Hey guys Keen to get your critique on my assessment of a potential property… I am looking for to begin a rent-vesting journey… My strategy is to build a portfolio over the coming 8-12 years that will create circa. $150k in passive income in retirement in todays terms… Following that I want to buy a PPOR with a view to having all properties debt free by retirement.. 30-35 years. Our current deposit saved is $110k which we are ready to invest. LMI is not an option in our case. I have been looking at the following property , which whilst I am not ready to action, I am keen to understand if my assessment is strong and what else I should look for… http://www.realestate.com.au/property-apartment-vic-ascot+vale-124548474 What I Like about the house 7km from the city Above 50 square meters On the city tram line… It is also on an east/west tram line start starts at Footscray station (major hub) and finished at Moonee Ponds Junction (major bus hub).. PT options are endless Cheap body corporate fees with money in the bank Reading recent body corporate minutes there has been no discussion about major building defects or pest issues.. all issues raised have been of a minor/cosmetic nature .. ie. Light Fittings. 2 Bedroom with reasonable living area Able to be slightly renovated in due course to create equity and modernise to create owner occupier appeal or better rental yield. Investment grade suburb Scarcity in the fact that it is 2 bedroom only 7km from the city on public transport lines for that price.. Ascot vale houses have accelerated recently but units have held.. I am expecting that with housing becoming more unaffordable units will now close the delta back slightly as people compromise to a smaller dwelling. Rented out at $1,303 per month.. 4.5% yield at the top of the price range, 4.2% yield at 15% above price guidance. We can get straight into it and have cash surplus to allow us to get into something else pretty quickly! Keen for your thoughts on other things I should look out for?
I wouldn't necessarily expect it to sell within the range they are asking. Everything is selling well above at the moment, which is quite heart breaking to see when entering the market. You're on the right track, you've considered the right things such as yield ranges, affordability and future potential. My criticism is that your points don't actually make it unique. Speaking candidly, it sounds like you have found something that you can afford and built up reasons as to why you should buy it, which is an emotional purchase. I say this from experience, doing the same with my first purchase that cost me 6 figures in missed opportunities. Cut back your list to 3 solid reasons that make it good, and test them against the market. Something else that many people overlook is the difference between a strategy and a goal. A goal is what you want to achieve, a strategy is how you will get there (Richard Rumelt's book Good Strategy Bad Strategy is a fantastic read on this). What you have defined is a goal, so the next step is to consider what specific actions will achieve it. You can't strategise what you can't reliably predict and no one can reliably predict the property market's behaviour over 30 years, so you will need to divide it in to smaller milestone goals. A thought process on this may be: What is holding you back right now, and what do you need to overcome it (usually equity, cash flow, or stability)? <this is your new short-term goal> How will that help you achieve your longer term goal? What are your market restrictions? What is the best investment to get you there (it may not even be property)? Iterate over these points to help flesh out your strategy. Point 4 is tricky as it involves assumptions about sub-markets, but it will advise what constitutes a good buy for you and is the part you should test with others. Hypothetically this may look something like: My day job wage is increasing above trend and will be for the next 10 years, so that is increasing my cash flow and gives stability. I need to increase my equity. It will increase my leverage, so that I can expand my portfolio as my wage grows I am not willing to go international, and would prefer to invest in my own city even at cost of potential higher gains elsewhere. This investment will need to focus on capital growth, so i will look for something that after holding costs, i believe will go up in value faster than the market. This may be at the sacrifice of weekly returns. Then I would use point 4 to guide what i am looking for. If i can't find anything suitable, i may revisit point 3 and loosen my restrictions. Once I find a property that i can afford, I would take it to my "panel of advisors" (informed friends, people on this form etc.) and ask "I am looking for capitals gains. I am focusing on properties in <X location> and have found this as an example of what i intend to buy. Do you think this is a good choice for meeting my need for capital gains?"
