First time investor - Perth WA - Some newbie questions

[PPower]

Hello everyone,

First of all, I'd like to introduce myself here and give a big thank you to all the kind people who take the time to contribute their knowledge for beginners like me. I've been working in WA for a few years and I've been saving up slowly but steadily. I'm very keen on taking some positive action to enter the investment property market here in Perth. My savings are not much - enough to get me in the 400k and under market (just over 400k being my max). What motivates me to act is the unbelievably high demand for rentals in Perth. I would be able to cover a 400k mortgage without much hassle (given low expenditures), and if some of the mortgage is covered by the inflated rent prices people are having to pay, then it makes some reasonable sense for me to do this now.

There's a couple of issues that I'm encountering, however.

Firstly: I don't have a clue of the suburb market. What will provide a good balanced investment in terms of cash flow and capital growth. Here's what's got me really overwhelmed, however: The 'tips' I get from agents, friends, and my own research have either been flat out contradictory, laced with self interests, or lacking in clarity. Some say that a good way to go is small, central units (Suburbs like leedeville, Mt lawley, subiaco, etc). Sure, I can see how they could appeal down the track to have in a portfolio. Other agents have been pushing me towards duplexes in Balga - an area which, while I recognise as having some growth potential, seems to still struggle with a bad reputation and general dilapidated appearance in the vicinity of the listings.

Secondly: As you can probably tell, I'm inexperienced with property acquisition. I'm slowly learning the financial ropes from meeting with a range of mortgage brokers, as well as from investing some time learning the available options. Fortunately, I've recently found a mortgage broker that seems honest enough and has been pretty genuine about what I can afford.

Other brokers I've met seem to paint an unreasonably rosy picture about the millions of options I *could* take on without actually giving me any concrete steps about following them up.

This is honestly what their pitches sound like to me: "Negative gearing? Sure! Offset account: You must! You'll just need to get this, and do this, and if you want to you could do this... then you talk to your accountant, who'll do this and this, and depreciation this, equity that...I'll email you some details"

...and then I never hear from them again.

This whole ordeal has also made me wary of real estate agents. I just don't see them giving two ***** about my interests. If they're just going to give me advice on listings on which they make a commission, I might as well just go look at a real estate website and make up my own mind. Is there any validity to their claims? I get calls like "I found the perfect one for you, my friend!"

I guess my problem is that I'm just looking for a magic bullet. Someone with no vested interest to say: THIS is a good investment because of these reasons, and THIS is how you go about it financially. The trouble is I also want to learn from the experience. In some ways, I'm reluctant to just pay someone to handle it all since next time I want to invest in property, I'm back to square one.

Please accept my apologies, looking back on my post, it seems this has turned into more of a newbie venting his feelings and frustrations than actually asking the right questions. I'm not even sure what the right questions are at this stage. I'll keep researching. I just wanted to give my gratitude to the community for making me feel like there are people willing to share their thoughts in a way that I can understand and trust.

All the best.

 

[vaughan]

This whole ordeal has also made me wary of real estate agents. I just don't see them giving two ***** about my interests. If they're just going to give me advice on listings on which they make a commission, I might as well just go look at a real estate website and make up my own mind. Is there any validity to their claims? I get calls like "I found the perfect one for you, my friend!"

The agent's job is to sell the hose for the VENDOR. They do not work for the BUYER.

You should be spending 80% of your time on RE.com and Google Maps and Street View.

 

[Aaron_C]

PPower - I think we all understand your frustration with the process, as it is not supposed to be easy. I would, however, try not to expect anyone to really 'help' you to buy something because most people, even professionals, aren't equipped to tell you what to buy and how much to pay for it.

Why did the other brokers not get back to you?

 

[HD_ACE]

Hi there

Have you got a strategy and a bit of a plan you want to achieve or any goals?

A buyers agent would be the one who would give you the advise which is in your best interests and to make sure the property is suitable. But you say you want to be involved which you can be or they can offer a service where you research and find a property and then they will check it all and negotiate the purchase.

