Confused about investment strategy

Sorry about your journey, I agree some of those that start can be 'lucky' and some not so 'lucky' listening to others advise.
Yes I totally agree, education is the key.
As my mentor JR said, "Life change starts with education not just motivation and inspiration. If a guy is an idiot and you start with motivation you will motivate an idiot! So start with education".
In my long interview I also mention you can become active or passive investor meaning you can follow someone else system, but model on someone who has been successful as with any professional or other aspects of your life.
Question though about the advice you took from your mates as you say, where they all successful investors? As I mentioned in my interview we should all be open to information but take advise from someone who has been successful, who walks the talk.
Long time ago some dear friends of mine gave me advise on how to raise kids yet to date don't have any kids of their own. Would you take advise then from them on how to raise your kids?
I try to apply similar concept when people tell me things, have also been advised never to invest and when I followed through with questions like how many properties you own, how many were bad tenants, the person said to me, "None. It was a friend told be about his friend and what a nightmare it was and so on...". Such advise in not advise.
All I can recommend is what I learned, ask questions and model on those with facts, that 'walk the talk', don't just talk.

 

My questions to everyone is: @WinnieM

• 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? For long term growth, any of our 3 major markets can provide good results. Unfortunately you are constrained by your income. You will only be able to grow a base as quick as your income allows. I would move away from the abitrary figure of buying 3 to focusing on the best deal you can buy. Then when finance allows, do it again. You will need to be very patient with a buy and hold strategy.
• Would you be able to explain some pros and cons of each strategy? Have you bought any books, listened to any pod casts etc. Your best chance to be successful in this game is to really educate yourself. Spend a few months learning the basics. Don't just read, but study. All you have to do is Google a strategy and search pros and cons . You need to be very proactive, especially if you want to achieve the figures you've mentioned. And tbh, I don't see you achieving 200k passive income with Resi RE unless you become an active investor. Probably more than 97% of folks on here won't achieve those figures.
• Do you have an alternative strategy that you think would work better? Strategy needs to align with your financial situation, risk tolerance and level of commitment. If your willing to be obsessed with this game, I'd recommend a more active approach, probably with with a medium risk level.
• 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? You are constrained by your income. Determine what is your max borrowing ability and then if you desire, choose a more active strategy that your maximum borrowing ability may cater to. Keep in mind no matter what strategies you use, investing in resi real estate is definitely a medium to longer term game.
• Winnie you are overthinking and stuck in analysis paralysis! Just buy your first property and be done with it! Thinking about a plan and strategy is fine and very important in my honest opinion, but you need to be sure that how you are formulating your thoughts and plans, strategies etc is backed by knowledge of basic fundamentals. I'm not of the belief that you just jump in and hope for the best. I've seen too many people make way too many mistakes which cost them years. At the same time analysis paralysis is definitely a very real risk and you need to be sure to avoid that.
• 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? If it were me I wouldn't bother with that. I will start to become very proactive. Do the research, buy the books, watch the podcasts, read the forum, make notes and very importantly network with other successful investors whose strategy resonates with you.
• I would also be remiss if I didn't mention for you to work on your mindset. If you have some time watch this clip. Not everyone will identify with the intensity and obsession but it worked for me many years ago. if you can work on increasing your property investment knowledge as well as strengthening and maintaining a resilient mindset, you will be putting yourself in the best position possible to achieving the best possible outcome you can IMHO.

 

Ok sounds like your Broker knows what they're doing, which is great. You need to listen to what they're telling you, they've essentially mapped out a strategy to get two properties.
So you could get the first property for $420K - then buy the next property for $420K, you don't have to buy both at the same time. It's likely that you won't find two properties you like at that price point at exactly the same time anyway but there's a strategy to start with, and then you'll only be one property away from your goal of 3 before 30 - however it sounds like the BA is steering you away from that goal?

 

This might seem like a silly question but here goes...

If your maximum borrowing capacity is around $500k, and you are planning on buying another property in 1-2 years with the equity, are you expecting to buy somewhere in Brisbane and make circa $150k+ capital gains in 1-2 years?