Hey there! Thank you so much for taking the time to give such good advice - very generous of you!!! I have definitely focussed on what is affordable based on our circumstances - but have focussed on a few fundamentals that I have been unwilling to compromise on; - inside 10km to city - proximity to public transport - 2 bed minimum - low costs Once I identified a few suburbs which could work within our price range I then drilled down to how the suburb has been performing overall and what are the reasons to believe that the investment would be a strong one.. Identifying the specific property was a result of that work ... Perhaps my initial framing was not correct, im not sure (keen to get advice on that) but I feel from a general starting point they feel like good fundamentals. Now let me jump specifically into some of your other queries; What is holding you back right now, and what do you need to overcome it
Now let me jump specifically into some of your other queries; What is holding you back right now, and what do you need to overcome it Procrastination is one... I have strong savings and surplus so I need to start doing something.. have over $110k in a saving account at 2% is not going to help me gain financial independence in retirement. How will that help you achieve your longer term goal? Without starting to execute I wont get there.. Obviously need to ensure that what we are executing is the best possible strategy for us!!! What are your market restrictions? No LMI.. I will not get approved. I am quite a little conservative hence huge focus on quality of suburb and proximity vs. potential upside in a more speculative area. What is the best investment to get you there (it may not even be property)? I have equally been thinking the same... However not comfortable with other asset classes as a first off investment. I am expecting my wage to grow strongly ahead of trend, and creating equity will help me further leverage to get cash on cash returns. I am focussed on capital growth however as a first property I need a blend of yield and CG potential. I am willing to go anywhere in Australia.. Willing to engage a good BA.. This is about me trying to better build HOW I THINK, not necessarily the outcomes.. as that should come with better thought leadership.
While it's possible to achieve your goal, it will be extremely difficult, especially by starting to invest at the end of a boom in an apartment which has very little potential for manufactured growth. Sorry to be the bearer of bad news, but you might have to change either your goals or your strategy.
I think you are on the right track. Melb as you know has been going gangbusters since 2013, expecting more growth for 2017? who knows, but at the end of the day Melb is numero uno for immigration in OZ, its a good long term bet as the fundamental drivers tick many boxes. Starting with something like this product you posted is a no brainer. The more you learn the more you tweak the strategy. Pay attention to market conditions, if the reserve bank puts up interest rates this could change the playing field, which means you don't buy if markets suddenly go flat, unless you want to wait 7 years for the next cycle. Diversification is an excellent strategy, but only if the market conditions where you are buying are strong. BA ? hit and miss, you don't know what you don't know Buy and hold is great but with resi it will take a very long time and many properties to achieve an income of $150K. Search @sash, on his portfolio of properties and you will understand what I mean. Don't wish to be negative but I know if you want to create an income stream $100K+ you will need to look at other strategies to improve your chances ie adding value, timing the market, renovating, developing, trade property and perhaps mixing this with other asset classes. Happy investing. MTR
Its important to lay out your assumptions so that you can test if they are a personal bias or an actual market trend. From that, here are some of yours that i am seeing: most people are looking for inner city accomodation right now proximity to the city will reduce downside risk inner apartments are more stable than outer houses My reaction is that these are personal biases, given that inner city apartments are the only over-built asset class and the only asset to be dropping in value. My personal opinions for this property (not necessarily fair market assumptions) would be: its on a main road, which may put off tenants as its noisy its an old block. the more new blocks go up, the less appealing it will be the tram is 38min trip to the city by google maps, so not very accessible the suburb isn't on the government infrastructure radar Again, none of these are real until they are tested against the market. Does it actually matter that its over 30min to the city? do tenants mind noise on main roads? So Step 1 in "thinking" like an inevstor; differentiate market trends from personal opinions of what is good. Look at the data, things like what is being over-built and what types of properties have the lowest rental vacancies. Step 2; your procrastination is also present in what you want from your strategy - CG and yield, owner and renter appeal, low cost. Unfortunately you can't have it all. I think you need to flesh this out a bit more and reall knuckle down which is most important to you, otherwise you risk ending up buying a total compromise to your actual needs.
Guys.. really appreciate the advice and some good things to look inwards on!! Keep it coming.. It is the start of my journey which has been a long and tough one so every piece of advice and knowledge is both welcome and appreciated!
OK.. Some quick questions from me!!! - How do I find out if something is on the governments infrastructure radar? - The unit is back of the block therefore the noise from the road isn't audible.. Is that something that people would notice? - I found the mention on new buildings interesting? I specifically don't want new building as everything around the area is new and shiny with high BC costs and inflated prices... I am of the understanding that a 1970's block gives the best bang for buck?
