My beginner strategy.

Discussion in 'Investment Strategy' started by Ketsle, 7th Nov, 2018.

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  1. Ketsle

    Ketsle Well-Known Member

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    Hi team,

    Following on from my intro post a couple weeks ago, ive finally got round to posting my investment strategy that i may soon implement. Im hoping you guys can let me know what you think, poke holes in it, share what you would have done differently if you had your time again or were my age etc. Thanks

    Age: 23 (turning 24) with partner who is also 24.
    Wage: $75k BT, hoping if my play my cards right this will become $100k BT in 2019. Partners wage $55k BT
    Currently renting, no debt, no dependants, saving approx $1500/month towards deposit alone.

    Plan:
    Purchase first house/investment property next year assuming i can live a little more frugally and save some more. Currently have 10% deposit on $430k purchase. Not adverse to getting LMI however i'd want this to be closer to 85% LVR just to avoid paying extortionate lmi. Would be looking to purchase something $430 -$450k to get the most out of the FHB stamp duty concessions.

    Property type: As this is my first purchase (and arguably the most important), i've been looking at two separate property types for this. I would also be living in them for a short period of time before moving out and then rentvesting.

    1) Renovation - Minimum 3x1 on a decent parcel of land within 20km of perth CBD. I've been researching around northern suburbs such as Kingsley, Hamersely, Warwick, Greenwood etc. This property would be something that hasnt been renovated and needs some work, so that I can potentially purchase it for cheaper then down the track do some work on it and harvest some equity out of the renovation. Keeping in mind i will also need to be living in it for a few years.

    2) Development - Similar to above except this purchase would be a development site that i can either a)subdivide down the track when funds available, sell land and use to pay off debt or fund next purchase, or b) retain and build. Cons: The areas available for this wouldnt be my desired area to live and are generally further away from my/my partners work/transport/lifestyle etc. Con pt.2 - I can honestly say right now i currently dont have the skills to identify a development site so this option is not my preferred, would have to get in help. When i met with a buyers agent they showed me some examples of sites that they bought for clients around $430k which were subdividable and which is where i got the idea for this approach from.

    As we are quite young, both plans would be privvy to us 'smashing' down debt and putting money into the offset whilst we have limited/no dependants/overheads/significant expenses. We'd do this by living off one income and basically banking the rest. By that time (say 5 years) I'd like to think we'd have enough equity through both the renovations and paying off to go again.

    Am I being naive in this approach? What are some obvious flags im missing due to lack of experience? Criticism/wisdom encouraged.

    Hoo roo
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    sounds good

    88 + capped LMI is ok :)

    good bank for buck

    ta

    rolf
     
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  3. wilso8948

    wilso8948 Well-Known Member

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    Good work on setting out a plan. My suggestions from my limited experience would be to weigh up the renovation vs the development site and your timeframe. You would likely tackle the renovation before dabbling in any subdivision or development therefore being able to access further capital sooner in life to go again. But then again development sites can also value up just with their ability to do so.
    Also I would certainly start planning as to what your life may look like with kids, going down to one income for an extended period of time, etc. Obviously if you and your partner are looking at this in the near future.
     
  4. albanga

    albanga Well-Known Member

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    Sounds like a very reasonable strategy and well thought out. You have great income and mindset so I think your going to do well :)

    I don’t know much about the Perth market...

    1 - What’s the general consensus on the Perth market. If it’s one of stagnate or declining growth then you have more time to save and reduce the LMI (if at all). If it has bottomed out and starting to grow then paying LMI will be a good investment.
    2 - How important is lifestyle in your purchase? By this I mean are you willing to forego some potential growth offered elsewhere (less desiresble and likely a poorer quality home) to say a nicer apartment in good location but less growth potential?

    Also to consider is If your plan is to move in for a small period then to rentvest then you want to be aiming for something with good growth outlooks. This is the property you will be claiming your 6 year CGT exemption on (without the hassle of having to move into another property). This rolls into point 2.

