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VIC First IP, advice!

Discussion in 'Where to Buy' started by ashimashi, 17th Mar, 2016.

  1. ashimashi

    ashimashi Well-Known Member

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    Hi guys, been reading these forums for quite some time now and find it extremely helpful and only today decided to sign up. To be quite honest, lately reading the threads here get me through my horrid train rides from work.

    Getting to the point, I have been looking to get into the market in 2016 with my first IP, (in-fact i am hoping to add IP nr1 & IP nr2 this year) and i have been keeping an open mind as to where to purchase it. Which i think is only making it even more stressful. I have enough deposit and money saved up to purchase two IP's. But i am struggling to make up my mind as to where to purchase the first one.

    I am currently looking at a 3 bedroom house, 550sqm in Preston where i know the capital growth will be decent in the future (the property is located walking distance to Northland shopping centre). But it is kind of a bit more then i would like to spend even though the price range still pretty decent for the area at $500,000-$550,000 for a 550sqm block of land with a pretty neat 3 bedroom house.

    I was initially going to purchase something in my own area, currently living in Ringwood and i know the prices have sky rocketed in the last 4-5 years. So i know the market is very good at the moment due to the new shopping centre, train station, costco, aquanation, eastlink to mention a few of the bigger projects that have been finished in the recent years. I was looking at Croydon where you can still find something decent below the 500k mark with a decent block of land, or even Moroolbark etc but i prefer getting something closer to the CBD i think.

    I was close to purchasing a 3 bedroom house on a subdivided block of land in Croydon for $483,000 which was also tenanted for $300p/w with the tenant happy to stay on. But i kept looking around and started second guessing myself as to whether or not it was the right move and that was that. Mind you, the property is actually still on the market and the agent recently called me to check whether i am still interested as she was receiving another offer on it. But since then, even in the Croydon area i have found other properties for the same price range i was going to pay but on double the land size.

    Other areas i am looking into are Braybrook, West Footscray, Sunshine and just recently been looking into Frankston for my first IP as it'll only cost me 300-350k with the properties i have found, need a bit of work etc done which i don't really mind doing. But again, i dont know whether or not i should get my first IP in a more secure capital growth prone area closer to the CBD and paying more. Here is when i keep second guessing myself which has even cost me to loose two properties i felt pretty good about because i didn't make my move.

    Lastly, i was having a cheeky look at Bendigo/Geelong area where i found quite a few positively geared properties that caught my eye. Specially one in the 200-250k range in Bendigo on a 580sqm block of land. Been tenanted for the last 12 years to the same tenant, and the tenants are extremely happy to stay on paying a neat $300 p/w. Pretty close i think to the new hospital thats being built over there. But again, i know that capital growth in those regional areas are quite average. If i did purchase in Bendigo it would definitely be with the view of keeping it for the long term, at least 5-10 years. Even though i would down the track love to have a couple of these positively geared properties in my portfolio, i don't know if thats the best move to make for my first IP.

    Pretty much seeking any advice as i keep second guessing myself when it comes to pulling the trigger. People told me that the first property would be difficult, but the stress is immense. My plan was and is still, hopefully to be able to get the first IP within this financial year. But i am adamant in wanting to make the first IP the right choice, but i am afraid my stalling and continuous change of heart is getting the better of me sometimes.

    Any advice or recommendations would be highly appreciated as to what kind of property would be the best as a first IP based on your own experiences in Melbourne at the moment from the options i relayed.

    Happy i signed up, and looking forward to hearing your opinions.

    Regards

    Ash
     
  2. Hodor

    Hodor Well-Known Member

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    There is more than one path to successful property investment. Only you can answer which path you would like to take, you can't expect others to tell you.

    I'll give you a couple of thoughts/things to think over;
    - How many properties, or better yet what value of property, do you wish to acquire?
    - Over what time frame to you want to acquire them?
    - What is your income? How quickly will you hit the serviceability wall purchasing properties with 3.2% gross yield?
    - Why are you going down the IP path?
    - Would one growth and one yield property meet you goals and give you exposure and experience with both strategies?

