[StevenParticipant@steven1982Join Date: 2017Post Count: 189]

August 14, 2017 - 10:30 am

Hi Jaxon

I think that’s where you and I differ.

Correct me if I were wrong, but by the sound of it, you work on such property investment as a profession and spend many hours this on a daily basis (whether it is with your clients or looking out for opportunities yourself).

With me, I only get to do my research after business hours and for me to pour in such hours to work on property investment is unsustainable (unless I don’t care about my wife one day filing a divorce document for not spending enough time with her and our kid). Some investors even suggested that I adopt a “set and forget” strategy, but I prefer not, because I feel like “set and forget” strategy means I won’t be learning as much.

For you, you sound like (again, correct me if I were wrong) already had your first pot of gold a while ago and your snowball is now rolling quite efficiently, whereas I am still digging my own first pot of gold, so our thoughts may be quite a distance apart.

So you might already be at a point of saying “I want this investment to grow beyond 7% or else I will have none of it because otherwise my portfolio is not growing fast enough”, whereas I might be saying “my portfolio can get me there at a somewhat slower pace, but it still gets me there rather than making me go backwards, therefore as long as it doesn’t make me to backwards, I feel suffice”, and I might switch to the way you preferred method once I feel like my pot of gold becomes sufficient.

You might achieve your dream goal in 5 years, whereas I might need 10 years to achieve the same goal. So as long as I don’t end up going bankrupt and get back to where I started, I probably don’t mind spending twice as much time as you do, and as such I probably don’t feel the need to push for a fast paced solution and prefer to take this at a slower pace. If you know what I mean.

This is not to say I am trying to defy your suggestions, because I really like your suggestions. As you mentioned, 1% ROI can mean a big difference, so this is one good lesson I learn from you and I definitely will keep that in mind.

Anyway, for the 2 links you sent, did you already buy them, or were you offering suggestions on “try to get them at the price you mentioned”?

Especially this one: https://www.realestate.com.au/property-house-vic-drouin-125842170,

It also sounds like a brand new home rather than a second hand home… My question for this property is, is the “marked price” the “final product price”? That is, no additional cost (such as additional test cost) or hidden cost (such as fence, backyard, etc… whatever misalliance cost)? Or do you expect some bits of extra cost “here and there” on top of what is already advertised?

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August 13, 2017 - 10:41 pm

Hi Benny

Your responses are useful and interesting.

Just some background info re: Dandenong vs Rowville.

Dandenong is not all in mountains. While there is a portion of Dandenong / nearby that are considered to be “Dandenong Mountains”, but the residential area are on a pretty flat ground.

Neither is Rowville in mountains and I don’t consider Rowville having overly good mountain views… though I am going by my memory of Rowville from some 10 years ago.

The question regarding to why Dandenong is cheaper than Rowville is an interesting one, so let’s see:

1. Rowville is currently very car dependent, it is much further from CBD than Dandenong is. My friends actually made a comment about Rowville housing price will probably go up further when a train line gets built, so I take that means currently there is no train stations and as such, while there may be some bus services locally, but getting in and out of CBD to Rowville means car is pretty much the only options.

2. Dandenong at the other hand, has a train station, which is also a big train station. Behind Dandenong, the train line braches further into 2 train lines, with one going to Cranbourne and the other going to Pakhanam.

3. Dandenong also has a very large shopping Plazza close to the train station, whereas Rowville, not so much. It still has local shopping areas, but the scale is likely to be not on the same level as Dandenong according to the description given by my friend.

4. However, Dandenong has its problems. The big problem I can think of is its reputation. APEX gang originated from Dandenong, and it may be that the area is also considered to be un-safe. I had high school friends who lived in Dandenong for a few years and then decide to move out because she thinks some of the residents who live there (and they mostly look like they come from certain parts of the globe, but I won’t name them to avoid controversy) look and behave scary, and she moved out thinking Dandenong is not a safe area.

5. I don’t know too much about Rowville in this regard, but I’d think if Rowville suffers from the same problem, then I’d hear about that from my friend by now.

So I am thinking the “safe” factor and the “academic” factor, together with more Chinese/Asian living in Rowville compare to Dandenong are likely to be some of the big reasons why Rowville is more expensive than Dandenong (it appears any suburbs that Chinese migrants go to tend to end up becoming expensive much more quickly than the rest suburbs).

————————————————————

Anyway, I have another property that I got contacted with an agent, which I’d like to seek some opinion from you.

