After some unbiased property advice which I am hoping to find on this great forum
Looking at purchasing our first investment property. Am an avid reader and listener of property related books and podcasts. This also leads to analysis paralysis as I am cognizant of the fact that picking the right property first time will greatly improve chance of future success due the recycling of equity and servicability etc.
I am hoping to have some assistance in developing a kind of checklist of what and where I should be looking for in terms of investment. I have/had been considering using Right Property Buyers Agency Group but I am still on the fence in regards to the benefits of these services (11k cost also). I would love others feedback on using services like this. Although I feel they could find me a good property I am concerned I will be no better of in terms of being financially/property educated as they will present some properties and for going onto further investments we would have learnt little in the process of why they picked what they picked etc.
They did allude on my initial phone call to them that they look at properties in the 150-400k range as investment grade and I am wondering if we should be making 400k our limit for a 3 bedroom place also? Thoughts on this again greatly appreciated. I have a list of what I have read are considered good criteria to look for and I am trying to stick to these in my research:
– Owner occupier appeal (i.e tree lined street, access to shops/schools nearby)
– In a capital growth area (I have signed up to location score.com and it provides a snapshot of current growth areas
– 600sqm minimum (i’d like the oppurtunity to value add in the future so thought trying to find something that could be subdivided be a great hedge or bonus)
– Under 450k- I am reconsidering this number, open to advice
– Brick (Is weatherboard more suited to owner occupier appeal or do most investors reccommend brick for low maintenance costs)
– Needs a cosmetic renovation (Something in which paint, bathroom and kitchen can be improved to increase value)
– Has the ability to be subdivided if required
– Aim for death, divorce, debt if able to be found out
Yes I know it sounds like I am reading write out of a property 101 book but please be honest with me and tell me if you think this is a good criteria and what I should remove/add. We are looking really for a 3 bedroom house as our first investment property with good chances of capital growth so we can keep investing- I am 32yo and really want the next 8 years to be quite aggressive in terms of aquisitions. I don’t want to hamstrung by a lemon first up.
The areas I think we can afford and have good potential are
1. Newcomb, Geelong
3. Black Hill, Ballarat
4. Soldiers Hill, Ballarat
Ballarat is cheaper and the potential to find large blocks with 3-4 bedrooms under 350k is very possible whereas Geelong is dearer but my colleagues in Geelong (paramedics who know the areas well due to the nature of our job think Newcomb is the best bet). I have only started to consider Thompson as it not yet a “desirable” suburb so felt their still could be some cheap housing that suits our criteria.
Love to hear from everyone and anyone in regards to our strategy. Challenge my beliefs, I am eager to learn and adapt as neccesary.
Thanks very much, MickBennyModerator@bennyJoin Date: 2002Post Count: 1,376
I think the basis of what you are seeking sounds quite sensible. One part I would question is whether your situation calls for a Growth property vs an Income property. It is fine to purchase for Growth, but often these don’t return enough $$ to cover costs, thus you are contributing from your own pocket to hold it. If your situation is such that you have lots of “spare $” then that can work fine. If your situation is not quite that good, then purchasing for Yield might make more sense.
I am still on the fence in regards to the benefits of these services (11k cost also). I would love others feedback on using services like this.
For less than that, you can complete Steve’s “Property Apprentice Course” and be admirably suited to find ALL of your own properties, as you will be well aware of all pitfalls, along with negotiating strategies, and even have an option of 12 months of mentoring thrown in. To check it out, look here –
Although I feel they could find me a good property I am concerned I will be no better of in terms of being financially/property educated as they will present some properties and for going onto further investments we would have learnt little in the process of why they picked what they picked etc.
The above course would leave you WELL-equipped to do exactly that.
One of Steve’s earliest teachings told the story of a couple – they were both asked “What would you pay to learn how to purchase a property that can make you $100k in profit?” The husband said something like $10k, while the wife said “I’d pay up to $100k, as that would mean I could then do it over and over for myself”. Now, pondering on that, I like the way she thinks – I’m not sure I’d want to pay all of the profit from the first deal though….. So I guess I am with the bloke from the $ side, but with the wife from a perspective standpoint.
I can’t help you with Vic properties – but I do know that Steve started off in Ballarat. Perhaps it still has deals – depending on the cycle, most areas get deals – and anyway, you mentioned the 3 D’s yourself – and they happen spuriously (no need for a cycle – they happen when they do). So yeah, all good options.
Check out the link in my Welcome PM for a few more ideas….. ;)
Many thanks for the advice Benny (:
Wow reading this post gave me goose bumps because it is like reading my own story in many ways :)
I too am 32 (turned 32 the day after this post was made) and am looking to aggressively acquire property as well in the next few years
The more I read and gather knowledge, I quickly figured out I had to set my strategy in concrete.
Based on what I know now, (which is still very little because the more you learn the more there is to learn!) I am looking at pursuing an Income strategy as opposed to growth one to kick things off.
