First purchase - general advice and thoughts sought

Hi all,
Long time lurker first time poster.

Im going to copy this guys structure - as First Purchase. Active strategy advice i think he has laid it out well!

Background

• Mid 40's
• Run a small business in a professional services sector. Average year will make $120k-ish, good year will make $250k-ish. Have been burnt out for a few years and not sure how much longer i can keep it up
• No contacts in property sector at all
• Own PPOR outright
• Have approx 1.1m share portfolio (comfortable with share investing) with 0 debt as of today
• I used equity from the PPOR to grow the share portfolio
• Am much more comfortable with shares compared to property due to low entry/exit costs, smaller investment parcels, financial data that IMO is far easier to interpret - but i also know that diversifying into different asset classes is wise.
• While im comfortable with some debt - i am definitely a debt adverse person and will never be the type of person that has $1m+ debt across x properties - even if its asset positive - i just wouldn't be able to sleep at night

Thoughts at the moment - looking for advice and comment

• I currently prefer the idea of a larger number of smaller value properties, primarily for yield reasons - this has been re-enforced by one of TerryW's many threads
• I have a long standing (perhaps incorrect?) impression that strata titles and any type of shared title introduces complexity. In order to avoid this, the plan is to simply go for single-title properties in cheaper areas (as opposed to apartments or units)
• Given the above point, the perceived risk to having tenant issues it higher - for those of you that actually live this - is it really the case? Do properties in lower socio-economic areas really have significantly increased tenant issues ?
• I am baffled by the process of finding a property to purchase - while i have my criteria (such as price, single title, maximize yield over growth) There's just so much data and so many differing pieces of advice around... i think i'm suffering for analysis paralysis combined with a pinch of fear of the unknown. Any tips for getting past that? i don't think more research is going to help
• The things ive read about DHA or BrickX "hands off" type property investment seems to be pretty much all negative. Thoughts/opinions here? Has anyone has a positive experience here ? To me, the model of BrickX doesn't add up and with DHA the investor has no power - but - happy to hear other opinions.
• Buyers agents - I know that im never going to have the same knowledge as someone in the industry.... i know buyers agents exist.... but quite frankly - do non-conflicted buyers agents exist ?

i think thats it....

 

Do you need property at all? You have a mil on top of ppor. You only need about 2-3m to produce your income. You could probably get there in 10 years if you know what you are doing in shares. Unlikely property will get you there faster if you are not value adding etc.

 

I haven't checked in detail, but I thought Terry has tended to advocate for liquidating property in favour of high yield shares once you're in a phase where you want to emphasise cashflow.

That would be my personal view too. Buying a bunch of cheapie property mights be setting you back compared to how you're going now.

What attracts you to property now?

 

Hi!

Welcome to PC

• When you say larger number of smaller properties - what price point are you looking at? What will these properties do for you over the long term?
• Strata properties are fine - just depends where. e.g. in Sydney we started off with strata properties - that is all what we could afford at the time. These have worked out just fine for us. However, if one has the resources, I would opt for house with a good block of land - buildings depreciate, land appreciates in value. Have purchased an apartment in Sydney previously, now sold. In hindsight, I prefer villas and townhouses, in smaller complexes. You will have to look at the relevant city you are looking to purchase in and see what is most suitable for that market. E.g. Brisbane, some people will flog townhouses and villas in really big strata complexes with pools and tennis courts. I'd steer clear of that - there is no 'uniqueness factor' with these properties, and hence impact on future growth and rental returns
• Yes, lower socio economic areas do have issues, but I understand it can also happen in more affluent areas
• Read up on the forum in the first instance to see what other people have done, and then devise your own strategy. Here is something we wrote earlier on in our investment journey: Investment Property “Strategy” – What does it look like?
• I'd stick to bread and butter properties. Haven't explored DHA etc, but I'd rather keep it simple, and its worked for us. Also steer clear of rental guarantees
• Buyers Agents - yes there are non conflicted one. Check out the PC ones to begin with. Just make sure they provide you guidance on WHY a particular property will help tick your key criteria. I know there are BA's out there who just provide links to people, with zero research, and ask them to make a decision on the spot. I'd be careful of these.

Good luck!

