First time investor - Perth WA - Some newbie questions

[PPower]

Hi everyone - just thought I'd post a quick update and thank you all for the information.

A lot has happened in a few days, and I've absorbed with a lot of interest and gratitude the replies and pms I've received in the brief windows of time at work and on my evening walk.

Something weird has happened to me. Six months ago I barely knew how a mortgage worked. I was shamefully ignorant of most of the suburbs in Perth except the few that I commuted through, and I thought negative gearing had something to do with reversing my car. The real estate bug has bitten me, it seems, as I send every spare minute I have devouring every piece of information I get about the property market, finance, and Perth's layout. I guess it started as a way to protect myself against flushing my money down a toilet, but I find it very interesting, and every lead I get from this community I've been following up with hours of research and the odd drive through each area.

During the weekend I visited a bunch of home opens and got a feel for Westminster, Balga and Nollamarra. I want to thank you Byoung2335 for your kind insights into that area. I also want to thank a fellow Perthite for her PMs about it. Overall I agree completely. While I see some signs of gentrification happening, some areas are still a long way away from looking remotely safe, and I can't imagine that a 380k villa is going to be fetching over 700k in a decade's time. I've put that area on the back burner for now, and based on some advice you all have given me, I'm doing more research into the Rockingham area as well as the deeper Armadale rail-line. The prices suggest that there is a lot more potential for capital growth in those areas, but I'm uncertain of how I can determine what their present rental demand is like though. I enjoy the act of carrying out my due diligence, though. It's a taxing but rewarding process that seems to draw upon the disciplines of civil engineering, psychology and fortune telling.

I've also been working on my goals and strategy. I've got my hands on The Real Book of Real Estate, by Robert Kiyosaki (as well as the much more digestible Real Estate Investing for Dummies) The former has a great section on goal setting. To help with formulating a strategy, I've called up a real estate financial planner and I'm waiting for them to get back to me. The first consultation is free, so I'll see if the service is right for me. Then again, they might just take a look at my finances and kindly show me to the door.

On the finances front, though, I've met with my mortgage broker, and the good news is that I'll be able to easily secure a loan given my savings history. I'm looking at a budget around the 450k mark with a variable interest rate of 5.6% or so. I could go for a fixed rate of 4.99%, but that would lower my budget somewhat, and I wouldn't be able to get an offset account. If I opt to build, then I could draw close to 500k, which introduces a whole new dimension to investment that I haven't even begun looking into. That said, it's not really compatible with the suggested CGA system. Is an offset account that important if you're paying interest only in the first place?

When I first started out, i figured that finding the right property would be easy, and that getting a mortgage would be hard. I've realised now that it's quite the opposite. I'm the kind of guy that is prone to paralysis of analysis - In the past, I've actually spent months researching the right television to buy. Some of that is going to help me, but I also fear that I could spend months and months and months in an endless cycle of research. That's my thoughts at this stage of the game, though, and my thoughts change a whole lot lately. We'll see where we are in a few weeks.

Thanks again to everyone who's taken the time to read my massive posts, give me advice, or send me PM's. Hope you have a great week.

 

[Pete Chun]

Congrats on starting your journey into property investment. Your comments are all too common to those wanting to enter the property investment market. It can be a daunting process but I believe the key lies in 3 fundamental areas. The first is having a specific goal in place. The question is: For what purpose do I want to invest in property? What outcomes am I specifically looking for? The process becomes less daunting when you understand what you are looking to achieve. The questions then become ‘HOW’ as the ‘WHAT’ is already handled. The second is the right professional team around you. That’s an accountant, a financial planner a property advisor at a minimum all working towards the same financial outcomes as defined in your specific plan or strategy. Clarity of professional advice is dependent on the clarity of your outcome. The third is education. Align yourself with a mentor, company or experienced investor that is willing to share their knowledge and experiences. Mindset is an important ingredient in the recipe for success. Wishing you well!

 

[BayView]

The question is: For what purpose do I want to invest in property? What outcomes am I specifically looking for?

To make mountains of money, I would have thought.

 

[PPower]

Hi all, I hope everyone is enjoying the long weekend. Thank you to all the kind replies and feedback. The information given to me from you guys along the way has been so useful - every day I feel a little more confident.

I spent the last week trying to get a grip on what my goals. This came out of many of your suggestions and a couple of one on one conversation with very generous forum members. It's interesting to see how people here really have things figured out. Before I came here none of the people I had spoken to about getting into the property market - the agents, the brokers, financial planners - none of them had actually asked me what my goals were. But it all makes so much sense now. What's the point trying to steer a ship if you don't know where the hell you're going?

