Forums / Property Investing / General Property / Need advice with regards to property investment in Noble Park

Viewing 13 posts - 1 through 13 (of 13 total)
  • Profile photo of Sam DiamondSam Diamond
    Participant
    @samdiamond
    Join Date: 2016
    Post Count: 8

    Hi there,

    I am looking to buy a 1 bedroom student accommodation at Ian st in Noble park. Its near to the train station and its a new property. The cost is $170 – 180K

    My reasoning for buying is that I will benefit from depreciation and if I pay off the property quickly (in 3 -4 yrs using savings, depreciation and rent received) then it will provide me cash flow. From the start it is cash flow positive. The monthly rent would be $800 per month. This property will be complete by end of 2017. I know it wont have any capital growth. My plan is to be able to pay it off and then using the equity in this property buy another investment and use this one for cash flow.

    Also I have to pay 10% to hold it which is what I have in my savings currently.

    I am new to property investing and am trying to start with little money that I have currently and trying to invest in cash flow positive properties.

    Does anyone see any potential risks or issues that I could face? Any advice or suggestions are welcome.

    Thanks,
    Sam

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,296

    Hi Sam,
    Good on you for taking a look, and for coming on here and asking questions. It is way smarter to do that than to go ahead and purchase something and then tell us what you did. Why? Simply because there are way better ways to “start out” than to buy a new one-bedder.

    Before signing anything, DO do a few things :-
    1. Run your figures by one of our MBs to get an idea if you really are limited to “new one-bedders”.
    2. Read the thread linked below – there are several posts, some of which will serve to give you a good idea or two about property investing. https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
    3. Spend some more time just looking around in here – in particular, find the Training Centre on the Home Page and read through a number of the short Articles produced by Steve and Jason (and one or two others).
    4. DON’T be in a hurry to “get into SOMETHING!” Spend some time getting educated before buying anything.

    Welcome to pi.com too. We are a friendly bunch with your best interests at heart. Do pop back in to keep us up-to-date with “how things are with you” too.

    Benny

    Profile photo of Sam DiamondSam Diamond
    Participant
    @samdiamond
    Join Date: 2016
    Post Count: 8

    Thanks Benny for such an insightful response (especially point 4). I am glad that I joined this forum.

    Also, can you please let me know what is an MB? How do I run my figures by an MB?

    Thanks,
    Sam

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,972

    Hi Sam

    Welcome to the forum and I hope you enjoy your time with us.

    A MB is a Mortgage Broker who arranges finance on behalf of clients

    As Benny has outlined your first issue could be obtaining finance to any decent loan to valuation on such a security.

    I am not aware of the complex but you may well find you can’t borrow much more than 60% of the purchase price.

    Other investment risks to consider but finance certainly will be a biggie.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    4. DON’T be in a hurry to “get into SOMETHING!” Spend some time getting educated before buying anything.

    Hi,

    As usual, I very much agree with Benny’s advice.

    There is something worse than being a procrastinator & that is when one becomes a pre-crastinator instead.

    A pre-crastinator is a loose term used for people who are afraid of being a procrastinator & therefore jump into situations “too early” just so that they can cross it off their mental list. It mostly ends up being a wasteful decision & sets up a losing situation as they have not given themselves time for education, time to digest the knowledge, not performed idea mental stress testing within different scenarios. They don’t give themselves the chance to take full advantage.

    I am not saying to act on important decisions right up to the very last minute of a deadline eg: do nothing, do more of nothing, then decide to buy a property on the same day that it’s being auctioned. What I am saying is, committing to something prematurely will eliminate the chance for the Universe to offer you a more advantageous situation as the act of committing will end that time line for you.

    My best example of this is: do not order fries (at a fast food restaurant) until you get to the counter. It allows for a better chance that a freshly cooked batch of fries is made available when your entire order is fulfilled. lol, I hope you got a laugh – I always use silly examples. It makes me laugh when I read back through my entries & feel embarrassed of what I’ve written. :) I hope you get my meaning though.

    I am a believer that “inaction” is not “doing nothing”. Inaction is when you’ve educated yourself & feel like it is not the right time now to make a move. I like the expression “Invest as soon as you can”. Most people concentrate on the word “soon” & they think that it means to invest right NOW. I have to disagree. The emphasis of that expression should be on the word “you”. You are the one that has to be ready & once YOU are ready to buy then DO IT!

    Keep well & heaps of wealth to you.

    • This reply was modified 2 years, 3 months ago by Profile photo of Pimobpi Pimobpi.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,296

    I like the term “precrastinator” Pimobpi – nice one.

    One of my favourite phrases is the old chestnut “If you think education is expensive, try ignorance!” I’m sure it was coined especially for precrastinators. :p

    Also, can you please let me know what is an MB? How do I run my figures by an MB?

    Sam, you have had a MB answer the question for you. Richard is Brisbane based, and there are others on here based in other centres. Though it is rarely necessary to have your MB resident in your city, it DOES help if you wanted to meet face-to-face in your early days. An MB is a very important part of most investors’ teams.

    Though I am sure there are plenty of good MBs “out there”, I also believe that there are MB’s and MB‘s. Those on here are full bottles on all of the traps that await the unwary. I’d suggest you open the batting with one or another on here.

    Good hunting,
    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,016

    Sam, if there will be no capital growth then why bother?
    What is the annual return like after all costs?
    Could you get similar returns with less risk?
    What is the opportunity cost of investing in this?
    – borrowing capacity eaten up
    – deposit eaten up (and may be a large deposit).

