New Property Riches

[Bill.L]

Hi all,

Throughout the property investment field, we come across many people who have secured their future in various fashions.

We also have had many property spruikers/gurus who advocate how riches are made from property, then promptly sell NEW dwellings to the masses.

Does anyone know someone (or themselves) that has profited greatly by purchasing new properties exclusively?? Especially by purchasing immediately AFTER a property boom??

I cannot recall a single intance of a story by anyone who has made a large amount of money/equity by this method.

Does anyone have an opinion on this??

bye

 

[alexlee]

Speaking hypothetically, but what if you had bought new after the last crash and held it until now? As long as you held through it you'd be rich by now.

I'd imagine that during or just after a crash, there must be lots of developers trapped because they can't sell, so you might pick up some new properties at a good price.

New doesn't necessarily it's above market. At the top of the market even old houses will be sold at ridiculous prices.
Alex

 

[Bill.L]

Hi Alexlee,

Buying after a crash and just before a boom is a different beast to what we have have at present, or what I am asking.

Do you know of people who bought new property (especially in a new area), at the end of a boom (before a crash) and did very well??

bye

 

[alexlee]

Personally, I'm a buy and holder, so I'm thinking along those lines. Even if you had bought at the TOP of the last boom, by now you would have made a lot of money. So had you bought just after that last boom (before the crash) and held property pretty much anywhere in any metropolitan Australian city, you'd have made a lot of money.

For a buy and holder, time creates fortunes. I agree that if you time it better and make better property selections you'll make even more, but even 'average' growth over time is enough to make you a lot of money.
Alex

 

[Chilli]

If you can time the market and buy not long before the next boom then obviously better than buy just after the boom imho.
But assume now is a buyer market and assume we could find some bargain whether they are new or old houses so let's just compare the buying old and buying new houses in the NOW market.

With the common knowledge that land appreciate building depreciate I have always bought as close to CBD as possible and they were old properties with at least 80% land content. They may not satisfy all the guru-suggested buying criteria because the burbs can have lower percentage of owner occupied.

I only recently started to approach and read about the "gurus'' 's proposals (buy new houses as Bill describes, land content about 30%) and did some quick comparison.
Found that because with new houses you get much more depreciation in the 1st 6 years, with the same serviceability you can buy more houses than if you buy old houses, therefore the total achievable portfolio value is more impressive than if you buy old properties, hence you can achieve the "one million property portfolio" quicker.

However I am still not sure about the overall rate of appreciation because of the lower land content % of new props , plus they are much further from CBD hence land is not as scarce as inner city props.
Also when you sell you would have to pay a lot more CG tax coz the new props have been depreciated to the bone. But if the theory is "do not ever sale just keep accumulating and use the equity” then this CG tax will not be applicable.

Just my thoughts on the matter without a definite conclusion....
Now I am a bit confused about whether I should stick to what I have been doing or if I should start buying new houses using gurus buying criteria. So thankyou, good question Bill, I am looking forward to learning from others experience.

To answer Bill’s question, no I have not known anyone getting rich buying new props, I do know a few people got rich by buying old houses in inner city burbs at land content value, then demolished house and developed land !!!!

Regards,

 

[Peter Parker]

Just my thoughts on the matter without a definite conclusion....

I like them!

Now I am a bit confused about whether I should stick to what I have been doing or if I should start buying new houses using gurus buying criteria.

I think you're on the right track sticking to what you're doing. Your existing approach seems to have more advantages than you mentioned, which I'll get to later.

Is a $1m portfolio consisting of poorly located new houses going to perform better than a $500k portfolio of well-located older houses? Especially if the land component of the smaller portfolio ($400k) exceeds that of the $1m portfolio ($300k).

Diversification. If you can buy a well-located older house for $200-250k and new houses in the next suburb out are $300-350k then with the latter you will need to borrow more to achieve the same amount of diversification and the same number of IPs.

Depreciation on the new properties may improve serviceability, but your basic yield might be lower. Houses in the new estates might get 4% yield, but 5% is obtainable in established working-class suburbs (which also tend to be closer to transport). Note also that improved serviceability through higher yields doesn't have the same tax issues as dollops of building depreciation, so all things being equal, yield beats depreciation (particularly if your job income is modest and/or you want more than 2 or 3 IPs where there's a risk of running out of tax deductions or getting only 17 or 30% back).

Three options, not two: Although we're discussing it as if it's a contest of new vs old, it might also be worth doing sums on a property built c1990. You still get building depreciation (improving serviceability) but can buy in an established area and probably pay less than for a new IP.

