Post-Newbie Dilemma

Long time reader, first time poster.

I've settled down in Melbourne from 2011 from overseas. Get addicted to the forum when searching my first house. I started with a rundown house in Sunshine, then aggressively bought one property each year thanks to a lot of invaluable post from savvy forum investors.

I always buy rundown house, (no apartment/ unit/ townhouse) under market value then renovate. I believe that is only way to squeeze in the better suburbs within short time frame and tight budget. My modest property journey so far as below.

2012: PPOR current value 450k, 73% LVR - Sunshine
2013: IP1 current value 700k, 73% LVR - Essendon , rent 450/w
2014: IP2 current value 750k, 80% LVR - North Melbourne, rent 450/w

We got 400k cash in the offset account and average income. All sites have renovated dwelling with development potential by subdivision.

Now I realize that I've already passed the newbie phase. So what should I do next couple year?

Option 1: time to slow down and wait for couple years to stay safe if market crashes :rolleyes:

Option 2: keep buying IP, max. budget is around $1m, maybe looking for something in the East. I always love the East and hope one day can afford to live there. I am not confident about interstate investment.

Option 3: develop 3 properties, double up to 6 properties by subdivision.

Option 4: develop IP2 to achieve highest return whilst buy something around $500-600k.

Which option will you pick if you were in my shoes?

Any advice is much appreciated.
 
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All four options are reasonable - it would all depend on your own research and preferences.

What you have been doing appears to be working well - so if you believe that you can achieve similar results in the future, I'd go that way.

Our approach is similar to that - but we did venture to do a renovation interstate and will be tempted to do that again.
 
I think it would be a shame to not explore the possibilities and numbers for the subdivision of the properties, especially if you can retain the current houses with having to demolish.

But that's me - I like to squeeze every bit out! :)
 
All four options are reasonable - it would all depend on your own research and preferences.

What you have been doing appears to be working well - so if you believe that you can achieve similar results in the future, I'd go that way.

Our approach is similar to that - but we did venture to do a renovation interstate and will be tempted to do that again.

Thanks Toni, fortunately I have some options but it also causes a bit headache to pick the right direction.

Do you manage subbies interstate or DIY? Can you please share some lesson how to coordinate the reno. Cheers.
 
I'd be looking at doing something on your existing properties as your next step as they are very very negative.

If they have subdivision potential I'd look into using that rather than buying another IP
 
I think it would be a shame to not explore the possibilities and numbers for the subdivision of the properties, especially if you can retain the current houses with having to demolish.

But that's me - I like to squeeze every bit out! :)

Yes, glad to hear that. It's a bit scary to go out of comfort zone. Probably I should build a better team to go further.
 
It's a bit scary to go out of comfort zone. Probably I should build a better team to go further.

For most people, almost all really worthwhile things in our lives have been out of comfort zone.

Once you expand your comfort zone its hard to go back to a smaller life.

ta
rolf
 
IP numbers are horrible, either you have paid to much, are not charging market rent or have oodles of land attached.

Hopefully it is part not enough rent and part oodles of land :)

Increase rent if possible and maximise use of land would be my priorities.

Granny flats or subdivisions are the most common, worth investigating IMO.

I would pump up what I have before buying another, you may need the cash you have to make that happen.
 
IP numbers are horrible, either you have paid to much, are not charging market rent or have oodles of land attached.

Hopefully it is part not enough rent and part oodles of land :)

Increase rent if possible and maximise use of land would be my priorities.

Granny flats or subdivisions are the most common, worth investigating IMO.

I would pump up what I have before buying another, you may need the cash you have to make that happen.

Thanks Macca for invaluable advice. Yes, yield is horrible and both ips are - gearing. However the CG prospect looks ok.

It would be too risky and silly to have another - gearing IP in the peak market.

Ta
 
as you are probably aware, the next transition from just buy and hod is sub-division and duplex development.

Iam currently reading alot and try to challenge myself to move to the next phase of investing!!!!


good luck!!!
 
Yes, glad to hear that. It's a bit scary to go out of comfort zone. Probably I should build a better team to go further.

Outside the comfort zone is where all the real fun is :)

Yes, a team is a very good idea. Trying to do these things on your own is a recipe for disaster (learning by experience is expensive - much better to learn from other peoples mistakes!) but you've taken a good first step here on SS - so much great info from very experienced people.
 
