I am new to property investing. I'm looking at 2 properties and unsure about which way to go and I'm hoping some of the more experienced people out there can help out.
I am looking at 2 quite different properties in the same suburb.
Older property, maybe 15 years old. Rendered on the outside and newly painted. Land area around 700m squared. 4 bedrooms, 2 bathrooms (1 is ensuite), plus office. Large kitchen / eating area and separate lounge room. All nicely decorated on the inside. Fully ducted aircon which has been put in in the last year. Pool, low maintnance garden. No garage, but double carport. 2 bedrooms are very small and would only fit a single bed. Property is in an established area of the suburb, with good transport links. Listed at $440000, would hope to buy at $410000. Rent would be around $450 per week.
2 years old property. Land area 500m squared. 4 bedrooms, 2 bathrooms (1 is ensuite). Large kitchen / eating area and separate lounge room. All nicely decorated on the inside. Living areas and some bedrooms have fans. Low maintnanace garden. Double lock up garage. Property is in a new area of the suburb, with a lot of on going building work, particularly a new estate which is opposite the property. There is little infrastructure at the moment in terms of transport links, shops etc, but it's not far to local facilities. Listed at $410000, would hope to buy at $370000. Rent would be around $400 per week.
So which way to go? I am really uncertain and am looking for some advice. I understand that my possible depreciation costs could be much higher on the newer property – should this be a big consideration? Any advice would be really really appreciated. Anything you have to say wit be valuable to me in making my choice.
RudiyarposMember@yarposJoin Date: 2004Post Count: 247
go with the newer property…..more rentable (modern, garage), better depreciation…..as soon as you said pool with the other one I was gone……just my opinion but pools and rental properties arent a good mix.ScampMember@scampJoin Date: 2008Post Count: 297
Rental income per year = 23400
holding costs per year = 50.000
why the hell would you buy either of those places ?L.A AussieMember@l.a-aussieJoin Date: 2006Post Count: 1,488
Have to agree with the above two posts.
If I was going to pick either one, it would be no.2 – no pool and higher depreciation.
But the cost of finance at the moment is around 9%, and your ESTIMATED rent on no.2 will be 5.3% – ASSUMING you can get it for $370k and purchase costs of 5% are factored in.
Even with the depreciation deductions, you will have a pretty decent neg cashflow.
Don't forget; around 20% of the rent will disappear in holding costs such as insurance, property management, etc.
Thanks for your comments. My gut feeling was the newer property, but I guess I was being a typical woman and letting too much "heart" come through with the one with the pool – it seemed like a "nice" family home……….
As to "why the hell would" I? Well I guess we all have different reasons for doing things. Right now it makes FAR more financial sense to us to rent ourselves and buy 2 (for now) smaller properties to rent out. We will pay off the mortgage on one of those properties within a couple of years, thus making it positive cashflow rather than negative, and then move onto the next project. But thanks for the advice anyway.
Please wish me luck with buying the property!
RudicrashyParticipant@crashyJoin Date: 2003Post Count: 736
Rudi, sometimes the best answer is DO NOTHING.
Have you considered the possibility of losing a lot of money by buying ANY property?
The advice you were given above was all good advice.
wish you luck?
LUCK = PREPERATION + OPPORTUNITY. Im not seeing either!
Thanks for your reply. As I said, I'm a complete newbie at this so forgive my ignorance!!! At the moment I have the proceeds from the house I sold in Sydney sitting in the bank, doing nothing more than earning me some interest each month. I have moved to the Bayside area in Brissy, where right now the market, whilst not low, is a little slow at the moment and so there are some houses to be had at fairly decent prices. For example – the older house I mentioned – the owners bought it a year ago for $410000. Since then they have added a fully ducted aircon system, completely rennovated the inside, including creating an additional bedroom, had the roof resprayed, rennovated the pool area and much more. And yet I still think I can get that house for $410000, even though on paper it says house prices have risen in this area. I think they have, but as the market is slow, and some people really want out, they are prepared to accept less.
Please can you elaborate on your suggestion that I could be losing money by buying right now? Sorry to be so dumb here, but from the research I've done, the area I am in is one which is fairly solid in terms of growth. However, as I am a novice, there could be things I am not seeing and understanding so your help would be appreciated.
