QLD <650K: First IP: (your advice) What IP attributes to a request form Buyers Agent?

Hi Community,

We are looking at a first investment property (Free-standing) <650k. To get things rolling smoothly we are looking to use a buyer's agent. The buyer's agent has asked us on what our targets/strategy would be.

Obviously, rapid capital growth with a high rental return would be ideal. So far we have thought that QLD/Bris would be a good target due to the upcoming improvement in infrastructure driven by the upcoming Olympics.

However, I would want to make sure that I we are getting the most from the buyers agent. So we are trying to define what would be reasonable to set as parameters for the current Bris market.

Here are some things going through our heads, but we would like to make sure there are realistic or optimal? Are these the right questions? Are they realistic? Is there anything else we should be outlining? We dont have much

Rental Yield: 4%>. (what would be net neutral, around 3%?)
Capital Growth: (?) ???
No flooding Zone?
Close to schools (<1km) and public transport (<500m)?
Free standing hoome
land size >600m2 (can a granny flat be built in the backyard?)
Proximity to CBD <20m drive
Brick build
4+ rooms, Double garage
Structurally sound
Budget < 650K


[Background]
- First Investment
- ~ 650K available
- Target - QLD (expected growth in infrastructure due to upcoming Olympics)
- Goal: build wealth through a property portfolio (3-5 properties) within 10 years

 

Have you talked to a mortgage broker to map out a funding strategy for this?

 

Yes, currently in discussion with mortgage broker.

 

What's the point of most of that criteria? Genuine question.

Remember that with more criterion, you're just limiting your options and possibly compromising on other important criteria like growth potential.

 

Yes, this is exactly why I am asking for some advice/opinions. What is reasonable to ask. What criteria would normally be requested? We absolutely do not want to limit ourselves, but the idea behind them is to try to maximise the chances of a good investemnt.

 

Do you know if that combination of criteria is actually realistic? Brisbane median house price is about 780k. So you are looking for about 80% of that.
Why 600m land? Is it for subdivision zoning? What if a council allowed future subdivision with 500sqm? In which case your criteria is future subdivision potential, not land size.

Why brick, 4+bed, double garage? Bigger isn't always better especially for IPs. You would be paying more for the building, which depreciates.

e.g. what would you say to a 3 bed wooden house that's structurally sound? You would be spending more money on the land, which is likely what will appreciate.

 

Some Great points there. Yes I guess the 3 bed wood is not an issue if it’s not going to compromise rental return too much and give better location.

Regarding land size, what is the Brissy sub-division requirements? I was just thinking a 600m block is nice size that might also allow for a granny flat to be built, and or would be desirable in the future.

 

One question you might want to ask. How important is rental return if it goes against capital gains? Will the older, smaller house have higher capital gains than the newer, bigger one, if land is the same?

The problem is that your requirements aren't based on reality. What if the buyers agent either just says it's not possible (remember you have a lot of requirements for 80% of median house price), or they say for a nice house you have to compromise on location? That's not their fault, that's your expectations.

Suggestion would be spend a little time on the websites. Just search for your budget and map out a few locations. At least get an idea of prices.

 

That land size under 20 minutes from brisbane cbd for under 650k might be a bit ambitious..

 

Then why don't you let your buyers agent guide you? Do you want the best growth? Or the best yield? Something in between? A minimum yield but with the best growth?

Simply put - what is your strategy? But otherwise let your BA help implement the strategy.

I don't think arbitrarily telling them how to do their job is helpful.

 

Agree with @thatbum. That's exactly what we did when we bought our first IP through a BA. So we basically said to them "Our budget is X. Please get us a property that will maximise capital growth for us". Period. They did the rest.

 

With flood criteria, was the last problem a 'rain bomb'?

I suppose i would not overplay flood criteria. But get good insurance.

Unless you can identify where the next rain bomb will fall.

 

I’m fairly sure that property matching that criteria doesn’t exist, not for that price anyway.

 

it might be doable in a few suburbs
https://www.realestate.com.au/property-house-qld-inala-134419926
https://www.realestate.com.au/property-house-qld-inala-138905059
https://www.realestate.com.au/property-house-qld-inala-138809991

 

A lot of BAs are not qualified or insured to provide advice on investment strategy. They will simply find what you are looking for based on your brief.
A QPIA however will ensure that the investment strategy that you choose and implement aligns with your personal circumstances, goals and risk appetite. It is extremely important that the investment strategy is aligned with the finance strategy AND the tax position of an individual investor. So many property investors fail to consider the things that matter most when starting out.

 

Something others above have touched on: capital growth and rental yield are two sides at odds with one another. You have to pick one. One typically comes at the cost of the other.

You didn't state your financial position and so I'm going to assume you are what I have in my mind as the typical investor: you will want to use the 'equity' in your first IP to fund further property purchases. In which case your 1st property should be driven heavily by capital growth prospects, not necessary rental yield and/or a mixture. If you poured in sufficient capital initially, so you're cashflow posititve from day 1, you'll hopefully have something to refinance in 3-5 years' time. If you put in the bare minimum 5% deposit, pick the 'strong yield' property and enjoy your 6% rental yield, you'll stall and your net position on the property will be the same as when you bought it 5 years down the track. That hinders your acquisition of IP number 2 (and onwards).

Proximity to CBD, flood zones, close to schools/shops/transport, number of bedrooms and garage configurations are all salient attributes to one's PPOR, but IMHO these factors should play a secondary or tertiary or even lessor consideration to one's IP. Look at the numbers to see if it makes sense. Assess each property on its own merits and risk profile, don't automatically exclude something just because it doesn't fit into your pre-defined tickboxes.

I'm just a stranger on the internet so take this with as many grains of salt as is applicable: IMO you should start with IP #1 being one with strong capital growth potential, irrespective of rental yield. In fact, if it's vacant and you pay all holding costs - compare the cost of this with any other potential property you plan to buy - work with the scenario that they remain vacant and you have to pay all holding costs. Do you still believe in it? Does it still make sense financially? Don't involve rent as part of your calculations as something you're relying on for taking you where you want to go financially. If you bought a property, and it generates zero income for you, it should still be financially profitable over the medium to long term. IMO this should be the outlook to take; not that the rent is going to cover your mortgage. Because one day, when you have the 3-5 properties, and the stars align and they all happen to be vacant at once - you have to be sure your finances can survive it. Otherwise you'll be forced to sell an asset if you're over leveraged and that position will put you in more stress than you are back on day 1 wondering which IP to buy to fit in with your financial goals.