MirandaF,
If your goal is to exit the rat race in 7 to 10 years, what income and lifestyle do you want? Once you know that, you work backwards to see what path and strategy you need to take to achieve it.

Houses on land in Essendon and North Melbourne are unlikely not to achieve gains over time, both are good suburbs close to everything and ticks the boxes presuming they were in good areas. Yields of around 3% are about right in those suburbs.

With $400k facility, it may be worth looking at a development potential but as you both seem to have full time jobs, sub contract it may be the way to go unless you have the skills and time.
You would be hitting land tax threshold in Victoria irrespective of ownership, so I would be reluctant to look at any further IP's in Vic and with better rent yield interstate, look elsewhere if you intend to build your portfolio.

IN relation to your options:
Option 1 - you could but my view is you buy when you can afford to if you want to achieve mid term goals. It is highly unlikely for a property 'crash' in Australia. We have just come through the downturn cycle.
Option 2 - as I mentioned, buy interstate but median priced IP's, not IP's to $1m. Start balancing your portfolio with better yields. Better to buy 2 IP's at $450k to $500k each rather than 1 at $1m. I would consider waiting to move to east of Melbourne after you have built your portfolio and had available funds for a straight purchase with minimal borrowings.
Option 3 - consider starting with 1, perhaps Sunshine and use a sub contractor to manage and professionals to arrange sub division etc for you to get plans done and approvals.
Option 4 - I thought you said they were renovated houses, so what are you thinking of to develop unless a subdivision or second dwelling?

My experience is that investors are better sticking with one strategy rather than trying a little of each, but good luck with it.
 
I'd be looking at doing something on your existing properties as your next step as they are very very negative.

If they have subdivision potential I'd look into using that rather than buying another IP

Your rental yields are terrible, can you improve them? Are the properties at market rent? It looks like there would be a substantial short fall even after tax, I would look at trying to improve this first but I guess it depends on your risk appetite. Can you add a GF or develop? Can you carry out a small Reno to improve yield?
The easiest option would be to hold and pay down some debt and wait for rents to increase over a couple of years and reassess.
You mentioned about buying again in a peak market, there are plenty of markets that have been asleep for about 6 years and are now only starting to stir
 
It sounds as though you have already renovated all these properties? If so then you really need to run the numbers on whether the investment to date is worth more than knocking down and putting 2 on the blocks.

Can you even do a subdivision on these blocks if you retain the front house? Essendon has very few subdivided blocks and the council (MVCC) will give you a hell of a time as they are nuts on neigborhood character, ecspecially around essendon so depends on where the IP is, may not even allow it.

Not having a go at you but it seems you have purchased pretty blindly without choosing any defined strategy/goals and exits.
Personally developing is your best bet here as if done well you will be able to sell for a decent profit and then purchase wise interstate into positive properties to offset some of this nasty shortfall you have. But a big lot of MAYBES with the properties you currently have and how they can be developed.
 
It sounds as though you have already renovated all these properties? If so then you really need to run the numbers on whether the investment to date is worth more than knocking down and putting 2 on the blocks.

Can you even do a subdivision on these blocks if you retain the front house? Essendon has very few subdivided blocks and the council (MVCC) will give you a hell of a time as they are nuts on neigborhood character, ecspecially around essendon so depends on where the IP is, may not even allow it.

Not having a go at you but it seems you have purchased pretty blindly without choosing any defined strategy/goals and exits.
Personally developing is your best bet here as if done well you will be able to sell for a decent profit and then purchase wise interstate into positive properties to offset some of this nasty shortfall you have. But a big lot of MAYBES with the properties you currently have and how they can be developed.

Thanks all generous SSer for showing me the right direction and broadening my vision.

Just clarify that IPs is heavily - gearing due to small dwelling with undeveloped empty land attached. My aim is to develop when buying but unfortunately I haven't got enough available fund at that time.

Yes, it look like developing is my best bet. What I should start between the three:

- Sunshine: 500sqm corner block, can live and retain the front house and build a double storey townhouse at backyard. DA is on the way.

Site cost $450k, construction cost 200k, end result $750k for two houses, rent 350-400/w each.

- Essendon: 300sqm block with two street access front and rear, DA approved for retaining the renovated front house and build 2 beds unit at rear.