Losing gloss: A new house now looks nice. Today it might look quite different from a house built in 1995 and worth paying a premium for. But looking back from the year 2025, your 2005 house might not offer much more than the 1995 house. It's like now where a 1950s house will not necessarily be dearer than a 1940s house (many other factors are more important).

Neighbourhood character: With a new housing estate you don't know the character of the neighbourhood. If it's young families then there may be crime/delinquency issues as the children get older. This may reduce a suburb's reputation and thus future capital growth.

Another thing I'd be asking is 'when will the growth happen?'. The ideal is that you get a 25-50% increase within 2 or 3 years of buying. Then you've got heaps of equity to expand the portfolio sooner. After that it doesn't matter if growth tapers off for a while; even if it's low as a percentage it could still be similar in dollar terms as you've got more IPs.

I don't have the details to hand, but I understand that capital growth is initially slower in new areas, but it becomes closer to the metropolitan norm as the suburb becomes more established and there are no longer new land releases in the next suburb. This deferred growth pattern is precisely the opposite of what is needed (see above).

An exception may be in Perth where people have bought new properties (or even off the plan) and having immediate growth. But one could argue that this is due to the builders shortage, rising material prices and strong population growth in that market.

In the subdued low-growth markets elsewhere, your existing strategy of looking in established areas and avoiding new estates sounds the most sensible to me.

Rgds, Peter

 

[geoffw]

I haven't bought new properties EXCLUSIVELY- but we built our PPOR in 1993, and bought a 3yo property in 1997. Both properties have done very well, and secured us the equity to further invest.

 

[Oscar]

I can't answer Bill's question directly (sorry). I have bought old properties (70 - 100 years old) and one that was 4 years old, all in well established "old" areas.

In considering impact CG performance of new properties there is a myriad of factors that could impact which in my opinion if the investor got right, could give him/her the potential to do well. From top of head some of those factors may be -

- favorable architectural scarcity factor
- size of dwelling and land content
- demographic, socio / economic status of owners occupiers and tenants in the area.
- Proximity of new property or area to goods and services.
- New "ness" of the area
- If area is new how close is it to more established areas
- Is the area a new street, block, or suburb.
- How close is this new street, block or suburb to other more established areas.
- Is the new property built in a sympathetic architectural style to neighbouring homes in the street or block...

And on and on....

No investor will get it all right, there is no perfect property...

What's my point? I think investors could do well buying new if they get favorable outcomes on some of the factors listed above. A person buying an old established house could also get it right or wrong based on some of the factors listed above.

If they built new property/ies in one of the parks in Coogee NSW that were of good quality and appearance would they do well if bought - probably.

If they built new property/ies 2 km's from one of a distant "shady" suburb located 50km from a major city which lacked solid demographics and access to goods/services would it do well after a boom - probably not.

 

[Chilli]

Hi GeoffW,
What is the proportion of land/building value of the 2 properties you mentioned ? Thanks.

All our IPs are old houses, but to-date we have had 4 new houses built as our PPOR. Again with the mantra "land appreciates building depreciates" we have always conciously kept the bulding cost to only up to 40 % of the total prop value, even with our own PPOR. Cuurent PPOR buiilt 2.5 years ago, the building cost was only 30% of the total prop value then. Now 2.5 years later as land has gone up I would say building is only worth 20% .

Regards,

 

[willair]

imho,
you can also look at this from another angle,within 2 years the Brisbane CC,
will stop 405sqm spliter bolcks in some inner city precincts,and will stop
development in areas less than 900sqm, which when you look at what has
happened in some of the demolition control areas you will no longer be able to
split 800 sqm in two.im told the new block areas have to be 450sqm and above..
willair

 

[Bill.L]

Hi all,

Geoff,
You said you built your PPOR. Did you have immediate equity by doing it this way instead of buying new?? Was it in a new subdivision or an established area??
The 3 year old IP, how did its purchase price compare to when it was new 3 years earlier??

Salsa..

Found that because with new houses you get much more depreciation in the 1st 6 years, with the same serviceability you can buy more houses than if you buy old houses, therefore the total achievable portfolio value is more impressive than if you buy old properties, hence you can achieve the "one million property portfolio" quicker.

My experience has been that the lenders prefer to see $/week rental, and are not interested in depreciation. Could you please explain further??

bye

 

[Garry K]

Hi all,

I cannot recall a single intance of a story by anyone who has made a large amount of money/equity by this method.

Hi Bill.
Are you therefore inferring it can't be done?

Like any strategy, it depends on what you are trying to achieve.

How much is "a large amount of money"???

For some people it might $100K, for others it might $1M.

