Investing in the regional Victoria.

Discussion in 'Investor Stories & Showcase' started by Bee-mumma, 28th Jul, 2020.

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  1. Bee-mumma

    Bee-mumma Well-Known Member

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    G'day people.
    Yeah. We have been working hard to build our IP portfolio again. I'm listening to the figures and not a whole lot of 'gurus' who tend to want to spruke their investment seminars and a lot of them have conflicting strategies.
    To me this means that there is more than one way to be successful at this whole Property investing caper :)

    So here is the strategy that we have come up with;

    I like to keep to the LOW end of the market, and work with standard, 3 bed, 1 bath homes. But, yes, lower end of the market means that under $200,000 for a home is ideal, but we have never purchased a property higher than $250,000. For that reason I think I have a little bit of a fixed mindset when it comes to this. Maybe I'll need to work on this. Well... things are getting heated and it is VERY hard to find homes in this bracket even compared to the start of 2020. I figure that at under $200,000 most properties will see an increase...

    We look at high yielding property that are 7% and higher.

    Towns need to have infrastructure, work, and developments going on. Hospitals, multiple schools, limited zoning for schools. They need to be thriving.

    I'm not looking for a renovation. The more livable the better. But we do work on the properties to make sure that they are in good working order before we lease them out. So a few missing door knobs, or a little cleaning. Some elbow grease, getting everything functional. But I've got a real soft spot for 1940s homes... and yep, this caught me off guard and we did some major work to a rental property we purchased earlier this year.

    Property that has high rental demand. This of course is a driving factor of that rental yeild.

    Good lifestyle in the area, close to shops parks and schools. I also like them close into the town center, as this means you can walk into town. Just convenience. You know, 3kms or so to the closest supermarket, bus stops close by ect.

    Break down of our base costs for properties to fit my model;
    - Rates, around $1400-$1800 a year per property.
    - Water rates, around $620 - $990 a year.
    - Insurance, new property around $600-$700 a year. (Because of the insurance embargo on LL insurance, around $900-$1000 with LL insurance)
    - REA agents fees- this area they are between 5-6%. Multiple properties have reductions.

    We are just about to go unconditional on our third property this year. What a ride. I never thought we would get to this point to be honest.

    No. They are not dumps. Just saying for anyone who is thinking that they may be.

    Just hoping that by sharing our experience, others may want to comment on their own investment strategies that are working for them. The mindset that they are in when buying is also really fascinating. From people that are out there, IRL working their own strategies. I'd love to hear your comments.
     
  2. wilso8948

    wilso8948 Well-Known Member

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    Awesome. What made you target the "lower" end? Lower PAYG? Like cashflow? Spread risk?
     
  3. Bee-mumma

    Bee-mumma Well-Known Member

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    @wilso8948 this is an excellent question and really delves into investor mindset. Thank you for asking.

    So there are many reasons why we choose to strategize this way. But here are the main ones;

    1. Entry level to get into the market allows us to enter the market quicker. This is a huge plus to these homes. A 20% deposit is achievable on $200K... when I look at 750K, that isn't for us. It would take too long to achieve and by that time prices may have increased substantially.
    2. When you look at the costs of purchasing. We need to factor in stamp duty. Yep, now this is massive difference. So, a property that is worth $200000, we are looking at purchase costs of under $10000. This is still A LOT. But when you look up the stamp duty on say a $500K, it's going to be around $28000. That is another year or so of saving, just for the stamp duty.
    3. So yes, the costs of getting into the market are much lower. Also, the base costs of owning the house is less. Rates, are calculated out on the price of the property. Lower end properties simply have lower costs involved.
    4. The properties often come with yard space, for future development if need be.
    5. They are in essence good homes for a lot of people. No, not shiny and new. Probably not inspirational properties but they are great houses for people that are just looking to have reasonably affordable housing. We have people that need these places, and so demand is really high. We can select the right tenant with our agent. A lot of women in particular find themselves trying to find a solid base to live, that is affordable. Divorce rates have been rising. People find themselves in tricky situations, pensioners ect finding they need a place that is reasonably priced. This is unfortunately, a growing market. We also have an abundance of people that are between houses as they are waiting for their properties to be built. Thanks to the government stimulus. And a lot of these people are good people! Just saying.
    6. So the rental yeild is often a little bit higher with these properties, while the costs of ownership is lower. We can still get great tenants. Demand for these properties is high.
    7. Future forecasting. Capital growth on the horizon. We are holding these properties for a couple of decades.
    8. While more expensive houses at the top of the market fluctuate greatly. The bottom of the market in affordable housing stays stable, or increases. Most of the time, we will see gains. It's unlikely that houses are going to drop huge amounts in this price bracket. It isn't likely that houses in this category are going to remain under the $200K mark for long, and in fact that is what I've been seeing over the last two years. Currently, the properties in this bracket are really limited compared to a year or two years ago.
    9. We like them vacant. But in high demand. This is for a few reasons. if we know that the property is vacant but in high demand we can put a market price rent on the property. Compared to currently, if we buy a tenanted property, then we have to keep the rent as is while the Covid moratorium is on for rental increases. We also cannot increase the rent by more than 10% in a calendar year. So, this means that a lot of properties that are tenanted are obtaining rent that is way below market value and it will be difficult to bring that rent back up to market value being that you can't greatly increase it and also you can't evict the tenants.
    10. As the property is vacant we can look at the property, address any issues and solve them before tenants move in to make the properties as maintenance free as possible. Buying a property vacant means that building inspections are done more thoroughly. Simply, you see more of what is going on with the structure. This benefits us, and the incoming tenant, and also our REA as they know that there won't be as many issues.