RudiEvent HorizonMember@event-horizonJoin Date: 2008Post Count: 90
i generally agree with you rudo1ph, you would be buying at a good time bayside depending on where and property type.
FOr example just a month ago I saw a house in redcliffe divided into 2 flats probably renting for $200ea a week, located 3 houses back from the esplanade (waterfront) on 600m2 go for around 400K, thats a no brainer, would have snapped it up if I had the resources at the moment. Sure the yield is average, (but if can hold it so what) but strong capital growth is pretty much guarenteed..especially if you redevelop you would be sitting on a gold. DO what you fell is right.crashyParticipant@crashyJoin Date: 2003Post Count: 736
most people just ASSUME that the market only goes up and that buying any property will make them money. At the moment the worlds property market is crashing. So far Aussie has ignored it and has been quite stable. I see 3 possibilities:
1. Maybe we lag the rest like usual, in which case our crash is coming soon
2. the rest recover just as we start falling, so we stay flat
3. maybe we snob them and rise anyway because we have high immigration demand.
I give #1 50% odds, #2 30% odds, and #3 20% odds.
That means there is an 80% chance that current buyers will lose money (dont forget interest & agent fees, stamp duty, legals etc)
but who knows?ScampMember@scampJoin Date: 2008Post Count: 297
Rudi, by all means, stay out of real estate. Get 8.5% from the bank on your cash, and buy some toys for you and your kids. You will burn yourself if you play with matches. You will need a LOT of luck if you buy anything now, more than I can wish you.
One thing I can guarantee you is that your house will lose at LEAST 10% value in the next year. That, compared to 8.5% on the bank means you will lose 18.5% of your money if you invest in property now. That is reality, as opposed to your wishful thinking. Australia's crash is going to be worse than any other crash in the world's housing market, Australia just lags 18 months behind, like usual.ErikHMember@erikhJoin Date: 2007Post Count: 118
The market may well go down or crash… so the key question is, if you buy now can you and will you hold on to the property for 1 to 2 cycles. If so an intermitent stagnation or even a "crash" by 10% will do you no real harm as long as you can afford to hold the properties and you've bought properties with solid growth potential. Can you afford to hold them if interest goes up to 12%?
I think your strategy of renting yourself and buying 1 or 2 well placed investment properties is right on, just don't rush it – as you say this is becoming a buyers market so take your time to find the right opportunity. Once you've found it and you can easily afford it and can hold on to it – do it! procrastination gets you no where and there are very, very few people out there who made their money by timing the market !
As Warren Buffet said: "be fearful when others are greedy and greedy only when others are fearful"
Thanks for your reply. I am seeing these purchases as long term investments and yes I can afford to hold onto them if the interest rate rise, so your post makes good sense to me.
RudichookerParticipant@chookerJoin Date: 2007Post Count: 12
Hi Rudi, I also am looking to buy, but I personally would not buy at the moment unless there is atleast a 20% profit on purchase, through duplex subdivision in my case. I have read and heard that when interest rates fall finally than house prices should pick up, maybe we should both wait for that. at the very least we both should get valuers to give us a proper idea of the current value of what we buy, and than try to buy below it, not always easy
good luck to me and youEvent HorizonMember@event-horizonJoin Date: 2008Post Count: 90
i think to say becuase other markets are crashing then we must expect a crash of the same magnitude or worse is a little niave
Compared to the US for example we are very different market.
1. we dont have an oversupply issue
2. we dont have loose lending laws that enable lenders to lend to just about anyone
3. we dont have a honeymoon rates equal to half the interest payable or more thinking we will be ok after the honeymoon period is over. (US lenders have a lot to answer for)
4. We do have a growing economy riding of the resource sector and commodity prices.
5. We do have vacancy rates at record lows
6. We do have a housing supply crisis holding up demand.
Consider this and i think that a large fall across the board is unlikely but it is likely there will be falls perhaps 5% is more realistic across the whole country… So scamp is right on some level but again to generalise that all investing now is not worthwhile is not right….There will be property that rides this out nicely and if you can weather a downturn than long term you will be fine if you invest now and buy well located property. Perhaps focus on making your existing property work better for you while things are quite is my advise if your not buying.