Which end of the market to play in?

From: Anthony Friday


I am a relative novice to property investment (only four so far, all in Perth).

I have focused my efforts on the bottom end of the market - rationalizing that when times are bad, people tend to down size their rental accommodation. Given this equation, the tougher the times, then the more demand there should be for my properties. It also serves to spread my risk somewhat.

I have balanced this viewpoint with an awareness that my management costs are higher, and that I may attract a less desirable standard of tenant (although I have been lucky so far).

I would be interested to hear the philosophy of other board members on this topic.
 
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Reply: 1
From: Tibor Bode


Hi Anthony,

Its Tibor again.

I am quite heavily invested in Logan (less desirable area in Brisbane,
abiout 20 to 25 klms from city) in similar properties (bottom end of the
market), then renovate the place and re-let it. As people are priced out of
the more fashionabke suburbs, they move into the area and I am getting very
good rent and manage to "price out" the problems tenants. The property has
to be in good nick and well maintained as well as need a good property
manager or you have to do quite a bit of work.

To me it works well and I have found that several cases my capital gain
exceeds the Brisbane average and it still has a long way to go, but during
that period of time I am getting 10% plus (sometimes 13% plus) on my
properties.

Regards,

Tibor
----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Tuesday, September 24, 2002 12:01 AM
Subject: Which end of the market to play in?


> From: "Anthony Friday" <frian03@iinet.net.au>
>
> I am a relative novice to property investment (only four so far, all in
Perth).
>
> I have focused my efforts on the bottom end of the market - rationalizing
that when times are bad, people tend to down size their rental
accommodation. Given this equation, the tougher the times, then the more
demand there should be for my properties. It also serves to spread my risk
somewhat.
>
> I have balanced this viewpoint with an awareness that my management costs
are higher, and that I may attract a less desirable standard of tenant
(although I have been lucky so far).
>
> I would be interested to hear the philosophy of other board members on
this topic.
>
>
>
> To reply: mailto:propertyforum.130337@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
 
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Reply: 2
From: Jas


On 9/24/02 12:09:00 AM, Anthony Friday wrote:
>I am a relative novice to
>property investment (only four
>so far, all in Perth).

By the time you've bought four places, and done all the haggling, dealing with lawyers ect, ect, I think you've moved beyond the novice stage :)


>
>I have focused my efforts on
>the bottom end of the market -
>rationalizing that when times
>are bad, people tend to down
>size their rental
>accommodation. Given this
>equation, the tougher the
>times, then the more demand
>there should be for my
>properties. It also serves to
>spread my risk somewhat.

This is a good idea. It all boils down to your goals. Some people like the capital growth which comes with higher prices, others need the cash flow that (generally) lower cost places bring.

Like many on the forum, I like a mix. I like to get a balance of multiple stream places (house & flat, blocks of units), which means that the risk is spread even further.

Along side that I want run down places that I can do up. I don't care whether these are low or high cost, I'd look at each individually - how much capital gain I'd get.

Have fun
Jas




----------------------------------
When facing a difficult task, act as though it's impossible to fail. If you're going after moby dick, take the tartar sauce
 
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Reply: 1.1
From: Jarrod Byrne


Hi Anthony,

I have just logged in for the first time and saw your post. I am also just getting started (4 dwellings constisting of 2 duplex pairs - "dupli" if you will) in the lower end of the market (Girrawheen and Gosnells)and just finishing a "reno" in Padbury.

I did lots of research before starting 14 months ago (25 odd books, paid for lots of VGO data and subscribed to API etc etc)and decided to go for the low end of the market. My reasons were;1. the growth may be lower, but you can get more of them, eg 4 x 100k properties @ 5% growth is better than 1 x $200k negative geared property @ 7%. (and even the growth theory doesn't stack up cause my duplii in Girrawheen showed 12% Jun01-Jul02 and my own home (about 3 x girrawheen's median) showed less! 2. Job security is not an issue with cash flow positive property; 3.You can get better return per renovating dollar in cheaper areas - eg an air con in Gosnells gets you another $5-$10pw, but would be expected as standard in say Carine/Marmion/Sorrento so your reno dollar does not goes so far in rental yield. 4. As i alluded to in point 1, and i have justified this through modelling in excel, you become limited very quickly in how much property you can control with higher priced (assuming negative gearing) property. With regard to the tenant factor i found that although the tenants can be a problem at that end of the market(we had 6 tenants in 5 months in Girrawheen and had only 2 paid all their rent [and the properties were under management]i have not had this problem with Gosnells at all (had to find 1 tenant at settlement and looks like she's staying long time. In my limited experience, i am thinking this is because i spent $7k doing Gosnells up and have spent $0 on Girrawheen so the presentation may be the red flag for the wrong type of tenants?

I'm just learning too, so please feel free to rebut any points and assist me in my knowledge quest (and early retirement ;-))
 
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