Making a GO in Boom Town WA

Hi all. My wife and I are brand new at investing in property. We've seen a huge CG in our current home and want to begin to put that to good use, but currently in WA, even the "renovator's dream" home (really a 1 bd, 1 bath apartment, needing a lot of TLC and only renting for $115 a week) is valued at $230,000.

I've checked to see what apartments in the area that do not need renovating are renting for and they bring in about $150/wk. There is no way to get postively geared in a situation like that without having a huge down payment to make, which we don't at the moment.

I've looked in rural areas surrounding Perth as well, and it is very much the same. One problem, it seems to me, is that rent has not kept pace with housing costs. Brand new homes valued at $300 and $400k are only bringing in $300/wk on average.

Surely, this same situation happened in Syd. and Melb. during their booms. How did ppl manage to get started there during those times?

It seems to me that our huge CG looks great on paper, but unless we sale, I'm not sure how to convert that gain into postively geared property in the current market. And selling only brings us in having to buy at inflated prices, which in my mind is not winning either.

Thanks for any replys.

Ken

Hi Ken,
We are in a similar situation to you, with our home in Perth having a huge capital gain in the last few years.
We have just moved to Melbourne and are thinking of doing a similar thing to you, buying an investment property using our equity. Similar situation to Perth, except the rent is better over here. However, still not good enough to get positive cash flow.
We are looking at doign something creative, like buying a small house on a large enough block to subdivide and perhaps build on the back, as well as renovating the front house.
I agree that it is hard to buy in at such prices and that you need to think about buying a property that can be improved or developed in some way , or another strategy like wrapping (which I don't know much about)

I wish you well,
Therese

Ken
We have been investing in WA for a while now. Coastal real estate as you have quite rightly pointed out gives a pathetic rental return but the capital growth over the last year or two has been great. I have diversified in WA by investing in Port Hedland, Bunbury, Busselton, Albany , Kambalda and Geraldton. The capital growth has been fantastic downsouth and Geraldton. Hedland and Kambalda though are just coming into their own presently. Pressure on housing supply in both towns is pushing rents higher and higher. One example is a duplex in Kambalda that we bought and renovated cost a total including stamp duty settlement etc.. for $65,000 has just been leased for $200p/w.
Check out South Hedland and Kambalda at www.realestate.com.au I think you'll be very very suprised. Some people would call it risky...with the expansions that are happening in these places currently I believe it's risky not to be involved if you are serious in making a few bob.
I am not endorsing Kambalda and Hedland but I am investing there and loving it!!
Cheers
Mikey

Hi Ken,
In today's market I'm suspicious of any property that is positively gearead, there just has to be something wrong with it, like near a contaminated site, a 6 lane highway being built next to it, no chance of CG or worst, etc.
If initial capital is a problem have you looked at buying a vacant block and building a new house ? The building times have come down a lot in the past year, with the right builders you could have a new house up in just over half a year. Once built you could then sell your old property, buy another block, build and sell the old one,etc,etc. all free of CG tax. Provided you do your homework when buying the land, don't overcapitalize on the house and don't mind moving around a bit it is a good way to get you started in the property market and build up your capital.
With work on the Perth-Bunbury Highway starting in December there are still a few new areas with good CG potential yet to be opened south of Safety Bay. My favorite pick is South Yunderup, the suburb is on a dead end street with direct access to the highway and industrial areas north of it, near the river, Peel Inlet and close enough to shopping in Mandurah. Also worth looking at are Ravenswood and Furnissdale.
Cheers,
Harry

Thanks to all of you for your replies. It gives us some things to think about.

We're starting late as investors, (mid 50's) and I suppose we're a bit fearful that we might wind up being worse off instead of better off if we make the wrong move at the wrong time. Especially when most people we talk to say now is NOT the time to be investing in property.

Yet we realize that we'll get no where and nothing if we don't step into the pond and get our feet wet.

I have to admit, for me, it's a bit tough to ignore the doom and gloom projected by meny so called "experts", but that's why I've turned to this forum.

So, again, thanks for the replies from all of you. It's been good to get a few positive views on the subject of PI.

Ken