New to property investment - Where and How?

[DreamzUnlimited]

Dear all :

I am 26 yrs old from Melbourne. I have just started my career in field of software engineering. I actually want to give a start to my property investment interest and for that I need some suggestion and information. I am very much new to this area and I am looking to buy block of land out of Melbourne.

Well my savings are not much .... around $8000. However I am just wondering what are the places where I should invest. I have done a bit of research and have found few places as follows :

1. Warragul
2. Pakenham
3. Drouin
4. Creswick near Ballarat
5. Portland
However I am more bent upon Warragul. can u guys pls guide me whether it's a wise decision OR is it too risky considering I have just started my career? What do u guys think bout Warragul as a place to invest? The price of a block of land of around 700 square metre is $82K. is it a right price or should i negotiate? and the land is on the side of the Warragul hospital. Also what are your suggestions about the other suburbs I mentioned?

Also I am looking to take a loan from my bank. In that case, is it possible to sell the land before paying off the loan completely and then pay off the loan with that money?

It would be great if you guys can help me with your suggestion.

Cheers!

 

[stumunro]

first off hi, welcome !

can you tell us why you chose these areas? to me they sound rural?

Have you read any books to further your education on the basics of property investing?

 

[DreamzUnlimited]

Hi there :

Thanks for your reply. Well I should not say that I have read a lot of stuffs ... but did read few stuffs. I have chosen Warragul mainly from words of mouth as I was told it is expanding at a great rate. Indeed all of them are rural areas.

Well considering my savings, if you can suggest some other places around Melbourne which are good for future investment, that would be great. As I mentioned I am new and I seek your guidance and help.

Cheers!

 

[stumunro]

always important to judge any information you get for yourself, alot of the time word of mouth might come from family or people who don't even invest, so you need to always think about the source of the information.

A good place to do some research is goverment council websites, and also the ABS website http://www.abs.gov.au/ as it will give you good information from the last concencus in regard to population etc.

Some basic questions for yourself to answer might be,

- What is my budget
(Have you seen a mortgage broker? What can you comfortably afford in terms of monthly repayments)

- What sort of property am I interested in
(Do you want to buy land to build and re-sell? Do you want to buy and build and tenant out? Do you want to buy an existing house or unit that you can tenant out or that's already tenanted to provide you some cashflow return?)

I don't know anything about the areas you are asking, so I am not qualified to give you a direct response.

I personally do not own any investments in rural areas, but I have a couple in metro areas of Sydney & Brisbane and the majority of property investors opt for metro investing. Rural areas generally don't have consistent growth compared to city properties & there can be extended periods of vacancy. They can be a little bit more risky, you need to be alot more diligent in the properties you choose in these areas.

What are your thoughts so far?

 

[DreamzUnlimited]

Hi there:

Thanks for your info and help. I would definitely go through the ABS website and do more research. I have got few queries for you at this stage :

1. In terms of taking loan, I am yet to decide. However my preferance wud b CBA. have u got any suggestion about this?

2. Normally to get an overview about the prospective investment( especially for a beginner like me), whos the best person/ org to talk to?

3. When u consider investment, what are the key factors that you look for?

4. For a person like me( and with a savings of $8000), is it really feasible to think bout investment in metro areas?The average price in metro areas shud b around 300K+. Also my intention at this moment is to get a land and then sell it off later. is that a bad idea?

5. Suppose I take a loan to buy a land, is it possible to sell it off during the mortgage period and then repay the loan with that money?

Cheers!

 

[alexlee]

1. In terms of taking loan, I am yet to decide. However my preferance wud b CBA. have u got any suggestion about this?

Why CBA? What are they offering that's better than the other banks? What sort of loan are you looking for? What features do you need? Does CBA offer them, and others do not?

2. Normally to get an overview about the prospective investment( especially for a beginner like me), whos the best person/ org to talk to?

Read a few books. Without some basic knowledge, you can't even evaluate the value of the advice you are given.

3. When u consider investment, what are the key factors that you look for?

Risk and return, and cost to hold.

5. Suppose I take a loan to buy a land, is it possible to sell it off during the mortgage period and then repay the loan with that money?

You can, but usually not the best idea to start with land. You don't get rent for it. How are you going to pay the interest on the mortgage? Your 8k in savings would disappear in a heartbeat, not to mention you can't deduct the interest (you'd have to capitalise it into your cost base). How long are you planning to hold it for? Land, especially on the city fringes, are more volatile. If demand suddenly falls, you might not be able to sell. What then? If this is your first investment, you're likely to make mistakes.

Even assuming, somehow, you sell it for a profit (fast turnaround time if you only have $8k for interest payments), what then? Do you reinvest in something else? What's your long term strategy?

Define metro areas. There are decent properties in Sydney for $200k.
Alex

 

[MickInvestor]

Why CBA? What are they offering that's better than the other banks? What sort of loan are you looking for? What features do you need? Does CBA offer them, and others do not?