To summarize:

1. It is a duplex pair, on a 525 sqm land
2. The property specificatio is 6/4/2. Basically there is a wall in between, and each side of the wall makes up 3/2/1 and the floor plan is mirror image of each other.
3. The cost is approx. 610K
4. Rental appraise done by CBS property group (do you know much about them? do you think CBS does a good job doing valuation?) suggests if both side of the duplex pair are successfully rented out, then the rental income should be 700-730/week, so we are looking at 6% ROI. Not considered to be “excellent”, but not considered to be “crappy” either by the sound of it.
5. The expected capital growth is projected to be 6%.
6. Vacancy rate according to SQM report has been well below 2%, so sounds like the ability to find tenant should be fairly guaranteed.
7. Agent also advises that I can sell one and keep the other for rental income instead of keeping both if I need to, but agent did specify that most people would prefer to keep both in their opinion unless they have a very good reasons to sell one.

My concerns with this property:

1. It is not on a corner block, but I think this may be less of a concern.
2. It is brand new rather than second hand, and this is probably a bigger concern out of the two.

What’s you opinion on this?

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August 11, 2017 - 11:49 pm

Hi Jaxon

Which part do you think is “semi-truth”?

a) buy H&L packages? Because I am not a big fan of H&L packages myself. All I said previously is there are certain unique circumstances where H&L package might just be the right for those circumstances, but otherwise stay away from H&L Packages.

b) The push factor? It is one thing I heard from one of the many seminars I attended. Seminar run by someone who is already financially free. I can’t really imagine this being a “terrible advise” unless the instructor at the seminar is not doing it himself/herself or is not financially free himself/herself

c) Move into an area that will experience good growth early rather than waiting until number already go up? I am a big believer in that.

An example is China, in 1970’s, China was still running a “planned economy” model, and that changed starting from 1978, where Chinese government tried to run a “free market economy” model instead of “planned economy” model.

The first batch of people who quited their “stable job / job that made themselves comfortable” as soon as the government announced such a transition all made a huge fortune. Those who followed suit 10 years later hardly found success.

Then came the digital age. Jack Ma was one of the first business man to go into eCommerce in China, he founded The Alibaba Group (think of that as a Chinese version of eBay or Amazon), and he made a fortune with that. Those who “waited for a few years for eCommerce to mature before acting”, either made crappy profit or went bankrupt shortly afterwards.

So I am a strong believer of “get into a market with good growth before the growth happens, rather than waiting until everybody knows about the market and there is already someone else who is dominating in that market”.

So with areas that are already “safe”, where the conventional method of “dig and and find something undervalue” might take too long or the process end up wearing me out… as such I *might* prefer the alternative of studying the areas and if there are sufficient and scientific evidence to suggest a particular area is about to experience good growth, then get in there early rather than after the growth already takes place.

As there is a saying in Chinese: every vegetable has a “hole”, find and secure a favorable hole early and grow big in that hole, rather than having to fight for a good hole later when good holes run out.

Which part do you think is “semi-truth”? a or b or c? or all of them?

With regards to “Gold is found in dirt, not in the town window.”

I agree with that… although I also think those who make big profit are those who take the initiative to find the gold before anybody else and be the first to dig up the gold… by the time everybody knows about gold in a certain area and a “gold rush” happens in that area, it is no longer so profitable.

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August 10, 2017 - 3:10 pm

I guess you are right… though there can also be a lot of counter examples.

Not sure if you might have seen the topic I raised in relation to a suburb in Victoria called “Rowville”. Jaxon and I discussed about that in the thread.

Only a few years ago, this was one of the least popular areas. Nobody wanted to buy properties over there. People laughed at those who actually bought properties in that area.

Then for reasons I myself did manage to find out, Asian migrants just moved in there, and within a few years, they pushed up the academic schools that made the local school more popular, and then a lake was built there, and other facilities came up in no time.

The result is before we realize what happened, Rowville went from an unpopular area to an area where housing price shoot over the roof. And now, those who bought in Rowville only 5-6 years ago, they are all laughing.

In one of the seminars I attended, the instructor used a term called “the Push Factor”. Basically it means a previously unpopular suburb that is largely off the investor’s radar, happens to experience rapidly growth due to residents “push” into that suburb. The reason behind why residents “push” into a previously unpopular suburb can vary, but the point is the push factor is able to drive good growth.

Rowville is such an example of Push Factor. And the instructor believes a few suburbs in QLD will likely to experience such push factor too. Now, contrary to your suggestion, the instructor believes Morayfield will be one of those subrubs. I myself don’t know enough as I don’t reside in QLD so I won’t make a decision on that without doing more studying yet.