With Brisbane's avg. annual growth at 5.9% (for the last 25 years, for the last 10 years its much lower), you will be waiting 4-5 years before you have the equity to buy another $500k house, and thats if Brisbane booms.
- https://www.aussie.com.au/content/dam/aussie/documents/home-loans/aussie_25_years_report.pdf

- Ten years of value growth; how Australia’s property market has transformed

Brisbane is a very location sensitive market, if you buy in the inner ring (10kms from CBD) you have a chance, but even then you have to pick the best suburbs and even the best streets. Check the zoning, make sure there are no surprises with easements and overlays. You might not be developing the land but it's good to know that there are no restrictions holding you back (and potential buyers in the future).

I prefer my blind folded 'throw a dart on a map of Melbourne and see where it lands' approach (lol not really but it does feel like that would work a treat)

 

Thank you so much!!! This is so much gold!! And thank you for sharing your interview with me! You have really done a lot and congratulations for coming so far! I have read through it and a lot of what you say in terms of strategy, goals, property types really resonate with what I want to do with my property journey as well. I actually didn't think to stop property acquisition and focus on strategy until yesterday - I think I was having a panic session and was overwhelmed by my overthinking. Because I really am in the middle of trying to source out a property with my BA at the moment (with my pre approval also expiring on March 16th).

I also think I should just take a leap and make the first move. Because this first move isn't the be all and end all. There is still SO MUCH to learn ahead of me. And the sooner I learn about the whole property buying process, the sooner I can move on to learn other things like renovations, managing tenants, dealing with building issues, tax implications etc. And figure out whether property is really for me and whether like it enough to become more of an 'active' investor rather than passive. None of those things can go ahead if I don't get started.

I also really agree that there is no perfect property that ticks absolutely everything. And learning from experience and hindsight is really powerful - so I need to start getting that experience rather than wait and then I've got the opportunity cost of no action and procrastination.

But in saying that, having an experience like @Darwin55 did was what was causing a lot of my worries and anxieties. I am worried that I would end up making a detrimental mistake that would stop me from being able to move forward. And learning through hindsight can be very expensive.

I however, do agree that 'who' you get your advice from is really important (I have had to learn to stop listening to my friends and family as well. At the moment I still have some of them advising me NOT to buy at the moment and to WAIT out the effects of the bushfires and coronavirus before I jump in) and making sure you have 'enough' education to make an informed decision. But you can never 'know everything'. I really wish you all the best @Darwin55 and I hope you can recover from it and be able to move forward now that you're equipped with the education.

So mainly I just wanted to clarify that I'm not doing something extremely wrong that would hinder my chances of achieving my goals and my financial freedom.

And in saying that I know that I am not going to do more risky things by say: buying in a mining town, buying in an oversupplied market, buying off the plan apartments, go in looking at property first without considering location, buy close to where I live, not doing due diligence on the location I'm buying in, jumping in not having even considered my own goals and no strategy and a million other mistakes I have learnt that others make.

 

Thank you for giving me more constructive feedback.

- I have been trying to develop a realistic strategy and hence my long post above, but despite all the readings I have done, podcasts etc. I am still lacking the experience to 'decide' or to 'correctly determine' which strategy is best for me.

- Brisbane is not somewhere I chose based off what I was told by my BA. I have initially decided on Brisbane myself after speaking with several other investors (some with vested/some with no vested interest) and after a lot of opinions and my own self studying I have come to the conclusion that since I am a very low income earner, Brisbane is best for affordability (within my budget) and better serviceability for me.

- Do you also have any tips on validating a BA's track record? Do I ask for a list of properties they've purchased in the last few years? Because I used to work as a sales person and there's no 'standard' in that industry for a track record, it's really hard to find.

- And 400-440 in Moreton Bay? But I think it depends on where in Moreton Bay, Moreton Bay isn't one market right? Which is one of the other points I raised in my initial post, using 'buy under market value' as an alternative strategy so it is instant equity. Except I don't know how I would be able to find a property for under market value in a suburb that is 'good'. Do you have any tips or recommendations for finding property like that?

- In terms of $4 mill, that's a figure in today's value, I am aware that it will be higher than that (just don't know how much higher, so thank you for giving me a value). But at the same time. $200k passive income is just a super long term goal, for now. It may change in the future. Because I really don't 'need' $200k to live, I just aspire to be able to support my family.