Read a few books. Without some basic knowledge, you can't even evaluate the value of the advice you are given.



Risk and return, and cost to hold.



You can, but usually not the best idea to start with land. You don't get rent for it. How are you going to pay the interest on the mortgage? Your 8k in savings would disappear in a heartbeat, not to mention you can't deduct the interest (you'd have to capitalise it into your cost base). How long are you planning to hold it for? Land, especially on the city fringes, are more volatile. If demand suddenly falls, you might not be able to sell. What then? If this is your first investment, you're likely to make mistakes.

Even assuming, somehow, you sell it for a profit (fast turnaround time if you only have $8k for interest payments), what then? Do you reinvest in something else? What's your long term strategy?

Define metro areas. There are decent properties in Sydney for $200k.
Alex

Seriously Alex, you must be the most negative and pesimistic person on this forum - look for the good mate and caution the risk .... not the other way around

 

[BayView]

Pakenham is no longer rural.

It is in the growth corridor from Dandenong going southeast, and is a commute distance (poor ba$tards) to the City, to Dandenong, Cranbourne and Frankston.

You could probably include Warragul in this boat as well.

Whether this is long term I wouldn't know, but while the housing out there is cheap, the masses will go there.

Ballarat went boom years ago thanks to Steve Mcnight's book and the freeway. Probably still good long term; as is Bendigo up the road a bit.

Portland I think is a holiday destination; may be attractive. I mean; look at Port Fairy; it went boom, and it's miles from no-where. Go figure that. But, what's P.F doing these days?

 

[AlmostBob]

As a sidebar
Wasnt this Q one of the 101 things

 

[alexlee]

Seriously Alex, you must be the most negative and pesimistic person on this forum - look for the good mate and caution the risk .... not the other way around

Read my discussions with Yieldmatters. I think I have a good balance.

Optimism is a luxury you need to back up with resources. If one doesn't have the resources, optimism might back up and run you over.

I think buying land when you're first starting out and you don't have much resources behind you is VERY risky.
Alex

 

[Jayro]

Geeeze Alex, "DECENT" property in sydney for $200k. Not being argumentative but we must see DECENT property differently or Sydney differently. "Western" sydney may have $200k prop and Im guessing this is the area you are refering to as having decent $200k prop? An area in sydney that attracts good tenants and that has all the other makings of a good IP for $200k?

Just my opinion mate. Again not arguing just wanting to clarify if you are refering to western sydney?

Jayro

 

[alexlee]

Geeeze Alex, "DECENT" property in sydney for $200k. Not being argumentative but we must see DECENT property differently or Sydney differently. "Western" sydney may have $200k prop and Im guessing this is the area you are refering to as having decent $200k prop? An area in sydney that attracts good tenants and that has all the other makings of a good IP for $200k?

Just my opinion mate. Again not arguing just wanting to clarify if you are refering to western sydney?

I've seen decent 2 bed units (ok, not houses) for $200k around Parramatta / Harris Park.

Decent mainly from a buyers point of view, of course. I've seen some original condition cottages out west for $250k or so. I wouldn't live in it, but it's tenanted. Where else can you rent a house that's near a trainline for $250pw?
Alex

 

[karina]

I am with Alex on this one buying vacant land as a first investment would not be my choice, you need to have deep pockets to hold land for a long period of time with no rent coming in. One of the mistakes I made along my investing journey was to buy vacant land. Sold it about 1 1/2 years later and only just broke even but the opportunity cost for me was huge as I opted not to buy some houses in mackay at the time but went for the land in sydney instead. The houses in mackay skyrocketed and they would have been pretty much nuetrally geared to start with. It was a good lesson for me to learn early on though.


I guess if you were going to build on it and get rent from it that would be a different story. I guess I am looking at it from a position of owning multiple properties and being able to take on more debt and having servicability for future purchases. If all you want is to own 1 property then it may work for you however if you want to grow your portfolio quickly I don't think holding vacant land is going to get you into the next property in a hurry.

Personally if it were me I would buy house and land , something that would give me rent each week to help cover the mortgage.

Alex I don't find your posts to be negative at all, I appreciate your cautious logical approach to investing.

 

[stumunro]

Seriously Alex, you must be the most negative and pesimistic person on this forum - look for the good mate and caution the risk .... not the other way around

There's a difference between being negative and pesimistic and the honest truth.. would your advice be any different??

The only thing i can add to this thread, is that if you can't afford investment property that suits your core values of your investment criteria, then maybe you haven't saved enough?

I think it's better to ask, where do i want to invest?, and how much do i have to save to get there?, rather then I have 8k now, what can i buy with it? I think you are going down the wrong path by doing so. But this is just my opinion, like I said I concentrate on metro areas generally 25k from cbd's.

 

[Jayro]

Thanks Alex,

Mate like I said, not arguing was just wondering areas you were refering to that was all only because as you know Im looking at buying my next IP and keeping an open mind still at this stage.

