Confused about investment strategy

Hello, my name is Winnie.

I am just getting started on my journey of property investing (well since about May 2019 I've been learning, reading books, reading this forum, podcasts etc.) and now I'm looking for a property (I have a pre approval which expires on 16th March 2020). But I think the longer I'm leaving it, the more I'm thinking about it and the more confused I get and now I'm not sure whether my initial strategy is correct or if there's a better strategy for me. I have thought about paying $4-5k for one of those property investment plans at a place like Metropole or Empower Wealth but I decided that for me, being an absolute blank canvas - there just wouldn't be as much value for me than for someone earning a much higher income, have shares and other investments and/or other property.

I am working with a buyers agent and they did a brief strategy for me. But I feel like I keep changing my mind and thinking of other things. But this is my current position:


Where I currently am:

• 26 years old, single, living with parents
• Software Engineer full time (started job in July 2018)
• $67,200 PAYG gross annual income with capacity to increase as I have more experience in the industry.
• No properties, no investments or shares.
• $140k cash savings
• About 34 years till retirement (if I want to retire by 60)
• Have a pre-approval for approx $500k (10% deposit + buying costs with my cash deposit), max $550k if doing a 80LVR on Interest only - these numbers are by my investment savy broker).

Wealth Creation Goals:

• Short term goal of 3 properties by the time I’m 30 (It looks very unlikely since I am entering the property market so late, I see so many 18 year olds or people in their early 20s starting already).
• Long term goal of $200k a year passive income.
• $4 million in net assets debt free (more if I am to consider inflation). 8 x $500k properties before retirement.
• Retire at 60 years old. (or earlier if possible)

Other Considerations:

• Moving out? I will eventually think of moving out but not in the immediate future. I plan to acquire at least 3 investment properties in the next 5 years or so and after that, then I will think about moving out.
• PPOR? My first priority for now is investing and wealth creation. If it’s possible and I’m tracking well and can afford to squeeze in a PPOR, then yeah but it’s not a priority within the next 3-5 years at least.

• Partner? Will they be involved in my wealth creation journey? And be able to share my assets? At this stage, I am thinking no. Even if they are a partner or I get married I would like to keep my finances separate. I might assign some money into a joint bank account where we can invest together or something.
• Kids? No plans for kids in the near future, need to take care of myself and get to a good place first.
  

The initial strategy:

• Balanced cash flow and capital growth. Yield 4.5-5% since I am not a high income earner.
• Buy an existing house or minimum a townhouse in Brisbane. Since yield would be better and easier for me to hold.
• Decent sized land - close to amenities, public transport
• $440-480k price

Following this initial strategy, my BA recommended Moreton Bay region, which I was happy with. But the first house I was presented with was 40km away from Brisbane CBD. That was a bit too far for my liking even though it was a decent house on a very big piece of land. The price was $440k. I am also concerned about capital growth prospects - as I am currently 26. I have less than 4 years to achieve the 3 properties by 30 goal.

The first strategy change:

• Increased my budget to $525k maximum budget.
• Buy closer to Brisbane CBD (< 15km)
• Lower yield 4%+
• Buy something with renovation potential. Because I am always assuming a worst case scenario. If the market is flat, I can do a cosmetic reno down the line but is good enough to be rented out from the get go (maybe in 12 months time after I learn more about renovation because that's another can of worms).

Following this, we focused our search around Boondall approx 14km away from CBD. But after having offers rejected and not much stock on market (I liked the fact that there wasn't much stock but it really limited our options for finding a good deal) we haven't been able to find something there for now.

