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Getting close..

Discussion in 'General Property Chat' started by Fitzy1903, 17th Sep, 2015.

  1. Fitzy1903

    Fitzy1903 Well-Known Member

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    So getting close to my first buy and wanting to get people's thoughts on my strategy.
    Background
    * 12 months ago I decided I wanted to invest in a property. Was going to go H&L but decided against it thankfully.
    * Gave myself 6-9 months to research and analyse the property market and joined somesoft four weeks before it shut down.
    * Went to Melbourne about a month ago checking out different suburbs - chucked a few offers down but they didn't go through.
    On a side note, just about to find out who Sam picks on the Bachelor - nervous times.
    Financial situation
    * Total income with my wife - $130k. Should hopefully grow to about $170k within the next 2 years.
    * PPOR in Perth - value is $500k and am about to unlock circa (love that word) $160k of equity through my awesome PC broker. And will be splitting my PPOR and equity loans through all the sweet tax hints Terry has provided.
    The 1 year Plan
    * Wanting to buy two properties in the next six months - one in Melbourne and then in Brisbane - approximately $400k each using deposits from my equity loans (I'll be going 88% LVR on both investment loans so about $50k desposits and $25k for stamp duty and other costs so eating up most of my equity loans - the remaining portions will be cover any property expenses through the ol' recycling of debt)
    * Purchase in Melbourne (within 15km of the City) will be through a buyers agent (through a bit of research but feel I need some help for my first one to give me confidence as I lean towards being risk averse).
    * Purchase a house in Brisbane which will be done myself after leveraging experience and knowledge from my buyers agent and of course, further research and consultation with PC.
    The 3 year Plan
    * Buy a total of 4 good valued IP's (this includes the two above) within the next three years before we start to have kids - she will be a stay-a-home mum.
    The 10 year Plan
    * Continue to build my property portfolio (all long term holds) but will reassess as so many things will change within the next few years
    Back to my side note, Sam just picked Szhzhna - what a cliff-hanger.
    Questions
    1. Where are the holes? What would you guys do differently in this situation?
    2. If my initital properties don't grow, and I struggle to raise enough for another cash deposit, I feel that I'll be stuck with these two propeties (or my PPOR) until one of them grows. I often feel you need a bit of luck to get past the first few IP's quickly. Thoughts?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Firstly, one of your major flaws is that you like reality TV shows :p

    1 year plan sounds fine.
    3 year plan I'm not sure about. You'll have 4 IP's and suddenly half your household income (and increase your expenses on the little one). Are you sure you'll be able to support this?
    10 year plan sounds fine, albeit way too vague. What do you actually want / need? Secondly, if you used a BA for the first purchases then you don't learn very much, will you be able to buy on your own for subsequent properties or will you become reliant?

    1. I think you need to have a better think about what it is you're trying to achieve. You can then break this down into smaller chunks to have quarter way milestones.
    2. That's correct, so make them count.
     
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  3. Fitzy1903

    Fitzy1903 Well-Known Member

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    It's my achilles heel. It was my first episode I watched in full without my wife as she was working. Stunned myself.

    Yep, I'm hoping my income creeps up to $120-130k within 4-5 years.

    I really don't know how to approach this one. Maybe 15-20 properties by the time I retire in my 50's. Hopefully sell 50% of them to pay the debt on the others to provide enough passive income. Obviosuly having lots of money is good but I just want to live comfortably so not too fussed.

    Nah, definitely won't become reliant - just need some confidence that my first property will be a good one and ensure I don't buy a dud.
     
  4. Natedog

    Natedog Well-Known Member

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    As long as your first 2 purchases are not absolute lemons, the plan looks fine.

    It will change and evolve with time anyway....in hindsight getting started and doing "something" is the key.
     
  5. Bayview

    Bayview Well-Known Member

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    o_O

    It's one of those shows you possibly could bare to watch with the sound on mute...

    That way, you don't have to listen to any of the BS that comes out of everyone's mouths, but you still get to look at the girls.;)
     
    Last edited: 18th Sep, 2015
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  6. Be Developer

    Be Developer Property Developer Business Member

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    No holes as per se. as others said, it will evolve as you go along.

    However, i must say get right team to assist you with above planned journey, i.e Tax/structure adviser, Mortgage broker. etc.

    you also mentioned that what if initial properties doesn't grow?

    Buy properties that you can add value to it (Reno, development, subdivision, proposed zone changing, Granny Flat, etc)

    Also, in current APRA climate, you would want to make sure you have right structure and financial product that allows you to extract equity as you need it.


    other thing to consider :

    Trust you own due diligence and markets.
    Stay away from so called property spruikers and advisers (especially who recommends and suggest markets based on API and other property magazines)
    Build network of like minded property investors. (@sanj , @Westminster, @MTR to name few from perth)
     
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  7. FireDragon

    FireDragon Well-Known Member

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    How much passive income do you need in 10 years time? You may want to check your plan to see if it can achieve the passive income you need. Don't forget the inflation, interest rate rise, selling costs such as CGT, etc.

    You may also want to check with your accountant to find out the best way to purchase the properties (e.g. family trust).
     
