Popping our IP Cherry

[wrexter]

Hi All,

I was hoping some of you experienced and knowledgeable good people of somersoft can help steer my wife and I into the right direction as we embark on the purchase of our first IP with more to follow in the future.

Appreciate any who have the patience to read ahead and give us some insight

Background

We are a 27yo couple, currently live in our PPOR in Aubin Grove. We are looking at a variety of options for our first IP

Current Value of our PPOR: ~$650k
Outstanding Mortgage: ~$295k

No other debts.

Combined Salary: ~$205k p/year

Investmens Optins Considering

Depending on our borrowing power, we are open to purchasing up to 2 lower price properties or 1 high price properties.


Apartments

We are considering apparments (1 bedroom or 2 bedroom) in the CBD proximity. We are currently looking at off the plan (CBD, Highgate, East Perth) but seems most off the plan developments are currently underway and those with better view or lower floors (cheaper) are sold out already.

We have also looked at established appartments (Hay st, Murray st) in the proximity of 480k-550k for 2 bedroom apartments

Subdivide and sell Rear Block

We are also considering purchasing property where we can rent out front house, subdivide land, sell rear land and retain front property as a rental.

We have been looking in areas such as Carlisle, Belmont, Bentley, Leeming, Riverton. Willeton but prices have gone up quite alot in the last 12 months as we wasted time thinking about investing (i hate hindsight).


Our current strategy for a 2 year lookahead is as follows but it wont be without challenges

- Put Deposit on an apartment
- Purchase property, subdivide and sell rear lot & retain front for rental
- Purchase Apartment on completion (retain or sell depending on growth/rental yield).


Any recommendation for areas to consider appreciated.

Thanks in advance

 

[Tulamalula]

Hah, you sound exactly like me - have considered all those ideas, and the same areas and discovered the same things as you mention. I'm still trying to work it all out, but went off East Perth and Hay Street due to potential glut of apartments to come onto the market and ability to rent them out.

Forget Belmont and Bentley for a retain and subdivide unless you want to blow all your equity - around $700K for a development block.

As others will quickly tell you here, what is your exit strategy?

 

[wrexter]

Hah, you sound exactly like me - have considered all those ideas, and the same areas and discovered the same things as you mention. I'm still trying to work it all out, but went off East Perth and Hay Street due to potential glut of apartments to come onto the market and ability to rent them out.

Forget Belmont and Bentley for a retain and subdivide unless you want to blow all your equity - around $700K for a development block.

As others will quickly tell you here, what is your exit strategy?

Haha good to know im at least somewhat on the right path.

If i go the apartment option im going straight after rental yield and to retain.

If i go the subdivide its a mixture of both.


Our other option is to go the apartmetn option and to go into a joint partnership with inlaws to purchase property to subdive (not super keen on this idea, theres 100% trust etc, its just that i think long term easier and better if we do it on our own).

Definately should of got in 12 months ago when it was starting to warm up, theres too much competition now but i feel like if i keep waiting it will keep going (be it slow and steady or fast).

 

[Tulamalula]

All I can say is don't take any advice from me as I'm on a learning curve. Started out looking at units close to the city, then got the retain and build idea in my mind and got sidetracked. Then I realised I'd have to buy somewhere super far out to afford a development block (looking up to 600K and as I have no idea how to do it, I'm thinking about apartments or normal house and land again.

Have my eye on a 850sqm house 10 k to city, in the hope one day it may be rezoned and I could retain and build.

 

[stumpie]

Hi All,

I was hoping some of you experienced and knowledgeable good people of somersoft can help steer my wife and I into the right direction as we embark on the purchase of our first IP with more to follow in the future.

Appreciate any who have the patience to read ahead and give us some insight

Background

We are a 27yo couple, currently live in our PPOR in Aubin Grove. We are looking at a variety of options for our first IP

Current Value of our PPOR: ~$650k
Outstanding Mortgage: ~$295k

No other debts.

Combined Salary: ~$205k p/year

being your first IP would you consider taking small steps initially. for example; since you're in aubin grove, have you considered doing a H&L on a smaller cottage block and putting a 3x2 or 4x2 on it. the rental yield and capital allowance is quite attractive making it positively geared. aubin grove will have a train station planned so buying near the proposed site will be beneficial.

cheers
Jerry

 

[alexlee]

Is there any reason why newbies these days just automatically assume they can do a subdivision even though they have no previous experience, or go for city apartments?

