Where to now?

[eeho]

Hi everyone,

I'm a (relatively) long term lurker, but brand new poster. Here is my situation:

I am 26 years old and currently own 2 IPs

(1). Bought as a house and land package (2bdr, 1bthr, single story) 8km from Adelaide centre in a new housing estate, no capital growth as yet as no others have sold other than the H&Ls still on the market. (1) was part of the government scheme for low income earners so was worth more than I bought it, and I lived in it for just over 6 months as my PPOR. I am currently getting 5.71% back in rental yield (lease until Jan 2013) and am getting good tax benefits from it.

(2). Another house and land package currently under construction (3bdr, 2.5 bthr, 2 story) approx 20km from Adelaide CBD. I have a guaranteed rental return of 5.21% for 2 years once the construction is finished (approx August).

Although I have not seen capital growth in either (1) or (2), I expect that things will start moving once the estates sell out (3-5 years), and am happy to wait. I have quite a good serviceable income, especially when (2) starts bringing in income.

I have saved up $50,000 in equity on the two properties thus far (including the FHOG and other monies I have paid off the principles), meaning I have $200,000 in workable capital (with 20% LVR and 5% for fees).

I really want to get my portfolio moving again, what would you recommend as my next move?

 

[Aaron_C]

Have you consulted with a bank/broker about how much you can afford?

 

[eeho]

Not as yet, I just wanted to get a feel for things using my rough calculations. Once I've got a bit more of an idea which direction I'm taking that will be my first stop!

 

[Propertunity]

Congratulations on starting the journey!

If it were me, I'd stop buying new builds in new estates and getting no CG for the next 3-5 years.

Consider buying established property in an established, historically good growth area and 'manufacturing' some CG through renovation. That way, if the market is flat where you are, then you still get CG because you create it. (i.e. spend 10% of the purchase price on the reno to get back 20-30% in end value increase).

Also consider buying out-of-state to get into a different part of the RE cycle from where you are, if you are getting no growth.

Cheers, Alan

 

[Aaron_C]

Well given that you've had some limited capital growth on your current two properties I think the best thing you can do is research and find properties that will deliver capital growth. I know that sounds obvious but the real money in property investing is capital growth, not income.

 

[eeho]

Thanks Alan and Aaron, good advice!

Would you suggest buying something a bit rural at this stage (I've been considering horsham) on a big block approx 150k-200k that I can do a cosmetic Reno to and hopefully manufacturing some CG.

Or saving up some more equity and buying something in the suburbs circa 250k to 300k, again with a cosmetic reno?

Ideal would be something on a big block with existing tenants that I can leave for a while then potentially renovate or subdivide in a few years time. But where, country or suburbs?

 

[7smurfs]

I would go Propertunity's suggestion and purchase in a blue chip / bulletproof suburb usually found within 7-12km from the capital city for more certainty of capital growth.

 

[Rixter]

What and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. The strategy is how you intend driving that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be ( manual/automatic etc) - all based around your personal risk profile.

I hope this provides some food for thought.

What is your chosen investment strategy?

P.S Seeing that you already have 2 IP's in outer laying areas that have obtained no/little CG it appears you are after a long term hold for CG. That being the case I too echo Propertunity's suggestions if it was me.