What suburbs have you found so far that you think have good potential?

Cheers

 

[MTR]

Hello everyone,

First of all, I'd like to introduce myself here and give a big thank you to all the kind people who take the time to contribute their knowledge for beginners like me. I've been working in WA for a few years and I've been saving up slowly but steadily. I'm very keen on taking some positive action to enter the investment property market here in Perth. My savings are not much - enough to get me in the 400k and under market (just over 400k being my max). What motivates me to act is the unbelievably high demand for rentals in Perth. I would be able to cover a 400k mortgage without much hassle (given low expenditures), and if some of the mortgage is covered by the inflated rent prices people are having to pay, then it makes some reasonable sense for me to do this now.

There's a couple of issues that I'm encountering, however.

Firstly: I don't have a clue of the suburb market. What will provide a good balanced investment in terms of cash flow and capital growth. Here's what's got me really overwhelmed, however: The 'tips' I get from agents, friends, and my own research have either been flat out contradictory, laced with self interests, or lacking in clarity. Some say that a good way to go is small, central units (Suburbs like leedeville, Mt lawley, subiaco, etc). Sure, I can see how they could appeal down the track to have in a portfolio. Other agents have been pushing me towards duplexes in Balga - an area which, while I recognise as having some growth potential, seems to still struggle with a bad reputation and general dilapidated appearance in the vicinity of the listings.

Secondly: As you can probably tell, I'm inexperienced with property acquisition. I'm slowly learning the financial ropes from meeting with a range of mortgage brokers, as well as from investing some time learning the available options. Fortunately, I've recently found a mortgage broker that seems honest enough and has been pretty genuine about what I can afford.

Other brokers I've met seem to paint an unreasonably rosy picture about the millions of options I *could* take on without actually giving me any concrete steps about following them up.

This is honestly what their pitches sound like to me: "Negative gearing? Sure! Offset account: You must! You'll just need to get this, and do this, and if you want to you could do this... then you talk to your accountant, who'll do this and this, and depreciation this, equity that...I'll email you some details"

...and then I never hear from them again.

This whole ordeal has also made me wary of real estate agents. I just don't see them giving two ***** about my interests. If they're just going to give me advice on listings on which they make a commission, I might as well just go look at a real estate website and make up my own mind. Is there any validity to their claims? I get calls like "I found the perfect one for you, my friend!"

I guess my problem is that I'm just looking for a magic bullet. Someone with no vested interest to say: THIS is a good investment because of these reasons, and THIS is how you go about it financially. The trouble is I also want to learn from the experience. In some ways, I'm reluctant to just pay someone to handle it all since next time I want to invest in property, I'm back to square one.

Please accept my apologies, looking back on my post, it seems this has turned into more of a newbie venting his feelings and frustrations than actually asking the right questions. I'm not even sure what the right questions are at this stage. I'll keep researching. I just wanted to give my gratitude to the community for making me feel like there are people willing to share their thoughts in a way that I can understand and trust.

All the best.

Hi and Welcome to SS

It is certainly a very good time to jump into the Perth market as it is a rising market and as you mentioned rents are great.

As far as inner city units go or anything within 10 km from Perth for a hold you should do very well. Try to stick to smaller blocks of units and when purchasing making sure you are comparing apples with applies, ie size and location to get the best deal.

As far as Balga goes you could buy a new villa for around $350-360K which will rent for perhaps $420-440 pw. I know development sites are red hot in this area, but units/villas not sure?? perhaps there is an oversupply, potentially may not get as much growth??

Parts of Beechboro will be rezoned in 12 months, contact Council.
Lockridge, Koondoola, Girrawheen all areas that have been rising. These areas are in the main State housing but it is changing and investors have been jumping in, pushing prices up.