    So the lower end of the market, just seems like a win all round. From our point of view, we are working on our retirement plan and being more self sufficient. From the tenant's point of view they have lower cost of living. We aren't looking at a get rick quick scheme here, ours is longer term. Thus, we should see capital growth as well as rental yeild and we will eventually pay them off.

    PAYG, we pay tax at the end of the financial year. And we are not making huge amounts as the houses are close to cost neutral. When we start them, they are slightly negative depending on how much work we put in to make sure they are good to rent and in good working order.

    Hope this helps answer those questions. And.. sorry the response is so long.
     
  4. wilso8948

    wilso8948 Well-Known Member

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    @Bee-mumma Thanks for your response. I've ridden through many of the towns you look in to. Great spots.

    Can I dive a bit deeper and ask what's the attraction to getting into the market quicker? And why the smaller deposits are attractive?

    I'm curious as I am similar. I'm on a reasonable income but with a family and quite impulsive by nature I find it a slog saving large deposits too. I'd rather pull the trigger on multiple properties as a forced savings.

    The cashflow v growth/ quantity v quality debates have been done to death on here. Much more about people's personal circumstances and mindset regarding the decisions they make.
     
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  5. Bee-mumma

    Bee-mumma Well-Known Member

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    @wilso8948 Reasoning- well... we aren't rich! Not upper crust, not elite, not earning hundreds of thousands a year. So time spent saving is an important factor for us.

    2A 4C Family, we work hard, but often are earning less than what is deemed the average. So, it's not just forced savings but this is for our retirement. Superannuation is well, non existent. We literally scrimp together deposits to do this by careful budgeting and a lot of time spent making sure that we stay in our budget. Our own house is not a mansion, it's average. We live within our means.

    I think a lot of people are so afraid of jumping into investing that it becomes prohibitive. Often people do analysis for years! LOL, it's a thing analysis paralysis. Once they decide it is the 'right time' BAM things have changed and that situation has past and you need to do all the analysis work again. Mindset has much more to do with investing than any other factor.
     
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  6. JetstreamVic

    JetstreamVic Well-Known Member

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    @Bee-mumma

    What areas are your targeting?

    Had any lemons yet (hope i don't jinx you)
     
  7. wilso8948

    wilso8948 Well-Known Member

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    Great job. Your honesty and authenticity is refreshing. Best of luck.
     
  8. Bee-mumma

    Bee-mumma Well-Known Member

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    Not really 'lemons' but we have encountered issues that we have had to resolve. It's a huge learning curve and I'm always learning more.
    The houses are all pretty good. Some need a bit more $ and elbow grease than others. We have come across our fair share of REA that are below average and also some really poor tenants.
    All can be worked through.
     
  9. spoon

    spoon Well-Known Member

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    I really find this paragraph encouraging, in particular, to those with excuses that they don't have enough even to live on, why bother about investment such as real estate. We all have to start somewhere: there is a will, there is a way.

    Start small and build up. For younger people, this is really important. It is "time" which makes an investment bear fruits. Of course the investment got to be a right one, but your analysis is very well thought out and sound.

    Good luck with your journey! I hope you will continue to share your journey as even I enjoy reading it. Well done! :)
     
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  10. Bee-mumma

    Bee-mumma Well-Known Member

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  11. Bee-mumma

    Bee-mumma Well-Known Member

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    Well I am very happy with how things are going at the moment. Our recent addition to our property portfolio is due to settle early September.

