Starting at the Very Bottom

[tsunami]

Hello,
my first post in this busy looking community.

I'm purchasing a cheap property over 5 hours drive from Sydney, way out in the sticks in a small town and not too far from other larger towns.

I actually want to become a property investor and renovate homes and sell them off. I used to be a landscaper years ago so doing up the outside will be my main focus so I will look for these types of homes (with reasonable interiors & solid simple structures). I'm staying away from those big old houses with high ceilings, they just look like way too much work.

When I say bottom I mean bottom and I'm sure many of you would think the price I'm paying is what you would normally spend on renovations. Yes under $80k. But the good thing is I won't have to pay rent anymore which currently is $1,000 a month in Bondi for an average studio plus I won't have a 30 year mortgage. I'm lucky as I work online so a long as I have my laptop & an Internet connection then I can work anywhere. But I do enjoy the beach in summer so I will miss that but eventually I will buy a nice property close to a beach. I'm not looking forward to the cold winters out in the sticks but hopefully it will be just one winter and I can have my first property sold within 6-12 months.

With the FHOG and a good chunk of cash I have saved then I will be putting in 60% deposit and the bank will pay the rest. I expect to have that finalized next week. Since I'm self employed with a fairly new business then obtaining a larger loan would be pushing it so my strategy is to start small and use this property as a stepping stone to bigger things. I will save $12,000 in rent if I stayed there for one year and in 2 years I will have paid of my loan at near what I would have paid on my rent. I will probably just pay the loan off within 6 months anyway if my income is good.

I hope to add enough value on my first home without spending hardly anything besides some creative landscaping, planting then sell it off close to 100k but I would not be too stressed if I only got what I paid with a slight profit to cover interest & improvements. If I have paid my loan of by then it would mean I have close to 100k in the bank (or the price I sell it for) . This could be the deposit on my next home plus I will have a longer banking history for my business so getting a much larger loan will probably a bit easier. Maybe I can then get a loan for 300k/400k which would mean I could have a lot more flexibility in my next investment.

I'm actually just excited to own my first home, not have any rental agents or prospective home buyers bothering me and having the freedom of doing what I like in my house. My girlfriend is studying overseas and she will be here late next year so I would probably have a new property by then. It will be a bit lonely way out in the country but I really don't mind that and I enjoy a peaceful creative environment.

So what are your thoughts on my strategy to enter the property development arena considering my circumstances? Have you any good tips and advice on buying my home, anything to check before I agree to the final signing?

 

[Nathan]

sounds good.

making me envious, however just be asure you can make profit by flipping your properties...

know your area.

 

[Bargain Hunter]

tsunami,

Welcome to the forum and congratulations on the upcoming purchase of your first home.

In regard to the next purchase you don't need to sell to go to the next stage. In fact you don't even need to have paid off the existing mortgage. Instead use the equity gained from the first property as a deposit on the next property.

As a general rule the closer to a major centre the more likely the property will gain value, however improvements to a property can also add value in excess of the actual costs of the improvements.

If you spend sometime going through the previous posts you will find that many of the people on this forum use this approach.

Regards

Andrew

 

[Propertunity]

I'm purchasing a cheap property over 5 hours drive from Sydney, way out in the sticks in a small town and not too far from other larger towns.

This may be a problem for getting finance for yourself OR more importantly the next purchaser (after your reno). Also you have a limited number of potential new buyers in these areas.

I actually want to become a property investor and renovate homes and sell them off.

That is not 'investing' that is 'trading'
....unless you mean "I want to become a property investor and as a way of funding my buy & hold investments, as a second source of income I want do do some buy, reno, sells on the side.

But the good thing is I won't have to pay rent anymore which currently is $1,000 a month in Bondi for an average studio plus I won't have a 30 year mortgage....
I'm actually just excited to own my first home, not have any rental agents or prospective home buyers bothering me and having the freedom of doing what I like in my house. My girlfriend is studying overseas and she will be here late next year so I would probably have a new property by then. It will be a bit lonely way out in the country but I really don't mind that and I enjoy a peaceful creative environment.

You are now making what I see as a critical mistake - that is mixing investment decisions with the emotional baggage that comes with buying a PPOR, getting away from a $1,000 per month payment, living in the country etc etc.
Don't get me wrong - it IS great to own your own home with all the security and warm fuzzies associated with that....just keep your head.

I'm lucky as I work online so a long as I have my laptop & an Internet connection then I can work anywhere.