You may also want to view this thread to give you some ideas.

http://somersoft.com/forums/showthread.php?t=82873

All the best

MTR

 

[MTR]

This may be worth a look at East Perth

THis was emailed to me today, looks interesting
http://cityresperth.ljhooker.com.au/13PXFGJ

 

[7DD4]

THis was emailed to me today, looks interesting
http://cityresperth.ljhooker.com.au/13PXFGJ
Yesterday 11:12 AM

When I first look at this my alarm's start ringing looks to good to be true, and it probably is.
$395 with a $600 week rent in Perth CBD

But if you have done your research on the area you would now if its a bargain.

I only now my areas cant comment on others.

 

[Rolf Latham]

If brokers arent garnering your trust, and not getting back to you, there are a number of possible reasons.

After 13 years and 2000 + transactions ( humble brag)

I wont

i) work with clients who wont complete a fact find because its a "shipload" of information, and Joe at the cba has already given me a pre approval for be done over for x

ii) work with clients that multiple shop brokers. While I understand that society demands to ensure you get "3 quotes" and make sure you dont get ripped off etc, the multiple shoppers invariably end up with poor advice and poor product, because they will suffer from huge CONFUSION, and what happens is that the best sales person gets them over the line...........and you can see where thats likely to end.

and there are 10 others for established investors, but they dont belong in this thread.

Beware of the enemy, for most of the times is not "them" often our biggest enemy and is within US.

If you have found a broker you trust, stick with them, even if their knowledge or process is crap, at your stage of the acquisition cycle its more important that you have trust. If you get proven capability and knowledge thats a bonus.

ta
rolf

 

[PPower]

WOW thanks for all the replies, everybody. I'm immensely grateful that there are people out there taking an interest in a first time investor and giving their advice and support. I'm slowly learning and trying to gather data so I can make an informed decision.

A little more background, lest you not be sick of me yet: I'd like to invest in property for the chief reason of building in the long term a portfolio of properties. Given that this is my first purchase, I've really stressed trying to make my meager $400k (or thereabouts) gain as much value as possible over the next few years - my logic being that capital growth will allow me to reinvest in more property later on down the line.

As per the advice suggested above, I've gone to see a Buyer's agent. He really took his time to walk me through what he thought the best option for me was. His advice for maximising my investment was to go with a listing that would let me, later down the line, add a small 60 metre squared house on a subdivided strata next to the original property. Just when I thought I'd heard all the options out there, here's another one to add to the learning curve. Essentially, my budget is too low for a traditional 'subdivide and build', but with a smaller lot, I could potentially afford the above 60 m2 addition. He came off as a very clever guy, but wants around $13k for his troubles (includes finding the properties, handling contract and negotiations, the works).

This puts me in a pickle because if I go with a full buyer agent service I'll need to come up with another $15k. On my salary and expenses, this would take another 5 months of saving. I like the comfort of knowing someone much smarter than me is at least looking at the options. Right now when I look at RE.com.au I feel a little bit like a crab in a restaurant fish-tank.

Whether the $15k commission is worth its heft: I'm sure there's lots of potential to make that figure back by having a strong negotiator in my corner, and hopefully from being recommended a property with good potential for capital growth.

It's 1.30 am and more questions buzz through my mind, keeping me awake. Do I want to wait an extra 5 months and fork out $15k for the process? Should I just spend the time trying to learn the ropes myself (after all, I wanted this process to teach me something so I could do it again)? Is buying with the sole purpose to subdivide into an additional 60 m2 property a smart way to go? Would it present more than I can chew? Why did god give me such a small willy? Well, that last question isn't so much of a question as it is a lament.

In the meantime, I'm still trying to get as much information as possible, and the only means of doing so for me has been to speak to people in the industry. Again, this is fraught with risks given aforementioned self-interests of some of these 'experts.' Whether I should be doing something different in terms of my research - (reading books, magazines, websites), I'd love to know. The replies people have offered me have been extremely appreciate it.

I mean it. I'm here to learn, and every thought, suggestion and comment has helped me. I truly am grateful for them. Even if they're someone telling me I'm being a bloody fool - I'd rather feel like a fool than lose years of hard-earned savings doing the wrong things.

