Confused about investment strategy

I get your struggle, especially now with so much information out there, starting out can be very daunting.

Below is a simple crash course on the basics that I wish I knew when starting out.

1. To buy property you need around 25% cash (20% deposit and ~5% stamp duty and other costs) to avoid LMI. So a $450k property will cost you around $112K savings + $360k mortgage.

2. LMI can be a great tool if used correctly, for example:
- Buy one property priced at $450k with 10% deposit and LMI. Your upfront costs are $45k + Stamp duty + LMI + other costs (BA etc..)
That still means you will have circa $70-80k in savings left over which could mean the difference to buy another property, renovate existing one to create more equity etc...

3. A cashflow positive property should not be your investment strategy. EVERY good property becomes cashflow positive after a while.
- Cashflow is just the difference between your costs and your rental income, over time a good property will gain equity but your mortgage costs will remain the same or lower and the yield will improve.

4. Having more properties does not mean you are further ahead. One great property is better than 2 average or 5 duds.

5. At the end of the day you still need to pay off all of this debt, whilst on paper things might look ok, in reality you will have unexpected costs come up at the worst of times, make sure to have an emergency fund and don't count your pennies until you actually received them. Slow and steady wins the race.

 

40km from the CBD..... better have some bloody good growth drivers which materializes otherwise you could be waiting a looong time for meaningful growth.

 

If you know how...it aint a problem....

 

Glad I could help - it's easy to get off track, especially when comparing to others and it's normal to worry if you're making the right decisions BUT you know what your goal is and you have a plan to get there. Best of luck with it all

 

Yes exactly! I got your point of having to start because I want the experience too! But I just overcomplicated things and Lindsay's suggestions of sticking to the initial plan of getting 2 x $420k properties but one at a time instead of both at once just hit the nail on the head as for what I should be doing.

And I love the bike analogy, essentially I just wanted to make sure that whatever 'strategy' I was going to go with, that I would only suffer from falls, getting hurt etc. But I won't do something that would kill myself like ride my bike out the road in front of a car.

 

Thank you so much for these tips!!!!

- Yep my broker would usually tell me that I need about 4.5% for purchasing costs (I guess 5% is being more conservative with your calculations). And I am planning to use LMI but the strategy was to keep the balance in my offset for things like a buffer or renovation or deposit into 2nd property.

- I'm looking at cashflow mainly because I want to hold a property over the long term but don't want to start with a property where I'm forking heaps out of my pocket to service it every month. I just want to be able to hold it more easily. Considering my family circumstances, I am essentially the only person working in the family. Even though my parents are living on their savings if something happens then I would need to step in.

- You make a really good point of more properties does not mean I'm further ahead and it would come down to quality of the property of net worth.

- Thank you, this is really good advice. Which for me now makes sense for me to not stretch my borrowing capacity to the limit. Because then I might not have enough buffer for emergencies or vacancies or repairs etc. Then you'd be under a much higher risk of mortgage stress and having to sell up at a loss maybe.

 

Thank you for the calculations and examples. That is what I find I'm not very good at. Working things out in dollar value and figuring out if those numbers make sense (I am working on getting better). And the 'selling the property and buying it back at a higher price' makes drawing equity much easier to understand.

The PPOR is a medium term goal that can potentially change. I honestly have not put too much thought into it, rightly or wrongly. I wouldn't be thinking about it until 5+ years later or if I have reviewed my portfolio and found that it is a suitable time to do so. It's not like my parents want to live in a 'better location' or anything, they are happy with where we are living at the moment location wise. So it might be a matter of knock down and rebuild our current house (that they own outright) or move somewhere close to where we are now. Or maybe downsize.

Also I have only started my career in software engineering in July 2018 (so about 1.5 years of experience). And I am in my first ever job as a junior software engineer. And I do plan to progress my career (hence my plan to settle my first property soon) so I can focus on getting a new job so my income is very likely to go up. Hence I thought it wasn't ridiculous to put a PPOR into my medium term goals.

But yes, I do usually feel pressure to be able to get a PPOR for my parents. But at the same time I know that with property as it's a long term game, time in the market is especially important. So I would be foregoing a lot of opportunities by delaying my first investment purchase (and property isn't going to get any cheaper). I feel that maybe when I hit a brick wall in my investment journey and I have no equity/serviceability then I can look into shares and other short term strategies to get that PPOR. Also I plan to explore the share market with a portion of the cash savings I will have left after purchasing my first property (most will go into the offset of course). I hope that isn't too ridiculous of a plan.