The new apartments is why unit prices in the area haven't moved much lately. Supply is outstripping demand. I'm not sure if the alternative fits your criteria, regional houses? Commercial property instead?
One of the challenges of being a "rent-vestor" (from experience), is that all of one's equity is tied up in their investment property(s). When you do want to get your own PPOR, you find that you got equity in the investment properties but unless you are a really good saver, often little cash outside for a decent deposit. Ideally for your PPOR it's best to have maximum deposit/cash as possible with least deductible debt as practical. Whilst one can re-draw equity out of their investment properties, the redraw of funds is still a loan and is not tax deductible because it is not for investment purposes, so you are back-to-front in the debt-to-equity situation for your PPOR. Hence why in general, deposits on investment properties should be as minimum as possible, spare cash put in off-set accounts, etc. As a rent-vestor, when you do want your own PPOR, the choices are: I. Sell down (all or part) of your investment properties, take the cash after expenses/capital gains tax, etc, and use this as a deposit on your PPOR, borrow the balance (as required), set-up a LoC and then use the LoC plus additional loans for IPs. II. Purchase an IP with minimum deposit, keep your cash in an off-set account (in fact often better to pay LMI to keep your cash hand), keep saving into your offset account, etc to build up your deposit for PPOR. III. Transfer your IPs into a suitable trust vehicle, which means new loans to "buy out" the old loans from the trust perspective to return as much of the equity/cash to yourself, but it also means paying stamp duties, subject to serviceability issues, and issues with tax deductibility (ensuring losses aren't quarantined in the trust). IV. Don't buy an IP to start with but a PPOR, then buy IPs. V. Continue renting for the rest of your life! (whilst nothing wrong with that, one gets to a point where they like their own place including partners!) In your situation, assuming you are starting off in your journey, it might make sense to either purchase a more modest PPOR, get the loan down, establish LoC and then go on the IP journey, or if you do purchase an IP, try to conserve your cash, use lesser deposit, keep your cash in an offset account and go from there. Once again, from experience, trying to buy a PPOR later when you've built up your IPs is difficult because one cannot save fast enough as the market rises, in 8 to 15 years time, the PPOR you desire could be much more expensive again and outstrip the equity you got in your IPs, as desirable PPORs tend to rise faster than perhaps less-desirable IPs!
I noticed this one due to its rather unusual interior (exposed brick). I rather like it - however as others have said, it will probably be close to 400k. The Y-man
The only thing against it is that it is dual mode to city. Incidentally the quickest way is tram to Ascot Vale station, then train to city. Scarcity - I suspect you will find some pretty good deals in Prahran/Amardale area too. In terms of the attractions you missed - it is very easy walk to the river - very popular with walkers and joggers. The Y-man
Keep track of major government projects, check local zoning. Also urban.melbourne has a fantastic database of residential developments in the city. urbanalyst.com is also a great way to keep tabs on government infrastructure policy and spending. Not sure, but I'm not sure it even matters. As you are buying this to lease, see if you can find similar examples up for lease now and make a judgement of their price point in the market. New buildings offer landlords a depreciation schedule which offsets tax. They are also less likely to require maintenance (the developer may be liable to pay for it anyway) and typically have higher appeal to tenants, so the additional cost is not without benefit. What you want to look for as an investor is excessive price difference - is the cheaper option way too cheap? or is the more expensive option not expensive enough? Bang for buck is what ever gives you the best returns with the least downside risk.
Looking at this thread, there are some amazing insights. Consider if analysis paralysis might kick in as you might not want to do a lot of planning but no action. Personally it would overwhelm me to be perfect in my strategy from the get go, so I would aim to be as diligent in my research as possible but also trust that I will learn more by putting in some action.
If there are new buildings in the area without an oversupply (I'm not watching so not familiar with the area) - I think the older apartment could be a good option. New apartment will charge a premium for shiny & new over old & will likely drag up the price for the area. In terms of depreciation a quick cosmetic Reno ie kitchen update etc can improve rental appeal & provide some depreciation benefits on an older property. A slightly older apartment is also likely to be larger sqm and have any building issues sorted out. New ones may still require maintenance if the developer hasn't already declared bankruptcy. Just some more options to consider. Good luck.