*** Some replies ***

The agent's job is to sell the hose for the VENDOR. They do not work for the BUYER.

You should be spending 80% of your time on RE.com and Google Maps and Street View.

Thanks for this advice. I've been trying to act on your suggestion today, since it's clearly a good one. Although I have to admit that doing this makes me keenly aware that I've got no idea what areas I should be looking at (again, to maximise my capital growth).

I ended up browsing every listing under 400k, and sat through a lot of land lots in suburbs I never knew existed. Don't get me wrong, they looked like good estates; I just need 250k extra to build a house haha.

PPower - I think we all understand your frustration with the process, as it is not supposed to be easy. I would, however, try not to expect anyone to really 'help' you to buy something because most people, even professionals, aren't equipped to tell you what to buy and how much to pay for it.

Why did the other brokers not get back to you?

I understand what you mean now about people not really being equipped to 'help' me. Although the buyer's agent did seem happy to offer his services doing so...for a lot of cash.

There was one broker in particular that stood out as not getting back to me. He said he'd send me some documentation but never ended up doing so. Since I was meeting with a couple of others so I didn't even bother to get back to him. Perhaps he got the sense, as Rolf Latham suggested, that I've been whoring myself out to anyone who'll give me some clarity.

Have you got a strategy and a bit of a plan you want to achieve or any goals?

This is a very good question. In terms of goals, I have plenty. Ideally I'd like to have a portfolio of two properties within 2 years. This is a goal that I've set (thanks to a goal setting workshop - don't ask - I'm big into self-help), and there are many factors in my life that would benefit from being in that position. While I'd consider myself good at saving money, I just don't make enough of it. I work for the government. I'm not a FIFO worker who ***** out diamond studded gold logs and pisses champagne. (At least, this is the image my bank's mortgage adviser gave me this week when she brought up 'one of our other clients'...who flies up to >>insert town with 3 inhabitants, a billion dollar hole in the ground, and a whore house<<

As for strategy, I have to be open with you and admit I don't have one clearly set out on paper. I'd like to say that this process of informing myself as best I can is...the best I got for now. If there is something I should read or someone I should speak to in order to formulate one, I'd be happy to chase that up. I appreciate the advice.

What suburbs have you found so far that you think have good potential?

This is probably my biggest area of uncertainty. I look at the growth percentage charts per suburb and I can't make sense of how to translate them into any kind of certainty. I mean - it looks good when an area grew 11% in 2012, but how is that a guarantee that it will continue to do so in 2013? (There are no guarantees, in essence, and that's part of my hesitation). And then there's the whole notion of 'buy in gloom, sell in boom'. If that's the case, wouldn't it be better to buy an area with negative growth?

Parts of Beechboro will be rezoned in 12 months, contact Council.
Lockridge, Koondoola, Girrawheen all areas that have been rising. These areas are in the main State housing but it is changing and investors have been jumping in, pushing prices up.

Thank you for the tip. I'll note these down and browse them in my price range. It raises the question - are these areas where you'd expect to invest in a house for best capital growth? Frankly, I wouldn't have thought thought to invest in those areas, given their reputations, but what do I know?

THis was emailed to me today, looks interesting
http://cityresperth.ljhooker.com.au/13PXFGJ
Yesterday 11:12 AM

When I first look at this my alarm's start ringing looks to good to be true, and it probably is.
$395 with a $600 week rent in Perth CBD

But if you have done your research on the area you would now if its a bargain.

Looking at the listing, it does seem very good. I mean - I was looking at places in Victoria park that looked quite worse than this for $360k. And the vic park units in that price range generally look like the last time they've seen maintenance was when Rumpole of the Bailey was on the air. I'd consider going to check this out in person. What should I be wary of in this kind of listing, if anyone knows?

 

[Dazz]

and there are 10 others for established investors, but they dont belong in this thread.

