My First plunge?



From: Craig Robertson

Hi All

I am seeking advice on what you as experienced investors think i should do here.

I have only recently been studying finance and real estate. My situation is

1. I own 1/4 share in my fathers estate. A 3 bedroom home in Chelsea Heights (vic) on 1/4 acre across the road from a primary school. I estimate it to be around $300k. I am thinking of buying out my family members and paying about $210 for it. If it is valued at $300k i should instantly pick up $90k equity. I expect the growth to be around 15%p.a. I plan to rent this at approx $200 a week.I am also building my own house which will be ready in a couple of months. Do you think the wisest is

a) Buy the estate, rent it out, use the instant equity to buy another
b) Sell the house and use my share of the funds to buy other properties

My head is telling me go a) but i just want to be sure.

Any comments are truly welcome. Thanks

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Reply: 1
From: Dave :)

Hi Craig,

Compared to some others in this forum, I'm far from an experienced investor. But, here's my thoughts anyway.

You say you own a 1/4 share in the estate. If it's worth $300K, you'd be doing well to buy your family members out for $210K. Would they sell their piece of the pie for that much? All the best to you in this respect. If it's worth $300K, and get this checked out by a valuer, and your family is willing to let it go for your price, then go for option A!

1/4 acre is a great sized piece of land. You could quite easily squeeze in a couple of extra properties on that sized land, STCA, of course. Rather than use the equity to buy another, I'd probably look at the above mentioned option - you already have the land, at what would be a discount of FMV, so why not explore the possibility of building one or two units on the land? I have no idea where the existing house sits on the block. So, this may not even be an option for you. But then again, it may be.

Two queries though. Do you think your 15% growth projection may be a little ambitious? You may be right, but I wouldn't count on it, for the sake of the excercise.
Also, I would want to rent a $300K property for more than $200 per week. Is that what the comparables in your area are?

Just my opinion, Craig. Good luck with it and well done for trying to be creative.



"Nothing is more difficult, and therefore more precious, than being able to decide" (Napoleon Bonaparte)
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Reply: 2
From: Terry Avery

I agree with Dave. $200 p.w. on $300k is just 3.4% yield. You can do better
than that with money in ING. As to cap growth of 15%, what do you base that
on? Markets move in spurts and the bay area has seen a surge in the last
year or two but this is not the long term growth rate. Past performance is
not an indicator of future performance! I also agree that you may add value
by building units on the block. Can you move the existing house forward or
back? Why don't you attend one of the renovators seminars that are coming up
in Melbourne shortly? You will find details in this forum.
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Reply: 2.1
From: Craig Robertson

Thanks for your advice. As you can see i am only a learner here. I got the 15% from a house we bought and sold after 3 years. Bought for 90 sold for 152. Not sure what % that is but i was told it was around 15, and yes you are probably right that i am being over expectant of a continuing 15%. The house itself is pretty much toward the back of the block. The thing is the house is still modern ( 15 years old )with great selling features and i am unsure whether it would be worth knocking down to put up units of which you would probably get around 3 to 4 on the block. In my learning phase this is something i am not ready to take on.
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Reply: 2.1.1
From: Tom Cleary

>Bought for 90 sold for 152. Not sure what % that is but i was told it was around 15,
59.2% over three years or 19.74% per year !
Not bad at all.
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Reply: 2.1.2
From: Terry Avery

Actually Craig, you did quite well as my calculator says 19% return. That is
an annualised return of 19% p.a. but 68% over the three years.

If your house is still in good condition and saleable then you have a tough
decision. As you are still learning then attending Renovator's workshops so
you can learn about what costs you would be up for in construction and
demolition would be worthwhile. Learn from those who do it all the time.
Remember you don't have to be rushed into a decision on what to do. Planning
is the best preparation. Good luck.
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From: Bruce Sutherland

Craig, it seems to me that you already have ~75k equity & that you are pretty confident that you can readily borrow another 210k.

You could use this to buy more property without compromising your family (?) situation. There's more than two ways to skin a cat :)
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