Okay I have only been sniffing around the forum for a few days and there is obviously masses of knowledge out there and a fairly common theme seems to run of educate yourself by books/forums/questions/ seminars etc and then go out and do it all yourself rather than relying on consultants/club/agents – who all have their own agendas.
BUT There are thousands of residential properties in Perth alone, tens of thousands in other capital cities and then there is regional Australia. Where is a bloke supposed to start? From what I have seen it is not as simple as identifying a suburb and then picking a suitable property. Its the right house on the right street in the right suburb, which potentially is hundreds of hours of research.
I prefer to look at Perth or the southern half of WA simply because I know it better and I know WA is going ahead at the mo. It is still intimidating and mind boggling to a relatively inexperienced investor, which leads back to the original question – Where the *#$& do I start?
Hi Laury
I totally understand where you're coming from.
I remember the hours and hours of research I put into my first purchase.
After considering every city in Australia, I ended up purchasing something close to home.
Just like you, I had a good understanding of the local market and what represented a good deal. I also had access to local tradies and could carry out some of the renos myself.
I think starting off in your own backyard can be a good option. There's good deals everywhere.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
How do you eat an elephant?
……………………….one mouthful at a time.
The Freckle
The very first thing you should do before you start is to think about what you're trying to achieve and then work out a plan to get you there.
Let me give you an example.
I bought my first house last year. There were 3 things I wanted to achieve:
1) my own home to live in (no more renting or living with family)
2) passive cash flow (to increase my income and not restrict me from further purchases)
3) the ability to use my spare time to increase my wealthThese were my objectives/goals. My plan then became:
Buy a run down 4×2 house in a cheap suburb, live in it, cosmetically renovate it in my spare time and rent out the extra rooms for extra cash. This plan fulfills all my goals and this is what I did.
Is this plan suitable for everyone? No, of course not.
I can't tell you what your plan should be, you just need to ask yourself what you're aiming to do.
Good luck
How do you eat an elephant?
……………………….one mouthful at a time.
The Freckle
Classic! but first I have to catch and cook the bugger!
Best place to start it – decide how much you can afford, then you will have a “cap” on prices which will discount some areas & make the decision easy….
Just don’t buy in Perth as it’s bonkers …. is my advice
dachopper wrote:don’t buy in Perth as it’s bonkers …. is my adviceDon’t buy anywhere……. is mine!!
If I was a gambling man I’d bet on a donkey to win the Melbourne cup before I’d bet on property as a reasonable investment.
Sure you can pick the odd winner in PI but that’s more likely to be by experienced investors. If I was a newbie I’d be hanging back, learning and watching how things unfold this year. All my instincts tell me it’ll get much worse before it gets better.
Don’t be fooled by mining and the resource sector. It’s at the top of it’s boom cycle and we all know what happens after a boom.
The Freckle
Hi Freckle, just wondering if you live in Perth? The only thing bonkers is the mining economy there. With billion dollar projects being announced every second week, it would be a brave man to bet that it is going to end soon. My observation is that when BHP plan on spending $40 billion in the next ten years in iron ore expansion projects and go ahead and build a huge new skyscraper in the Perth CBD to house their workers, they dont think the boom is ending any time soon. And then you can add the mountains of Rio Tinto and FMG projects in the pipeline.
I have more faith in the financial forcecasts of the BHP and Rio Tinto executive team than those of the average person off the street, so my opinion is that the good times are here for a while yet.
Cheers,
LukeMate im in the same boat as you, im in Perth also. My ideas so far are to look in the suburbs that may be getting rezoned soon; Koondoola, Girrawheen, Balga, Mirrabooka to a lesser extent Ballajura etc that have decent sized lots for subdivision potential. I know some of those suburbs people think are a bit crappy, but 20 mins to the city once our population grows a bit I think they will do well! Otherwise im looking for some inner city suburbs that have some older houses that could be reno'd and moved on later, Joondanna is one im keen on.
Im going in on some investments with my mum, trying to find some cash flow neutral/positive properties, one maybe to be reno'd (luckily for me all my mates are tradies and have access to mates rates painters, sparkies, plumbers and even a surveyor and settlement agent) and one for future subdivision (keep house on the front and sell land/build at the back).
My starting points are;
Seeing Mortgage Broker (friend from old work) to work out what funds we have available to us
Discuss what we are looking for for each property – cash flow/equity gains/sub division potential etc
More research to see whats available and weigh up each optionIm also researching QLD – Brissy – Goldcoast area and possibly the US.
