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April 14, 2021 - 9:48 pm

I don’t disagree, and like the “value add” element.  Still, I’d rather do that in a market where my educated opinion leads me to believe that the market will outperform others.  There are indicators that the Geelong/Bellarine area will be one that see’s strong growth in terms of population, jobs, government spending etc, which is one good underlying factor to drive property price growth.  If it goes gangbusters like the M.P. has the last ~15 years, I’ll no doubt look back and kick myself for not buying a couple in the area! But I’m just not familiar with the area to understand if it’s a fair comparison to make. :-)

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April 13, 2021 - 10:24 pm

No, not King Street.  A bit closer into town in a nice quiet little spot near the Ted Summerton reserve (Moe football ground).

At the time I felt pretty confident that it was under-valued.  I got through it the day it went to market, and by that afternoon there was another full asking price offer on the table.  I ended up paying above asking ($155k vs $150k asking), but feel if it had’ve gone on the market at $175k it would have got a lot of attention.

Despite it being cosmetically tired, it was neat, in a nice quiet spot in relatively close proximity to the CBD, really close to sporting facilities, new early learning centre, primary school etc.  And it’s on a corner block with side laneway access and potential scope to subdivide down the track.  My thinking at the time was that it was under-valued, would rent well at an amount that meant it would cost nothing to hold, and the potential to subdivide was the cherry on top.

It actually settled a little earlier than I was remembering.  December was around when we got it listed for rent.  My feeling at the time, after taking a month or so to spruce it up (just a day here and there around work), I think it would have had a market value nudging $200k… perhaps that $185k to $195k range.   Now, anything that’s 3 bedroom in a reasonable location and is neat and tidy is nudging $300k.  Perhaps a little less for this property just based on the fact that the kitchen and bathroom are on the small side.

In terms of kitchen vs bathroom vs bedrooms, and what impacts value more, I think if all three are neat and tidy, it probably isn’t critical in these price-points.  This property had an updated (albeit) small bathroom.  The kitchen was original, but very, very clean.  I just gave the old timber fronts a coat of fresh white paint, and this made it fresh and unoffensive.  A brand new kitchen and/or bathroom is great, and a really poor one of either will put a buyer off, no doubt, but the lower the price point, the less return you’re likely to get on an expensive update.  I’d be included to look at paint, fresh door fronts, new benchtops etc as a middle ground.

The biggest difference for this property though was removing the wallpaper (strong, dark patterns, and different in each room) and existing worn and equally strong carpets.  I painted in a light grey and white, with new carpet bought from Fowles carpet auctions (around $650 for a house lot from memory) and sourced a local carpet layer who provided underlay and fitted the whole house for a bit under $1k.

I’ll see if I can find some before and after photos!

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April 13, 2021 - 8:51 pm

My investment property is in Moe. Not ex-commission, but a smallish, 50+ year old basic home. Had been in the family since new, and owners went into independent living units. Super dated, offensively strong patterned wallpaper and carpets, but clearly well cared for. I bought it in December 2019 for $155k. Looking at what similar is being listed for today, it’s no stretch to say it would sell for $250k+. Possibly even list it at $280k+. But at the lower end there are still some in the low 2’s in Moe/Morwell. A little higher in Traralgon, as you say.

I spent less than $5k on it – ceiling plaster in the lounge room needed replacing as it was sagging, but otherwise a full internal repaint, and fresh neutral carpets throughout. A different house!

Traralgon has historically been priced a bit higher, but hasn’t quite seen the sharp price surge the I’ve seen occur in Moe over the past 12 months. I’ve watched Warragul and Drouin perform well over the past decade, and it’s finally hit Moe & Morwell during covid. So I certainly think there’s more room for short term growth in Traralgon off the back of that.

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April 13, 2021 - 7:15 pm

I’m in Latrobe Valley. Ex-commission homes can be bought here from around the low $200k’s still too, so possibly not too dissimilar to Horsham in that regard.

I’m a fan of the “grandma” house. I.e. a house that is structurally solid, and generally well looked after but generally dated. I think they often represent a good opportunity to add value, as many people overlook them due to cosmetic factors that are generally some of the cheapest things to address, particularly if you’re capable and prepared to put in a little sweat equity (things like paint and floor coverings can have a huge immediate impact for little more than a couple of grand and a few weekends work).

