Trepidation

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From: Firefrog .


I thought I had found that all elusive gem yesterday. Listed for 70-80K, 3brms aircon etc.etc. Looked promising in the pic. Tenanted at $160 p/w, Ran the numbers looked to be +ve to the tune of $30-$40 a week. BUT then I drove past and it looked to be a bit untidy and rough around the edges, roof old corrugated iron and generally not appealing to me.

Is my newbieness stopping me from checking into this further. The numbers seem to stack up I don't want a lemon though.
(I think as I type I'm answering some of my own questions) - :)

Do all you gurus use your instincts or put them aside sometimes and look deeper.


Moving forward with much trepidation.

The frog
 
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Reply: 1
From: Ian Findlay


Dear the Frog,
We have 5 IPs going on six in a few months hopefully and our personal overriding principle is only to buy something we like and would be happy to live in ourselves. Although I’m sure that there could be money to be made in the type of property you describe we wouldn’t buy.

We also like to buy property reasonably near so we can manage them ourselves, drive past and check etc. It also gives us a warm fuzzy feeling knowing that we own them and thinking about not having to work.

We are the slow steady type and buy good solid investments rather than risky.

Other considerations though are:
1. Position. Is it worth it just for the land? For example your example would be a great buy if it was prime land in Sydney CBD but very poor indeed if it was in the Outback.
2. Renovations. Do you have the time, money, expertise, and inclination to renovate? We don’t so we buy property that is easily rentable straight away. Minor work such as repainting is OK.

Ian
 
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Reply: 2
From: Julie _adelaide


What suburb? Location is important in Adelaide.
Julie_adelaide
 
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Reply: 2.1
From: Firefrog .



Craigmore, promise not to buy it! :)

Julie
Do you have some pointers for Adelaides better suburbs.
 
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Reply: 2.1.1
From: H T


dont sacrifice cap. growth for yield
 
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Reply: 2.1.1.1
From: Paul Zagoridis


I disagree, make money when you buy. Don't hope and prey that prices will go up and make your investment decisions correct.

No one ever went broke taking a profit.

Regards

Paul
 
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Reply: 2.1.1.1.1
From: H T


a high yielding property typically represents less of a capital gain than a better positioned 5-6% suburb that has shown solid growth..eg a house in middle park will have an ordinary rental return but (should) have much more capital growth than a house in sunshine that returns 7-8 - thats the trade off, better going for cap.growth than yield i reckon..
thoughts???
 
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Reply: 2.1.1.1.1.1
From: Kevin Forster



It seems to be if you're willing to accept 5-6% gross yields for a possible higher cap growth then you have just bought into the Real Estate and media BS machine.

The are many places where you can get 9-11% gross yields plus 7-8% cap growth and that is in Melbourne. If you are reading which suburbs are going to boom in the newspaper you have already missed it. If the journo's knew, then they would've already bought or else wouldn't be working for a wage anyway.

There is a lot to be said for contrarian investing.

The deal up the top looks alright to me on the basis given so far. I would need better figures to really see if it adds up. There are no lemon properties, just lemon investors. (paraphrased from Rich Dad's Guide to Investing)

Kevin
 
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Reply: 2.1.1.1.1.1.1
From: H T


well i reckon turning 70k equity into 250k equity from a couple of ip's over a few years aint real bad - sure beats your 12-15% pa
 
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Reply: 2.1.1.1.1.1.1.1
From: Kevin Forster


The numbers sure look impressive - does this include the recent -15% median house price drop for inner city Melbourne.

As for the strategy that I said,
70k equity = 7 properties @ $70,000 using 10% deposit and 3k for purchase costs.

For 1 property
Cap growth = 70k * 7% * 3 years = $14700
7 properties cap growth total = $14700 * 7 = $102900. Still behind in Cap growth.

Income
For 1 property = 70k * 5% net income (10% gross) * 3years = $10500.
7 Properties net income over 3 years = $73500

Total Return = $176400

The return may be behind but I haven't included using the income to purchase more IPs or the cap growth to do the same. The cap growth hasn't been compounded.

The numbers you provided look good but are they really worth the risk when not buying in lower median quarter. 200k houses can fall a lot further than 70k houses.

Some real calculations would be great

Kevin
 
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Reply: 2.1.1.1.1.1.1.1.1
From: GoAnna !


Kevin

I was interested to hear you mention the recent 15% drop in inner city Melbourne?

Are you referring to the CBD? Or inner suburbs? The inner suburbs I have been following have enjoyed a fantastic growth since Christmas with an extra rise at the last interest rate drop. Would be interested to hear if we are beginning to get mixed results for Melbourne and where you have experienced that drop.

My experience of price falls in early 1990 was that those in the upper quarter suffered as well as lower priced houses in mortgage belts. In some suburbs 200k would be well below the top 1/4 given that 270K was the median price for Melbourne in the October to December quarter 2000. If i had to pick the safest number in terms of volatility (and I am no expert) then I would suggest around the median figure for that suburb.

I also believe that capital growth is not a speculation at least in the medium to long term. If you have a buy and hold strategy short term drops have little impact.


GoAnna !
(aka Anna before she got real)
 
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