Jayro

 

[alexlee]

Personally if it were me I would buy house and land , something that would give me rent each week to help cover the mortgage.

Alex I don't find your posts to be negative at all, I appreciate your cautious logical approach to investing.

Reminds me of that post where SimonJulie said he was very optimistic about the market. He has the experience and resources to be optimistic, because he'll be able to get through it even if the market goes down temporarily! I only have the resources to be cautiously optimistic. Optimism without resources is much riskier. You might still do well, but I'm looking for a bit more certainty with my investing.
Alex

 

[stumunro]

My answers in bold

Hi there:

Thanks for your info and help. I would definitely go through the ABS website and do more research. I have got few queries for you at this stage :

1. In terms of taking loan, I am yet to decide. However my preferance wud b CBA. have u got any suggestion about this?

I've only dealt with mortgage brokers to get my loans, far easier, productive and knowledgable than me. On a side note if you will be investing it's important to get a good team around you, Accountant, Mortgage Broker, Quantity Surveyor

2. Normally to get an overview about the prospective investment( especially for a beginner like me), whos the best person/ org to talk to?

The responsibility of your investment will lie solely with you. I think it's very important to educate yourself about the different types of property investments and the basics. As Alex recommended, go to Borders and buy as many property books as you can, as all information(whether you act on it or not) is beneficial

3. When u consider investment, what are the key factors that you look for?

Demand, Convenience, Location, Price, Yield & What the different markets are doing

4. For a person like me( and with a savings of $8000), is it really feasible to think bout investment in metro areas?The average price in metro areas shud b around 300K+. Also my intention at this moment is to get a land and then sell it off later. is that a bad idea?

With $8000, no not likely. But maybe you need to save more? In my previous post i explained this more. I'm a firm believer in property investing, mostly concentrating on the property that is on the land currently (as this is what i depreciate and tenant out). Although the land is important, I have to work with what is on it at the present. I have never bought land with the intention to flip, I couldn't afford as many investments as I have if I just bought land, as the rent from my properties covers alot of the cashflow for mortgage repayments. And as a beginner I think you should concentrate on a simple, cheap, buy & hold investment.

5. Suppose I take a loan to buy a land, is it possible to sell it off during the mortgage period and then repay the loan with that money?

Yes the mortgage is what you owe to the bank. If you decide to sell your land / property you will hopefully achieve at least the price you paid for it, which you pay back to the bank. Although yould have incurred about 6% of the purchase price in costs you have thrown down the drain, unless you have made a gain in which case you will have to pay capital gains tax to the government (if held less than a year you will pay it at the full rate of your tax bracket, or if held over a year then CGT is discounted 50%)

Cheers!

Hope this helps, although I think (again) you are thinking too far ahead and need to start with some basic reading.

 

[Noeyedear]

Gday Life Is Wealth,
I am like yourself new to investing. I am a little bit further advanced than you as I have one property already. I bought the property first with no set plan. The only things I really knew were that I could afford to do it and if you hang on to it long enough in most cases you won't lose. However after buying the property I heard a radio interview with a property investment expert. I bought the book he was flogging and I have bought several others since. I found this forum and have been reading it for a couple of months now. The discussions on this forum have been very enlightening and I will be looking at my next property purchase through different eyes. I would say buying in an area that you know really well for your first property would be prudent. Before you do make sure you know what your reason for buying is. i.e Capital Growth, Cash Flow through rental return or as I have learnt most preferably both. If the answer is both than you really need to do your homework. If you know a really good Real Estate Agent in your area it would be a good time to explain what you are looking for and what your budget is.

Also Micktheinvestor I think you have the wrong take on Alexlee. I find his discussion is always balanced. Life is Wealth could do a lot worse than take Alexlees advice and read the discussions between Alexlee and Yeildmatters. They are from opposite sides of the spectrum which I find enlightening.

 

[karina]

That's true you can afford to be optimistic if you have deep pockets. Deep pockets can "buy time" , time to ride out any bumps ahead in the markets. If you can buy enough time (say 10 years) you can ride through just about any bumps in the markets and come out making a nice profit.

So for those that don't have deep pockets its better to take on less risk , small steps when they can afford to.

I think buying land is a great strategy when you have lots of $ behind you. I mean Donald Trump can buy all the vacant land he wants and its not a problem but if you don't have enough $ in the bank to ride through years and years of mortgage repayments with no rent coming in that may not be the best strategy.

 

[stumunro]

Thanks Alex,

Mate like I said, not arguing was just wondering areas you were refering to that was all only because as you know Im looking at buying my next IP and keeping an open mind still at this stage.

Jayro

It's hard to understand if you have never experienced or driven through or lived out in the west. There are just a huge amount of families that reside there, or that are choosing to move there because it is affordable. I think it's important not to under estimate the strength of this market, but I think in buying outer suburbs it's important to reflect what the market is going through at this stage, especially if you are looking for short term gains you probably won't see this in outter Sydney for a year or two. (my opinion)