Second strategy change + concerns:

• Continue to try to find properties as per the first strategy change above (looking at neighbouring suburbs to Boondall like Banyo and Geebung etc).
• But my concern is growth - I don't believe that Brisbane will have 'a boom'. My BA also tells me that there's no way to predict growth in a suburbs - we can only see whether that suburb has solid long term growth fundamentals. Which I agree with, and I am not after big gains, but I just want enough equity for me to be purchasing my second property in the next 1-2 years (Going back to my original short term goal of 3 properties by 30). And it seems besides buying a property with renovation potential there is nothing much I can do to mitigate this risk of the property not growing in value but to sit and pray. And I thought buying and praying isn't how you do strategy property investing. But it seems like I am going to go down that route.
• My next priority after securing my first property will be looking for a new job to increase my salary but what can I do my buying a property perspective? Besides buy and pray?
• My BA and I came to an agreement that we can extend our search to areas that are a bit further from Brisbane CBD (approx 25km) like Bray Park, Strathpine, Bracken Ridge, Deagon and up to Lawnton, Petrie and Kallangur and search for something around that $400-450k price range. This would leave me with 'some' borrowing capacity left (if I got something around $550k, that would absolutely be stretching my current borrowing capacity) so that I can purchase my second property next year.

Other strategies I have thought of/not sure if worth considering:

• Getting something around the $300-350k mark maybe an apartment or townhouse. So then I would only be using a little over half my current borrowing capacity. This would make it easier for me to purchase my second property? But my BA reckons I would not be able to get anything quality for that price point. That means capital growth would be even worst off.
• Instead of purchasing in Brisbane (lower capital gains in general) maybe consider an apartment in Melbourne/Sydney instead - which might mean lower yield or even negative cash flow but I have a higher chance of getting that growth that I need to move into my second property. But maybe someone will tell me that there is a chance to get better capital gains in Brisbane than for some suburbs in Melbourne/Sydney but I don't know which suburbs would be able to do that for me.
• I have heard of 'making money when you buy the property', which means you find good deals under market value such as mortgagee sales etc. But so far, what my BA has presented to me are all properties you can see listed on realestate.com or domain. I did find a mortgagee auction listing on realestate.com but my BA said that it wasn't close to amenities and not positioned well.

My questions to everyone is:

• In your opinion, which strategy do you think would be best for someone is who after solid long term growth but with a short term goal of 3 properties by 30?
• Would you be able to explain some pros and cons of each strategy?
• Do you have an alternative strategy that you think would work better?
• Would you tell me that I am being silly and unrealistic and I should ditch that short term 3 properties by 30 goal? If so, what would be more realistic?
• Winnie you are overthinking and stuck in analysis paralysis! Just buy your first property and be done with it!
• Should I be going and paying that $4-5k to get a property strategy plan written out for me at a place like Empower Wealth/Metropole or any other recommendations?
• Anyone keen to make friends? xD

Thank you for reading my long ass post!

 

Has your broker actually outlined how to get 3 properties? For how much each? Borrowing capacity might be an issue depending on payrises.

 

@Trainee no she has not. She said that borrowing capacity and lending restrictions will change over time so I should get my first property first and then we will reassess my capacity afterwards. But my concern is my path from first to second to third property is very blurry. And I don't understand how besides buying and praying how that first property will help me get to my 2nd and 3rd. So I am really thinking to hold off all the property search until I somehow figure this strategy thing out first. Otherwise I will never be happy looking at any property and having doubts.

I started looking for property because I thought I had a strategy in place. But you don't know what you don't know. So the more I learn I start to ask more questions like this.

 

This is the typical example of analyis paralysis!

 

@TMNT yes that's exactly what I mentioned as well! So you also reckon I'm thinking too much? And I should just buy that $525k property in middle to inner ring Brisbane and move on? (Will be learning about cosmetic renovations next)

 

Everything is speculation,

The economy ,some people are saying we are heading towards a recession, some people think its cruising fine, some people subscribe to property will never go down long term philosophy

Add in to the mix your personal circumstance
Eg you might get married, have a child, get an inheritance, lose your job

A lot of what ifs, nobody has a crystal

That being said if its your first reno and youve never done it before plus dont have a person who has actual experience, just be careful, those tv shows make it look stupidly easy, ive never had a reno finish on time and within budget

 

Who's your broker? Did the BA recommend the broker? I wasn't aware the BA's could offer investment advice.
A decent broker would be able to tell you if what you're looking to do is possible based on today's figures - so I suggest starting there, then you will know if it's even possible to achieve what you want from a financial perspective. Based on the above figures they should at least be able to map out the first two purchases. Just my 2 cents.