    Think of your goals and purchase what best meets your criteria and move forward.
     
  3. Barny

    Barny Well-Known Member

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    Hey ash, Ringwood etc you mentioned have moved in prices big time. They may continue to grow, not sure at what rate.
    If you buy a place with some land component on it, which will allow for subdivision to take place, you can create some equity instead of waiting for it to just grow on its own. Even if you don't build on it yourself, you can always get some plans drawn up and sell with plans. That's a quicker way to creat some growth than just waiting and hoping.
    Owning 2 houses or 10 houses doesn't mean they will make more money in growth. If you have funds to access and do something to add value then perhaps that might be an option.
     
  4. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Agree with @Hodor. Take a look your own goals/ financial situation, income, serviceability etc and then formulate a plan.

    Imho building equity is the name of the game. Once you have built equity then creating a cashflow stream from that is not hard.

    Keeping it very simple, this is what I would be finding out the answers to moving forward:

    1. What is the best/most suitable strategy you can use at this point
    2. then finding the 'best' state for opportunity
    3. in the 'best' location in that state
    4. then choosing the best type of stock for CG
    5. that will allow you to meet your financial/risk constraints
    6. and still nab a good deal that will head you in the direction of your goals.

    My 2 cents.
     
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  5. ashimashi

    ashimashi Well-Known Member

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    Thanks for the response! I wasn't actually expecting others to tell me, i was simply looking for input on the suburbs i mentioned and maybe even first time experiences from others from when they were obviously purchasing their first investments.

    But i will gladly answer your questions.

    - When i decided that this was the year i was finally ready and was going to make my first purchase i told myself, i would prefer not spending over the $450,000ish mark, would consider going close to 500k for the right property. Even though i am quite interested in the Preston property which is priced at 500-550k.

    - I have long term goals, obviously. But my short term goals at the moment is definitely finding that first property and hopefully being able to attain maybe one more before years end, or early next year. Depending obviously on what i find.

    - My income isn't bad, slightly over the 100k mark. I think it will depend quite heavily on what kind of properties i purchase in regards to how soon i hit a serviceability wall, i have a very good mortgage broker who my family has been dealing with for quite some time now and further contacts in various smaller financing firms.

    - I'm 26 and to be honest, not beating around the bush, i live at home at the moment, where i have no expenses at home and no reason of moving into my own place at the moment. Hell, even when i bring up the idea of actually leaving and moving it creates a discussion (wog parent). I was actually going purchase and live in it first myself, but when i discussed it with my mother who actually has a very impressive investment portfolio herself i decided against it.

    - My plan was, and still is to get a property in a decent capital growth area such as Preston, Croydon, Footscray West, Braybrook etc if i could find the right deal, i wouldn't want to over pay just to get into these areas. But i have found a couple of nifty deals, specially in Braybrook and Preston, they would be negatively geared and both have future subdivision potential which is a bonus. And the second one would be a preferably positively geared property, in which i found a couple in Ballarat/Geelong area, and even some in the Frankston area if i was to put down a 15-20% deposit.

    I know the Whitehorse area quite well actually, I've actually lived in Ringwood East since 2009. My mother purchased a block of land back in early 2008 when this place was practically a dump and built a two story 5 bed + 1 study house, for a total cost of around $550,000. ($200,000) for the land back then, prime location. 200meters walking distance to Ringwood East station, and around 15 minute walk to the new Eastland shopping centre & new Ringwood train station. She got the house valuated just last month, and it was valued at the 1mil+ mark. (practically doubled in around 8 years) she's got over 700k equity in the Ringwood property alone. When she purchased the block of land in Ringwood, if i remember correctly not even the Eastlink freeways etc had been built that currently run through Ringwood, again down the road from where her property is currently located. She got in nice and early, but at the moment Ringwood/Ringwood East/Ringwood North/Heathmont/Mitcham these kind of suburbs are pretty expensive cause of the immense growth that's been happening. Croydon/Montrose/Lilydale and Bayswater/Boronia you can still find decent deals, but they are selling like hot cakes. Like i said, i found a couple of decent deals in Croydon where you can still get something with a decent block of land around the 450-500k mark.

