Is investing in Property Risky?

[muppie]

Basically, you'd get an IO loan, buy a property, rent it out and top it up with your own money to make up the loan repayment / interest. Then you sit and pray that the property price will go up so that the CG will be (a lot?) bigger than your expenses / money you've spent on the loan repayment.

Is that basically what it is? Or am I missing something ?

 

[muppie]

Or I can get a CF+ property... not sure if it'll increase (growth) but I can be sure to have lots and lots of properties this way.

There seems to be a myth that if it's CF+ property (esp townhouses / units), the growth might not be as good? Perhaps there are more considerations to this?

 

[see_change]

Basically, you'd get an IO loan, buy a property, rent it out and top it up with your own money to make up the loan repayment / interest. Then you sit and pray that the property price will go up so that the CG will be (a lot?) bigger than your expenses / money you've spent on the loan repayment.

Is that basically what it is? Or am I missing something ?

Well you can pray , or else you can do one of two other things depending on your view point.

You can

1. Time your buy so that you know the market is going to go up.(there are times when you can do this, though most people will tell you you were lucky )

2. Buy at such a price that regardless of your timing you are still getting good value.

IMHO if you arn't doing either of these , or if you're not certain that you're doing one of there, you shouldn't be buying.

See Change

 

[MichaelW]

Muppie,

See change has listed a couple of ways to mitigate your risk but there's a lot more too that he hasn't mentioned. Do a search and I'm sure you'll turn up heaps of information on this.

The obvious ones, as see change point out, are to buy well. Either get your timing right or drive a hard deal with a motivated seller so the timing is taken out of the equation. This ensures you are well positioned for CG based on purchase price and likely future price.

Other ones include limiting your search to quality assets. There are a lot of ways you can determine which IPs make for better investments. e.g. Rental Reality, proximity to schools/beach/parks etc etc. This ensures your asset itself is well positioned for capital gain.

Thirdly, you can mitigate your cash flow risk in lots of ways so you can ensure you continue to be able to hold your asset once you procure it. These include income insurance, cash reserves, cash bonds, limiting your LVRs, asset diversification, asset multiplication etc etc. This ensures that any unforseen circumstances don't cause you to sell at a bad time.

The IP game is a good one, but you need to be able to play by the rules. The idea of buying any old house at max LVR then praying for a CG is a mugs game. That, IMHO, is not real estate investment, that's real estate gambling and I'm not a gambler.

Cheers,
Michael.

 

[Andrew_A]

Basically, you'd get an IO loan, buy a property, rent it out and top it up with your own money to make up the loan repayment / interest. Then you sit and pray that the property price will go up so that the CG will be (a lot?) bigger than your expenses / money you've spent on the loan repayment.

Is that basically what it is? Or am I missing something ?

Risky is living a life of quiet desperation.

 

[House_Keeper]

I really liked that quote from Robert Kiyosaki:

It is not the investment that is risky, it is the investor

I found it so true in many situations. For example, two people could be buying investment properties in the same suburb at the same time. One could be taking a lot of risk, hoping the market will go up, while the other could be taking very low risk.

The bottom line is: do your research.

Cheers,

 

[grubar30]

Basically, buy a property, rent it out and top it up with your own money to make up the loan repayment / interest. Then you sit and pray that the property price will go up so that the CG will be (a lot?) bigger than your expenses / money you've spent on the loan repayment

Is that basically what it is? Or am I missing something ?.

A generalised view like that will get you nowhere. It poses questions so broad in nature that you've got little hope of getting the specific answers that will ultimately determine whether you succeed or not.

Are you looking at a particular property? Do you have something in mind? If so, give us some details – what’s the asking price, where is it located, what type of dwelling/property is it, details of the IO loan your looking at, your short-term and long-term goals, etc. Only then can we show you how to wisely analyse a property.

No offence, but that post irritated me. I need a bourbon!

I'm off...