If it is 5 hours out from SYD in the sticks - make sure you can get ADSL or wireless RELIABLE internet connection or you'll be stuffed. Working online on dial-up is no fun, believe me.

With the FHOG and a good chunk of cash I have saved then I will be putting in 60% deposit and the bank will pay the rest. I expect to have that finalized next week. Since I'm self employed with a fairly new business then obtaining a larger loan would be pushing it

Congrats on saving up cash! Are you sure the bank will stump up 40% of a property in the sticks AND with you being self-employed in a new business? I don't think FHB's get lo doc loans do they? (or maybe you have already got this approved in which case I'll butt out)

I hope to add enough value on my first home without spending hardly anything besides some creative landscaping, planting then sell it off close to 100k

What makes you think with the costs of buying, holding and then presumably selling that "spending hardly anything" apart from your sweat equity, that you will come even close to turing a profit? My suspicions are that you will add $zero to the val and will end up with a property like the one you purchased except with a nice garden. Gardens add value no doubt, but so does paint, kitchens and bathrooms, floor coverings. If you do none of these and only the landscaping then you will have a place that is easier to sell only - but no $ increase on original price.

So what are your thoughts on my strategy to enter the property development arena considering my circumstances?

Well I like your dream. I like your attitude of wanting to get ahead. I like that you are self-employed. I like that you have come up with a plan AND then exposed your plan and sought opinions from ppl who you respect.
But I think your strategy is seriously flawed and you need to come up with another one

Have you any good tips and advice on buying my home, anything to check before I agree to the final signing?

Oh yeah - but so, so many of them it is hard to know where to begin. Lets do that later - if there is not already a thread on how to do DD in here - which I suspect there is.

 

[Peter 14.7]

Welcome Tsunami to Somersoft Forum.

I appreciate your dream. It reminds me of a young guy called Peter 20 years ago....ahhhhh..

So may I say the best first step is to read and then read again, surf the sticky threads and suck it all in. Don’t rush and don’t over reach. The first ones are the hardest!

Secondly, as a "newbie" there is an urge to ask every question but you only have so much good will before people get a little tired of being at beckon call.

SS forum is like an information bank. We all put and we pull out. Important to put info in from your expertise even if it is not property. Check Coffee Lounge for those threads. Members like members who contribute.

Thirdly, be courteous, humble; post thanks and send Kudos. "Know it alls" get torn apart in half a day and look foolish, so be aware there are seemingly quiet members here who actually 50+ IP's and live on yachts. Just because they don’t "toot their horn”, list each IP in detail, etc...is no indication of the level of expertise they offer. Many keep their wealth to themselves but are happy to pass on knowledge.

But be assured you have found the right place IMHO. If at 20 I could have had this site (yes the internet did not exist then) I would be even more comfortable and wealthy than I am now and I class myself as doing well.
Regards

Peter 14.7

PS smaller posts get read more Digestable amounts are wise.

 

[ethereal]

Welcome Tsunami,

I am not (yet) one of those people with 50 IP's. However, I wanted to say good on you for making a start. The first step is the hardest and though there may not be huge profit in what you propose, it will be an adventure and you will learn from it. It seems to me that you are looking at taking on a very small debt so not too much chance of it going badly wrong.

As others have said, make sure you have done your research - look at past sales, how long properties take to sell, is the population growing or declining in your area etc. If there is a chance you may hold the property and rent it, how much would it rent for and is it well located for tenants.

BTW, I think 'investing' in a PPOR is a great first step, particularly when the FHOG will cover such a nice chunk of the low purchase price.

 

[tsunami]

sounds good.

making me envious, however just be asure you can make profit by flipping your properties...

know your area.

I gather your just been cheeky regarding the envious part

Yes good advice on the profit bit, thanks very much for replying to my message!

In regard to the next purchase you don't need to sell to go to the next stage. In fact you don't even need to have paid off the existing mortgage. Instead use the equity gained from the first property as a deposit on the next property.

That's the sort of great info I'm learning on these forums, thanks for this top tip.

---
in reply to Propertunity

This may be a problem for getting finance for yourself OR more importantly the next purchaser (after your reno). Also you have a limited number of potential new buyers in these areas.

Yes I realize that, I guess this is what happens when I can only afford a cheap place. I hope the bank will accept this but I think they have. They are not doing a valuation apparently (probably due to it been out in the sticks and a low price) and they are up to the final income check which is what I'm waiting for. My place is a bit cheaper than other similar homes in the area although not many bedrooms. Lots of land though so bedrooms could be added with permit.