In the thread, Jaxon and I had a discussion about whether investing in Rowville a few years ago would have been considered as good investment. One of the things I commented is that “it appears that for many experienced investors, they may not like the idea of investing in Rowville a few years ago because there is always the possibility that ‘what if Asian migrants never push into that area'” and I also commented that one of the things from the seminar I heard is “investing in a new area before the area experienced growth” is considered as “speculating” rather than “investing”….. and to that Jaxon countered by saying “everything is technically speculating until they are implemented”.

I have a feeling that, a few years earlier, Rowville would probably be considered as a “green estate” in your opinion too.

So far, I am still weighing up my options, but I do like the idea of “if I know an area is going experience good growth, then I would like to get into that area before the growth happens, rather than getting in there after the numbers have already gone up”.

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August 10, 2017 - 12:36 pm

Not too sure if I am getting the wrong impression here, but I do somehow get the impression that you make it sound like you have a grudge against new properties or H&L packages.

Anyway, from the amount of information I studied and the numerous seminars and workshops that I come across… to me, whether we buy new properties or old… whether we buy those solution properties or problematic properties… it all comes down to circumstances and preferences.

An example may be that Chinese renters (especially young overseas students who come to Australia to study their uni degrees) simply prefer to live in new houses with little land rather than old houses that require constant maintenance. So if you are targeted at this particular market, then H&L package might just be the right property for you. Under other circumstances, probably stay away from H&L.

Another example would be in Melbourne and Sydney, Asian residents simply prefer to live in Townhouses that are close to big cities rather than houses that they consider to be “problematic”… a good example is I have friends from Taiwan who simply refuse to buy a property from someone who died in that property no matter how great that property is, because they consider is “Bad luck”. Another example would be the Chinese believe “a super cheap property in an area with no infrastructure or transport is not worth it no matter how big the land is” and they generally refuse properties that fit into those category. So your target audience will at some degree determine what property you will invest into as well.

Some investments are probably “fine investments” on their own or “good investments” given their unique circumstance… although they may pale in comparisons to “excellent investments”, but to call them “bad investments” is probably not fair either.

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August 4, 2017 - 11:41 am

Terryw wrote:

In the good old days people could just keep extending the IO terms on the loans. This is probably no longer practical to do and may not be even possible for most.

I guess you are right.

It is probably not possible with the big banks any more, but it may still be possible.

I was contacted by a broker who offered to help me refinance to a lender who not only can do that, but also does that at a much lower interest rate than my current bank (one of the big 4) is able to provide me. Bank’s IO rate has gone over 5%, while broker quoted that lender’s rate is below 4.5%.

Broker said Lender doesn’t deal with clients directly, but instead only deals with a list of licensed brokers… If due diligence checks out for that lender, I think I am willing to refinance to them.

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August 2, 2017 - 10:06 am

Interesting read.

I came across someone quoting this: The best time to invest was 10 years ago and the second best time to invest is now.

The rational I was given behind this quote is:

1. Interest rate will raise (probably will NOT skyrocket, but will raise overtime).
2. Because of the raise in interest, it will become increasingly more difficult for first home buyers to buy their first home, unless they want to turn into apartments, which may happen, but even then the raising interest rates will probably end up hurting first home buyers in that regard as well.
3. If they can’t buy, then they have to rent, which means the market is still an investors market rather than renters market
4. The stump duty allowance for first home buyers doesn’t look like it will help them in the long run either. It gives them more $$$ to buy, but that means they are getting bigger loans, which can be risky for them.
5. Increased interest rate means increased rent as well………

I have also find people like Robert Kyosaki now advocates people to become online entrepreneurs rather than property investors……

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August 1, 2017 - 10:43 pm

—————— snip ————————-
Really? What has Sydney been doing the last 3 years, and Melbourne too? Brisbane is likely to be next…. all part of the cycle, but then each cycle is different to the one before.
—————— snip ————————-

By itself it is true, but when coupled with my second point, that is just unsustainable.

eg: I pay 1M for buy a house, while rental income is ridiculously low by comparison…. so even if the property does get “organic capital growth” the next year, it is no good since it would be impossible for me to invest in the next one.

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August 1, 2017 - 1:59 pm

Hi there.

I agree that everybody’s strategy is different, so there is no “universal checklist” as such.

However, the idea I am getting at is for 1 person to use 1 “case study”. Yes, we are all aware that such a “case study” is specific to that person’s circumstances, but by listing out such a “case study” together with a check list of all the steps taken…. that way, young investors who are just starting out can see something that is “visual” and it is easier for them to have the information “sink into their brain” and then we can go from there..

If the checklist outlined fits into my strategy, then great, I can replicate such a process for my own.