I have held off making my move until after I attend Steve’s seminar in Melbourne in March because I want to invest more in my education. After many hours of research, a lot of what I learnt is taking me towards Steve’s Apprentice course on offer here. I will make a decision post the seminar , which btw I am looking forward to !
I honestly don’t have any advice to offer because I am a beginner.
I will say though your criteria almost exactly mirrors mine. The location depends on your strategy. I could be wrong, however based on what I have gathered, Geelong is a future growth cluster for health services and therefore a strategy for providing affordable retirement housing in Geelong is what I would look into if I were investing in that area. I don’t have anywhere near the required capital for that atm , again I am a rookie and this might not be accurate however I do feel with an ageing economy the opportunity might lie in the affordable age care market for Geelong.
Feel free to PM me and tell me off if this info is wrong too lol Always looking to learn
All the very best with your investment journey Mick, wishing you a prosperous and happy future !!
I recall reading from one of the books or articles (can’t remember specifically where) that Steve significantly started to invest less in Victoria (or was it the whole of Australia?) because what he did in Ballarat years ago, stopped working for him….
Growth property vs an Income property.
I think that’s where buy from motivated sellers below market value is the key I suppose, as this way you get the best of both.
Motivated sellers = you are in a better position to negotiate, and thus better purchasing price for you.
Motivated sellers = they are likely to be sold before hitting market thus less competition
Below market value = less loan for you, and thus less repayment, which translates into good cash flow
Below market value = instant equity. You can spend less on renovation to create the equity you want and get those equity out (assuming if your finance allows and it doesn’t end up putting you into negative cash flow again.)
I personally don’t like the idea of relying on “growth”. Maybe I am just being paranoid… the way I see it is you never know when the market will go through a correction (or in some cases a sharp correction).
Historically there has been a few times that the market crashed when everybody (including experts) think “now is the best time, it is impossible to crash”.
Expert economists get the market and predictions wrong all the time, and we are not even close to being experts, so I won’t even try that.
I prefer to go with “buy below market” strategy and that way you get both “growth (well, not really growth, but the price difference between the below market value you pay and the market value once you do your renovation is your indirect growth”, as well as positive cash flow.
For example, let’s assume the following scenario:
A beautifully renovated property in an area is worth 600K and can be rented for positive cash flow, while a below average renovated property in an area is only worth barely over 300K in the same area.
Assuming the bank regulation says you need to put down 1/3 of property value as deposit while they can provide a loan that is 2/3 of the value. I know you get up to 80% of LVR, but I am using 2/3 for the sake of the example. In fact 65% is the LVR regulation in New Zealand.
So rather than buying a 600K beautifully renovated property (pay 200K deposit and get a 400K loan) directly and subsequently run out of money to be used as deposit for the next property, why not do this instead:
1. Build rapport with agents in that area, let them know that you are not interested in those 600K properties, instead you want to buy those properties that are averagely renovated (or below averaged renovated, as long as you make sure that you don’t buy something that suffers from structural problems) from motivated vendors.
2. Because those vendors are motivated vendors, this means those vendors are looking to sell as quickly as possible rather than go through a standard 4-5 weeks of sales campaign. Meaning, if you build good relations with agents in that area, agents might inform you that before putting the property on the market.
I mean think about it, if a vendor needs to sell in a hurry and get quick cash to cover expenses at their side (could be due to they run out of cash and are desperate to sell, or could be they are moving and need cash to relocate, could be due to a variety of reasons), they’d be more interested in selling it fast rather than selling for top dollar, as long as the offer is still reasonable to them rather than outrageously trying ti rip them off.
Also, Agents will rather be able to sell a property and move onto the next sale, rather than hanging onto a property for weeks only for an increase of 50k sales value.
3. Because the vendors are motivated to sell in this instance and the property is not even on the market, this gives you more leverage to negotiate price and negotiate conditions in your favor. Just be reasonable when making offers, don’t try to rip the vendor off and you will succeed sooner or later.
4. Assuming you do manage to secure a deal for an averagely renovated property for 300K, that’s still not bad. Because then you only pay 100K deposit (1/3 of 300K) and get a 200K loan (2/3 of 300K).
5. You then spend the other 100K cash on renovation, turning this 300K property into a beautifully renovated property, and bring the property value up to 600K again (need valuation report to prove it of course).
6. So now you have a property that is worth 600K, but in reality, you only spent 200K of your own cash (which is 1/3 of the value) and the bank also only provided a 200K loan (again 1/3 of value), meaning there is another 200K value (1/3 of the value) that is sitting there as equity.
7. Now, bring your valuation report to the bank, request that 200K equity to be released (so you top up existing loan from 200K to 400K, and have 200K cash in hand) and use that 200K as deposit / renovation money for the next investment. Your cash flow will reduce as the result of topping up existing loan, but hey, as long as your cash flow doesn’t go into negatives, it is much better than having to save 200K all of your own money, isn’t it?
There… you get the best of both that way.
It is not easy to do, but the concept is very simple when you think about it.
One thing to mention though is the above example is a simplistic view.
There are many other factors to take into consideration.