    If It were me and I could suck it up I would buy further out on more land for the future growth outlooks. Buy something I could add some quick value to with a 10k reno and increase my rental return. Live in it for the required time to claim the FHB and CGT 6 year exemption and then move back to my lifestyle rental.
    It will probably suck for 12 months but you will be in a far stronger position than if you say bought on OTP apartment.
     
  5. Ketsle

    Ketsle Well-Known Member

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    Yeah we are definitely looking at kids in maybe 5 years time however i havnt done any technical analysis on this to see how it would affect our cash flow/expenses just yet but has been in the back of my mind. This is probably the main reason i want to reduce debt as much as possible because we'll be able to live more frugally before we have kids. Thanks for the reply.
     
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  6. Ketsle

    Ketsle Well-Known Member

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    Thanks albanga. The perth market is quite contentious at the moment! Some will say its bottomed, some will say it has some decline to go, i'm thinking we're pretty close to the bottom so anytime between now and 2 years time i'd be happy to buy. Hoping to save as much as i can in this time while im not missing out on the growth of the market.

    We would be happy to sacrifice some lifestyle for better growth definitely, I wouldnt be thinking of buying an apartment anyway so its going to have to be house and land preferably detached. Withthe 6year CGT discount you mention, is this a property we have to live in for 6 years?
     
  7. David Shih

    David Shih Mortgage Broker Business Member

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    Great idea to manufacture your own equity by doing cosmetic reno. You can do this while you're living in the place. I would definitely look for properties that have a solid bone, in which you can add value via simple reno such as new lick of paint, replace carpet/floorboard etc. If you need to renovate kitchen/bathroom that can also be done but you best to engage certified tradies to get the likes of plumbing work done properly. I guess it depends on how "handy" you are :)

    Yes, but this wouldn't be your future PPOR right? My understanding is it'll be an IP after you lived in there for couple of years.

    It's the opportunity you're seeking here I guess - It'll gives you a chance to get into the market with something that has development potential within the budget you have. On the other hand, it may also give you some extra motivation to get the reno work done and save up as quickly as you can in order to move out asap :p

    If I was you I would also pick @Westminster's brain and learn from her on what type of subdivideable sites to pick - she's the expert in WA development and also located in Perth. Treat her to something nice and I'm sure you'll get lots of value out of it :)

    Cheers,
    David
     
  8. NHG

    NHG Well-Known Member

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    AWESOME!

    I started at your age, and you are putting a lot more thought behind it that I was at that age.

    House + Granny Flats. I was like a broken record.

    Dot point comments:

    1. A solid strategy is to buy a property you can renovate whilst you live in it, then sell for profit and avoid CGT. Do a grid variance, perhaps pick up a 3 bedroom that can be turned into a 4 bedroom for the cost of a $2k wall. Can property hop this way once or twice, (talk to an accountant), build up equity, and learn some trade mangement skills.

    2. I don't know Perth well, however I'm told legislation is pro share-house/boarding house. That's a great way to pick up and convert to an actual high yield property, with gentrification, they will be gold. This may not be great for creating capital, however at your age, the cash flow will help you when you get to developments.

    3. Not to give you analysis paralysis. Another not to distant future option is to look at flipping commercial deals. Find under-valued commercial, bring rents up to market, chop up big spaces, so on and so forth. Would be a really useful skill to have, and may have more merit than resi-investing for the next decade at least. You will require larger deposits, however since you're still fresh in either style of investing, learning commercial, you can bypass a lot of the lending legislation that plagues resi-investing.

    4. Chunk deals are more important than Capital when aiming for the big leagues. This was my mistake. Rule of thumb, aim for chunk when you have under $200k savings, push for cashflow, when you are over $200k savings. This is like a see saw which will help you maintain momentum as you build up your portfolio. Eventually aim for deals where you get both.