....unless you mean "I want to become a property investor and as a way of funding my buy & hold investments, as a second source of income I want do do some buy, reno, sells on the side.

Yes I mean property investor I guess, I want to buy homes, live in them (one at a time for now) and renovate them, mainly landscaping and sell them and move on to next one. I already have an Internet business which only takes a small part of my day to run if I want so I can spend a few hours a day on renovating etc but I prefer to put most of my time in my Internet business and use the renovating/Landscaping as a way to get outside away from the computer. Later it could become a full time business if I succeed and buy several properties.

You are now making what I see as a critical mistake - that is mixing investment decisions with the emotional baggage

I understand about not been emotional in business as I studied business and have a diploma. I definitely won't be getting emotional with this. I will buy my dream home one day though which is not going to be sold. Everything else I live in and renovate will be temporary, I'm quite aware of that. It still is going to be exciting to have my first home though but like anything new the excitement will just be short term and then the work will begin.

If it is 5 hours out from SYD in the sticks - make sure you can get ADSL or wireless RELIABLE internet connection or you'll be stuffed. Working online on dial-up is no fun, believe me.

That is a major issue for me and the current owner has broadband installed and I'm currently in communications with Internet companies regarding speeds etc and this will be a high priority for me so nothing will be signed until I know I will get a good net connection.

Congrats on saving up cash! Are you sure the bank will stump up 40% of a property in the sticks AND with you being self-employed in a new business? I don't think FHB's get lo doc loans do they? (or maybe you have already got this approved in which case I'll butt out)

I will find out when the bankers return to work, I expect to hear confirmation at end of this month as I called a few days ago and they have a back log on loans with the recent interest cuts. They gave me written pre-approval for a higher amount than I'm actually borrowing, I have a solid income although only in profit for last 18 months. My fingers are crossed and I'm quite positive but I expect the worst in case. 40% is not a lot really and considering the low cost of the property the bank can not really lose as the amount they will put in would be a lot less than the property value (even at lowest valuation). The only thing they will lose is a good banking customer if I don't get approval. The repayments will be around the same amount I pay for rent at my current place and I could probably pay it back in less than 6 months but might go for a 2 year loan and take advantage of low interest rates.

What makes you think with the costs of buying, holding and then presumably selling that "spending hardly anything" apart from your sweat equity, that you will come even close to turing a profit? My suspicions are that you will add $zero to the val and will end up with a property like the one you purchased except with a nice garden. Gardens add value no doubt, but so does paint, kitchens and bathrooms, floor coverings. If you do none of these and only the landscaping then you will have a place that is easier to sell only - but no $ increase on original price.

Well I have done my research and I believe the home is a reasonable deal,. I actually had over 90 homes in my database to start. I did get the price down quite a bit as I knew they were keen to sell since they have purchased a bigger home for their family to move to. I think that by buying this I will be saving $1000 a month on rent so this is really making a profit for a start and I believe by the time I have finished landscaping and making some improvements inside it will get a profit when I sell. I won't be spending a lot of money on materials etc either. At worst I would get my money I paid for it back and would have saved $1000 a month from not paying rent (minus loan interest). I would have learn't a lot and I would at least have one property in my portfolio. Plus I'm looking forward to getting out of the city for awhile too

But I think your strategy is seriously flawed and you need to come up with another one

Well I'm limited to what I can do with only a certain amount of savings and only been profiting for 18 months self employed. What would you do if you were in my situation?

I do have an internet website probably worth over 100k but Internet business's probably could be hard to get valued and the banks accepting them as assets.

thanks Propertunity on your excellent thoughts, it certainly has made me think a lot more about all this. I would definitely like to hear what you would consider a better path to go down.

----

in reply to Peter 14.7

But be assured you have found the right place IMHO. If at 20 I could have had this site (yes the internet did not exist then) I would be even more comfortable and wealthy than I am now and I class myself as doing well.
Regards

thanks for the welcome message and tips. Well I'm a bit older than 20 and a slow starter unfortunately but I have as much energy as a 20 year old.. - I can see this is a top place for people in the property business and there is so much reading to do here over the coming weeks.

in reply to ethereal

The first step is the hardest and though there may not be huge profit in what you propose, it will be an adventure and you will learn from it.

