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Analysis Paralysis - First IP

Discussion in 'General Property Chat' started by Timwest, 4th Mar, 2016.

  1. Timwest

    Timwest Well-Known Member

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    Hi,

    I'm about to buy my first IP with a budget of about 300k. My plan is to buy and hold with the hope to gain enough equity to buy another property of about the same value in 1 - 2 years.

    With months of research it has all boiled down to these two property types:

    Property 1: 2 bed unit in Illawarra - Barrack heights/Oak flats

    Pro:
    - Should still have some CG from the Sydney ripple maybe?
    - Low council and water rates
    - Rental yield 6%
    - Area has vacancy rate of 0.5%
    - I grew up in this area, I know it well and can have easy access to the property if needed.
    - Not much land left to develop in these areas
    - New infrastructure developments in the pipeline
    - Average anual wage 47k

    Con:
    - CG might not occur and could have already reached peak from Sydney ripple
    - Population growth forecast of about about 22% until 2036
    - 110km to Sydney CBD, so still a fare distance away


    Property 2: 2 bed unit in North Brisbane - Petrie/Strathpine/Lawnton

    Pro
    - Speculated good GC prospects
    - Rental yield 7%
    - Population forecast of about 50%+ until 2036
    - 22km from Brisbane CBD
    - New infrastructure developments in the pipeline

    Con
    - GC not as predicted
    - High council and water rates that eat up rental yield
    - I don't know the area well at all and would have to fly up from Syd
    - 2.1% vacancy rate
    - Average anual wage 44k
    - Plenty of free land for new subdivisions

    Overall I'm finding the cashflow side to be fairly equal, I feel a lot better with the South Coast property as I know the area well but, could be potentially shooting myself in the foot with CG side of things.

    Love to hear some other peoples views.

    Cheers!
     
  2. legallyblonde

    legallyblonde Well-Known Member

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    I have noknowledge of these areas... but I do know that for the sake of your sanity you should only invest where you are comfortable! I thinkyou have a better likelihood of picking a winner if you know the area front toback!
     
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  3. Hodor

    Hodor Well-Known Member

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    While it's nice to hope for those capital gains in 1-2 years it is too short a time frame. Have the plan there IF you get the gains, don't be discouraged if you don't, property investing is a marathon and at times you just plod along waiting.

    Sounds like you think there is less risk on the Illawarra property due to your local knowledge. Based on this, from my reading of your post and you wouldn't have posted otherwise you otherwise view the pros and cons as equaly weighted ... Well you see where I'm headed, the less risky route.
     
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  4. Allgood

    Allgood Well-Known Member

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    This might be really dangerous advice, but I'll say it anyway. I've looked at dozens of properties over the last few years and only bought a couple when I had the equity and serviceability to purchase more. I was thinking today that I would have done well with every single one of the ones I looked at and would have been onto a winner if I picked any of them. Not saying you should randomly throw a dart at a map and buy there, but when it comes to analysis paralysis, it can do your head in!

    For what its worth, I think you'll do well in the Illawarra long term, but purely my speculation.
    Good luck.
     
  5. A Jeremy

    A Jeremy Active Member

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    Would you consider creating equity with a touch-up, reno, development or subdivision instead of relying solely on CG?
     
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  6. Foxdan

    Foxdan Well-Known Member

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    They both sound reasonable based on your logic. Pick the Illawarra one if its an area you know better so its more comfortable for your first IP. I think @Allgood has a good comment there.
    Personally I would prefer the strathpine one but only because I'm completely unfamiliar with Illawarra. I also think having a house and land gives you more options to add value later down the track.
     
    Last edited: 5th Mar, 2016
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  7. Santaslayer

    Santaslayer Well-Known Member

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    Just to help with your critical analysis - Some of these items aren't even "cons". For example, a 2.1% vacancy rate is great. 3% is probably market equilibrium so anything under that is good.

    Also 7% yield in those north Brisbane areas are probably very hard to find nowadays.

    A 22% increase in population isn't a con I would say...
     
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  8. larrylarry

    larrylarry Well-Known Member

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    Tim, if you are looking at Illawarra with your budget I think it's a flat you will be looking at right? Can you add value to the flat? You will get more land content in QLD.
     
  9. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Would you consider self managing the South Coast property? That could boost your CF significantly and make that property the clear choice

    We generally self manage after an agent finds a decent tennant and there have been no major issues after the first 6 months
     
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  10. Timwest

    Timwest Well-Known Member

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    Yes I agree that they are still good stats but I am just comparing between the two options that I have narrowed down.

    Seen a few around with still a 7% yield but yes they are certainly not easy to find.
     
  11. Timwest

    Timwest Well-Known Member

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    Yep a 2 bed flat is what I am looking at. Not much value add maybe a new kitchen or bathroom but that's about it. Yeah I will get about 70m2 in Illawarra compared to 100m2 + in QLD
     
  12. Timwest

    Timwest Well-Known Member

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    This is great advice and certainly an option that I could look into. How much do you save roughly when you self manage? What is the process to swap from the PM to a self managed?
     
  13. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Management fee is normally 7%+ of your rent so on $300 rent p.w. its around $21.

    Just give them notice. By default the agents we have dealt with ask for 90 days notice in the managment agreement, I always have them reduce it to 30 days.

    We manage our NSW IP and it saves us around $70 p.w. in management fees - over $3,500 p.a.

    Just make sure you have landlord insurance that covers owner managers. Years ago Terri Scheer didn't cover owner managers, not sure if that has changed.
     
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  14. Coota9

    Coota9 Well-Known Member Premium Member

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    I would be a little concerned about self managing your first IP to save $1,000 p/a.!!
     
  15. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Best way to learn! We have had more problems leaving them with agents than self managing over 14 years.

    You have to be on top of everything though and thats why we wait 6 months to ensure the tenants are low maintenance.
     
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  16. HUGH72

    HUGH72 Well-Known Member

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    Out of the options available I like option 1, you might be able to buy better first time in an area you know. I don't know much about this area and whether it currently stacks up.
    A better 3rd option would be my preference though.
    I'm not a fan of units in outer Brisbane, to me it doesn't make a lot of sense buying a unit when you can buy a house with some land for around $300k with a decent yield. The opportunities to do this are disappearing but it is still possible.
    Have a look at See change's thread on Goodna for example.
    Just watch out for flood zones.
     
  17. bob shovel

    bob shovel Well-Known Member

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    Jump in and do it :)
    But I'd listen to @BuyersAgent update of the area
     
  18. Timwest

    Timwest Well-Known Member

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    Had a look and I think you are right, this is certainly interesting! Especially knowing that I don't have to pay land tax on anything under 600k in QLD makes it more appealing. Let the paralysis continue... I might have to do a trip up and actually physically see these properties in QLD before I fully commit to anything.
     
  19. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    We purchased in Brisbane without seeing the property first. Settled yesterday and it's our first interstate purchase. We flew up the weekend before cooling off expired to inspect.

    Sounds like you would feel more comfortable buying local though.
     
    Last edited: 5th Mar, 2016
  20. Nemo30

    Nemo30 Well-Known Member

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    You mention buy and hold with a view to have enough equity in a few years to buy again. Why not aim higher and look to buy something that will have enough equity to buy again ASAP.

    If it was me, I'd be looking for something I can manufacture equity. It might be a cosmetic Reno.. Something with really ugly wallpaper and carpet that can be easily and cheaply updated, but turns people off the property and therefore property is cheap.

    Everyone is different, with different strategies, budgets, skills etc. The two properties you describe wouldn't interest me at all.
     
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