    5. Look at opportunities to boost your income. PayG, and for the long-term, some form of business. This is where you can truly get creative with your finances for that added boost. At your current incomes, you will likely cap out at about $2M-ish portfolio.

    6. Create a to-be vision board. Not a to-have. It's easy to get caught up in the chaos of it all. Don't loose yourself. Make decisions that take you towards being you who want to be. Avoid those that lead away.

    7. Time is on your side. Stay curious. Be patient, and enjoy the journey. You'll be amazed at what you can accomplish. 7 years into my own journey, I'm still blown-away at what is possible.
     
    Last edited: 8th Nov, 2018
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  9. astonma

    astonma Well-Known Member

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    You sound driven and have a good idea what you want, i like that you are realistic about development at this point and that you would need to grow your skills and network before you know the right site, this is what i am mulling over at the moment. I think if you go for the big fish too early and don't have some cosmetic/structural reno's and a network under your belt then it could slow a person down in the long run if the site isn't right or takes ages to get to a point where they can fund the development. Don't want to get stuck with a property further out that isn't right for development or development isn't financially viable in the area. But sounds like you are already chatting with buyers agents etc which is a good start to grow knowledge and avoid a dud. If through your career you have skills that relate to an aspect of development then maybe can move onto this phase of the journey sooner like you are aiming for, or a mentor to do a JV with, you bring time and a bit of money and they bring money and experience. My first property needed $15k - $20k largely cosmetic work which was good experience for me first up, the equity over and above the financial outlay was almost a bonus - the learning was invaluable.
     
  10. Ketsle

    Ketsle Well-Known Member

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    Thanks for your reply David! Is this the same David Shih i've listened to on property investory?? Definitely agree with you on the cosmetic renos whilst living in it, i would be palming off the kitchen and bathroom to the experts though! I'm sure i will have plenty of thirsty tradie mates...

    And yeah will definitely be speaking to experts like @Westminster before jumping into anything, shame she can't make it to our meetup on saturday!
     
  11. Ketsle

    Ketsle Well-Known Member

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    Thanks NHG, have been reading your posts lately and am a big fan of the mindset stuff you talk about. Whilst i somewhat disagree with the "Just go out and start a business" philosophy i understand what you are trying to say, and i think investor mindset is something that can truly and solely be influenced by the individual without any external factors.

    I've looked into this and have considered adding an extra bathroom/bedroom onto a 3x1/4x1 as theyre really popular over here, the only thing is that in WA our construction industry is heavily dominated and influenced by a company called Midland bricks which supplies most of the bricks here. Our houses are generally double brick so knocking down a wall and reshaping the interior of the house isn't as easy as it would be on the east coast (Which are majority timber internal walls? Correct me if i'm wrong)

    What do you mean by this? Pro sharehouse legislation? As in renting out single rooms?

    Think i'll come back to commercial when i have a bit more experience, a lot easier for me to get into resi right now so i'll stick to what i know. Where did you start on your journey learning investments in commercial property? Mentors/books/online?

    Can you please elaborate on chunk deals? Havn't heard that term before.

    Always looking for ways to make more money, but honestly wouldnt know where to start. My current job is pretty intense at times and isn't strictly a 9-5, its a 'if you have a mobile phone and access to emails youre on the clock' type gig. I could only think of getting extra work on the weekends, but this would also come at the cost of my personal time. I think if i didnt have that i'd go mad. I also use weekends to catch up on any uni work/assignments but later down the track i'd consider doing extra.

    Great idea.

    Thanks for your time and responses mate, im excited for the future. (without pumping my own chest) A lot of my friends have no grasp on financial literacy or planning for the future, which kind of scares me...
     
  12. Ketsle

    Ketsle Well-Known Member

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    Thanks astonma, what was your first property like? And what type of renos did you do to it? Also timeframe? interested to hear a little more on this.
     
  13. NHG

    NHG Well-Known Member

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    [​IMG]

    I'm yet to meet anyone 'successful' who had the complete map before starting their journey.

