sold)
Can't find another park to take it. Owner of this trailer just bought it himself, but didn't do DD first, so now he has to find a place for it , unless a person buys it and has a peice of land that allows mobiles.He offered it to us at a discount afetr he found out he has to move it.(hmm,discount of FREE?)
The CG is small on trailers but CF is great. We put a For Rent sign up on our first trailer while I was planting flowers there. It was rented within the hour.
Thinking of buying a peice of land and making our own trailer park,can buy some really cheap mobiles,and have our contractor reno them.
Also plan on selling my PR next year and buying a 4plex and renting out the other 3 units.
Yesterday we almost bought IP #5.It was $4k.With a reno of $6k we would be getting $110 week. However, the mobile home park won't allow us to keep it there because the size is too small.(can stay until they are sold)
Can't find another park to take it. Owner of this trailer just bought it himself, but didn't do DD first, so now he has to find a place for it , unless a person buys it and has a peice of land that allows mobiles.He offered it to us at a discount afetr he found out he has to move it.(hmm,discount of FREE?)
The CG is small on trailers but CF is great. We put a For Rent sign up on our first trailer while I was planting flowers there. It was rented within the hour.
Thinking of buying a peice of land and making our own trailer park,can buy some really cheap mobiles,and have our contractor reno them.
Also plan on selling my PR next year and buying a 4plex and renting out the other 3 units.
Great work TA, is this in Perth/WA ?
I voted >$400K, and thought about the first purchase I ever made for my PPOR at $21K in 1981...that was a long time ago, and I used to lay awake at night worrying about the $40 pw mortgage repayments.
I think we grow into the increasing amounts we pay for property, as our confidence, knowledge, and loan servicability increases.
I think we grow into the increasing amounts we pay for property, as our confidence, knowledge, and loan servicability increases.
We voted $400 as well,You certainly work your way into it thats for sure,when we got our first one 2 years ago for $140k overlooking water with great returns, ,Bloss said thats it no more and had sleepless nights,2years latter with 6 under our belt we're about to spend close to $380k doing a specy. Bring it on.
ALL of our tenants live in much nicer houses than we do, the closest thing to a holiday we get is to stay in our next ip doing work before the tennants take over.
It will all be worth it when we get the big boat in the water and THEN we'll have somewhere nice to live. new waterfront views and no neighbours all the time. oooohhhhh yeeeaaahhh im seeing it now.
Look at pics in gallery
Have fun
Dave
ALL of our tenants live in much nicer houses than we do, the closest thing to a holiday we get is to stay in our next ip doing work before the tennants take over.
It will all be worth it when we get the big boat in the water and THEN we'll have somewhere nice to live. new waterfront views and no neighbours all the time. oooohhhhh yeeeaaahhh im seeing it now.
Look at pics in gallery
Have fun
Dave