Even if it is different to what I am looking for, that’s also great because it provided a “framework with some real data” rather than “generic advice”, as well as the tools used for each step (whether those tools used are free tools or paid services is a different story). So not only can I “adjust” or “twick” the framework according to my own circumstance, I also gained information on how to use some of the tools (which I may not be aware of before).

For example, the person providing the “case study” might have shown us a particular tool that he used to search for small units because that person is investing in an area where people are mostly single and not interested in getting married… but by just listing out such a tool, I can go to that tool website and apply my own filtering (such as I might be more interested in investing in properties are suits young couples rather than people who are not interested in getting married). Chances are I have never heard of such a tool before and by listing out the steps, I learn a new tool and I can play around with that tool myself.

—————————————————-

I make a promise here.

Next time I purchase an investment property, I will provide a concise step-by-step process on where I go from “looking for a property from all over Australia” to “finally nailed onto the particular property that I am looking for”. Unfortunately, at this stage, I don’t know when my next purchase will be, as I am still learning myself…. but I promise that once I do go out and make a purchase, I will compile such a process that I personally used.

I won’t write a huge essay that takes 2-3 hour to read, but I will list them down in bullet points and provide reasoning and rationals behind why I applied such a filter and why my process is ordered that way (ie: why a certain filter is applied at step 1 but not step 2, etc…), as well as for each step, which website did I go to in order to perform my research and any other tools I used. I expect such an “case study” to take no more than 5 minutes or so to read through, so it is not so detailed and long but enough for new investors to clap their hands and say “aha! So that’s what I am missing in my research”

I will provide such as check list whether my purchase is considered a “good purchase” or “bad purchase”. If it is a good purchase, then great, new investors can leverage my process and try out on their own… if it is a bad purchase, then that also provides an opportunities for feedback as others experienced investors can approach me and point out the flaws in my process and I can adjust it.

—————————————————-

To use another metaphor to explain my point. Think of in terms of IT. Companies such as Microsoft would publish some sort of “best practice guide” or something like that. But you will find lots of companies don’t always follow “best practice” because their specific situation is different and “best practice” isn’t always followed due to all sorts of reasons, ranging from political reasons to financial reasons to any reasons that you can imagine…

But companies such as Microsoft doesn’t stop publish “best practice guide” on the basis that “everybody’s IT is different and they implement their IT solutions differently to our guide”… instead, they keep publish the guide (and the guide has specific examples) year and year, release after release knowing that the guide may or may not be suitable for their customs specific circumstance…

As for other companies who need to make use of IT, they don’t have to “search blind on their own”, because they can leverage the guide published and make adjustments in accordance to their own unique IT environment, or they can even assess the difference between Best Practice guide circumstances vs their down and use the guide as a “benchmark” while developing their own IT practice.

• This reply was modified 6 years, 9 months ago by  Steven.

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August 1, 2017 - 9:52 am

Hi Benny

OK, that makes sense, but what about in today’s scenario?

The example you gave relied on a few things:

1. Organic capital growth which is difficult to come by now days compare to 30 years ago
2. Rental incomes are growing to the point of catching up or exceeding the amount of loan / repayment that is needed to “feed” the bank, which again is not the case now days. Housing price has gone to the point where the rate of loan repayment are increasing faster than the rate of rental income can catch up.
3. Government is tightening regulations and banks are tightening IO lending, compare to the old days.

Seems rules are now changing and we need new solutions.

The conventional method of “buy and hold” or “buy and renovate” that worked well in the past, are now taking too long in today’s world and make many new investors feeling they are stuck.

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July 31, 2017 - 4:12 pm

Hi Valluvan

Which area in South East Victoria are you looking at?

Cheers
Steven

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July 31, 2017 - 3:57 pm

Hi there.

I have a question though…. and please forgive me for being a newbie and the fact that my question will probably sound ignorant but…

The question is, can you really keep on extending / refinancing IO forever? I would imagine that at some stage, someone is going to say “hey, this loan has been on IO for 20 years (or however long) now, it is starting to get ridiculous so let’s put an end to it”, and by then you would need to somehow pay that off?

Let’s use an example.

Someone buys a house and gets a 30 year home loan with IO in year 2000. So loan in theory ends in year 2030.
At year 2005, that person refinances to another lender who extends grants IO payment and “extend” the loan so it lasts another 30 years, thus the loan would then end in year 2035.
At year 2010, that person refinances again to a third lender who does the same and loan then ends in year 2040….

What I mean is can this cycle really be repeated forever until the day I die? I would think at some stage someone will put a stop to that cycle and by then, wouldn’t the monthly repayment start to crash down on me?

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July 28, 2017 - 4:58 pm

Hi Corey

Thanks for the suggestions.