 

[willair]

Muppie,
imho,it all comes down to timing,and your attitude on
price ,size,and location,and if you buy into a low value
area you will usually win in the three to five year timeframes
even in these uncertain crosscurrents..
good luck
willair..

 

[muppie]

A generalised view like that will get you nowhere. It poses questions so broad in nature that you've got little hope of getting the specific answers that will ultimately determine whether you succeed or not.

Are you looking at a particular property? Do you have something in mind? If so, give us some details – what’s the asking price, where is it located, what type of dwelling/property is it, details of the IO loan your looking at, your short-term and long-term goals, etc. Only then can we show you how to wisely analyse a property.

No offence, but that post irritated me. I need a bourbon!

I'm off...

The purpose of my post is not to analyse one particular property. I simply wish to extend my understanding on how to do well on property investing. I have read about things like finding quality property, near facilities, bus, schools, shops, water, etc. I have been looking a bit around, visiting several properties, looking at the general prices around various suburbs. I still can't understand what would make a property a "good buy".

One thing is probably to spot a bargain, and that is, from my limited understanding, a property that costs less than the "average" around the place, given the same parameters (number of bedrooms / bath, land size, house condition, etc). As we probably know bargains aren't easy to find and if one comes up it'd be grabbed quickly.

As a novice (first time) property investor I might not be as aware of a bargain as some of you might be.

So I am thinking I might even consider the "average" (i.e. non bargain) but need to look for something that will potentially give good growth. I find it hard to decide which suburb / area would do that.

All of this is "old stuff" to the experienced property investors.

 

[MichaelW]

One thing is probably to spot a bargain, and that is, from my limited understanding, a property that costs less than the "average" around the place, given the same parameters (number of bedrooms / bath, land size, house condition, etc).

Muppie,

Some experts in this area IMHO are Peter Spann and Steve Navra. Peter's book goes in to a lot of detail about how to find the bargain property and how to select the right area to look at in the first place. Steve's Rental Reality formula is another great tool to have in the kit bag which will ensure individual properties within a postcode represent good buying based on an analysis of historical yields in the area. Do a search and you'll find a mountain of information on the topic.

IP investing really is an art and the more you learn the more you realise just how much you still have to learn.

Cheers,
Michael.

 

[WillG]

Hi Muppie,

I don't think property investing is hard as long as you stick to the basics.

1. You NEED to keep the place tennented so you can afford to keep it. This is where a location near facilities such as bus, schools, shops, water, etc. is important.

2. To ensure good capital gain you should look for suburbs which are mainly 'owner occupied'. These suburbs are generally better kept and owner occupiers seem to spend a lot of $$'s making their properties 'look good'. This ensures the values are generally rising.

3. To ensure good capital gain you should look for properties with something special such as good views, near water/beach.

If you can combine all of these ie . a property near facilities (but not to near) that is in a suburb which is mainly owner occupied and has good views (views of the beach are even better) then you are reducing the risk of negative capital growth and putting yourself in the best possible position for good capital growth.

Properties that posess all of these attributes generally come at a premium price.


Some simple rules I use when looking for properties:

1. 3 bedroom ensuite houses with double garage's

2. As close to the CBD as possible.

3. Avoid townhouses in large complex's because of high body corp fees and lack of control.

4. Prefer brick over weatherboard or rendered because maintenance is ept down

5. Prefer estabished houses 10+ years old because a lot of the problems have been ironed out and there is still some good depreciation benefits

6. Avoid corner blocks because of extra noise and higher garden maintenance (I imagine developers like corner blocks because of their potential for sub-division)

7. Where a property doesn't have a garage or extra storage I look for an option to add a garage (garages add a lot of additional value and flexibility to a property)

8. Avoid properties on main roads becaue of noise polution and tennents with kids are concerned about safety (try to make the property acceptable to the widest range of tennents).

9. I generally avoid units because f the high body corp fees and lack of land content but units with something special like views or uniquness (and car parking in CBD) should be considered.