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  8. Scott No Mates

    Scott No Mates Well-Known Member

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    My 2 cents - probably look at Brisbane before Melbourne due to its ripening position in the market whereas Melbourne is quite a bit ahead of it in the cycle.
     
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  9. Jingo

    Jingo Well-Known Member

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    Hi Fitzy,

    Good to see you've got your PPOR and are now planning to invest.


    Does this anticipated pay rise include both of your incomes?

    Fitzy, what is your current PPOR loan amount and repayments each fortnight/month? How much of your take home pay do the repayments consume?


    Sounds ok. Main thing - I doubt you'll buy a house within 15 kms of CBD in Melbourne. (In fact, you won't). Be careful of apartments - there is an over supply at the moment and you may have trouble finding tenants.

    I'd tend to look in Brisbane as Scott suggested as the market is just starting to move and you will possibly build up equity more quickly from purchasing there first. Melbourne has been moving for a while now and may be at the top of the cycle. (Or not far from it).

    Ok, have you sat down with Terry and worked out a plan to hold the properties on one income? What you don't want to happen is for you both to experience financial stress when the kids come along. You may consider:

    1) With the assistance of a BA buy a couple of well located IP's now (or within the next year). Set up offset accounts and put money into the offsets to a level whereby they are supporting themselves (ie at least neutrally geared).

    2) Once you've done this, your partner may stop working to have a family.

    3) Either pay the IP's down over time (buy adding to your offset accounts) and invest in other asset classes (shares etc), or add more resi when appropriate.

    4) You could consider a different strategy to buy and hold - buy an IP, add value by renovating, sell off, pay down PPOR debt with the proceeds and keep repeating?


    Hope this is somewhat helpful.
     
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  10. Coota9

    Coota9 Well-Known Member Premium Member

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    Would agree that Brisbane would likely offer the best market ATM.

    Like all markets only selected markets in Melbourne have fuelled the growth here,which is in the Eastern Suburbs IMO
     
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  11. Jingo

    Jingo Well-Known Member

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    Be careful if you buy -ve geared properties in a trust structure. You won't be able to offset the losses against your payg income. Many stories of this on SS - provided huge problems for the investors concerned.
     
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  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    I think this is an excellent idea for fitzys situation, except for the part about selling. Cgt, agent costs, stamps, lmi are all eating away at the return.

    Post reno you should be able to get to c.f. pos and get some depreciation. If that's all going into your ppor offset, your living expenses are reducing and you can save faster. This will provide 1) the equity growth you need to repeat the process indefinitely and 2) create cash buffer for when your mrs drops her new little bombshell :)
     
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  13. Leo2413

    Leo2413 Well-Known Member Premium Member

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    As you've acknowledged, it's going to be essential for your first few to have good growth. Imo if you haven't already you should increase your knowledge 50 fold. Using BA is fine but never make it a default position. You really need to understand this game well yourself so if the BA recommends something you think is not right for you then you have the knowledge to tell them no and why not.

    1. Massively increase your knowledge.
    2. Buy something with add value potential if you can.
    3. Try your best to buy bmv. Your BA better be a tough negotiator. The current market will also make it a little difficult but not impossible.

    All those three factors above imo will greatly increase your chances of achieving your goals.
     
    Last edited: 18th Sep, 2015
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  14. Fitzy1903

    Fitzy1903 Well-Known Member

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    Yeah, I like these points.
    S-Term - get the property to cash flow positive
    L-term - possible future development/subdivision 10-15 years down the line.
    I'm not too keen on the flipping of properies though as it involves substantial time and the profits could be minimal due to my skill set. Might stick to my side hobbies.
     
  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    Yep, flipping is a waste of time and money. Add value and keep, imho :)
     
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  16. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Be careful here.

    There are heaps of cash flow positive properties out there with poor fundamentals for CG which is what you need.

    Also be carful not to spend say 25k on reno to get the property to cash flow + but no change to valuation.

    Personally, I would rather make the cash flow situation tenable by buying really well. Add vale is great, but make sure your not 'adding value' that will only increase the rent and do nothing for the revaluation.
     
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  17. Fitzy1903

    Fitzy1903 Well-Known Member

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    Just mine.

    $350k PPOR loan amount, $1,750 loan repayments. Current monthly savings as per the master budget - $2,360.67 :p

    Nah, haven't sat down with him. I probably should contact him to get onto his waiting list!
     
  18. Fitzy1903

    Fitzy1903 Well-Known Member

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    [QUOTE="Leo2413, post: 65949, member: 85]

    1. Massively increase your knowledge.
    2. Buy something with add value potential if you can.
    3. Try your best to buy bmv. Your BA better be a tough negotiator. The current market will also make it a little difficult but not impossible.

    [/QUOTE]

    Haha, my BA would be a better negotiator than me. I should do a couse of some sort as this would probably aid me for future purchases.
     
  19. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @Fitzy1903
    These 2 books will be enough my friend.

    1. Secrets of power negotiating (Roger Dawson)
    2. A property Investors guide to negotiating (john Potter).
     
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  20. Fitzy1903

    Fitzy1903 Well-Known Member

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    Legend.
    Just purchased both!