 

I dont know. I suppose i feel like i should have a diversified investment portfolio - so that was if the ASX (which is where 80% of the shares are) has a bad year, it will theoretically balance out with the other asset classes. I would be more than happy to stay only in shares and cash - but i just feel that im ignoring a major asset class.
if i was to stick with shares - i would expect to add a mil every 5 years from here on in... and i agree - i have targeted 3m as my target to produce the passive income needed for retirement.

But yes - that is a fair point - i think thats part of the underlying question here - that you have maybe helped to bring up to the surface - thanks.

 

Hey - much like my other reply, i feel like i should be diversifying - thats really the guts of it. I'll go back to some of TerryW's posts and read some more.

 

price point - i was thinking between $300-500k.
Long term - i think maybe one of the thoughts that is rattling around in the back of my head is having something for the kids. I think it's likely property ownership will be unobtainable for them unless they become substantially more intelligent very soon! So having a long term asset that i know will still exist in 40 years is probably also a factor. This is definitely one downside with shares, only 28 of the top 100 companies on the FTSE from 1980's still exist, i believe its 16 for the yanks since the 60's (off the top of my head - don't quote me on that exact figure!).

ok - ill have a read of that article too.
rental guarantees - yep, that sounds like good advice - thanks.
agents - good points - thanks for that - i think "why it ticks the key criteria" is a very good point - ill seek that one out in particular.

 

Keep in mind that thread was written years ago, serviceability can be hurt by having multiple cheaper properties now - or it is not as good as it used for be for servicing as many banks are asking for expenses per property to be added to living expenses.

But in your case serviceability will not be an issue for many properties to come - probably.

 

I don't advocate this, as that would be financial advice. I just point out some of the tax and legal consequences and let the clients decide.

But this is just one strategy out of many.

 

I think the thing with property investment that you need to be aware of, is that its not just 'investment'. It actually requires you to be involved as a landlord. And all those responsibilities that come along with that. Not everyone is cut out to be a landlord. And thats ok. You just need to decide if you are or not.

DhA is not going to have as good returns as if you invest privately. And there are other draw backs, such as if you wish to sell the place whilst still under contract, you may not be able to have open homes or veiwings at all. So selling mid contract can be a serious issue. But if you really do want a more sit back and let someone else take the reigns approach, they can be an option. Especially if you look to buy someone elses DHA property, rather then buying brand new. But you really need to run the numbers and see how it all stacks up.

For rental yield alone, owning a duplex or an entire set of units is probably one of the better options. Something where you can avoid having body corps, and just make unilateral decisions yourself. But everyone has different methods and goals they employ for property. So what is best for myself may not be best for you.

My advice is don't rush in. Educate yourself about the housing and rental markets, the areas you are looking at, and the responsibilities of being a landlord. Set up spreadsheets and run your numbers, and read as much information as you can and ask questions. It doesn't even matter if its on topics that actually aren't relevant to you at this point in time. You can never have too much knowledge.

Only once you have educated yourself, and you have a clearer vision of what you actually want to achieve, why you want to achieve it and how you want to aim to acheive it, then you can start putting your plan into motion and moving forward.

Too many times I hear of people who invest in property for their retirement, and the plan to just 'set and forget' and then reality hits and they are being hit up with unexpected expenses they cannot afford or don't want to pay, or they are dealing with 'nightmare tenants' who often aren't actually nightmare tenants at all, or who could have been avoided with some simple due diligence or closer attention being paid to what was going on.

 

Sounds like you would be better to invest an REIT especially if you want yield It is very difficult to get half the yield of an REIT( which can give about 12%p/a) even when you do know what you are doing. Then you have all the other hassels with agents,, tenants , sewerage, vacancies, bankers, accountants, termites and councils. You do need to have a passion for it and ability to recognise rare buying opportunities when they occur. Another argument could be made that you should get out of you comfort zone.. Exposure to discomfort soon brings ambivalence to it , but as you already seem very comfortable you may want to stay that way. I find comfort gets very boring.

 

Shares not existing anymore doesnt mean they all went bankrupt. Mergers, name changes, buyouts etc

Property exposure exists in shares too. You can also diversify into international shares via etfs.