.....fair enough....looked for the new thread for the other 10 but couldn't find it.

Go on, tell us your other 10 reasons why you knock back investors....

 

[Rixter]

As for strategy, I have to be open with you and admit I don't have one clearly set out on paper. I'd like to say that this process of informing myself as best I can is...the best I got for now. If there is something I should read or someone I should speak to in order to formulate one, I'd be happy to chase that up. I appreciate the advice.

PPower, first of all welcome to Somersoft. Its always good to network with other local like minded Perth people.

This is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are also wanting to achieve.

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

I've basically been purchasing an IP per year. To date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash depreciation deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I preferr to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cashflow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cashflow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. Infact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that’s the Basic Big Picture of CGA. Once set up & structured correctly it’s a self perpetuating source of tax free income indexed for life!

For further information please follow the link to this "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.

 

[Of The Vultures]

Hi PPower,

I understand your frustration, there are so many suburbs which could potentially fit your criteria that it becomes difficult to just choose one, mostly due to fear of making a poor choice. Your budget opens up a few possibilities, including a duplex block which is what the BA seems to have suggested for you.

But you need to work out what you want to do and how active an investor you want to be. Do you want to just buy and hold, are you willing to renovate to speed up the acquisition process, do you want to get into developments such as subdivision/building? These things will affect the kind of property to buy. I heard someone say once to buy houses on land only if you can develop the land down the track, otherwise you are paying a premium for no reason (ie might as well buy a unit/townhouse, cheaper entry into a better suburb).

Suburb wise, I think MTR gave good suggestions. You could also look at Langford/Thornlie or perhaps Coolbellup/Hamilton Hill as imho it's underpriced relative to surrounding suburbs. I like Midland too.

And, having mentioned units, according to the Property Observer, units close to the city should do well:

http://www.propertyobserver.com.au/hotspots/perth-apartments-likely-to-be-the-standout-performers-for-2013-wbp/2013022159411

I think the bottom line is, no one can tell you what you should do, they can offer suggestions but in the end you will have to make the choice as you know your personal circumstances best of all. The first one is the hardest - but you have to start. It does get easier!

Edit:
Just saw Rixter's post. Really good advice there, take note. It's important to work out your strategy before you go looking for any individual property. This is probably the hardest part of all, and I suspect for many people, strategy is an evolving beast.

 

[DaveM]

A good post by Rixter... however when formulating a strategy base it on suburb actual value increases and not the oft mentioned "property doubles every 7-10 years".

That line should really be "some property in select locations doubles every 7-10 years, the rest may increase in value at a much lower rate".

 

[Rixter]

A good post by Rixter... however when formulating a strategy base it on suburb actual value increases and not the oft mentioned "property doubles every 7-10 years".

That line should really be "some property in select locations doubles every 7-10 years, the rest may increase in value at a much lower rate".

Yes, the 7-10 year rule of thumb pertains to good quality & well located property in metro area capital city's.

 

[PPower]

Wow, you folks are terrific! I'm super appreciative of your replies.

Another update on my progress: I met with a real estate agent today who showed me a rear block in balga for $410k. It's being rented for $450 pw, with 4 bedrooms / 2 bathrooms. On paper it sounds pretty good, but there's a couple of things that I'm unsure about:

Firstly, it's very close to the tafe/high school complex. I'm not sure if that'd be a concern to would-be tenants. I looked into it, and the school that's there is rock bottom in Perth in the education department's rankings. As someone in the industry, this sets off all sorts of alarm bells about the clientele that go there. This echoes what someone on these forums said about that particular area of Balga as being considered dodgy.

I don't know if the rear block aspect and location is a bonus or not. Secondly, I found out that the owner (who owns both blocks) tried to sell the property last year for $425k and couldn't, so he's put a tenant in it and dropped the price now. In fact, he's selling both the front and back. Are these warning signs?