    Its still a good area to invest in, if you manage to nick the right deal. I feel a lot of people are over paying at the moment. Specially when it comes to Moroolbark/Croydon for certain properties.

    Thanks for your response!

    I wouldn't want to go interstate to be honest for my first investment, it is something i am definitely considering and hoping to do down the track once i gain more experience and find my comfort level. Besides i believe there are some very, very good locations at the moment in Melbourne for investing even in my own back yard which is great. I think the key is to obviously be comfortable with the choice i make because like with what you said, building equity is the name of the game.
     
  6. Barny

    Barny Well-Known Member

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    It sounds like your on the ball and know what to do.Can I ask why Preston?
    Which I actually like. Just want to hear why you choose this area.
     
  7. Azazel

    Azazel Well-Known Member

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    Gday @ashimashi , welcome aboard.
    Sounds like you're doing some good research.
    Plenty of info here, all the best.
     
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  8. ashimashi

    ashimashi Well-Known Member

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    I def don't feel like i know nearly enough, i am still a spring chicken in this game. But thank you!

    Of course, and again this is just my opinion and nothing else. I think there are several reasons, the rental yield (on the right properties i should mention), the vibe, vicinity to the CBD and transport, also reading up on Darebin council projects i believe there will be continuous strong solid growth in this area with whats planned for the next 10 years or so. Specially if you are planning on holding for 5-7 maybe even up to 10 years, which would def be my minimal hold if i purchased in this area or vicinity of it. I also believe further out Reservoir is another suburb i really like and believe is a great place to invest if you find the right deal, even now despite its recent growth.
     
    Last edited: 17th Mar, 2016
  9. Barny

    Barny Well-Known Member

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    That's a good opinion to have. I like Preston and coburg area, always have. If you see deals that stack up in Croydon, ask @MTR , I believe this is where she hunts.

    Stick to the larger blocks so there's always a second option to create something. Or sell the creation to someone else at a later stage.
    The more you research these areas on block sizes, prices, building, renovating, what subdivision potential can occur, the easier the decision will be.

    Don't over leverage yourself and start with one, see how that turns out before you buy a second place.

    Best of luck.
     
  10. ashimashi

    ashimashi Well-Known Member

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    Yeah, well with a budget of 500k you can still manage to snap up a pretty large block around my area. But something with potential future subdivision would be ideal.

    Thanks for your advice! Appreciate it, If you dont mind me asking you the same question, what is it you like about the Coburg & Preston area, have you invested in these areas?
     
  11. Barny

    Barny Well-Known Member

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    Apart from what you have already written, my friends live there and spent most of my early years around the area. I've noticed the vibe change over the years in a positive step. Great big blocks, easy access to the city and airport, some funky Cafes popping up around the place. Heaps of development, townhouses are a common trend or renos.
    I invested in Essendon many years ago, but I wish I had purchased another block in coburg or Preston when people looked down on the area, and homes were so cheap compared to today's prices.
     
  12. MsAli

    MsAli Well-Known Member Premium Member

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    Hey @ashimashi - congrats on the decision to start your property journey in your mid 20's! Hodor is correct about looking at your goals. It can be difficult to know what's possible for you when starting out. It will be worth working out what's actually possible for you (as opposed to 1 or 2 properties).

    That has been my biggest learning from my journey....to look at the big picture and have a clear road map as to where you are headed. Being young you may not have the resources for x properties, however if you know where you are headed, you are more likely to aim high than tick one property...and then two. Can't emphasise this enough. It can be a costly lesson depending on your ambition.
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    When we were looking late last year, there were big queues at Croydon/Mooroolbark opens, but fewer in the inner city. Not sure if times have changed, but personally would aim inner if you can afford it, and house with full block over sub-div again if you can afford.