 

I understand that no one has a crystal ball but I thought the point is to have a strategy. Because whenever I see people ask questions like: " Should I buy a unit/house/townhouse in x or y?" - the usual answers I see is "it depends on your strategy". So I'm trying to figure out what strategy would be the "safest bet" considering my current situation and my goals.

And thank you for your advice on renovations I have read about some of the risks and delays that can happen as well. But it is not something I will be looking into until at least 12 months down the line after settling my first property as I would need a lot more knowledge + a team to help me with it. Especially if its an interstate renovation.

 

My broker is not recommended by my BA, I found her through property chat and in other property communities and engaged her myself. She doesn't give me any investment advice herself she would usually refer me back to my BA.

On an initial chat with her she did give me one option where I could potentially get 2 x properties around the $420k price point with 90LVR. But my BA and I decided against 2 properties at once and instead focus on one first. Because it is my first purchase after all. And I am not familiar with the buying process/property investment in general. So dealing with 2 properties wasn't really ideal. I still agree with that now.

But honestly I never even thought that I should be asking my broker about whether its possible to get my 2nd/3rd property and whether these goals are realistic. I have always thought that this was "strategy related". But thank you for your advice, I will ask her. She is very good with answering all my questions (and I have a lot).

 

Id suggest as a basic strategy work out if youre in for long term or medium term, a yield play or not? Looking to develop/reno/hold or not? How many ips etc

As@theyman says, brisbane and surrounds is fairly bluechip, you cant go wrong , unless it floods tomorrow like it did in 2011 (or whenever that was)

 

Your too focused on property 1, 2 and 3. If i were you I'd spend my efforts focusing on how to find the best deal you can which will have the best growth potential. Possibly add value potential too.

The amount of properties you hold isn't as important as the substance of the assets you hold.

 

Looks like you need to fire your BA and your broker.

The other thing is you are all over the shop! You need to get a little but more educated.....

 

Thank you. A lot of the time I think I just need to hear enough of 'just do it', so I can just stick to one thing and quickly get it over and done with. Instead of leaving it to drag out and me coming up with more and more and more and more ideas + concerns + questions.

And yes, the plan is to go for as much land component as possible within a suburb that I can afford. And a good land to asset ratio.

 

Thank you, I really appreciate that, I have even considered my need to re evaluate my goal of 3 properties before 30 and I thought of why I initially came up with this goal in the first place.

But I think I mainly came up with this goal because I wanted to build a 'good wealth base' very quickly so I would be able to leverage and potentially buy a better house for my mum and dad in Sydney. I am in the property game for the long run, wanting to build that passive income and to break free from trading time for money. My dad has recently retired and I can see with my own eyes that he will have to live on the pension after he burns through his super and cash savings.

The other driver is all these stories of all these 'young investors' who got 8 properties in 2 years etc. So it made me think that it's possible to achieve that? But everyone's circumstances are different, maybe they got help from their parents, maybe they got lucky and bought before a boom. So it's not realistic to be comparing myself to them.

But yes part of my current strategy (is to look for the best property I can get for my budget and with renovation potential, hence my chat with TMNT about renovations above).

 

Sorry my post was really long but I have stated here my goals:

• Short term goal of 3 properties by the time I’m 30 (It looks very unlikely since I am entering the property market so late, I see so many 18 year olds or people in their early 20s starting already).
• Long term goal of $200k a year passive income.
• $4 million in net assets debt free (more if I am to consider inflation). 8 x $500k properties before retirement.
• Retire by 60 (earlier if possible)

So my current strategy is to:
- Looking into establish a long term balanced buy and hold portfolio first (before I even dream about renovations or subdivisions or renovations or commercial properties and the millions ways you can make money with property)
- A first property with a balanced yield + growth
- A property with a good land to asset ratio
- As much land as I can afford in a quality suburb
- Renovation potential. But not run down, can be rented out without a renovation but could do with a renovation in the near future.