>>>>Some replies<<<<

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

The strategy you've outlined here is extraordinary. In fact, that to me is about the most ideal scenario I can think of in terms of making my portfolio grow for me. Everything you say makes sense. In fact, I sat down for half an hour and wrote down pages of notes. (I had to look some things up, but it makes sense now).

Thank you immensely for taking the time to share your knowledge. In fact, if you are in Perth, shoot me a PM as I owe you a coffee.

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

This makes complete sense. I'll immediately get to work on this. To clarify the strategy you've presented: essentially what I'm looking for are suburbs close to Perth CBD that have grown 7%pa historically (not just in the last 12 months, which is the only statistic I've been able to find so far). I'm also looking at new(ish) townhouses/villas in these suburbs. I'm also looking for 30% of the asking price to come from the value of the land.

The first step for me would be now to track down a way to get these statistics. At this stage, the only stats I've found readily available have been the little graphs in the realestate.com.au site. They don't seem to offer much long term data. Where can the information relevant to this strategy be tracked down?

I also have another naive question: how can you determine what percentage of a property's asking price is land value? Is this something you get a feel for over the years of watching the market?

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systmatically go right through your portfolio year by year until you have redrawn from each property up to year 20.

This sounds like some really finely calculated, expert strategy. As I said, to me it represents the optimum vision of a property portfolio working for the investor. On this point, I asked a related question to the estate agent I visited with today. (This is another one of those questions that either no one seems to have an answer to, or people think I'm dumb for asking). So here I go: let's say I buy the duplex that was for sale. In a year or two year's time, I decide to buy another property. Obviously the bank will need to look at the fact that I've got another property I'm paying off, and decide if I have enough equity to be given a second mortgage. How does this decision get made? What if I'm paying off interest only on my mortgage and own no principal in the house? (Or is that a bad idea for this strategy?).

The uneducated and naive idea I always had was that if you've paid off, say, $50k of your property's value, then that's kind of like having a 50k down payment for your next property. Yes, ladies and gentlemen, it's clear that rudimentary economics is not my strong point. Feel free to throw the tomatoes at will.

The mechanics on redrawing on your properties in 10 year's time are still a mystery to me at this stage, but I figure that understanding the fundamentals of finding the right property are a good place to start learning. (Hence my earlier barrage of questions).

Truly, I can't thank you all enough for the strategy advice. I've been trying to get into the property market for, well, truth be told 2 years now. The first time I inquired, my funds were too limited. I couldn't afford much. So, I spoke to some people at work, and I got the idea from them that I HAD to have 20% down payment for my first property, or the bank would take my potential children and barbecue them for the executives. So, my strategy after that was shooting to save $100k; unfortunately I got distracted during that process and didn't save as much as I should have. Don't get me wrong, I was still putting money aside, but if I was ever going to get laid again, I needed to buy the odd restaurant meal.

But you need to work out what you want to do and how active an investor you want to be. Do you want to just buy and hold, are you willing to renovate to speed up the acquisition process, do you want to get into developments such as subdivision/building? These things will affect the kind of property to buy.

You raise some very good points. While I'm slowly getting my head around the basics of buying bricks and mortar, the option of development is still something I've yet to learn about. I think that will be one of those areas of research that I will look more into, since it comes across as a good way to go about it if you can surround yourself with the right contacts (builders, accountant, etc.).

Suburb wise, I think MTR gave good suggestions. You could also look at Langford/Thornlie or perhaps Coolbellup/Hamilton Hill as imho it's underpriced relative to surrounding suburbs. I like Midland too.

Thank you so much for the suggestions! I've been furiously looking up properties on the internet in all the areas suggested in this thread. It marks a change to what I usually look up furiously on the internet, but I digress. Would these suburbs still be considered as 'central', when it comes to Rixter's strategy of buying things close to the CBD? One appealing thing is that they are affordable, and if I'm having to purchase a new property, there's not much that's TRULY central that I can afford in terms of a townhouse.

