Analysis paralysis - which investment strategy, structuring and where in Bris?

Hi Everyone and thanks for your help in advance. I appreciate you're all busy making money

After earlier advice on this forum my wife and I have decided to get into the Brisbane property market despite living in Cairns. We were hesitant purchasing "out of town" at first.

A few things about me: 43YO; married; two kids in primary school; own our PPoR; joint income of $180-$200K with no debt; preapproved loan with CBA (we have one of our accounts with them and thought we'd find out how much we can borrow) of $1.1M with PPoR equity as leverage (valued at $800-830K); no major other purchases envisaged in immediate future (cars etc can do us for now); $130K in mixture of cash and shares; I have death ($700K)/TPD to $70K PA for life, wife has nothing (thinking of reevaluating this as doesn't make sense!) and we both have plenty of professional insurance in our respective professions - both of us work in heath care and, unfortunately, struggle with financial-speak.

For last 2 years and more recently I have been POURING over data and books on investment and now more specifically where to by in Bris (thanks to all the threads and contributors on PC). I think I've reached a point where OCD has kicked in and I'm genuinely stuck in the grey zone and have numbed out with data. Like others, I have spreadsheets galore out the proverbial analyzing everything from median sales price across total bedrooms per suburb; vacancy rates; averaged cost per m2 for last 3 land sales in suburbs to get a land content figure; 1,5,10 year capital growth data etc etc. I also went to Bris specifically late last year to look at investment areas we were interested in based on my own research including Kenmore, FTP, Carina, Carina Heights, Camp Hill (a relative purchased there last year a 1200m2 property for subdivision into PPoR and build/sell properties), Arana Hills and surrounds.

Now I'm stuck and worry that perhaps we are overcapitalizing looking at properties in the $600-730K zone that would be CF- (I set that figure, no one else). Thing is, I've not read advice that clearly talks about how much you should borrow based on your circumstances and the property itself (obviously -ve CF ones specifically). As you can imagine, in that price zone and suburbs above I struggle to find anything CF+ (the rule of 1000s) but at a lower point in other suburbs it would be easy. Today I also got advice which was a shock from a REA that the vacancy rate in the 4069 postcode at 6% (BCC 4%), certainly not what I had read over last 6 months based on Corelogic and other data sites! As this is our first investment property (we've bought twice before as PPoRs but moved interstate each time and sold out) I don't want to make a mistake which sets us up poorly down the path.

Our end game is to set ourselves up for a decent retirement (we don't need an early one) and some money to help out the kids. Anything else is cream but we're happy to work to build up that nest egg good and proper.

I would appreciate member's advice on:

- areas in Bris for capital growth within our purchasing capacity (one minute Kenmore looks good, 4 months later the 12M growth % drops?)
- what's a realistic amount to borrow based on earnings; yield; potential growth? Do we go CF+ over multiple properties (and therefore again start looking in areas other than suburbs I mention) or perhaps look at CF- with envisaged growth (I'm looking at a property in 4069 now with 4BR on a very large subdividable block for $715K but recon the rent would be $550 tops, and understand that I could only subdivide into two based on info to-date that 400m2 minimum on BCC blocks). I'm more focused on buy and hold.
- structuring loan (do we go down path of family or hybrid trust if property CF- or +) and how to protect our current PPoR from the bank (can it be done?)
- any RE mentors out there willing to give a bloke some advice longer term or do I go down pathway of RE Advisor/BA instead?

I also agree to take all advice with a pinch of salt and assume it's given as general advice and not in a professional capacity!

Whew! Thanks for reading.

 

Loan structure is important here. Is the cba suggestion to cross coll?

 

Hello,

An interesting read - I am certainly a big 'thinker'/ planner too so I feel your pain!

Something to think of that might help with some clarity: Think about clearly identifying your goal. It is stated that, "Our end game is to set ourselves up for a decent retirement (we don't need an early one) and some money to help out the kids."

Everything you should be doing should lead to this. By further clarifying your goal, you will be able to drive your ship towards that objective. This will help analysis paralysis but I also feel it is ok to change your goal as you develop your plan/ search.

