First time investor advice

Hi all

We are looking to purchase a first IP with a budget of $400-450k. Like most first-time investors, we're looking for something close to home where we understand the market, neighbourhoods quality expectations etc. Only problem is - we live the inner north of Melbourne where median house prices are pushing $1M.

Most people here seem to recommend investing for capital growth but anything we can get in this price range will be an apartment which will likely see mediocre CG. We may get breakeven cashflow but would not be expecting a 7% CG return. I also worry that most single family homes as investments seem to be highly negatively geared and take money out of your pocket every year. This doesn't really match with my internal expectation of an investment - it should be making me money, not costing me!

What would you recommend in our situation? Should we expand our search to the fringes of the city or to regional areas (which we know little about) to find decent houses in our price range, or can an inner city apartment actually be a good investment?

 

this is a misguided view of investing. Youve just said that it would be a good investment if you bought it with cash. Really think thats better?

 

So, what is the reason YOU want to invest in property?

 

Hey, and welcome to the forums! It's great that you're here

There's definitely a misalignment between what you want, and what's possible in your back yard

It's really common for new investors to want to buy where they 'know' - but do you 'really' know it? From an investment perspective?

If you do, it's just a matter of applying the same research skills you've used on your home turf, to another area.

TBH, it's more likely that you're familiar with your area, but you don't know it the way an investor 'should' before they dive in...

Which is awesome news, because it means you can start from scratch, and it doesn't matter which suburb you start with! Or even which state.

 

I'm not sure what you mean. Can you help me understand what is misguided about my view?

To have someone else pay off a mortgage, plus some cashflow and CG to back it up?

What is the way an investor 'should' know an area? Are there any resources or books on this topic you can recommend?

 

So will the unit in the area you're considering provide this? If not, it would pay to look outside your immediate area, city, state even, to find a property that can provide you with what you're looking for.

 

If you want a book, Margeret Lomas is a good starting point with her 20 questions book.

 

Say you buy a share that pays no dividend. It goes up. You sell for more than you bought it for. Is that a good investment?

you buy a property for 500k with a 100k deposit. Cashflow negative. To you thats a bad investment. It doubles in 10 years. Is it really a bad investment?

you buy a 500k property with cash. Cashflow positive. To you thats good. Doesnt grow in 10 years. Which is better?

in more technical speak, you have to look at all cashflows, including sale, not just rent and expenses. Then theres depreciation, refinancing, tax savings on death if you structure it correctly......

 

I think you've still got a whole lot more reading and learning to do and sitting down and thinking about WHY you want to invest in property first, working out your risk profile, and then see a broker if you haven't already (you will find using online calculators can be extremely inaccurate) to get an idea of your true borrowing capacity. And potentially build your team of professionals to help you get started before even looking at where to buy.

The very rookie mistake that most newbie investors do is to jump straight into the 'where should I buy' train before they've established their fundamentals.

 

Think the op digested certain popular investing books and think its gospel.

 

Imo this is a mindset which greatly limits your investment options. I know many people 'invest' this way. Just know its very limiting and in many ways flawed. Ironically, feeling safe to invest in a place near your home can actually increase your risk greatly. How? Because you are already starting out by limiting yourself out of many markets, as well as different price points. Price point is important because that has ramifications on finance, strategic portfolio expansion and growth, risk, diversification, cash flow, yeilds etc etc.

 

By definition if you purchase with the hope of asset appreciation, that’s speculation (on the price).

 

So........? If you dont have much, you need to take risk. Learn to manage that risk, giving yourself better odds, instead of avoiding it.