Site cost $700k, construction cost 200k, end result $1,1m for two houses, rent 450/w each.

- North Melbourne: 200sqm block with two lot on title, can demolish the old house and build two duplexes. It would save me the subdivision headache. Concept design is generated.

Site cost $750k, construction cost 500k, end result $1,6m for two houses, rent 550/w each.


Perhaps ATO will consider me as running a side developing business while still be a full time employee. Should I do it under company structure with the hope quitting the current job and focus on development within next couple years.

Many thanks again.
 
MirandaF,
If your goal is to exit the rat race in 7 to 10 years, what income and lifestyle do you want? Once you know that, you work backwards to see what path and strategy you need to take to achieve it.

Houses on land in Essendon and North Melbourne are unlikely not to achieve gains over time, both are good suburbs close to everything and ticks the boxes presuming they were in good areas. Yields of around 3% are about right in those suburbs.

With $400k facility, it may be worth looking at a development potential but as you both seem to have full time jobs, sub contract it may be the way to go unless you have the skills and time.
You would be hitting land tax threshold in Victoria irrespective of ownership, so I would be reluctant to look at any further IP's in Vic and with better rent yield interstate, look elsewhere if you intend to build your portfolio.

IN relation to your options:
Option 1 - you could but my view is you buy when you can afford to if you want to achieve mid term goals. It is highly unlikely for a property 'crash' in Australia. We have just come through the downturn cycle.
Option 2 - as I mentioned, buy interstate but median priced IP's, not IP's to $1m. Start balancing your portfolio with better yields. Better to buy 2 IP's at $450k to $500k each rather than 1 at $1m. I would consider waiting to move to east of Melbourne after you have built your portfolio and had available funds for a straight purchase with minimal borrowings.
Option 3 - consider starting with 1, perhaps Sunshine and use a sub contractor to manage and professionals to arrange sub division etc for you to get plans done and approvals.
Option 4 - I thought you said they were renovated houses, so what are you thinking of to develop unless a subdivision or second dwelling?

My experience is that investors are better sticking with one strategy rather than trying a little of each, but good luck with it.

Thanks Greg for great post with a lot helpful information. We just have simple needs, no luxury things so we can live comfortably on 60K without debt. I'll be around 40yo if I can quit rat rate in 7 years to explore the world.

To achieve 60k passive income, probably we'll need 1,2k/w rent equivalent to 3 payoff ips and no ppor dept. Hope I am on the right track.

Sorry about dump question, can you explain about "land tax threshold in Victoria irrespective of ownership". What is the threshold I should be wary?

Now I'm pretty clear about the next step. It would be developing and with an eyes on next mid-price ips, will do DD to how to buy & manage interstate ips, not VIC only.
 
MirandaF,
It sounds that the development for Sunshine is a good start. You still living in it with a build at the back, so no inconvenience for tenants.
Essentially a $200k build cost, adding on say $300k to the overall value and $350 a week rent for the back townhouse.

If you already have a $400k facility ready to go, use that and revalue/refinance once completed. Whether you need to sell or not or you can simply keep as an IP is a separate question.

Many developers like you will establish a separate company for building, helping to limit any liability to the company itself. Depending on whether you will continue as a developer, you may end up working for the company, being paid wages. Owner Builder finance is harder to obtain.

Land tax in Victoria is based on site value per Rates Notice. Once total taxable value is > $250k, you will be up for land tax. I don't know whether you hold Essendon in your name and Nth Melb in your partners name, or jointly, so it will affect the land tax amount you are liable for. It is a progressive tax, the higher the taxable value, the higher the tax rate.
You can access the rates below.

http://www.sro.vic.gov.au/sro/SROna...575D20021EBE7C580F3A333F4AD44CA2575D10080AD1C

Hope it helps.
 
If you already have a $400k facility ready to go, use that and revalue/refinance once completed. Whether you need to sell or not or you can simply keep as an IP is a separate question.

Please make sure you don't use the cash straight from the offset, can be used in a tax effective way be recycling the debt into the PPOR. Before even doing this would get up to date valuations to see if equity can be extracted.

Good luck on the next stage, looks like you have set yourself up nicely.

Keep the forum updated I'm sure there will be a lot of people interested in how it goes.
 
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