    I'm not pro-business, as much as pro-increase income.
    I'm too lazy and impatient to be work m way up to CEO, so I had to go the business route.
    It's just another step to take in my personal growth journey.

    You're complicating it. Build within the existing footprint. Find a place with an unnecessary 2nd or 3rd living area, or a HUGE lounge room. Chop it up internally. There's a place in my portfolio, 3 bed / 1 bath / 2 lounge. Nobody uses formal lounge rooms anymore. House is on stilts. I could easily turn the large lounge into a bedroom with an ensuite. Now it's a 4 bed / 2 bath. Just see what the need in the market is.

    Investing has a lot less to do with the house itself, and more to do with understanding legislation and regulation, and their respective loop-holes. Can you get that extra townhouse in? Yes, renting out single rooms.

    Dolf De Roos has some good books. Free seminars. Asking lots of questions.
    There are some incredible commercial-investors on here.
    Sometimes you gotta sift through the spruiking to see who has really kicked some goals.
    Find them. Ask questions.

    Chunk deal = Manufactured growth.
    Develop / flip / renovate / sub-divide / etc.

    I am certainly not advocating trading time for money.
    Learn to leverage your time.

    You may notice I keep editing my posts. As I write these posts, I'm also reading www.awai.com, implementing what I read. Copywriting is a skill I'd like to learn. Take action with intention.

    Also look at better ways to do things. I once hired a cleaner for a share-house. She was trying to pay down her mortgage faster. I paid her $25/hr. I was making $2k/week from that place. We were both there for 2 hrs per week.

    When I started investing/renovating in Sydney, I lived 3 hrs away working 70+ hrs/week.
    My poor ex would sit in the car trying to spend quality time whilst I drove up and down streets, looking for property, or pulling houses apart and putting them back together.

    When I started this business, I was working 100+ hrs/week in my PayG.

    If you want to do it, you'll create the time. How to make that happen comes from years of practice. I constantly drop the ball, yet you can always pick it up again.

    A great anecdotal story to illustrate my point:
    A teacher's life lessons using a jar and some golf balls

    You'll find you start naturally start gravitating towards people with similar mind-sets.
    Both a pro and a con.

    Keep asking questions, and more importantly, take action. You'll do great.
     
    Last edited: 8th Nov, 2018
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  14. Ketsle

    Ketsle Well-Known Member

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    A question on mentors - What has been your general approach to this? Not asking for a step by step, but in your opinion finding one and then pursuing them? I'd say im pretty confident and affluent at talking to strangers so getting to know them isnt really the issue. I guess the part im struggling with is why would they help me, when they likely have a lot of their own **** going on? Cheers
     
  15. NHG

    NHG Well-Known Member

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    teach us to fish

    Why?
    It's always been organic for me. Not forced at all.
    I've only been turned down twice. By the same person. 4 years apart.

    Learn the lingo. It makes a world of difference.
    High energy people gravitate towards each other.
    People like to share their story.
    Be in action. Nothing more authentic than sharing war-stories. Deals gone bad, problem tenants.
    Your success becomes their success. People want to back winners.
    You simply enjoy each others banter. Strive for a friendship, not a mentor.

    What?
    The quality of the response improves with experience, and intention.
    Friends don't ask questions. They converse in statements.

    Asking "how do I invest in property"
    Will get a different response than "I'm struggling with this easement. They are asking too much. I've spoken to neighbors, I've gone to Council with 3 proposals by ..."

    The quality of the answer depends significantly on the quality of the question.

    How!
    Example 1

    I would pull over every time I saw a construction site.
    Ask who the foreman was.
    Find out who the developer was.
    Research the developer, read up on their story.
    Go to their office, knock on their door.

    "Hi, I'm xyz. I saw your site at xyz, and read how you did xyz. I'm just starting on my journey and if you were willing to take 15 mins over a coffee, I would love to hear more about your journey".