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Sam DiamondSam Diamond
    Participant
    @samdiamond
    Join Date: 2016
    Post Count: 8

    Thanks Benny, Richard and Terry for your responses. All your insights have been really valuable.

    Thanks Richard, now I have got your contact. I will get in touch with you when I find a potential opportunity to go through the nitty gritty.

    Terry, those are really good points. Mainly the borrowing capacity and the deposit eaten up. Now I dont feel the rush to get into something and the 1bed apartment does not seem a profitable investment. I am going to spend sometime going through the articles and resources and also thinking of taking the training course.

    Thanks,
    Sam

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,296

    Hi Sam,
    Well my friend, you have very good reason to smile when you think of that 1 bedroom student apartment – that is, it was the catalyst got you interested in Real Estate and its possibilities – and those then brought you here !!

    This thread has been a really good combination of “early learnings”, thus I want to add a recent Article that Jason Staggers provided us. I reckon you, Sam, have already caught sight of it, but I post it here for all those that read this thread in future years:-

    https://www.propertyinvesting.com/buying-investment-property-off-plan-dumb/

    Jason outlines five very important points re purchasing any OTP (Off The Plan) property, and why the latter can be a very bad idea.

    Unfortunately, for many new investors, their entry into RE investing is often via a marketing firm that convinces them that they should “secure their children’s future by investing in Real Estate”. Now, the idea of investing in property is great – but the opportunity on hand can be far from great. Jason’s article, and those earlier replies to Sam’s questions, explain why !!

    Benny

    • This reply was modified 1 year, 4 months ago by Profile photo of Benny Benny.
    Profile photo of Nigel KibelNigel Kibel
    Participant
    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    I cringe when I hear the term student accommodation. Then I hear Noble Park a double cringe. However Student Accommodation in my opinion is bad investment. As Richard has said you will only get a 60% loan that’s if you are lucky and you will then have an investment that will be lucky not to go backwards.

    So an ideal investment is one that will have the widest appeal to resell. So a standard apartment could also sell to an owner occupier.However a student apartment will only sell to another investors hence it has limited growth potential.

    The best student accommodation are houses where they rent out the bedrooms. You get a great return however if the student market dropped you could always let it to a family or resell it.

    Nigel Kibel | Property Know How
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    Profile photo of Jason StaggersJason Staggers
    Participant
    @jason_staggers
    Join Date: 2006
    Post Count: 59

    Good questions there from @terryw. First decide whether you’re a growth investor or income investor. In light of current rental yields, unless you’re sitting on seven figures of cash, you’re probably a growth investor.

    Jason Staggers | PropertyInvesting.com
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    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
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    Hmm, here we are 18 months later – I happened to be rereading this topic, when two comments from above fused together in my mind, and a huge lightbulb lit up !!!

    Here they are:-

    1. from the original poster – “From the start it is cash flow positive.”
    and
    2. from several reply posts – “…you will only get a 60% loan and that’s if you are lucky…”

    Bing !!! On came that lightbulb.

    Did it shine for you too, having read those two points close together?

    For those who are newer, this is a very important point (often put to good use by those who are marketing OTP properties):-

    “One of the main reasons it is cash-flow positive is because you have put down such a large deposit.”

    So, ANY purchase looking like being a highly negative geared property can become cashflow positive if you only put down enough deposit. How much? Well, let’s see – we’ll start with purchasing a house that is looking like being negative geared right off the bat:-

    Purchase price is $600k, and it will have expenses of (say) $10k pa for Rates, Insurance, Maintenance, RE fees, and other costs and then a mortgage (Interest Only) of $30kpa at 5% Interest Only. Rent will be $600 per week, so allow 50 weeks to get $30k in rent per annum. (You plan to use equity in your own home as the deposit, so your total mortgage is $600k). From those numbers you are going to be losing $10,000 a year (roughly $200 a week).

    OK, so let’s pay more of a deposit – let’s say you had $50k in savings, so you put that down to lower your Mortgage Costs instead of borrowing that extra $50k against your home. That reduces your Mortgage cost by $2500 a year. Still $7500pa in the negative. Damn.

    So instead, you sell the $250k you had in shares (watch out for Capital Gains?) then put $200k of THAT down as a deposit and don’t borrow against your house at all (the extra $50k hopefully covers any CGT). This reduces your mortgage to $400k and your mortgage interest drops to $20k per annum. Right at that point, your income and outgoings are in balance. Put more than that into the investment, and it becomes positive geared – finally!

    BUT, you’ve had to put down 33% of the total cost to get to that – put down 40% (as in the original example) and yes, it will be cashflow positive by about $2000 a year ($40 a week – whoopee).

    Spruikers conveniently leave that bit out when telling you how “positive geared” their investment property is going to be. They talk you into a 40% Deposit on a little apartment and massage your ego with stories of what a great investor you are going to be (to get you to sign the contract).

    OK – you usually won’t need to put 40% down on a house and land. 20% is common as a deposit and not too hard to get this.

    My main point was to show how you can FORCE any purchase to become positive geared if you only throw enough cash at it. Before taking that path, consider the poor return you might now be getting on all that cash you’re putting in.

    And consider too the opportunity cost of releasing all of that cash. Will it prevent you from locking in some other screaming-hot deal that pops up if you’ve used up your cash to do something else?

    In short, for sure any property you buy can become positive geared – but, at what cost?

    Benny

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 269

    Well said, Benny.

    That’s why my calculations are always based on 105% of purchase price (to account also for purchasing costs) 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
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    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

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