 

You will not kill yourself, think about it how much could you lose? If you buy on top and need to sell and say there could be a down turn you will never lose it all. You would lose the some % say 10-20% plus buying costs, you still would pull out say 70-80%. But just don't buy in regional or areas constrained by one economy or one driver.
In BRI I would not buy past middle suburbs, so up to say 12-15kms not further for long term buy and hold strategy, inner I consider up to 5kms.
As @crosecks in point 4 said, sometimes it is wiser to just start with one better property instead.
Have you read any books or educated yourself about CG strategy and duplication and whether it resonates with you?

 

You will make mistake if you feel pressure to do something, whether it age, time or money
your best bet is work out the number, to feel comfortable then to action how ever long it takes that how ever long you need, no need to action due to pressure of time or age.

Sam Walton opened hist first Walmart store when he is 45, two decade later he is the richest man in America at that time.

Ignore all the story about 18s and 20s has multiple properties and you feel pressure because you are 26, that just the headlines, people only display good photos and a photoshop one and the one they want you to see, the real picture is very different.

 

Best advice on this thread.

Yeah, you won't get $200k out of $4m asset.

Thankyou Y-man for dragging me into this thread.

First up. OK, stop comparing yourself to others. Who cares what some nameless faceless people have achieved. That's their journey, this is yours. Secondly, yes there's a lot of high earners buying IP's, but don't let that stop you. You just have to do it in a way that makes sense to YOU.

Since @MWI brought in the Somersoft Forum & the interviews, you may want to have a read of my story as well. We were completely broke when we started. Now retired living off of investments.

Your current salary is in the lower percentile as far as IP investors, but it's hardly that bad especially since you are living with your parents. If you really want to do this, then toughen up & put your big girl panties on & get on with it. Sorry, harsh but true.

As for getting 3 properties by age 30, just start with one. Learn how to deal with issues if/when they come up, and read, read, read. There's a lot to learn. Most people start with one & can't move onto more until that one has had some growth. That's how we started & many more very successful people. The trick is to stay focused.

 

I just read your story @skater and thoroughly enjoyed it! Well done.
Very true when you also point out in comments RE is not easy, it may be simple to understand, but it requires a lot of perseverance to stay on track, especially when challenges arise.
The important message I take out is that you had persevered and never gave up and as a result you are where you are today. Congratulations!

 

That's actually the hardest part.

 

LOL! I'm sure you've read mine before. I've been here since the dark ages.

 

It actually is! Several times we've been just getting on with life & something has happened where I've thought I'd better check what's happening....and bought accordingly.

 

That's why I chose property as an asset class because of the relatively lower risk compared to other asset classes like shares. But the scariest thing is not knowing what could happen. But I think I'm just castrophising.

I have read books like Armchairs Guide to Property Investing, a few magaret loans, dymphna boholt books. And I am aware of lots of different strategies. But I think a basic buy and hold strategy is the most suitable way for me to get started and start building an asset base for the long term. There are heaps of others that I will need to read a lot more on and will only ever attempt those are Ive got a solid foundation and understanding with how buy and hold works.

Also in regards to the 12-15km max, that was exactly the radius that I was looking at properties in. But then I started doubting my own strategy. So the next step is to revisit my goals and realign my strategy with my goals. Will be having a chat to my BA and broker soon. But I think after discussion I would probably stick to a budget of $400-450k so I would not be able to afford anything 12-15km. Only about 25km out.

 

Yep yepp. Totally understand where you're coming from. Just really hard not to compare and feel rushed but I will try to. My BA told me the same thing about not comparing myself.

 

Yes, thank you very much for your feedback!

And I was well on my way into getting my first property actually. We made some offers for properties in Boondall so around 14km from CBD. But it got rejected and I started doubting my own strategy and felt I lost sight of my original goal so I was in a bit of a panic. So I would see this as a hiccup. But I am getting together with my broker and BA to get ourselves aligned with my strategy and then will move forward from there.

And I'm not concerned about my modest salary. I would rather do something now because even though I earn lower than the average salary worker, I still earn enough to be able to buy something. And I know that time in the market is very important in property (as opposed to 'timing' the market). But I am just more limited in terms of options for where to buy.

And I am aware of the heap of things I'll have to learn after acquiring my first property and I really really am hungry to experience that.

And would you have a link to your interview by the way? I couldn't find it via search but maybe because I'm on my phone? Thank you!!