That is exactly how I see it, I don't expect to become a tycoon or make much profit from my first property but it will definitely be a start and somewhere to progress from.

As others have said, make sure you have done your research - look at past sales, how long properties take to sell, is the population growing or declining in your area etc. If there is a chance you may hold the property and rent it, how much would it rent for and is it well located for tenants.

In fact I purchased a local magazine the other day (called Property) which has all this info in it so I have been reading all this and it really is helpful. My area is not listed unfortunately but locations nearby seem to have mixed results with some in negative while others with positive growth. Average home prices are double of the price of mine although lots of variables can contribute to that. I feel positive and comfortable with my home and I will know for certain when inspections are done.

BTW, I think 'investing' in a PPOR is a great first step, particularly when the FHOG will cover such a nice chunk of the low purchase price.

Yes that is right, I really think it is a wise move for me to take this step now and move into my own home.

thanks for the feedback everyone and have a very merry Christmas.

 

[Y33]

Tsunami,

Nothing wrong with starting at the bottom end of the market.

In the right conditions they go up at nearly the same rate and sometimes more than other properties. You might also find that bottom end properties are sometimes easier to off load quicker than middle and top end if the properties are looked after and your chasing some quick cash.

Part of my investing plan is to always keep a few bottom end properties just in case I need to off load something quickly to get some cash. Previous properties bought during the last (boom) for less than what you want to spend now are priced over 200K and still at the bottom end of their respective areas.

As mentioned by other using the equity (might take a few years in current climate depending on what you can do to improve) to help fund the next project is another option.

Hope all goes well with what ever you decide to do.

 

[Nathan]

nah nah not being cheeky, just stating wish i had the funds and time to do your planned project....

 

[Alex P Keaton]

PS smaller posts get read more Digestable amounts are wise.

I can attest to that. I'm guilty of doing this!

 

[RumpledElf]

Bloody brilliant I say. We're doing something similar and for very similar reasons.

Banks will lend up to 80% in most country areas, you have to be in a really crappy area (as my PPoR is in) to get caught on the 60% max lend. My PPoR is in one of those towns that really has no future except for eccentrics who like to buy cheap houses, and will be very hard to sell when I want to move and not worth it to rent out.

We're looking to renovate and sell ours, although we'll be seeing an accountant when we're finished the reno and have an appraisal on the rent and sale price just to double check that selling it after a year *is* the best thing, since for all we know it'll be better to rent it out or move into it in the miraculous and unlikely situation that I could sell my PPoR in less than 5 months ... what with capital gains tax, selling fees, loss of FTA/FTB/parenting payment etc. Not much point making a one-off profit if you have to blow the bulk on taxes and basic living expenses.

 

[Gee Cee]

5 hrs which way.
Nth would be some nice places.
Sth some nice places.
West also some good spots.
Any rough location?

 

[tsunami]

Part of my investing plan is to always keep a few bottom end properties just in case I need to off load something quickly to get some cash. Previous properties bought during the last (boom) for less than what you want to spend now are priced over 200K and still at the bottom end of their respective areas.

That's great to hear, I agree that it seems a good practice to mix your investments and cheaper homes are probably going to see more higher turnovers up till June at least.

nah nah not being cheeky, just stating wish i had the funds and time to do your planned project....

Well I'm sure you will be well prepared when you do get a property since you are experienced here. Good luck for your future and maybe you can aim for a similar low cost property like me to get your foot in the door where it won't take 20-30 years to pay off the mortgage or worry the bankers if you don't have a huge saving for a deposit.

Banks will lend up to 80% in most country areas, you have to be in a really crappy area (as my PPoR is in) to get caught on the 60% max lend. My PPoR is in one of those towns that really has no future except for eccentrics who like to buy cheap houses, and will be very hard to sell when I want to move and not worth it to rent out.

Well I hope I will just scrape in one of those plus I do have 60% anyway. I don't think it's a bad area, but it is quiet. It is a small town with basic facilities, like bank, grocery, police, school and sports facilities etc. The bank has got past that stage so I don't think that is a problem, in fact they even skipped on the valuation (not sure if that is a good or bad thing) and I'm just waiting for final approval on my income.

5 hrs which way.
Nth would be some nice places.
Sth some nice places.
West also some good spots.
Any rough location?

East, ... no, I would rather keep it private at this stage until the house is actually mine but I will be sure to post all the details when I have the keys.