    Preston near northland not bad, but closer to statoin would be better (but more expensive so I understand ~ and still enough buses to cover). Also track north of Reservoir to Ruthven ~ worth a look.

    Possibly also to the northern edge of Reservoir on the 902 smart bus routing - which can give a 7 day a week regular bus to K-Park station, and also C'Field shops.

    The Y-man
     
  14. wombat777

    wombat777 Well-Known Member Premium Member

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    A house at $483k and $300 per week rent is a very low rental yield. Works out at around 3.4% assuming a 90% lend.

    The problem with this is that it will impact your serviceability since the investment is cashflow negative. It will make servicing multiple IPs based on bank calculators much tougher. Not so serious given you have low living expenses.

    When starting out, try to buy in areas where the rental yield exceeds the interest rate you are paying. Aim for about 1 to 2 percentage points higher than the interest rate to start getting into cashflow neutral or cashflow positive territory.

    The tough part is finding yields in areas where you can expect to get respectable capital growth.
     
  15. ashimashi

    ashimashi Well-Known Member

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    Essendon, great choice! How did that go for you?

    That's the gut feeling i have about Sunshine to be honest at the moment, people look down on this area quite a bit (fairly so too at the moment) and every time you seek advice or opinions in regards to Sunshine its mostly always negative. But whoever invests there at the moment, i think will be glad they did in a couple of years.

    Thank you! I completely agree, like i said i have long term goals for myself as in how many properties/how much equity id like to have before 35. But my focus is obviously currently all on my short term goals where as i am being very cautious/picky with what property i decide to purchase as my first. I feel obviously if i make every decision with careful research everything else will work itself out in the future as my game plan is long term holding anyways. Again, its all easier said then done of course.

    How did you find was the best way to allow yourself to look at the bigger picture and not only decide but to obviously differ what it was you wanted to achieve from investing, rather then just ticking off properties you added to your portfolio?
     
  16. ashimashi

    ashimashi Well-Known Member

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    Yeah, well somewhere along my own area is definitely still an option but thats the problem with Croydon/Moroolbark most of the houses on larger blocks are 40-50+ years old and in need of some major work, an expense i prefer to stay away from at the moment specially if i am spending around the $500,000mark. But if i dropped down, i could probably find a house on a decent sized block around the 350-400sqm block of land with a current tenant even. Then again, around that price i actually prefer investing closer to the CBD in Preston/Coburg instead.

    I am actually keeping an eye on the Reservoir properties on the market at the moment, what you think of that area yourself?

    With that property i was actually looking at a 80% lend, and i was actually going to increase the rent to $350, because the tenants were still paying the same rental rate for the past 3 years without adjustment (they were happy with the potential rise to $350 too, which was still pretty cheap considering what others were paying) so the rental yield actually worked out around the 4.7% mark with 80% lend which was good.

    That's exactly right though, for example with the Bendigo property that i am currently looking at with 80% lend at around the 230k purchase price with the current tenants (300p/w) it works out at around 8%, but i mean the capital growth wouldn't be anything spectacular at all. If i did it on 90% lend even it would still be very decent yield, but again i wouldn't be expecting any respectable capital growth tbh. Same with a couple of properties i found in Geelong etc.
     
  17. Barny

    Barny Well-Known Member

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    Yeah Essendon did well, bought a large block with a renovated property on it. Got really lucky as council made the street commercial/residential and allowed for multiple dwellings to be build on it, which almost tripled in price since 2005 if I sell with plans. Pure luck, otherwise it would have doubled in price. So happy regardless.
    I almost purchased in sunshine in 2012, was outbid twice for large blocks with old homes, so I moved on from the area as the market was hot. Worked out well that I did, as my cashflow is heaps better these days.
    Doesn't matter how others view an area, if you do all the research and know you can make a decent profit, and all stacks up, go for it.
     
