As both a newbie and new graduate, I think at this stage minimum holding cost is a priority for me as all the fantastic future growth is meaningless to me if I cannot hold long enough given todays market.
My question is if you suggest that I should buy those properties that return good yield say above 8%, does it mean go regional(not good for me at all first I cannot read the local market let alone regional...), if a unit/townhouse is returning like above 6% do you think it 'return good yields, '?
Also does 'good depreciation and other tax deductions etc, ' means I should buy those with building depreciation like those built after 1985 15th of July something like that?
Regards
Vince
Absolutely.
Of course, this is all relevant to your personal income. If you are an average income earner, you can't afford to be neg cashflowed by hundreds every week while you wait for cap gains like the high income earners can, and do.
You've gotta make every post a winner to accelerate your plan.
Don't be frightened off by "regional". These areas can provide excellent growth - if you pick the right area, the rent returns can be very good, and can be very solid for demand - less vacancies, more affordable for the newbie entry level. Due Diligence is always a premium.
While cap cities historically provide better growth (and other areas can outperform them) - as you say; it's no good if you can't afford the neg cashflow. We have no "inner city" properties and have enjoyed some excellent growth. I did have one at the start, but even though the growth was good, the neg cashflow was a killer. We sold it, reinvested into another more "regional" area with better rental yields and did much better overall.
Add to this the ability to add value through renos, or subdivisions in the future, good locations close to amenities, and built
after 1987 for the depreciation - "on paper" or "non cash" deductions, and you can start off with a property that not only grows in value, but also provides you with virtually a no holding cost scenario - cashflow positive after tax. The properties built between 1985 and 1987 will give you 4% depreciation for 25 years - which is soon to run out. Go for the post 1987 ones; 40 years @ 2.5% depreciation.
You then re-invest all the profits (tax returns), and decrease the debt as you go through extra repayments, and in a few short years your nett worth has increased remarkably, and you are ready to go again.
Following this simple plan for the first few properties will get you to the "next level" faster and with less financial strain - the cashflows will be better, and your investing will be fun.
I would even recommend this plan for the higher income earning newbies too, but they often start off bigger (higher price-point) and with worse cashflows - just because they can.
Don't get me wrong; I want growth too, but I want the properties to support themselves so I don't have to. Why not have both?