I know what you mean though its a bit of information overload, just got to go one step at a time and do as much research as possible!
Hi Laury,
It's traditionally hard to get advice, because as you can see most of the commentary is coming from the Eastern States. Not that they are bad, but they wouldn't know the difference between Balga and Bunbury. Also, a lot of what people say is opinion, not data/research.
Firstly, I would recommend working out what you want. When I often meet clients for the first time I have about 30 questions I will ask them, these include:
Do you want capital growth in your property so you'll have enough equity to buy another one?
Are you fine for equity but do you want a good rental return?
What is your investment horizon?
How much time can you put in the investment AND/OR research?
Do you know how much you could put aside for into an investment per week?
Are you seeking tax dedudctions?
…The list goes on and on…Once that is done, we use a Top Down Bottom Up investment approach.
What that means is you want to eliminate your options, down to just a few, like a gigantic property sive (ill show you below) .
Important
Don't fall for the 'Backwardation' Fallacy that I see way too many people fall for! That is when people buy a property or decided on an area and go out to find evidence to "justify" why it's a good area after the fact (this is most common when people buy close to them – because they know more "good" things about there area than anywhere else and that's because they have not lived anywhere else) – give me any area and I can find positives. So the key is compare area for area and eliminate the bad ones.Top Down:
1) Look the State government future projects (big ones that make people want to live there.) Eliminate areas which don't have much going on for the next 10 years. This is a demand factor.
2) Look at the State Governments "growth projections" for future land supply. Eliminate the areas which have lots of future supply. Supply factor.
3) Look at the councils of these projects and see how far they are along and what demographic these projects are targeting. You want a future affluent demographic. Demand Factor.
4) See the councils plans for future supply, make sure there isn't too much new super high density stock or green-fields. Supply factor).
5) Look at individual suburbs and which ones are over/undervalued close to the catchment of these new projects. Demand/price factor.
6) Check the suburbs supply on market and make sure its got a falling trend or consistently low. Supply factor
7) Find the best pockets within in the suburb.
Eliminate negative streets i.e (ones with State housing, flight path, slope, bad vibe, busy road, etc. etc. etc.)Bottom Up:
9) Wait for properties to come up in your target areas,
10) Work out what they are worth and make offers accordingly.
11) See if there is any opportunity to add value or "value" that the market doesn't see.
12) Check the Building, Electrical & Pest – have good contract clauses.I hope that helps and feel free to PM me.
luke86 wrote:Hi Freckle, just wondering if you live in Perth? The only thing bonkers is the mining economy there. With billion dollar projects being announced every second week, it would be a brave man to bet that it is going to end soon. My observation is that when BHP plan on spending $40 billion in the next ten years in iron ore expansion projects and go ahead and build a huge new skyscraper in the Perth CBD to house their workers, they dont think the boom is ending any time soon. And then you can add the mountains of Rio Tinto and FMG projects in the pipeline.I have more faith in the financial forcecasts of the BHP and Rio Tinto executive team than those of the average person off the street, so my opinion is that the good times are here for a while yet.
Cheers,
LukeI work and live in the industry (Pilbera) and I’m about to set up a new company supplying contract labour to this sector based out of Mandurah.
The whole mining boom thing is predicated on China maintaining a growth rate in excess of 9%. It’s irrelevant what BHP Rio and FMG say to the media. That’s fluff to keep shareholders happy. Poly’s are even worse and I wouldn’t trust a banker any further than I could throw him.
Here’s 2 recent reports about China
BAML (Bank of America Meryll Lynch) is “very worried” by signs of tightening in China
http://www.dailycollateral.com/2012/02/29/baml-is-very-worried-by-signs-of-tightening-in-china/World Bank Warns of Economic Crisis in China; Only 3% Growth for Decade Says Michael Pettis
http://globaleconomicanalysis.blogspot.com.au/International iron ore prices rose in 2000. The price for
Hamersley Iron Ore Pty. Ltd. and Mount Newman Mining Co.
Pty. Ltd. fine ores for fiscal year 2000 (April 1, 2000, to March
31, 2001) in the Japanese market was 27.35 cents per 1% Fe per
long ton unit, up 4.4% compared with that of 1999 (Duisenberg,
2001, p. 46). The price for lump ore was settled at 36.26 cents
per 1% Fe per long ton unit, an increase of 5.8 % compared
with that of 1999. The lump ore to fine ore premium for
Australian ore sold to Japan, increased from 8.2 in 1999 to 9.1
cents per 1% Fe per long ton unit.
