First dive into the property ocean - IP questions

Hi there,

Honestly just hoping to pick the brains of those that have come before me as I am not surrounded with many that have property wisdom and this is a whole new world.

Looking to invest in property and have $600k to start me off - first home buyer. Forgive me if my questions are naive or very green but word of mouth and comparing notes with those that have personal experience has never failed me before.

My questions:

- If I had one apartment paid off in full can that be used to purchase an additional apartment without me working fulltime (banks may not look at me right now for additional loans)? My thought is to potentially have two apartments (one in vic-bayside and one in qld-gc/Coolangatta) and for that to be a form of income for me as I’m unable to work many hours right now.

- How would you start off if you had this amount to play with?

- Should I be waiting for covid to run it’s course? I ask this as I have heard there may be many unable to fulfill their mortgages and market may crash

- Thoughts on apartments? I’ve never lived in an apartment myself but life took a turn and I feel like this may be the best way to get myself ahead with two properties rather than just one?

Thank you so much for your help.

 

My thoughts on your questions:

* Banks require you to demonstrate sufficient income to meet the loan repayments and other financial commitments. It's unlikely that the income from a single property will be sufficient to do this. You'll need a job.

* I'd start by visiting a mortgage broker to determine what my borrowing capacity is. From there I'd work out an investment strategy. Knowing what I know today, I'd probably buy a home for myself that I could live in for the next 20+ years. This may be contrary to what a lot of people here think, but locking in a non-deductble debt figure and paying it off as quickly as possible is a good strategy. You also don't need to actually live in this property initially. The tricky part is most people don't know what the next 20+ years will bring.

* I doubt the market will crash, but I can guarantee that at some point there'll be a correction. This is a natural part of the property cycle. I don't know when or by how much though. I know people people who've been waiting decades for a crash and will be lifelong tenants. I also know people who've bought just before a correction and a few years later didn't give a damn. If you buy reasonably well you'd do fine in the long run.

* I don't like appartments either. In the long term, houses usually make better investments (which is a very broad observation with lots of caveats).

 

How about diversifying with one apartment and one house? I started off with one apartment and really wished I went with a house just because they went up so much more over the same time period. So my second investment was definitely a house. As for covid, I feel now is better than later once international investors are back in the mix.

 

Yeilds would probably be crap on a Bayside apartment about 3% gross , there would also be high expenses with Body Corp fees, management fees, insurance fees, new regulation compliance and requirements costs and hassles, council rates, water rates are high , high land component could mean land tax, Repairs and maintenance charges are high, at least the quotes my PM gives me are. Returns are low, yeilds have been compressing for at least the last 13 years. For any investment you should look for something with positive revenue growth rates. You may only get a net 2% yeild or less, that service very much debt. I have an apartment there worst investment I ever made destroys service ability and wealth generation. It has had the poorest yield and poorest capital growth. Only just neutrally geared because of low interest rates. The big cost cost of low returns is opportunity costs.

 

Not all apartments are bad investments.
Think of smaller blocks, older 2 or 3 story walk up brick set, with <15 units in them, the fewer the better IMO.
Ideally no lifts or pools/gyms etc as this is what causes high Body Corp fees.
Also pays to do due diligence on the body corp expenditure past and projected and to ensure there is a healthy sinking fund for any building repairs or maintenance.
Have some clients who have done very well in Coolangatta with buying and renovating multiple apartments like those.

 

Aleet, great to hear you want to jump in.

Let me pick up on the "should I wait" question, because it comes up a lot.

The short answer is "no" - don't wait. Not because I know that property prices will continue to grow. But precisely because I don't know, that I don't want anyone to waste time trying to time the market. But we do know that the younger you start the better, and so many people wish they had started earlier.

I know asking a BA if now is the right time to buy a property is like asking a barber if you need a haircut, but let me explain (briefly in this chat).

1) Buying later is probably not a luxury you have if you have secured finance right now. Buy when you have finance.

2) You have finance now because the bank has confidence in your ability to service the loan. However as every year passes, you shorten your lifetime income by one year, and one year less attractive to the bank.

3) We can make educated guesses, but noone really knows what is around the corner in the economy. So no point trying to guess, or to speculate.

What I think we know, is that the economic KPI's under state inflation, which allows interest rates to stay lower than they otherwise should be. Government policy is highly inflationary and highly irresponsible, and unless you think that this will change, my guess is that we will continue to see asset price inflation for a few more years.

 

My advice is to buy. It's likely values will keep rising over the next 15 to 20 years. But buy value and add value ability. Don't buy new stock.

 

Much more succinct than my email!

 

I'm lazy to answer any longer. You added good context my friend

 

I'm always tempted to say something like "no one ever got poor by buying too much real estate". But it's not exactly true if that person over leveraged or got into complicated development deals. But it's nearly true.

 

I'm going to go against the grain & say wait. But don't wait too long. Take a little time to digest some wisdom from the forum. Ask lots of questions & THEN buy.

 

True, but I think you are saying something slightly more nuanced. I think you are saying "spend some time educating yourself on real estate", rather than "wait for the market to drop"? Am i reading this right?

 

I am new too and have been looking (with help from BA) so I tag along this conversation, but the market is so hot (Perth, Brisbane, Sydney) and not many stocks available; and very hotly contested on good quality stock. Then someone pays more (sometime quite a bit more) than what we offer (based on what we thought it should go for).

So I guess we might need to compromise something - what would you do:
1. Go a bit further out as price keeps going up so I can be priced out of where we have been looking; or choose cheaper / less desirable suburbs.
2. Compromise property attribute - if so, which one: lower land value; less bedrooms; older house; further from shops or transport
3.Increase budget, which not planned for but we could. And pay more for the one we like as the market might have moved on significantly. This means we expect price to increase a lot more soon too.
4. Be patient and keep looking, pay what we think it is worth; with the risk that market will increase and pay 2% or 5% more in weeks / a month or two.

Thanks for your advices.

 

Are you looking at all three cities for opportunities? We advise clients to pick one area and really focus on it. Casting your net too wide in a hot market you'll be chasing your tale forever! If you can afford to buy now consider paying the premium to get in now.

 

Increase your budget.

 

Yes

 

Pick one market.

 

Yes, decided to pick Perth as starting point.

 

My advice buy as MUCH real estate as you can as QUICKLY as you can. LOL

If I could have my time again I'd be aiming for 50+ properties. I'd pour each and every single cent into Real Estate and not waste it on fast cars and partying when I was in my 20s. (although I did have great memories).

APRA and the royal commission ruined that for everyone.

 

I have choosen Brisbane but my budget is around $400k (+/-50) and do not want apartment. Aim is CG and willing to hold long term.