 

I fear for my credit file that's all. I don't want to get another credit enquiry (which is why I kind of feel silly for getting a pre approval done now, I think it's not really necessary). I am aware that multiple credit enquiries can make your credit file look bad.

Yepp! It is totally fine if you actually know the areas around you! Most people will say that they 'know their suburb', but I would ask them: "Do you know the demographics? Median income? Do you know which streets are more valuable? Which areas to avoid?"

And most people won't be fortunate enough to live around an 'investment grade' suburb.

 

@Sackie
- Thank you for your advice on my arbitrary figure of 3, I spoke to my BA last night after he saw my post on this forum as well and I said that perhaps I should be re-evaluating my goal of 3 properties before 30. But I have stated in a reply to a previous post by another member that I wanted to set this goal so I can accumulate quickly, because after about 5 years I want to start looking into a PPOR for my mum and dad. And hence why I came up with this goal originally. My parents are both really old and they don't have the luxury of time like I do, I have always felt the urgency to get myself in a better position asap so I can support them.
- I have been looking up the pros and cons of each strategy (there's a lot) that I feel is most relevant to me so I do have a basic understanding, I just don't know whether my decision is 'right' if you know what I mean. Unlike a professional investment advisor who would usually be able to confidently recommend a strategy for a client to follow I am not confident that I am doing right by myself.
- In terms of the $200k passive income, I also understand that it is a lot, compared to the goals of multiple others I have spoken to but it is a long term goal, it definitely isn't a hard goal that is set in stone. More of an aspiration. I would be happy to even achieve half of that. And having been looking into property for less than a year and 0 experience I still don't know whether 'active investing' is right for me. So I wanted to start off with a basic buy and hold, passive style, get some experience and then determine whether I want to really achieve that $200k goal and become more active in doing so or whether I want to remain passive and lower my expectations.
- I am aware of not jumping in blind and hope for the best and hence I have been spending a lot of time educating myself, coming up with a strategy etc. But I think my dilemma is just 'not being sure whether the strategy is THE ONE' that would work for me. And hence hindering my ability to move forward. However in saying that I was very well on my way into making that first purchase, but I just had a session of 'overthinking' and 'panicking' and hence I felt the need to re evaluate my strategy.
- And yes, that was my initial thought as well, that I wouldn't get much value out of a $4-5k investment plan.
- Thank you so much!!! Not very many people bring up mindset in terms of investing! And to be honest - this is really scary for me. I'm jumping into a whole new realm - I don't have anyone in my existing network of friends/family who have walked this path, a lot of them would oppose what I am doing. There's just so many unknowns, fears and things that can go wrong. But I just need to not give up - keep learning - make those mistakes - learn from those mistakes and move forward.

 

My BA was just recommending (in my best interests) to focus on the one property first - so that I can learn about the acquisition process, property management and a whole wealth of other things about property that I can learn from acquiring that first property. It can get a lot more complicated if I do 2 at once. Which I still agree with.

We have decided that it would be in our books to look for a property around $400-$450k (so a bit further out around 25km from Brisbane CBD) so it would leave me with 'some' borrowing capacity left. Prior to that I was looking at suburbs like Boondall (about 14km away) which was in the low $500ks because I wasn't comfortable with the idea of buying too far from the CBD (these ideas from me comes from my inexperience).

But then I would be 'worried' about the capital growth prospects of a property 25km away vs a property 10-15km away. So I didn't know whether to go the 'higher price point but closer' or 'lower price point but further' or alternative strategies and hence making this really long post.

 

Exactly. This was one of my worries and hence I made this post. After having decided on Brisbane based off my budget (I have a low budget and low serviceability due to my low income) so there are more options in Brisbane than say Sydney or Melbourne. And would be easier to find something with a better yield so I can hold the property more easily. But then I would think about your point about the capital growth prospects of a property in Brisbane. And if I had to 'rely on equity' to purchase my next one, then I would be able to do nothing but wait. And I would be at the mercy of the growth rate of the market. And unlike you could, I couldn't figure out for the life of me 'how many years' it would take for me to get 'enough equity' (how much is enough?) to get my second property and hence the panic.