On that subject since I have been reading every property mag and website for the last week I'm starting to get a bit more of an understanding what I should be looking for as an investment. I do believe this is a good deal but I do have the following things that are running through my mind. Keep in mind that I have not signed the contract yet, I do have all the papers ready to be signed though as the solicitors and their solicitors have done all that. Now I'm just waiting for my bank approval and then I will get a building & pest inspection. After that I plan to sign the contract on a fast 28 day contract. I wanted that to make it quick and the current owner said to me when I seen the property he would help to make it a fast deal if I wanted.

Now the things that are currently on my mind are:

Should I get the home valuated to find out what it is actually worth?

After hearing that the price the property sold for last time was about 40% lower than what I'm paying for it back in 2003 or 2005 (can't remember now but think it was 2005) then this does make me wonder if I should get it valued properly. But it does have some serious improvements since then and remember this is a very cheap home (compared to an average home in Sydney for example).

After reading a lot I have found a town that I was originally interested in to be listed in the top 10 places to buy etc in a property mag. I never visited the 3-4 properties I had in my database in that town as I thought I was happy with my place I plan to buy. But this town would probably be a much wiser place to buy in since it is growing and is bigger. Plus I think the climate is better too. There was one place I really like in this town and it is around the same price.

So far I have only made a verbal offer on the home but the solicitors have been gathering details for the contract. The day after I viewed the home and after I had spent several days checking out a number of properties I phoned the agent to say I wanted to make an offer on the home. So the agent was the middle man between me and the owner. After several phone calls over 20 minutes we came to an agreed price. It was quite a good reduction off the asking price but after thinking about it and knowing a few things I think I could have got the price lower.

From reading a lot I'm also finding that homes are still decreasing in value in the current economic climate it seems so maybe I could have got a better deal? I know the owner was keen to sell to move to their new big family home.

So what are my obligations with this home now that I have made it clear I'm going to buy it verbally as long as the finance goes through and the inspections are ok? I would actually feel a bit guilty if I backed out of it now and brought a different property since they think I'm going to buy it and I don't like to muck people around and waste their time. But I'm also a businessman and know that sometimes business is harsh.

Also realising that I will have to pay my solicitor but we did discuss this earlier that if the sale for this home did not go through then it would not cost too much more to switch it to another property. But would I have to pay for the solicitors fees from the current owner for their work if I backed out? Could the owner sue me for backing out of the verbal communication of my interest to buy it? I know this is getting into legal areas but I'm just interested in general info.

I'm thinking about going out to this town next week before I sign the contract and visit the properties I'm interested in there. I'm still very keen on my first interest but I have so much running through my mind now....

 

[The Y-man]

Should I get the home valuated to find out what it is actually worth?

Why bother? Unless you are planing to immedately access equity or something, what would be the point? Realestate is a long term thing....

You are suffering buyer's remorse.

Step back from the action for a minute and clear your mind.

Take an external observer's view - you have done the best due diligence you could (I assume).

Of course every day you learn more - but you need to draw a line in the sand at some point and say "Ok, this is the best I know at this point, I am making the offer". Then don't look back - good decision or bad decision - what is important is that it was a decision. Offer made, deal done, time to start plannning for the next deal.

Cheers,

The Y-man



Cheers,

The Y-man

 

[RumpledElf]

If you're spending all this money on solicitors etc, sign the bloody contract before someone else does ... with the usual subject to finance etc etc.

You don't sound very sure of yourself, honestly. The last two houses I bought were 1) purchased without bothering too much about anything because it was $25k 2) snap purchase that we did minor mental arithmetic on and realised there was a lot of profit there because it was $65k.

40% lower in 2005 doesn't sound like much growth, but then I'm used to SA where the boom started much later. Most of SA has got totally out of my affordability range since 2005. Heck, I couldn't afford either of my houses at their current market value ...

 

[Perp]

tsunami, it would have been better if you'd decided on which town/area you wanted to focus on before you indicated you'd like to buy that property, but I don't believe that you can contract for real estate verbally, and thus you have no binding agreement with the vendor and don't owe them anything if you back out at this stage. If you feel that the other town is a better prospect, then I'd definitely go for that town.

Y-Man has a point that there comes a time when you make a decision and stick with it, but I don't think you got to that point before you made your first offer. I would now do a bit more research and make sure you're at that point before you make another offer!

Good luck; your basic plan sounds feasible to me, provided you've done the due diligence on the location. Enjoy!