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April 13, 2021 - 4:28 pm

Got ya.  Thanks Terry, appreciate your insights.  And probably due to look at doing exactly what you’ve suggested there – the most recent property purchased in Dec 2019 is in a market that’s gone nuts, and should well and truly stand alone now.  I wish I could say that I saw it coming, but far more due to dumb luck than anything (I was confident I got it under valued, with good rental yield, potential to subdivide/improve and would tick along with flat to OK capital growth at worst… but it’s probably added ~75% in value in less than 18 months!!!)

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April 13, 2021 - 4:15 pm

I can understand how each of those 3 scenarios could come about, and have seen them happen, but in my experience are far and away the exception rather than the rule (I spent a few years as the bank’s senior discharge officer).  But I take it on board.

In terms of alternate (“non crossed”) structure in my example above, I’m assuming a separate facility secured by the PPOR to cover the 20% deposit + costs for all subsequent investments is, in basic terms, how things are generally structured, with individual, non-crossed loans for the remaining 80%?  I.e. the below, as opposed to what I’d laid out above:

PPOR securing OO Debt (if any)

PPOR securing Inv Loan Z for Deposits & Costs for any Inv purchases requiring the equity release

IP A securing Inv Loan A (covering the balance – i.e. 80% – of IP A)

IP B securing Inv Loan B (covering the balance of IP B)…. and so on?

And assuming the second loan noted there – Inv Loan Z – secured by the PPOR, but used only for the investment purposes, will be deductible come tax time (I must admit, I was thinking completely separate loans for each property, but as long as that Inv loan is kept clean of any non-deductible drawings, then the whole interest amount should be deductible in theory, and wouldn’t need to be broken down property-by-property in tax returns?)

I guess ultimately, I need to weigh up for myself the benefits and drawbacks of each approach for my current and future position/goals, so just trying to understand other perspectives and the logic behind them!

• This reply was modified 3 years ago by  Damien.
• This reply was modified 3 years ago by  Damien.

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April 13, 2021 - 2:57 pm

I’ve had a read through this thread, and some of the others linked, and while I understand some of the potential pitfalls, I’m surprised there’s such strong, broad consensus against cross-collateralisation.  Not that I’m here to argue, just curious.  My background is in banking, but a relatively small customer owned FI, as opposed to a bigger FI.  And I’m somewhat green in terms of serious investing, however have done a couple of major renovation/flips, and bought a couple of residential investments over the past few years.

I guess the main advantage I’ve been able to extract in my own situations previously by cross-collateralising is simplicity, and maximising the interest deduction.  My approach has been to keep individual loans and offset accounts for each property in order to keep track of incomings and outgoings for each property.  With significant equity in my PPOR, I have used this as additional security to allow a single loan to cover purchase price + all costs (including renovation budget in the case of the flips).

Eg.:

PPOR + IP A securing Inv Loan A (Offset A attached)

PPOR + IP B securing Inv Loan B (Offset B)

PPOR + IP C securing Inv Loan C (offset C)

I know it’s been said the same can be achieved without cross-collaterilisation, but would seem more complicated, harder to track what funds relate to what investment, and as Terryw has alluded to in the previous couple of comments, ultimately, if the bank wants to pursue your other assets, they will – even if a mortgage is held by another FI (i.e. there isn’t significantly better insulation of assets by doing so).

Curious to hear thoughts on this – particularly the structure I’ve used previously, as I’m looking to purchase another IP shortly, and there is definite benefit to me in retaining all my lending with the FI I work for (pricing is competitive, features – including unlimited free offset ac – are good, and ultimately it gives me a sense of control – I’m a semi-senior member of a fairly small team that manages our lending business).

Yours in curiousity… :-)

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April 13, 2021 - 1:41 pm

I assume this is referring to a house that was formerly government owned, i.e. the old “housing commission“, thus the name “commision home”.

Really depends on the exact property I’d imagine, but the commission homes I’m familiar with in regional Vic are often small, basic, and in areas that are less desireable.  That said, in my local area, the former commission areas have been largely sold off over the past couple of decades and now privately owned, and therefore the areas, in general, are becoming more presentable and appealing than they once were.  But still tend to be cheaper, and in less desireable locations.

What areas are you looking in?  Examples of houses/listings might help.  For my area, in really broad terms the pro’s would be price (cheap, and often solid rental returns), and the con’s would be desirability of the location they tend to be in, the type of tenant you’re likely to attract etc.

Damien

• This reply was modified 3 years ago by  Damien.