Did someone nuke all the mid-ring, mid-outer ring, standard houses? The ones that you won't be able to subdivide for decades, but will likely increase in value in line with population and income growth?

 

[perthguy]

Is there any reason why newbies these days just automatically assume they can do a subdivision even though they have no previous experience, or go for city apartments?

Because they are newbies so they don't know how much a subdivision costs to do, how long it takes, what the CGT, GST or income tax implications of selling a subdivided block are... or anything.

That's why there are forums like this.

 

[Singo]

Is there any reason why newbies these days just automatically assume they can do a subdivision even though they have no previous experience, or go for city apartments?

Did someone nuke all the mid-ring, mid-outer ring, standard houses? The ones that you won't be able to subdivide for decades, but will likely increase in value in line with population and income growth?

We are buying in outer ring suburbs of Perth, suburbs like Gosnells, Maddington etc which are some 20km from CBD. Not that we don't prefer mid ring suburbs, we can't afford them.

But these suburbs are doing ok. They have grown by around 15% or more in the last 18 months. Even though we have missed that growth, once the deposits are paid and in current interest rates, they are neutrally geared.

In the long run, with the population growth and inflation, I reckon these suburbs will do ok.

 

[EN710]

Is there any reason why newbies these days just automatically assume they can do a subdivision even though they have no previous experience, or go for city apartments?

Some reasons on top of my head:

• Subdivision - magazines make it looks so easy and profitable. Why can't I do it too?
• City apartments - "everyone" said it's blue chip

Did someone nuke all the mid-ring, mid-outer ring, standard houses? The ones that you won't be able to subdivide for decades, but will likely increase in value in line with population and income growth?

(Young*) investor vs. homeowner mindset
"Why do anyone want to live there if they can live in the inner city?"


*not always

 

[Tulamalula]

I think I can answer this one, from my POV though.

When you find yourself finally in a position to buy an IP (at my age, 47), if you're sensible you don't just go out and buy anything, you join a forum such as this one and you do your research. You consider all options in your mind, then learn of all these options outside your mind as you see what others are doing -you get super excited with the possibilities. Confident, creative people, like me, will let their minds go wild, but be sensible enough to ask questions - then get brought soundly back down to earth.

Apartments inner-city - all that's affordable IC to the newbie - something in the collective newbie psyche is ingrained with someone somewhere (parents, media?) drilling it into your head that inner-city is best for long time capital growth. But we can't afford H and L, so we go apartments, soon to discover the phenomena of glut.

Re development blocks, you see others doing it and think, heck, I may as well do, only to realise you're paying top dollar and well over the price of what it would be worth that block didn't have development potential. So you come slamming down to earth again and go back to looking 10-15k from the city, which is where I'm at again.

EN710 - you're dead right ... though I don't read magazines, no feedback - I come to forums so I can have my aspirations slammed into the ground face first

 

[alexlee]

Apartments inner-city - all that's affordable to the newbie - something in the collective newbie psyche is ingrained with someone somewhere (parents, media?) drilling it into your head that inner-city is best for long time capital growth.

Said information usually from people who don't own property and certainly haven't made money from it, in my experience.

But we can't afford H and L, so we go apartments, soon to discover the phenomena of glut.

Usually it's 'we can't afford house and land in an area that we would live in'. But if it's an IP, who cares? You're not the one living there. It looks cool because 'hey, here's someone building something and making their dream a reality' blah blah blah.

Re development blocks, you see others doing it and think, heck, I may as well do, only to realise you're paying top dollar and well over the price of what it would be worth that block didn't have development potential. So you come slamming down to earth again and go back to looking 10-15k from the city, which is where I'm at again.

You see others doing it without realising how much more experience and skills they have (or, for that matter, whether they're in fact making money or not).

The OP, at least, is still relatively young to be starting. Be careful of your spending, especially as you might lose one income when you have kids. Buy sensible IPs (below city median properties with transport, doesn't have to be popular or cool, check the rental market) that are just good buy and holds, nothing where you're fighting developers or uninformed newbies blind from reflections off the new stainless steel appliances, then repeat for 20 years. That would be a much safer plan to build a portfolio.

 

[Tulamalula]

Inner city -, for me it was seeing the areas 30 years ago you wouldn't walk through during the day much less at night, in high school looking down on people who came from *scummy suburbs* in Brisbane like Red Hill, Paddington, Bardon while we lived in shiny new AV Jennings brick boxes at the Gap. Compare CG between the areas now.