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  18. melbournian

    melbournian Well-Known Member

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    I've been monitoring Preston over the last few months and if it is 550k for 500sqm I would gladly pay 600k. 550k seems more like reservoir price range to be honest as the suburb next door. 450-500sqm can go for 700-900k in Preston depending on the location. Unless it is price range and goes to auction u will find the price would definitely be above 600k
     
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  19. Luca

    Luca Well-Known Member

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    My recommendation is buy at the bottom, you want to get your first investment right. Honestly, how much steam has Melbourne left? Do you think rents will double within the next 5/10 years? Do you think a property you pay 0.5Mil now will be 1Mil in 10 years? Melbourne has done greatly for the last 10 years, it will slow down. Yes, you can still make it 5%/10% with a question mark anyway. Other opportunities are in renos, H&L in new subdivisions and subdivisions of existing lots if you are a risk taker. I think the first IP should be by at a low price ($300k max) so to minimise the risk, rent it out and learn as much as possible during this first deal, there is so much to learn, starting from the team you want to work with (broker, accountant, BM, etc., conveyor, etc.). Also are you a risk taker!?! Need to be clear with yourselves, remember risk taker doesn`t mean “buy at first sight or based on sentiments”, means still buy after having done the right analysis but with the awareness of the risk you are taking. I don`t see Melbourne as the right place to invest at the moment for that amount of money. Look regional or interstate (Adelaide & Brisbane). Number of posts per city in this section of the forum will give you an idea about where the money is directed at the moment. If your mother has a good portfolio, well, you found your mentor then!
     
  20. ashimashi

    ashimashi Well-Known Member

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    I was the first person to speak to the agent actually, because one of my work colleagues lives a couple of doors down from the property and was the one who referred another friend of ours as the real estate agent to the vendor. Its on a main street in Preston, agent told me if i got in nice and early with a decent offer it stood a decent change being accepted, because the vendor was pretty desperate, urgent need of selling. Was even looking for a 30 day close, didn't disclose why.

    Looked like a good deal, i stalled. I might have been able to pick it up around the 600k mark, or low ball 600's. But it was way out of my comfort zone with those kind of figures for a first IP, so i didn't go ahead.

    But, as per expected the open was quite popular and opportunity out the window as i think that same weekend they received 3 offers.

    I agree, my intention was never to actually be in the 500k price range for my first IP as previously mentioned. And it still isn't even though i occasionally come across a property i find interesting at the high 400, low 500s. I am not going to lie, i would personally love to invest interstate and it is still an option. Besides Brisbane, i was having a look into some properties in Hobart but due to work commitments its not easy committing to interstate purchasing at the moment. I was actually going to send mum down to Brisbane to have a look at a couple of properties on my behalf over the easter long weekend, as i definitely don't want to be buying unseen. Send her down on a mini holiday, and while she's down there she can inspect a couple of the properties for me close up.

    Even now though, Melbourne does have plenty of areas that are great for investing under the 400k, and even below the 500k mark with consistent long term growth potential.

    My mother, is my mentor. She completely retired at the age of 47 with over 100k passive income. Most of her ventures though were made over seas and she mostly owns commercial real estate.

    We only moved to Melbourne in 2004, and she never really got into the investing game here in Australia to that extent. She purchased a block of land in Ringwood (picked a great suburb) built a home, and retired a couple of years later. She still has that knack for real estate though, its in her blood. Besides wanting to purchase a summer house down in Apollo Bay which she's been looking into recently not much on the agenda for her. I do learn a lot from her though, 7 years ago she told me to begin my investing journey by purchasing a block of land with a run down house on it in Box Hill, i didn't listen and instead went travelling. Needless to say, if you know Box Hill and the growth it ended up having until now, i am definitely banging my head on the wall for not listening.

    Her advice to me has actually been to try and stay local for my first IP and then later on venture interstate, and her suburb of choice is Chirnside Park which is not far from where we live, quite adamant on that suburb to be honest too. But she also always tells me to make sure i move into commercial real estate down the track, which is something that does interest me. But not for now.