Although rather than putting in <500K and listing over 19K properties, I was hoping for something more like “putting in <500K and be given a list of suburbs… then I will study those suburbs before looking at the individual properties within that suburb…”

Cheers
Steven

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July 26, 2017 - 10:11 am

I guess you are right.

But that kind of reasoning sounds more like “speculating” based on the seminars run by experienced investors that I have been attending. I am pretty sure they will call that “speculating” rather than “investing”. They can always say “what if Asian migrants never choose to move into that suburb”.

Those experienced investors are more into the strategy of choosing already well established or developed area rather than investing an “under developed area that Asian migrants will move into in the future”, which was the case for Rowville.

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July 26, 2017 - 10:07 am

Seems to happen in Victoria a lot now days.

People buy huge blocks of land, subdivide them, title them and developers are practically knocking on their door on a daily basis to buy the divided land from them.

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July 24, 2017 - 4:28 pm

I guess in this instance, it is a case of a bit of “foresight” is needed.

Even the Asian migrants were initially unwilling to relocate to that area, because the infrastructure is so poor and transport is so inconvenient. Most of the Asian migrants, prefer traditional “starting suburbs” such as Springavle due to the maturity of Asian supermarkets and Asian grocery stores.

Rowville was considered to be “in the middle of nowhere”, and Asian migrants were very relunctant to go there until one day, they just went.

Who would have thought they just suddenly flooded into that area for what appears to be no reason at all.

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July 24, 2017 - 3:26 pm

Hi Benny

I had another chance to speak to the agent that I have been speaking with. I specifically questioned them if they only do new property projects, in which case their answer is no. They deal with old properties too.

The exact wording I got from them is:

——————————- snip —————————–
we are very particular where our clients invest as we wanted to ensure their property investment portfolio has a good mix of investment properties that will generate cash flow positive income as well as capital growth. If our clients are in a position to do armchair development, we would then look at established or old properties so they could build two or three properties on this site (sometimes, retain the old property, renovate and then build another one at the back but this needs a lot of cash funding and usually over $1m by the time this project is completed).

Otherwise, your old properties have no more depreciation, paying full stamp duty. In addition, if you prefer not to develop or not to renovate and just rely on collecting rent, then the ongoing repairs or maintenance costs are not likely to generate good cash flow positive income and in fact, more likely to be negative cash flow which you are not able to pull out equity to “go again”.
——————————- snip —————————–

Essentially what they are saying is if I am financially that strong (they are talking about acquiring an old property and then construction 2-3 buildings to replace it, which adds up to a lot of cost), then they will look at old properties projects for me, but otherwise they think old property doesn’t sound like the right choice, given my financial situation.

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July 19, 2017 - 12:42 pm

To add to my previous post, let’s use an example

Suppose say I purchased an investment house and I am able to rent it out for a good 3-5 years.

However, after that 3-5 years, the property is getting very old and becomes less attractive to tenants, so I spend 50K to do a complete make over of that property, but I do not want to sell it… instead I want to keep renting it.

So can that 50K make over be considered as my “cost” when I do my tax return?

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July 19, 2017 - 12:29 pm

While you are here, I have a question that may strike you as a silly question.

Are renovations for investment properties tax deductible?

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July 19, 2017 - 12:24 pm

Hi Benny

That 4 Bedroom house is not a single dwelling with 520 per week, but it is dual occupancy and rental is divided like that:

Dwelling 1: 3b 2b 1lockup garage, 300-320 per week
Dwelling 2: 1b 1b 1lockup garage, 200-240 per week

So the sum together makes it 520-560

The rental appraisal is done by MPM Properties. That company appears to specialize in properties in Gold Coast and Ipswitch region.

Also to respond to you, I am all good with buying second-hand, it is just that my personal experience while looking in my own area has yet to result in a property that is second hand and yet “in distress.”

I have been to quite a large number of inspections and so far the second hand properties that I have come across are:

1. Second hand properties that are close to new because the owner did a renovation before selling at above market price

2. Second hand properties that are so old that it is impossible to live without doing a complete make over. While this is a good opportunity for investors who want to “buy and flip sell”, but from my point of view, it is a terrible choice for me as renovation price is very expensive in Melbourne (my old home, which was only a 2 bedroom unit, renovated for over 70k in Melbourne, and a standard 4 bedroom house in Melbourne can easily cost double amount of money to renovate), so even if we can fork out the money to buy this sort of second hand house, we won’t be able to afford the renovation, and without renovation, the house is in a near unlivable state and would scare away tenants.

I haven’t tried to look for a second hand property interstate though, as I am not sure how I can manage renovation remotely.