Also having bought a dump in Auchenflower in 1998 for $125K, adding $80K renos and a lot of blood sweat and tears, and selling for $455K 4 years later. So some success there, but that horse has now bolted, but still the thought remains, stick with what you know.

Development - there's a certain internal pressure to buy something developable now, rather than in the future - when the prices are through the roof, look at Belmont 24 months ago. In 2 more years what will those blocks be worth? So you look further out to places with proposed rezoning, it's not that you will actually do it, but you can at least be one of those people who buys in an area before it goes mad, and sell off your back yard or the whole lot at premium price, as sellers are doing in areas like Vic Park Perth, Belmont etc

Do keep in mind, everyone here was a newbie once, everyone developing here was once in the same situation as me, possibly getting the same conservative (and sometimes downright hostile as if developing is some select club no newbie is ever allowed to join) advice from the experienced, but chose to ignore it and are now developing.

 

[MRO]

Do keep in mind, everyone here was a newbie once, everyone developing here was once in the same situation as me, possibly getting the same conservative (and sometimes downright hostile as if developing is some select club no newbie is ever allowed to join) advice from the experienced, but chose to ignore it and are now developing.

Haha - too true.

Developing in most cases isn't overly difficult. Do a lot of research and have the right professionals on hand and you should be fine.

Unfortunately a lot of people just go into a development blind (no feaso and no idea) and overpay. This has create a lot of angst amongst regular forum users.

 

[Tulamalula]

I am way too tight to overpay Must be the Scots blood in me. My main problem is I think every place I look at should be 200-300K less than it is, regardless of the area or development potential!

Why would anyone being interested in development create angst amongst members? A bit silly really.

 

[Waldo]

I don't thing there is any issue wanting to buy something to potentially develop down the track. Perth in particular, even if you don't want to develop yourself there seems to be better growth in things with development potential (my personal opinion/experiance only).

I think the real risk in the Perth market at the moment is development sites have been red hot for an extended period of time now, that it would be very easy to overpay.

 

[wrexter]

wow didnt expect to review such a backlash over being a newbie

Yes we are young and we are probably a bit overambitious but nothing wrong with it

I am currently undertaking a subdivision in Riverton, helping my mum subdivide her property and build a new property in the back and sell the front which should knock out her mortgage but thats for another thread...

We will use this as experience for when we tackle our own subdivison.

What i do want to do if we head down a subdivision property path, is be able to aquire a property in a property with the most potential for gain.

For us at the moment there are a few posibilities

- House and land in a area like Aubin Grove/Atwell etc due to Fiona Stanley opning, near freeway, shops etc.

- Inner city apartment (off plan or established)

- purchase block for future subdivision, build on rear block and sell/rent.


What areas would you guys think are currently underrated with good potential and the adequate zoning for subdivision in a year or 2?

We have been looking at Carlisle, cloverdale, Beckenham, Leeming, Riverton etc.

 

[perthguy]

What areas would you guys think are currently underrated with good potential and the adequate zoning for subdivision in a year or 2?

We have been looking at Carlisle, cloverdale, Beckenham, Leeming, Riverton etc.

Out of that list, I would say only Beckenham is underrated. Although the lastest listings at $550,000 indicate it might have overheated. This may just be a rogue agent. We won't know until the next listings. Also, I note those $550k houses have not sold yet, a sure sign they are overpriced in this market.

The other suburbs are good but overpriced IMO.

 

[thatbum]

Why would anyone being interested in development create angst amongst members? A bit silly really.

For me its when people come along with development plans/ideas and want some advice - and then it turns out they haven't even done basic research for freely available information. Or otherwise taken some steps towards educating themselves - especially after being given advice previously.

For example in WA when someone hasn't even read the Rcodes or looked at the zoning tables when told about them.

I'm speaking generally obviously, its not aimed at anyone in particular - especially not wrexter who seems to have been proactive.

 

[dubjohnston]

Wrexter,

You are in a good position with your age, income and equity. Be ambitious and don't let anyone say 'you can't'.

Because you have so much time left in life, you could buy a potential development block (with house) and rent it out. You have +30 years til retirement so have plenty of time to develop.

I have +30 years til I retire too. I look at blocks that are either subdividable or could be in the future. I look to get them near transport corridors and some sort of retail presence (ie, shops). Time is something we have on our side.

Might as well make the most of it

 

[Tulamalula]

Thatbum .. you only get 2% of what a newbie is actually doing, thinking, researching, has experienced, will end up doing by reading a few posts.

Negativity and misplaced arrogance spurs me to do bigger and better Thx.