And thank you thank you!

 

Thank you for your comment but would you please be more constructive as to why I should fire my BA and broker?

And how should I become a 'little bit more educated'? I have stated that I have been trying to learn since May last year, so almost a year. If I procrastinate this any further then I need to look into the opportunity cost of losing time in the market.

I have a strategy but I've got a few concerns and have thought of a bunch of other potential ideas/strategies that I'm not sure whether are valid or not. So I'm just seeking some advice on whether I am on the right track or whether I'm thinking way too much.

 

OK ...let me be constructive...Sash style with impact on the messaging!

YOUR RESPONSIBILTY
1. Developing and validating a realistic strategy is your responsibility. Don't expect vested interests like BAs and Mortgage brokers to always have you interests at heart. So learn as much as you can.

2. You need to take action....don't busta move...no mullah...

HERE ARE SOME THINGS TO CONSIDER:

1. Why just Brisbane? Have you validated what your BA has said and their track record. Some BAs got into Logan...their track record is terrible! 400-440 in Moreton Bay is paying full price!!

2. Do you realize that to get an income of $200k from property you are looking at an asset value of about $6m paid off? Property is more expense intensive...so the 3.5% rules applies instead of the 4% rule for shares.

Over to ya...

 

yes, yes, yes, 'just do it!'.
I started as passive investor first much older than you and did not understand much about anything other than the concept of how equity will grow you can use it and buy more, just from books and then following someone else system (now I don't follow but apply my skills and principles learned from each of those acquisitions). And guess what, I even borrowed less than I could by 50% then as I thought I needed to pay them all off.
I was older and much more naive than you yet what made the difference is that I acted, I took that very first step!
So the choice is will you wait a bit longer and save more or buy further out?
If in BRI with your budget buy in middle rings no further with a land component. Perhaps also a fairly structured place not one requiring a total structural renovation perhaps only minor cosmetic changes if required at first!
No one will make the perfect deal, find the perfect time nor the perfect anything so please realise that.
For now just buy the first IP, learn the acquisition and negotiating process, the setting up of your team process (broker, agent, property manager, accountant/legal, etc...), the rental process, and perhaps the very small cosmetic process, and so on.
Just start with ONE! Once it will work for you then you can proceed to tweak and change or improve and so on. No one built Rome in one day...remember that!
And it is not a matter of 3 IPs in 3 years, but rather building an asset base, an amount worth, which will depend on all those factors you mentioned (time, spouse or double income, economy, inflation, credit, etc...).
Also if interested please read my story on Somersoft from 2012:
The MIW Interview
...and especially:
If a budding property investor asked "what are the top 5 things I should do", you would say?
1. Start now and overcome your fear (Do not procrastinate)!
I have wondered what has made the difference in our situation and I realised that it was taking that very first step! Even when we didn’t fully understand it, have the knowledge or experience, we decided to trust someone and to give it a go.
Even today, so many people will investigate and listen to others and they will never start. Some will experience “paralysis by too much analysis” and others will lack the knowledge to start. Unknowingly, I think it’s in people’s nature to intent to scare others, to warn, to worry and to advice even without having any experience themselves. I always listen to advice but when I follow through with questions, and discover inexperienced investor telling other people stories then I will not be influenced at all. It’s like one of my dear friends who gave me advice on how to raise children but didn’t have a child of their own. We may all listen but would you really follow that advice?
So start now, the time and the market may never be right, nobody will have a perfect system, or make the best deals all the time.

 

I got a lot of similar advice from mates for my first house of just do it, stop asking questions and dive in, you’ll learn from it etc.

About 8 years later it’s worth less than I paid so I’d say read and study up.

I’d be in a much better position had I studied up harder rather than diving in.