Source: http://minerals.usgs.gov/minerals/pubs/commodity/iron_ore/iomyb00.pdfIn 2000 ore was around $13-17/dmt. By 2010 it reached an all time high of $180/dmt before slumping to $116/dmt and then recovering to around $140/dmt. FMG state that $52/dmt is their break even point. I suspect Rio and BHP have break evens in the low $40’s given their original plants wher purchesed at substantially lower cost, however given the sheer volume of spending this break even point is closing on $50/dmt.
BHP has stated in recent media reports it’s outer harbour expansion project at Port Hedland needs to see prices at $200/dmt to be viable if I recall correctly.
BHP warns of cutbacks and closures despite $9bn profit
BY: MATT CHAMBERS From: The Australian February 09, 2012 12:00AMBHP Billiton has warned of more closures of struggling assets and lower-than-flagged development spending, as it prepares to “live within its means” after recent falls in commodities prices.
The mining giant yesterday delivered a first-half profit of $US9.94 billion ($9.17bn), down 7 per cent on a year earlier because of higher tax payments and operating costs.
Source: http://www.theaustralian.com.au/business/profit-loss/bhp-warns-of-cutbacks-and-closures-despite-9bn-profit/story-fn91vch7-1226266151559There is considerable effort going into misinformation, disinformation and outright lieing. Getting the real facts on China and Global Economic problems requires digging below the surface and finding those with the knowledge and skills who are able to unravel the truth.
If you start to stick all the little pieces of the puzzle together you don’t end up with a positive outlook for the Australia economy. It has the potential to be pretty horrific. Anyone with a sense of logic has to realise that you can’t have the largest national and regional economies sliding into recession simultaneously and have a booming China. It doesn’t stack up. Then when you look at China itself let alone its export markets you see a considerably corrupt and dysfunctional economy that is in reality broke
I have no doubt that resources will pull back considerably. What I don’t know is how quickly it will unfold and where the bottom might be. That’s what has me worried. I worry even more when the poly’s say they have things under control and all is good in the world.
The Freckle
Thanks Kent
I like the idea of a systematic approach to finding the 'plums' . My current finance capacity is around $410K on latest assesment and my biggest issue is cash flow with a young family so I am really looking at cash flow neutral/positive with a high occupancy rate. Ideally I would love to obtain a property for a long term GROH lease but I dont think they pay quite as well as they used to. The other issue with that is finding the town needing houses at the right time and the right price – not to mention if I got transferred there I might have to live in it! I am also interested in the NRAS programme.
Freckle – got to admire a guy prepared to tell it like it is. I am looking at holding the property for a long term so while I acknowledge there is a boom bust cycle and our turn will probably come, people still need roofs over their heads- I just have to pick the place they want to live! Incidentally my wife completely agrees with you although she is working purely on gut feeling!
It does make you think about the US opportunity – they have already had their crash! but I am not really educated or confident enough to fully explore this option.
Keep the discussion coming guys – very enlightening!
Laury
why not start with some of the areas that you are most familiar with? Then focus on those. This will be easier for you since you have experience living within the areas so you'll be more familiar with the trends and demographics
The best place to start is close to or near your comfort zone.
Dont you DARE think you can start wheeling and dealing large figures multiple properties and large bank accounts all while creating viable taxation offsets …………….. from going out there and picking up the latest Property Magazine and reading an article about someone with barely no experience in real estate makes squllions in just a year or two.
For every positive writeup from someone who was an amateur investor there would be 8 to 10 who would have experienced trouble or even failiure of their investments due to one simple problem. Lack of experience in dealing with the situation properly.
You'll need to grasp the concepts of what and how your property will work. Why one property is a good investment and another is a money pit. You'll need to study your market and become an instant expert in your market. You'll need to learn how to negotiate to make a deal effective, and how to approach a potential vendor to get him interested.
Some of these you can grab from books. Others you can grab from feet on the ground .. assessing your potential area. In the realistic term unless you are looking for retirement .. your investment plans should stretch 3-7 years depending on your current economic conditions and family status. You'll make mistakes .. or you'll be smart and learn from other people's mistakes. One will save you time and effort, the other one will cost you money and time before you learn.
Eliminate negative streets i.e (ones with State housing, flight path, slope, bad vibe, busy road, etc. etc. etc.)
You must be logged in to reply to this topic. If you don't have an account, you can register here.
