What questions to ask when considering regional properties?

monalisa

monalisa

Hi all!

I own two places - one PPOR, and an IP in western Sydney, which is negatively geared just over $200 after tax - which I think is quiet a bit. I now want to start considering regional and offset the negative gearing against it prior to purchasing in Sydney.

I have the following questions:

  1. I know numbers have to stack up - but how positive does a property need to be for you to purchase it? (and take on the risk of owing away from home?)
  2. What are the other factors you consider - apart from employment (esp mining towns!)?
  3. I am prepared for low CG, however if the property costs less than the comparatives, are banks generally conservative when it comes to revaluing properties for a top up?
  4. I am hoping to have 95% LVR - do you think the banks may have an issue with a regional being 95% LVR, regardless of it being positively geared?
  5. Do you have an exit strategy? E.g. for mining towns?


Thanks heaps!
Mona
 
Mining towns are too risky for me and you - and too expensive.

Needs to be a growing town as you can buy something for 100k that is really cheap but population of 1000 and no industry etc...

I'd stick to Newcastle if I were you since you don't want to go too far away from home.
 
6. If there is no or little capital growth what is the point?
7. What is the opportunity cost of buying this property? eg. I could be eating into borrowing capacity and not investing elsewhere.
 
I began investing in Victorian regional cities because I had spent time living in them, was familiar with them over time, their various industries, how they had been steadily growing in not only industry diversity but population, infrastructure(s), eg education, health, so I had that as due diligence even before then looking at them as 'potential investment material'. From there I began to study and learn the various suburb/areas to them, what properties were selling for (or not selling for), land block prices, attending open for inspection days so I could see what was physically the standard as opposed to 'paper or internet'.

Just speaking for me I like to research well, I could see no reason why for example Bendigo would not offer me a solid investing future. I bought property, I built properties and am pleased with not only it's 'returns' but it's growth, generally speaking the relatively longterm averaged out growth is around the 10% mark for the decade, when I purchased I bought what I thought good value, so I was buying well too, it was about the deal.


monalisa said:
Hi all!

I own two places - one PPOR, and an IP in western Sydney, which is negatively geared just over $200 after tax - which I think is quiet a bit. I now want to start considering regional and offset the negative gearing against it prior to purchasing in Sydney.

I have the following questions:

  1. I know numbers have to stack up - but how positive does a property need to be for you to purchase it? (and take on the risk of owing away from home?)

    But each investor has different requirements for their 'numbers'-so if you have your framework then you can work around that, or say, value add to the property? I eventually learnt to buy nothing under 8% returns, sometimes I do waaay better than that, but I do a lot of research and know my areas well or am prepared to do what Kathryn and Bob do, hunt down the property possibly others are not so interested in, (for some of my buying anyway, not all). I am hours away from some of my IP's, that's been a choice I was prepared to make. Eyes wide open. Funding eg LMI has not been a problem for the regional cities I invest in.


  2. What are the other factors you consider - apart from employment (esp mining towns!)?


    I don't invest in, nor have invested in mining towns/cities. Not to say others should or should not, I just have my lap full with areas I am familiar with already.
  3. I am prepared for low CG, however if the property costs less than the comparatives, are banks generally conservative when it comes to revaluing properties for a top up?

    The finance market is a different beast to 2003, even perhaps from 2008-circa, I hesitate to answer this because I've not had no capital growth, nor difficulties releasing any equity, but that's not to say other investors have not had challenges...your question is just too generalised I think. I'm sorry I can't be more specific, but with my purchasing of IP's getting good returns (again, for my needs/wants/circumstances) and the growth I've had, I've not had issues going back to the trough for financing.

  4. I am hoping to have 95% LVR - do you think the banks may have an issue with a regional being 95% LVR, regardless of it being positively geared?


    Where possible I have been able to ensure I put in as little of my own $$ as possible, I've done 90% from recollection, oh, yes I have done a 97% er, and I have 80% ers...so a mixtures of that, more the 90% ers are bulk of IP's I think...

  5. Do you have an exit strategy? E.g. for mining towns?

I am in investing because I wish to build assets, the research I like to do, the cities in the regional areas I invest in are solid, they haven't taken the roller coaster path, even in droughts, they are stable, but I have bought/built well, if worst came to worst, (and I'm trying to think of a scenario for this), I 'had'? to sell properties? I would be able to sell them if that's what you mean? Other than that they are keepers, and the base of my assets for leapfrogging into other asset building plans. Again, I dont have any IP's in mining areas.


Thanks heaps!
Mona
Click to expand...

All the best Mona Lisa.
 
monalisa said:
Hi all!

I own two places - one PPOR, and an IP in western Sydney, which is negatively geared just over $200 after tax - which I think is quiet a bit. I now want to start considering regional and offset the negative gearing against it prior to purchasing in Sydney.

I have the following questions:

  1. I know numbers have to stack up - but how positive does a property need to be for you to purchase it? (and take on the risk of owing away from home?)
  2. What are the other factors you consider - apart from employment (esp mining towns!)?
  3. I am prepared for low CG, however if the property costs less than the comparatives, are banks generally conservative when it comes to revaluing properties for a top up?
  4. I am hoping to have 95% LVR - do you think the banks may have an issue with a regional being 95% LVR, regardless of it being positively geared?
  5. Do you have an exit strategy? E.g. for mining towns?


Thanks heaps!
Mona
Click to expand...

What is the attraction to regional?

Many people seem to think that regional is "cheap" compared to Metro areas. This couldn't be further from the truth. In fact most of the regional areas where I invest and that I frequent have shown significantly higher capital growth than most Sydney suburbs over the last 5 years.

If anything I would say that on average Sydney is "cheaper" than regional NSW at the moment.

RC
 
monalisa said:
[*]I am prepared for low CG, however if the property costs less than the comparatives, are banks generally conservative when it comes to revaluing properties for a top up?
[*]I am hoping to have 95% LVR - do you think the banks may have an issue with a regional being 95% LVR, regardless of it being positively geared?
[/LIST]


Thanks heaps!
Mona
Click to expand...

Hi Mona

Low CG and +ve cashflow will result in tears long term unless you have a strategy to get over the LOW organic growth like quite a few have, eg buy well, really well buy a problem you know you can improve etc.

100 bucks a week pos cashflow and nil or low cg will KILL your leapfrogging strategy.


On the LVRs, choose your lenders well. A few wont care to much about postcode. CBA and NAB / Homeside are 3 that have Mortgage Insurer DUA and the locn isnt much of an issue in most cases. Be aware that would you want a good credit score and chasing high LVRs because you WANT them, not because u need them

ta
rolf
 
My approach is to not invest in Mining Towns. However, no issue with investing in established regional centres that just happen to have a boom in mining.
 
Thanks all!

Having read all the comments, I think mining towns may not be suitable - at least not at this stage in my investing career. Along with the purchase, I do want to make sure I can sell the asset if need be.

Appreciate all the input :)

Mona
 
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