    Those 15 mins usually turned into 2 hrs. And that one meeting, became a regular meetup over lunch.

    That lunch may turn into me doing some research for their latest project.

    Example 2
    Dad asked me to pick up his friend post surgery.
    Started talking to this 90 yr old guy in the waiting room.

    "Blah blah blah"
    "I really enjoy real-estate"
    "Blah blah blah"
    "You also like real-estate?"

    Turns out he was a developer who did deals in Manly decades ago.
    Just talked and talked for hours.

    Example 3
    At a post funeral dinner.
    The were cooking kebabs.
    Struck up a conversation with an friends dad.
    Asks me what books I'm reading.
    I mention 'The Secret'.
    He goes on a hilarious monologue about how if you want a kebab, the kebab won't come to you, you have to walk over, and TAKE the kebab.

    Turned into weekly mentoring sessions at his place with his kids.
    Didn't know he was a business man.
    He was my first business mentor.

    Example 4
    I've caught up with a young investor 3 times last week.
    His energy is simply contagious. Reminds me of me at his age.

    He shouted me a coffee, brought his notebook and scribbled notes.
    Two days later, he sent me 3 deals he was working on, and inquired about how I'd word a couple of emails he'd written.

    Three days after that, he called me as he was about to lock in a deal and wanted to pick my brain on a couple of things.

    I've since invited him to have a last minute dinner with a friend and I.
    Turns out they had a casual chat once at a conference.
    That chat had unknowingly led to me via Property Chat.
    During dinner, this guy realises my friend owns a business he had wanted to intern at.
    #Networking.

    This is a guy who is in action. I'm happy to invite him along to meet and greets.
    Doesn't take up any more of my time, and he adds value.
    I've learnt as much from him as he has from me.
    Like a bee cross pollinating ideas from mentor to mentor.

    He'll overtake me in a couple of years.

    Likewise, I take time to give long responses because you seem quite genuine in your curiosity.
    I think you'll do spectacular.
     
    Last edited: 8th Nov, 2018
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  16. Ketsle

    Ketsle Well-Known Member

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    Really appreciate everything you've said so far so cheers for that. It's all onboard now. I think the above quote is my favourite. Kind of reminds me of my and some of my friends personal relationships. When they were out desperately searching for a partner, they came across people that werent suited and settled for less, ultimately ending up unhappy. When i was strictly in the 'no dating' zone, I came across the girl i will likely marry :)

    Hoping that through my interactions on this site, meetups, and generally speaking to people with the same interests, I might just come across some people I can go fishing with.
     
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  17. David Shih

    David Shih Mortgage Broker Business Member

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    LOL you made it sound like some sort of reality show...but yes that's me.
    Yep, definitely get your tradie mates involved but I would also suggest you do as much yourself as you possibly can (and what you're comfortable with). We all learn by actually doing.

    Cool. I think you'll actually learn more from her in a 1-on-1 scenario rather than at the PChat meetup where she can get pulled into different conversations. So could be blessing in disguise :)

    Cheers,
    David
     
  18. astonma

    astonma Well-Known Member

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    Two bed house, similar to what you want to do i lived in it for 10 months and slowly chipped away on my weekends. New bathroom, painted outside, new hotwater cupboard and cylinder plus heatpump, did all the painting and tradies for the rest.

    In terms of mentors like NHG says i think its about showing genuine interest in what someone is doing and asking authentic questions, if you ask someone their story more often than not they are more than open to sharing.
     
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  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Wow high praise @David Shih !!

    Sorry @Ketsle i haven’t had much input on this as it’s been a hectic week juggling the additional load of running a site for Open House Perth this weekend. Anyway I’m always happy to have a chat if you buy me a coffee. Passion is contagious and I will talk your head off.
     
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  20. Ketsle

    Ketsle Well-Known Member

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    That's all good! We all lead busy lives :) And yes indeed i'll be taking you up on that!
     

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