First IP ever. Most challenging process.

Hi Guys,

Looking to get some advice from pro property investors.

I have a deposit ready and have been looking to get a property in St. Albans/Deer Park and Laverton for under 600K.

I have been attending a lot of opens/inspections and auctions only to realise that buyers are extremely aggressive when bidding on properties for the above suburb. Home owners have a high expectation for a reserve price and it has become literally impossible to get a decent property with better rental returns. I also experienced that most of the agents work only for the seller and i 100% do not trust anyone of them for the prices they quote.

What i realised is that i may end up spending under 600k and get a 3 bedroom house but the rental return is not good at all for the above suburb making my first IP negatively geared. I may have to spend approx. $200-$500 on top of the rental to cover up my mortgage.

This made me do more research to understand 'negatively geared' properties only to find out that its not as rosey as I thought. I may be able to claim some losses on tax but overall I am still loosing cash.

I have also noticed that the higher price i pay for the above suburbs, the lower rental yield and vice versa.

This has made me stop and think. It is a huge decision for me and i would like to take some advice. At the start, my strategy was to save on tax and have quick capital gains but soon i realised that this is a wrong strategy.

I have since changed my strategy to long term, improved capital gain but ensuring I get a positively geared property.

I believe getting a positively geared property will suit my financial condition and it makes sense as I would like to diversify my portfolio in the next 5 years.

Do you guys have any recommendations as to where I should be looking at?

I have stopped looking at the above suburbs (St Albans, Deer Park and Laverton) and started studying the below:

Melton South
Hoppers Crossing
Werribee
Thought about Truganina (i live here) and Tarneit but i wont get anything around 350K mark.


Instead of spending $600K, I am think I should get something for $350K with a decent rental return that should cover up the mortgage.

I started as a rookie but I am learning the tricks and trade of the investment and would like to receive some critical feedback from this community.

Thank you for taking out the time in replying back.

 

It really depends on your strategy and goals.

Lets say you bought a place in Laverton for example. Spent 600k and are negative $250 per week. That equates to $12990 out of your pocket per year. Call it 13k
Not a massive amount, and you'd hope that the growth in the property would far outstrip your cash input. But of course, growth is not guaranteed.
Regardless, 13k out of you cashflow could possibly have an impact on your lifestyle and will most certainly have a major impact on your servicability.

Now I dont know your income or lending postion but whats the plan from here? Possibly buy 1 more and be 26k a year worse off in you cashflow...then what??

IMO if looking to invest this amount of money in Melb property, unless you have a high level income to be able to hold out for long term CG and be able to ride out the market and interest rate rises...it's just no longer feasible. (If we are talking development though, different story).

You're on the right track looking into the markets you mentioned. As housing prices increase, yields drop. Hoppers, Werribee, Melton South are all rising markets, lots of activity and yields are beginning to come down.

But there is still opportunity here to get over 5% yield and see good CG as well. I'm primarily talking about H&L builds.

This may be an avenue worth exploring

 

Yes, thinking land and house strategy may work well to achieve higher yields, though I have heard land in outer estates rising fast

 

Yes, i'm already seeing similar sized lots hitting the market now 10-15k higher than they were in January!! And selling on the day..
H&L packages are being advertised by builders 20k more than they were 2 months ago also.

Still though there are some good opportunities....just harder to find.

 

Firstly, thank you for the reply

True. This is the reason why i dont want to get into negatively geared for my first property.

Our combined income is approx. 160K/year and i have a pre approval from a bank for an IP upto $600K. I was too keen on making a quick buck by getting a property, keeping it for around two years and selling it, but realized this is not the right way to go. The other strategy was to get a bigger block in Laverton and subdivide and build at the back in two-three years. I still havent done much research on this and not sure if i should get into something like that for my First IP.

My current goal is to build a portfolio of three houses (including the one that i living in) in the next 4 years.

This is interesting. How will i benefit with a H&L builds? Is it saving on the stamp duty? What are the other benefits?

Since I have started looking into Melton South and other suburbs that I have mentioned, there still established properties (very few though) that can be snapped between $300k-$350. One thing I dont understand is - every time i find a house in Melton/hoppers or even when looking at St Albans, buyers are snapping up properties within days! I am flabbergasted with they way properties are getting sold!

 

Good idea.

Thanks for sharing this.

 

That's what I also found in Melton South. I had been going to open inspections for a while and realised prices were steadily rising...and still are. But I was lucky the perfect property with development potential and close to the train station came up and was able to snap it up.

Avoid buying anything in the new estates. You can still find a good bargain here if you look hard enough. Get in touch with some of the local agents and ask them to contact you if something comes up. Just don't tell them your budget.

Good luck.

 

Its a matter of doing the ground work, you need at least 20% to make it viable. Start with doing a search on those that are using this strategy @sash and just lots of homework. Always buy the land first, then source the project builder only way to make a profit

 

Hi @Yash i was looking around sunshine two years ago but the properties kept rising so each time i did the numbers they just didn't stack up i would be forking out 200 also a week on an old house with basically no depreciation so i changed my strategy and bought land in manor lakes next to werribee and @MTR is right land is going up 10k every few months, i will still be Negative after i have built but only a small amount and the depreciation will cover that at tax time

 

And a massive help from @sash too

 

Shall do. thank you for the advice.

 

How do you manage the building process being an interstate investor?
Any trouble dealing with builders?

 

With your budget of 350k, you should still be able to find some establish quality stock in Melton South easily. But as you said, quality stock would sold within days, you need to act quick enough before the others. Ring the agent for private inspection before the saturday open.

 

There's heaps of detailed threads on here if you do a search.

It's a strategy a few members on here have employed and are seeing great results.

In a nut shell, it involves finding land in well located and in demand land estates, land that according to your DD has great potential to grow and is growing in value...
Then purchasing the land and sourcing the builder yourself. If done right you can quite commonly see gains of 15-20% on completion of the build.

Have a look at this thread for detailed examples
Officer South House and Land Deal - using very little deposit

 

Hi Yash, I'm a new member here and have a couple of properties. So I doubt that makes me a pro investor.

However, I'm a big fan of Melton South but, I've noticed properties get snapped up very quickly as well. However, I was able to get something sourced there through someone I know - but it's going to take a few months for the land to register before I can do anything with it. To me, that just shows the level of demand in the area. Hope this helps endorse your thinking about Melton South.

 

I am assuming 20% here is 20% deposit?

Thanks for the tips MTR, I will do some research on strategies used by @sash to understand what all is involved.

 

Hi Danny,

Thanks for sharing your experience. Boosted my confidence

 

I have noticed properties getting sold within 3 days! Even before i could travel and view the property.

I will keep looking to identify a potential IP.

 

Thanks for sharing this. I am reading the thread now.

@sash @Connor @MTR look super pro investors.