So, unless you guys think I should do otherwise, my next step then will be to research the growth history of each of these areas, pick one that has trended an average of 7% pa growth, and determine the offerings that are at, or under, market value.

Bloody hell, I turn every one of these posts into an essay. If you've stuck it this far, I'm grateful. Again, thank you all for making me feel like less of a gazelle fumbling around a lion's den. I owe you folks some beers

Have a good weekend.

 

[westminster]

I read the whole essay

Around the middle you spoke about buying additional IPs and how do you use existing IP to do this. Well....... if you are paying interest (which most here do) you won't have equity UNLESS there is capital growth or you manufacture higher value by renovating or subdivide.

To do this you would need the bank to value the IP and decide how much its worth in comparison to the debt on it. If you bought it at 80% LVR then that needs to stay the same, e.g. you buy it for $400k and the mortgage is 80% which is $320k. When it's revalued it is valued at $450k there for a 80% LVR is $360. The bank might therefore say you have $40k equity (not $50k)

Most will recommend using an offset account with your interest only mortgage. You put as much money as you can into offset which will reduce your interest payments but you can use that money when you want to put a deposit on another IP.

 

[HD_ACE]

Hi there.

I would suggest you spend the next 3-6 months learning. Books, magazines, seminars, somersoft etc. Get your ahead around this business Formulate a plan and strategy with an end goal ie live off rent or lines of credit, or to just have your dream ppor payed off or a certain income as passive income that you can retire on 50k or 100k pa etc then work backwards.

Once you have the strategy and end goal start to get there. Reasearch the areas which will perform to your strategy and go to open homes and talk to agents and others. research research research.

By this time, If you feel you still require a ba then you would have saved enough to use one. Its important to get the first oneor two purchases correct as these will be used to springboard you further with their equity in order to build your portfolio. This is where a Ba will be well worth it because it will pay for itself over and over when your set up right, from the start.

hope this helps

cheets

 

[Apex]

PPower,

I am in the same boat as you at the moment and can identify with a lot of your experiences Gaining heaps of information from the responses to your thread, thanks for posting!

Apex

 

[Byoung2335]

Wow, you folks are terrific! I'm super appreciative of your replies.

Another update on my progress: I met with a real estate agent today who showed me a rear block in balga for $410k. It's being rented for $450 pw, with 4 bedrooms / 2 bathrooms. On paper it sounds pretty good, but there's a couple of things that I'm unsure about:

Firstly, it's very close to the tafe/high school complex. I'm not sure if that'd be a concern to would-be tenants. I looked into it, and the school that's there is rock bottom in Perth in the education department's rankings. As someone in the industry, this sets off all sorts of alarm bells about the clientele that go there. This echoes what someone on these forums said about that particular area of Balga as being considered dodgy.

1. I know for a fact there are 2 "open" drug houses on Emsworth Way

2. You dont want to walk around Barry Britton Reserve at night, cant even joke about it,

3. Rear Blocks are a turn-off especially in a known bad area with a higher chance of getting crappy neighbours in the front unit.

I know the northern suburbs pretty well as I grew up (1-14) in Mirrabooka and went to Mercy College in Girrawheen for high school. If you want to buy property in that area go for Westminister, Mirrabooka or top part of Girrawheen. Keep away from Koondoola and Balga if you have limited knowledge of that area would be my suggestion. This area has value in buying R40 land to subdivide, if you are going with the townhouse/villa strategy I would look more in the Stirling/Dianella area NOR and the Belmont/Burswood area SOR.



My background
I'm 22 and just bought my first property last week. I work in Aviation Security at Perth Airport with plans to move into Customs next recruitment cycle.

I purchased a 3x1 brick house with converted carport, spa and 9x6m workshed... On a 700sqm block in Beechboro. Was able to nab it for 375k

http://www.realestate.com.au/property-house-wa-beechboro-113023627

 

[Rhinsor]

I wonder if the rezoning of girrawheen and koondoola will turn into the same as Balga by going fast then drop to a near hault.