So I started doubting my strategy and thinking if I've made the wrong decision and that I should instead buy in Sydney or Melbourne instead (even though there are still cons to buying here, like lower yields so harder for me to hold).

 

Here is one for you...on your budget I don't think you will get the equity you need in Brisbane.

There are other markets.... your BA needs to buy something with at least 40-50k in equity...otherwise no point...other than you losing 10k.

 

That is specifically related to the fact that my mum has always wanted a 'better house' to live in. So ties in with me pulling equity from my existing IPs to buy a PPOR in Sydney. In terms of 'supporting them' - it is just aspirational, they probably won't be around for long enough for me to build enough passive income to look after them.

Hence I opted for Brisbane because there's more options for neutral to even slightly positive cash flow than say the other two cities. I don't want to be taking on a lot of negative cash flow so early on in my journey.

In terms of 67k not being low income, it is $67k gross income. Sure it's more than someone working in retail but compared to people looking into investing in property (I generally see $100k+ salaries), I reckon it's very little and hence my borrowing capacity is only $550k tops if I do an 80LVR. If I could afford more land in a Sydney or Melbourne, I definitely would opt for one of them instead.

 

You set your goal already = "3 properties by age 30"
If that's your goal, stick to it! Let it guide your investment decisions.
Buy 2 properties worth $420K each as your broker has mapped out for you, you can start with one, then buy the other one when you're ready.
Then you're over half way towards your Goal

Sounds like you've changed your Goal and are now lost as to how to proceed, the point of setting the goal is so you know where you want to get to, this makes it easier to know how to get there.
At the moment you've abandoned your original goal, don't know where you want to go and therefore don't know how to get there. You can be stuck here forever as no one can tell you how best to proceed because you yourself don't even know what you want to achieve. Agreed you don't want to buy 3 dud properties, I get that.
It's like asking for directions without knowing where you actually want to get to.
"can you tell me how to get somewhere?"

 

Yeah... After thinking I have locked down my strategy and thinking I knew what I was doing I opted for Brisbane. But after learning a bit more I have had doubts about my strategy of buying in Brisbane because of CG and equity. But if I can't get something I need for my budget in Brisbane then isn't it even smaller of a chance that I would get something within my budget in say Sydney or Melbourne?

 

You know what? I think you are right. But I stupidly never even thought of what you have suggested, not getting the 2 x $420k at ONE TIME. But maybe 6-12months purchasing between them. Because in order to get a loan for $840k at one time as was proposed, I would have needed to choose a more 'lenient' lender.

And I decided along with the suggestion of my BA that getting 2 properties at one time for an absolute novice would be a bit much. So we decided to get 'one first', so the first property my BA presented was a standalone home for $440k but then I got very insecure about it being 40km away from Brisbane CBD. So I was like: "I want to be closer to the CBD, I am willing to stretch my budget" - totally forgetting that by 'stretching my budget for the first property then I would be very likely to run into hitting a brick wall with borrowing capacity when I don't get enough equity from this first purchase to get my second purchase.

And then I started overthinking and thought of a million other 'alternative strategies' I could potentially do to 'resolve' this issue. But I think the answer is to 'go back to the original' 2 x properties for $420k. But instead of both at once, get one at a time. But stick to that budget, remind myself of my goal and don't get sidetracked.

Omg. Thank you so much @Lindsay_W !!!! As I was suspecting, I was overcomplicating. The next step is to revisit that initial 2 x $420k with my broker and BA and see if it's even possible to do that (with today's numbers like you said), then get a better understanding of the process from going from first to second property e.g. should I go with one lender, then refinance to another lender before I get my second or should I go with a more lenient lender now etc. and go from there. Thank you, you made it more simple!!!!!!

 

Oh @WinnieM, that's what I tried to help with just start with one...learn the process first, we have had years of experience and you cannot learn all from theory.
For long term investing, if you never plan to sell, property can be quite forgiving, so fairly well located BRI is not such a bad place to invest, yes it can be quite strategic but you will learn this when you take that very first step.
Like riding a bike, you can learn how to ride a bike from all the books all the pros but until you yourself sit on that bike and ride you will not know how to ride. And yes you will fall, take wrong turns, even get hurt, such if life, such is experience as opposed to just theory, but how can you become a good rider if you don't ride?
No advise...just common sense.