Certain area are good for buy and sell, certain areas are good for buy and let, and certain area are good for multi-let (more common in UK than in Australia… Aussies are not big fans of multi-let for some reasons).
Areas close to hospitals, factories, universities are definitely good for Buy and Let (for factory workers and nurses) or Multi-Let (mostly for students).
Areas where there are primarily home owners are probably better suited for Buy and sell, but can also be good for Buy and let if there are lots of advertisement for renting in that area.
You need to define your strategy first, then define your area, and finally find your property.
Thank you very much for the detailed explanation.
The numbers you used in the example do put it into perspective – manufactured growth/equity and then repeat the process in a quicker time frame compared to waiting for growth to take place and then revaluing the property for equity release to use as a deposit. All while aiming for a positive cash flow
You have given me much to consider – again thank you so much
All the best :)
Thanks very much guys for some excellent feedback
The way I described though, won’t work very well in Melbourne or Sydney (or maybe even Brisbane) metro area for the matter.
I mean, if property values are well above 1M and you only get 400-500 per week rental income, then it is impossible to get positive cash flow even if we do buy below market value.
It will probably work in regional cities in Australia.
I have enrolled myself in a mentoring program. Quite expensive (28K), and I will be traveling to Auckland for the mentoring. Yea.. my mentoring program is more about investing in New Zealand rather than in Australia.
My mentor has informed me to pay some attention to an area called “Dunedin” in Southern part of NZ… where a 600K property in Melbourne gives me more or less about 400ish per week, the same 600K in NZ can give me close to 1K per week… that’s already positive cash flow without buying below market value, and imagine if I do buy below market value… my mentor will teach me step by step on how to: deal with agents, negotiate price with vendor, look for information about demographic and how to correlate those information to determine if an area is suited for my strategy, etc…..
Another concept which they teach is “don’t use your own money”. The basic idea is a 2 step process: 1. Find an excellent deal, and 2. Find the money. The concept is, if you can source an excellent deal, then money will find you instead of you having to look for money. It does remind me of when reading “Rich dad and Poor dad”, Robert Kyosaki did indicate back then when he purchased his first investment property, he didn’t even have the initial deposit himself… however, because he was able to source such a good deal, angel investors lent him the money to get started and he pulled the deal off, turned a healthy profit and managed to return the money back to the angel investor (together with added interest charged by angel investor too).
Unfortunately, after doing much research and looking through various areas in Australia, between Stamp Duty (doesn’t exist in NZ) and Capital Gain Tax (doesn’t exist in NZ), then factoring in that property price is so high in Australia causing yield to be so low, as well as the fact that the money that you need to return to the angel investors (and you need to let them profit for a bit too), you will have very little profit left when try to do “buy and sell”, so this method of “borrow someone else’s money” just won’t work very well in Australian market.JSA-PropertyParticipant@jsa-propertyJoin Date: 2018Post Count: 3
Your post is very detailed, but if this is your first dip in to the realms of investing, just a few pointers and yes i sell property but not where you are looking so not fishing.
*An investment should be purely about the numbers, detached from what you like, its just numbers.
*You don’t need to like the look or the color or even the location
*The bigger the budget the more you should get but that doesn’t mean size all the time
*700m2 blocks are not common, you have to think of the maintenance and cost, yes your tenants will deal with the day to day stuff but what about large trees falling more land more trees, looking after a large garden may put some working families off?
*Buying an investment at $400k then ripping out the guts of the place and spending another $50k to make it look like what you think people will want doesn’t make sense!save time save money (& stress)
*using a company that charges $11k for something i do for free is a loss maker, I wouldn’t do it.
HAVE YOU CONSIDERED?
*if you buy off plan with your $450k budget, in a fist stage of a large development you will get-
*Equity increase by time its build (22 weeks or so)
*Stage two land will be more expensive so you have saved money and made in equity!
*All the fittings are brand new with warranties and done by experts to tastes that have been researched.
*The tax depreciation you can claim back can put you in a positive geared position from year one
*If you find the right consultant, they may be able to get you investment incentives, like rental guarantees or fixture upgrades, i do for mine.
Just from those few suggestions yoube saved $11k on a buyers agent, may be $30k on buying in stage one of a development, $20 to $30k back on tax in the first few years, and that’s without adding up the equity in the value of the new build by time its built?
*more importantly you saved yourself time and stress.
Its good to have a plan but all the reading and watching others do it wont count as much as ever doing it, good luck and remember it doesn’t matter where you buy infact the less you see the property the better, you will worry less and count profit more.
Disclaimer* these are my opinions and advice based on 15 years in real estate sales management and training.
Great advice thank you ! I wanted to ask though wouldn’t the abundance of land that will be released post the initial stages stunt the growth in the property?
Ideally the property grows at a steady rate for the 10 years plus and buying a house and land package to build in a new estate has a high risk of stagnating growth compared to if you researched and built in a well chosen area that is already established
Depends on the area of course the estate is being built and if you can get it at a good price
I don’t know much I am just asking if my thinking is on the right path
thanks again for the advice