This is what works for me but everyone is different. Also, some old timers might have better advice in which case disregard my comments

 

Analysis paralysis . It's a killer and over the last two years probably costed you in some equity and ironically already increased your risk somewhat imo.

Keeping it simple is best . If you've decided on Brisbane and want CG medium to long term. Try to stay with your budget as close to the cbd as it will take you to buy a free standing home . Anything over 600sqm is good. Older house scope to add value later . How much you decide to spend is dependent on you. Choose a yeild (pos or neg) that you can live with and works for you . Generally speaking the pos cf areas/stock will likely take longer to see CG.

DYOR but dont let it paralyze you !

Good luck.

 

You've been researching for 2 years? That is what I call major analysis paralysis. Your over thinking it and honestly your taking too long.

2 years ago if you bought in Sydney or even in some suburbs of Brisbane you'd be up a significant amount of capital growth.

By all means do your due diligence but 2 years? Sometimes ppl need to get pushed into the deep end to learn how to swim.

 

Tell me about it. I’ve been in analysis paralysis for last 5 years. So I set myself a deadline, by end of the year I’m bying, for better or worse.

Might be worth engaging a BA as well.

 

Consider getting a good buyer's agent if your personality lends to severe analysis by paralysis

In terms of how much negative cashflow you can sustain, a rough guide:
1. Take say a potential price point of purchase at say 600k.
2. Consider interest repayments at 105% of purchase price at 7.25% P&I terms
3. Look at how much you can rent that property. Discount that by 30% for ongoing costs (rates, repairs etc)

Now, can you sustain that for the next 20yrs? If not, you need a higher yield profile.

 

Hi Trainee and thanks for replying to my post. CBA have not mentioned it. They are waiving lenders insurance against the titles of both our properties (PPoR and the investment).

 

Hi EE

To clarify, the investment game started 2 years ago - we seriously (same amount of DD for each area I speak of as for Bris) looked at investing in Cairns, Innisfail, Townsville, Adelaide (wife from there) and eventually have landed with Bris.

 

Love your name Befuddled. I will undertake this analysis. Can you please advise where you obtained this formula from so I can read up?

Thanks!

 

(Fire alarm wailing)

Spend time learning about the boring stuff too. Loans, offsets, insurance, buying process, contracts etc

 

I've assumed you'll be borrowing everything for a potential purchase, hence 105%

7.25% + P&I is what most of the institutions will assess you at. Interest-only lending will get harder to source so unreliable. ~7.25% is circa long term averages and one should expect things to return to status quo

30-40% of rents as other holding cost is a reflection of the portfolios of others' portfolios.

 

Thanks Leo

In Bris I read on the BCC site that for LDR sites a minimum subdivision requires 800m2 lot (400m2 each) unless 200m from a centre zone, but others on PC mention you can do 300m2? Or is that just major developers with relationships with the BCC?

Also is Kenmore/FTP or Carina close enough or are you thinking elsewhere?

 

Thanks Trainee

Yes we wanted a hard and fast pre-approval to get an idea of our loan potential. What I will do next is get a MB to give us a cross collateralized loan quote. I understand where you are coming from re asset protection.

 

Cheers. I was operating at 7% previously (CBA current quoting at 3.89% P&I) doing the sums.

 

I doubt you do if you are deliberately looking to cross col. going to cba was a mistake to start with.

 

See a lawyer for this sort of advice. A discretionary trust may or may not be a good option, depending on your circumstances, and if it is there is a multitude of different ways to structure it.

The protection of the main residence can be improved by not using it as security for any investment loans. Limiting guarantees for other entities can also improve it. Transferring it to one name may give some addition protection - depending who it is done and transacted, but will cost. and advanced strategies are the gift and borrow back with a mortgage strategy etc etc. Seek legal advice.

 

Sorry wrong way round - we are not going for CC and just wanted a rough guide from CBA. Which lenders do you recommend?

 

Thanks Terry. Any good lawyers you know of in FNQ or can this be done remotely?

 

Don't know any, but this is something that can be done remotely.