 

[madmurf]

Muppie

I can only say is do your home work.
With property there can be a number of ways to get into investing.
I have started off with land and construction.
So far I’ve had a 20% and 40% increase on the blocks within a short period of time.
Why did I buy blocks and not established.
It aligns with my current strategy which may change in 12 months to suit the economic climate.
How did I select that area? I did my own analysis on what I believe would increase in value.
Did everyone I met agree on my strategy? No.
Utilise this forum and read as much as you can on investment.
Look at what you want to achieve in your investments.
Decide on a plan to get there.
Then just do it.

Cheers

 

[Sailesh Channan]

I think you need to constantly review your situation and as soon as you are able to enter the property market you do your research and purchase the best property you can afford.

I think you should do this reguardless of market timing. If you wait for a better time to buy you may end up waiting forever.

Having said that now is a good time to buy as the markets have softened after nearly 2 years of slowdown. There are bargains around if you spend the time looking ( this may require many hours or research)

In a flat market you can easily add value to your property and create equity through renovations or construction.

Good luck

 

[Brizzy Boy]

Muppie,
you stated,that you were looking around a bit, looking at various properties, looking at general prices around various suburbs. All I can say is keep doing this as it is a form of education, you are on the right track, it is what I do "look at as many houses as possible". You tend to get a general feel about it over time and then you will walk into a place one day and you will know it is the right place to buy.

Regards
John

 

[ralph wiggum]

Hey Muppie. Good luck with the learning process. We are all learning, but each of us at different points on the line.
On top of the suggestions from other forumites, I would suggest that you read the following post, which will give you a bit of info on what research other investors put in before purchasing. It's a long read, but will give you some tips on how to find statistics that will help your decision, and how much homework you should do.
http://www.somersoft.com/forums/showthread.php?t=11656&highlight=rockhampton

Good luck

hey Grubar - what type of bourbon do you drink?
Think I'll have a Beam right now

 

[grubar30]

Hey muppie,

Ok, I see where you’re coming from. There’s so much information that you don’t know what’s what? I suggest keep reading and learning and I swear you’ll start to slowly put the pieces together.

People in this thread (eg, WillG, madmurf, MichaelWhyte) have given you some solid tips. Read their posts again – and then take it from there. Don’t worry dude if you feel like you don’t know which way to turn, because this forum, a few good property books and patience and time is ALL you need.

Me? I’m about to sit down to a dinner of barbecue marinated chicken lovely legs and some nice Greek salad, followed buy a bourbon (yep again! – its Jimmy tonight Wiggum), and then I’m hitting the forum for a couple of hours to add to my property education.

Good luck with it all muppie. We're here to help.

I’m off…

George

 

[Merovingian]

Muppie,

Some experts in this area IMHO are Peter Spann and Steve Navra. Peter's book goes in to a lot of detail about how to find the bargain property and how to select the right area to look at in the first place.

I agree with this. Of all the books I've read, Peter Spann's goes into the most detail about analysing suburbs, what people want in a particular suburb, and how to "buy wholesale", do a renovation/rejuvenation on the property, and rent it out.

I recommend Spann's book, entitled How you could build a $10 million Property Portfolio in just 10 years.

Long title, good book.

 

[Aceyducey]

Muppie,

What's the risk if you don't invest in property?

Cheers,

Aceyducey

 

[quoll]

G'day Muppie

Have you read the Jan Somers books, nice simple approach.

Have a think about you at say 60, where is your money going to come from?
How much money would you like?
How much will your super give you?

I found it easy to think about income in terms of rent, current average rent where I am is $200wk, so if I have 6 properties returning $200wk I"d get $1200 not of $200 for expenses, gives you $1k per week, once you have paid off your PPOR this should be plenty to live on.

You can then think about what else could I do to generate this income, shares, business, what ever, but it all comes down to:
What do I want?
How can I get it?

Have a look at alternatives, compare this to that and see if you are using your resources in a manor that you are comfortable with but it is returning the maximum growth possible within your comfort zone.

I might have waffled a bit but either of your property investing options will work or a combination of the two. Work out where you want to be and how to get there.

Cheers
quoll