In fact, this was kind of tricky. My goal to begin with was "get enough equity to be able to live off passive income alone". But I quickly realised that this nebulous goal had no specificity nor did it have any time-frame. The next step was to think about what kind of strategy would help me achieve my goals. So I filled up a journal or so with ideas about my needs, goals, desires. The biggest issue for me has been a lack of confidence in myself, in believing that I could actually accomplish my goals without making a critically wrong turn somewhere.

I'm in a place now where I have a clear and specific timeline of when and what type of properties I want to acquire in the next ten years. I believe that I have the aptitude to achieve the goals of that timeline (2013-2023) While I'm scared to make mistakes, I do realise everyone makes them, and if I do they will be part of the learning process.

Now, the hard work is still ahead of me - the planning and research to make the strategy work. My strategy begins with a really simplistic notion of just researching areas along the train lines. Examining population, median prices, rental yields, and crime statistics. Still working on the right way to go about researching shire plans. Different shires seem to store and present their plans differently. The funny thing is that when i started I was only interested in looking North of the river, but now I'm seeing suburbs south that are much more appealing to me.

I'm so far having a difficult time tracking down data that demonstrates the rental demand for a particular area (I can find demand to buy but not to rent), as well as what the average cost per square metre of houses in each suburb - if such data is available. I'm also finding that it's the kind of research that leads you down a rabbit hole and you get lost going from one source to the other, getting little snippets as you go along. Hopefully, my goal is that all those snippets will tie together in a nice big picture.

There was an old sexist proverb someone once told me; I apologise for sharing this, but it's a daft way of introducing my point: "When you're talking about women, you have three options: intelligent, beautiful, and single. Sadly, you can only get two out of three". Now, I bring this up because it's reminiscent of my experiences on realestate.com.au, only the criteria are four in this case:

* Within my budget
* Central (to a key hub or Perth CBD)
* New / Good condition
* Spacious

And, like with the sexist proverb, I'm constrained to two choices. Given that all properties HAVE to fall within my budget, it leaves me with the following main choices:

1. Central and small
2. Central and old
3. Not central but new
4. Not central but spacious

Now, coming from an inexperienced real estate perspective, I figured that examining these options might shed some clues about what strategies are available to me at this early stage.

1. Central and small might be a good idea if I can find a single professional to tenant this dwelling. This kind of property would probably be an apartment that is close to the CBD, or maybe a villa that is close to one of the hubs. You can pick up 1 bedroom apartments in leederville for around 300k, and if lucky they would rent out without too much issue. Naturally, this option wouldn't have immense capital growth - you'd be lucky to get 60m2. The other downside is that central apartments always have some huge strata fees.

2. Central and old is probably not for me at this stage. These are the kind of places that would need some major work done before they could be rented and as of yet I'm still completely unsure about the costs involved in renovating dwellings.

3. Not central but new is what I'm looking at right now. You get to factor in depreciation, finding tenants might be easier than options 2 and 4, and with the right choice of location, there is also some chance of capital growth. I guess it seems as an all round good option. Unfortunately, the land to dwelling value here isn't as high as some of the other options. It also is important to do some major homework to ensure that a) you can find a villa in a spot with good rental demand, and b) that the area is slated to grow in the long term - what businesses are around and what employers will be coming in the future?

4. Looking for a large lot that is in a satellite area of Perth might be a good way to go if paying attention to zoning laws and trends. This option presents the best way to go as far as capital growth is concerned, I'd imagine, but only if buying in the right kind of suburbs. I don't know for sure, but early on it would seem that this dwelling might be more difficult to tenant than option 3 (not central but new). And given that my budget wouldn't allow for any kind of subdivision or development in the short term, I don't know if this is the right property to go with as the first choice.

Again, this is what came out of some of my brainstorming and strategy/goal development. I thank you all very much for your ongoing support. Even if it's just looking at the above and telling my I'm a bloody fool. The opportunity to network with various members here has truly made the difference in me making the decision to go for it without looking back.

I hope you all enjoy the rest of your long weekend.

 

[redwing]

There was an old sexist proverb someone once told me; I apologise for sharing this, but it's a daft way of introducing my point: "When you're talking about women, you have three options: intelligent, beautiful, and single. Sadly, you can only get two out of three".

Remind's me of the investing analogy "Capital Growth, Cash Flow, Low Risk...pick any 2"

I hope you all enjoy the rest of your long weekend.

In WA anyhow