And then,consideration needs to be given to what the alternative is. If the alternative is that the person did nothing, well, then, it may well be a solid strategy.

You might be referring to the likes of JLFitzgerald? But he has always advocated his method is not a get rich quick scheme, but a longer term approach.

Many property investors are new to the market over the last 5 years. If they bought at the peak, they probably don't know yet whether their particular purchase will achive their goals.

Perhaps you should be asking the "spruikers" for your evidence going back before the recent boom.

GarryK

 

[see_change]

Hi Bill.
Are you therefore inferring it can't be done?

Like any strategy, it depends on what you are trying to achieve.

How much is "a large amount of money"???

For some people it might $100K, for others it might $1M.

And then,consideration needs to be given to what the alternative is. If the alternative is that the person did nothing, well, then, it may well be a solid strategy.

You might be referring to the likes of JLFitzgerald? But he has always advocated his method is not a get rich quick scheme, but a longer term approach.

Many property investors are new to the market over the last 5 years. If they bought at the peak, they probably don't know yet whether their particular purchase will achive their goals.

Perhaps you should be asking the "spruikers" for your evidence going back before the recent boom.

GarryK

Garry

I think Bill's point is that there are people actively promoting this method on the forum at this moment.

With many methods that are promoted , there are people who actively go around saying , " This is how I did it " so if you follow what I did you can do it to . ( unfortunately this approach isn't always valid ,becasue the circumstances have changed since the original person " did it " ).

I think Bill's point is that he is not aware of anyone who has " done it " in the way that Michael Whyte is saying that he will do it. To the best of my knowledge Steve Navra made his initial money through share investing . I am happy to be corrected if this is wrong.

I think Bill's question is completely valid and I personally am unaware of anyone on the forum who has " done it " this way. I would love to hear from them if they have.

See Change

 

[Bill.L]

Hi all,

Garry, I am not inferring that it cannot be done.

I am asking, who has done it?? How did it work?? So far we have not had any contributors claiming that they used this method successfully.

If there are no examples of people using this method in the past, then where does the theory that it will work in the future come from??

On this forum, we have plenty of examples of people who bought older properties and either just held them during the recent boom, or renovated/value added to greatly increase equity. Many of these stories go back quite a few years. But where are the stories from those who succeeded by buying new properties in new areas??

bye

 

[MichaelW]

On this forum, we have plenty of examples of people who bought older properties and either just held them during the recent boom, or renovated/value added to greatly increase equity. Many of these stories go back quite a few years. But where are the stories from those who succeeded by buying new properties in new areas??

Bill,

Part of this might be attributed to the fact that the approach of buying new properties for long term capital growth, is typically a very passive investment approach as compared to the active approaches such as renos, flips, wraps and all the other high effort techniques. I'd think that typically your passive investors would not be the sort of people that would frequent Somersoft to try and hone their skills.

They might also be the type of people that got into property via a financial planner and with their assistance. Again, not the sort of people that would typically frequent Somersoft.

Maybe the perceived "gap" in this segment of investors is more to do with the nature of this forum than it is to do with the potential success or otherwise of the strategy itself.

Cheers,
Michael.

 

[grubar30]

Does anyone know someone (or themselves) that has profited greatly by purchasing new properties exclusively?? Especially by purchasing immediately AFTER a property boom??

Bill,

That's kind of a no-win question as anyone buying immediately after a boom is going to be behind the eight-ball, as opposed to buying before or even during. It also seems to assume that property spruikers only tell you to buy after a boom (hmm, maybe they do).

How about we put it like this:

Does anyone know someone (or themselves) that has profited greatly by purchasing new properties exclusively, as endorsed by a property “guru/spruiker”, regardless of market timing??

In other words, if the property guru/spruiker is worth a grain of salt, he/she would have been endorsing purchases of new property before the boom, ie circa mid-1999/2000.

Then again, no one can predict a boom. So in essence, if we take away the variables of market timing, the quintessential question would be - why do property spruikers promote the virtues of new property purchases so much?

I think I know the answer, and in a full-circle kind of way, I think it validates Bill's underlying beliefs (scepticism?).


George

 

[TomL]

Anyone can make anything work. You just need to it properly. I think that is what seperates a great investor form mom&pop.

A particular strategy does NOT have to work in every single instance - so as an investor it is your prerogative to find the strategy that suits you, then go and find the deals to suit.

With RE there are people that make money in slums, in top end and everything in between. There is such a large variety of IP types that not everything will suit a particular investors temperament, risk profile or financial reach.