    We have been able to put the property up for rent, and I was very pleased to have a call from my REA who gave me the details of some prospective tenants. A young couple, that are moving out of home for the first time. A great home for them to start out with. I happen to know the couple, and my heart is full of joy that I can be part of their progression into adulthood. I'm not sure they know who the land lord is though, as it is going through the real estate agent. They have already paid their bond, plus four weeks rent in advance. A great start.

    Breakdown of the figures,
    Purchase $190K
    Outgoings per year- Approximately $13540.34 Including repayments, insurance, rates, water, REA fees.
    Rent- $280/wk, $14 560 a year.
    Income - $1019.66 per year

    Reinvested- that $1000 already, to purchase wardrobes, smoke detectors, carbon monoxide detectors, window coverings and more kitchen storage to be installed on settlement. So fingers crossed nothing else crops up in the first year. We will be going over the property carefully before handing the keys over to the tenants to reduce any issues that crop up. I've asked our solicitor to draw up a licensing agreement to obtain early access to the property so that we can get the property up and ready for our tenants at settlement. But haven't heard back from the vendors conveyances yet. The work carried out shouldn't take too long, but it would be good to get it done early.

    I also happened to be walking past a property that was on the market at the same time as the one we recently purchased in the same street. To my delight, a young mum and an elderly gent was working on it. Ladders, paint and building supplies looking like they were ready to get renovations started. This was a property that was sold in a blink of an eye. I think it is a great thing that it will be looked after and houses in that neighborhood are being 'done up'. It helps confirm the notion that this is an up and coming area for young couples.

    All in all, things seem to be going along smoothly. However, I need to make a call to a REA about rent in arrears on one property. Just a few days, it hasn't happened before, so I want to check on that situation. We also spent some of our weekend last weekend cleaning gutters for another property. Another property needs attention today, so my husband has headed out to look at that urgent maintenance issue.

    Investing in property is indeed doable if you look at properties that are cheaper using the strategy above. However, I wouldn't say that it is glamorous work cleaning out gutters and working weekends...LOL... loved it anyway. I think because I am looking long term, at having some passive income in my retirement.
     
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  12. MTR

    MTR Well-Known Member

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    Good work

    Would you care to share an example property??
     
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  13. PropDir

    PropDir Well-Known Member Business Member

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    Hi Bee-Mama - interesting thread. Could I ask which types of areas have you invested in as you have built up your property portfolio? You mentioned you focus on properties under $250k - could I ask which states are you investing in the past, and are there any particular suburbs or regions you have invested in?

    You also mention you have a soft spot for 1940's homes - are most of your investment properties based on buildings this old? I have always tended to keep away from anything this old simply because of age, and wear and tear, it feels like there are so many unknowns - so I am curious to know how you manage the risks associated with this, and if you incur high maintenance costs.

    Your approach does seem interesting though, and the fact you focus purely on <$250k properties with minimum 7% yield. How has the capital growth been across your portfolio based on these types of investments since you started investing?

    Thank you.
     
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  14. PropDir

    PropDir Well-Known Member Business Member

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    Hi Bee-mumma - those figures look pretty good. Also further to my last message, I saw that the thread subject refers to regional Victoria, so I am assuming here that your IP's are all in VIC. Any specific areas you have looked at such as Ballarat, Geelong etc?

    Your example reminds me of one of my investments in a regional area in NSW (West Tamworth), where I purchased a cashflow positive investment for $170k but it did not get the capital appreciation I wanted. While my other investments have done fine, I was not happy with this particular investment - I didn't really lose anything from my pocket but my time would have been better spent elsewhere. However it seems your approach focusing purely on these types on investment is working for you, so I'd keen to explore how I might get back into this space with a revised strategy.
     
  15. Bee-mumma

    Bee-mumma Well-Known Member

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    @MTR I'm not too sure how happy our tenants would be to find that I have been giving addresses out for our properties as well as our costs. But I can indicate what types of homes we have acquired. Most are ex-housing commission homes.
    This one is.. VERY similar to our recent addition. 1960's 3B, 1B fibro. There are three layouts of these, and some a stucko, some fibro and some that have been cladded over.
    https://www.realestate.com.au/property-house-vic-traralgon-134092990
    https://www.realestate.com.au/sold/property-house-vic-traralgon-132322610
    Then there is the brick ex-housing commission houses, there are typically three layouts of these.
    https://www.realestate.com.au/sold/property-house-vic-churchill-133712026
    https://www.realestate.com.au/sold/property-house-vic-churchill-131652334
    Then there are the 1940's homes that I love... A lot of these were what were classed as 'banker homes' back in the day and built for bank staff. Some were more kit style homes, and were often built on site including the concrete stump foundations.
    https://www.realestate.com.au/sold/property-house-vic-shepparton-124429522

    Just an indication of the style and the cost base for purchasing.
    There is a good one I was looking at this morning... always love looking out for the deals, but we are not going to purchase more this year! (Promise!)

    @PropDir We have purchased in Victoria. We love rural property in major towns. It's where we are comfortable with the knowledge of the land, building and structural types and the demographics. Lately closer to our own home in Latrobe City Shire. Under $250K. Not 'in the past' our newest one settles next month, and we have purchased another two earlier this year.

    I have a soft spot for 1940's homes (who wouldn't) beautiful ornate ceilings, high ceilings, family layouts and hardwood features... they are swoon worthy! You do need to be aware of costs of maintenance, but I have seen more houses built over the last 10 years deteriorate faster than the homes of the 1940's ever could. The bones are solid. You do have to be aware of concrete stumps that may have been produced on site crumbling and have houses re stumped, and also you need to be aware of any roof issues. But all in all they are a good buy, a bit of love and cash goes a long way.

    Capital growth, hasn't been great. We haven't really got any real data on this years purchases. But the houses in the same area, same style are now 40K more expensive, and on average of a $200K property this is a lot within 6mths. The capital growth seems to operate similar to growing children, you don't notice it one day to the next but when they have a growth spurt you sure do! The properties at this price point seem to grow rather than shrink. The ones that are older in our portfolio have done reasonably well. But we do have one in Churchill, Vic that had stunted growth for some time. Now with greater infrastructure, a new supermarket complex going in and a whole lot of new housing estates it is starting to thrive again and the value of properties are on the move.

    I'd love to hear how others define their strategy and how they predict if an area is going to undergo a lot of capital growth. Or how the capital growth in an area has performed. Capital growth still seems quite an elusive beast to me, as I figure that it is mainly a speculative factor. It's hard for me not to focus on the figures that are achievable here and now.
     
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  16. Bee-mumma

    Bee-mumma Well-Known Member

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    @PropDir LOL! I love investigating different towns... you have me looking at West Tamworth. I guess I am just a curious cat.
    Population of Tamworth is around 42,000 people, West Tamworth around 3000... so it might have been outside my scope of a large regional town with all the required infrastructure within walking distance. Still, average prices are around that $240K, but I am thinking that there are some large properties and a few more expensive homes that would skew that data. There has also been a general decline in house prices in West Tamworth over the last year so I can see how you can get disheartened. Just remember, time helps smooth all the ripples in the capital growth.

    Did you keep it?
     
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  17. PropDir

    PropDir Well-Known Member Business Member

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    Hey Bee-mumma - yeah, the place I bought was in West Tamworth, a borderline housing commission area but it was in a relatively 'nice pocket'. The house was built brand new with corrugated iron. I bought it in 2011 and ended up selling in late 2018 for around $200k, so while I made some gain, I feel the time I spent would have been better spent elsewhere. The house also had more maintenance issues than I would have liked (although it was built brand new, a lot of the internal things like kitchen drawers, etc were installed by the developed based on second hand purchased items) so I decided to sell. I think in this case, I just decided to sell it because I didn't want to continue spending time on admin/paperwork if it wasn't worthwhile.
     
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  18. Bee-mumma

    Bee-mumma Well-Known Member

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    I'm a little bit excited today! It is settlement day.
    Hopefully we can pick up the keys later today if the bank is able to process things smoothly.
    It is a wee bit annoying. Little hurdle right at the end. The bank and our solicitor have been looking at taking out the payment for the final adjustments, but they lost the authority to access and draw funds from our account. So... the solicitor and bank are trying to make sure that it happens today so we can get the keys.

    We have 2 days to renovate before the tenants are due to take the house over!

    A little excited, a little stressed, a little nervous to get the house right for tenants in two days.

    This investing is more than just documents and getting a mortgage, you also need to actively work at it. Oh sorry... that's not what people want to hear is it.
     
  19. Bee-mumma

    Bee-mumma Well-Known Member

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    Yay! Keys in hand this afternoon. Renovation supplies loaded and ready to go. Slight issue, power was disconnected, lol, thank goodness for flood lights and battery drills. But settlement happened on time, no major issues.
     
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  20. Tillie

    Tillie Well-Known Member

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    How did the reno go Bee-mumma? Finished in time for tenants?