To address the original question - do I personally know someone that exclusively uses this strategy? no. I would suggest that would be an insane strategy on its own - waiting for a boom to end and purchasing new ips. Why wold you do it?

well .....

I have met some pretty strange characters, and have been really surprised at the type of deals that are done. Things I would never have thought of.

So .. can we entirely discount what you are saying as a strategy that can work?

I dont think so ... because I firmly believe that there are people that can make it work ... they find the right deals in the right areas, with the right financing, with the right structures, with the right risk profile, with the right fundamentals according to their criteria. etc etc.

Could we all do it? no. Would we all want to? no. Are there people that could? Yep.


Now ..... can anyone remember any instances of this?




As an example .. why would you buy newly completed apartments in melb southbank/docklands in the last couple of years? Its definitely at the end of a boom, the properties are definitely new ... so why were there investors still buying? Why are there RICH investors still buying? .... because they see VALUE where the masses are petrified with FEAR. These investors are pooling their money and buying out all these speculators that thought they could cash in ... only they are buying them for the RIGHT price. I seem to recall a thread or two about this either here or on the other ip site ... everyone was up in arms about it, even the press (aca i think ran a story) on how these evil rich investors were targeting this very strategy. Sounds to me like they were just being SMART. And Bill .. they fit the definition of the investment critteria you listed. And i'm sure they will be laughing all the way to the bank.

T.

 

[Kennethkohsg]

How about we put it like this:

Does anyone know someone (or themselves) that has profited greatly by purchasing new properties exclusively, as endorsed by a property “guru/spruiker”, regardless of market timing??

George

++++++++++++++++++++++++++++++++++
Dear Grubar30,

1. Yes, I think Jan Somers and John FritzGerald believe in it quite strongly.

2. Jan Somers' basic strategy is to invest when we can afford to and using TIME, rather then Timing, to create wealth through property investing by
"Buy-and-Hold" long term.

3. John FritzGerald also advocates to invest when we can afford it and then uses the "buy-and-build" strategy to create wealth and buying below the suburb benchmark house price and long term "buy-and-hold" strategy.

4. I look up to both Jan Somers and John FritzGerald as my defacto mentor/ "gurus" and adapted their strategy for my own personal use. that is why I am still investing through "buy-and-build" in the Perth property market even though it is about to peak/still peaking/over the market peak, as some people believe, the current market situation is really is.

5. Having said this, beside using TIME, I am also use Timing, to speed up my own wealth creation process through property investing.

6. To you, it is or may appear easy to predict where the future booms will actually be, as was done by the wealth creation seminar speakers. Is it really so?... I know of some investments gone real badly in Malaysia whereby even after 20-30 years time frame, the said underlying land value and the aging properties has even started to decline from day one when it was being purchased.

7. So, for me, I will personally give some credit to the speakers concerned for their accurate projections into the future once the actual reality starts to confirm their vision.

8. To each, our own beliefs and opinions, please.

9. Thank you.

regards,
Kenneth KOH

 

[see_change]

++++++++++++++++++++++++++++++++++
Dear Grubar30,

1. Yes, I think Jan Somers and John FritzGerald believe in it quite strongly.

2. Jan Somers' basic strategy is to invest when we can afford to and using TIME, rather then Timing, to create wealth through property investing by
"Buy-and-Hold" long term.

3. John FritzGerald also advocates to invest when we can afford it and then uses the "buy-and-build" strategy to create wealth and buying below the suburb benchmark house price and long term "buy-and-hold" strategy.

4. I look up to both Jan Somers and John FritzGerald as my defacto mentor/ "gurus" and adapted their strategy for my own personal use. that is why I am still investing through "buy-and-build" in the Perth property market even though it is about to peak/still peaking/over the market peak, as some people believe, the current market situation is really is.

5. Having said this, beside using TIME, I am also use Timing, to speed up my own wealth creation process through property investing.

6. To you, it is or may appear easy to predict where the future booms will actually be, as was done by the wealth creation seminar speakers. Is it really so?... I know of some investments gone real badly in Malaysia whereby even after 20-30 years time frame, the said underlying land value and the aging properties has even started to decline from day one when it was being purchased.

7. So, for me, I will personally give some credit to the speakers concerned for their accurate projections into the future once the actual reality starts to confirm their vision.

8. To each, our own beliefs and opinions, please.

9. Thank you.

regards,
Kenneth KOH

Kenneth , the question that is being asked is that of buying new properties exclusively.

I am fairly certain that this is not the way that Jan Somers invests.

See Change

 

[grubar30]

Kennethkohsg,

I'm presuming Bill meant new property that was endorsed by a spruiker at his/her seminar.

George