My Property Investment Journey - Week by Week

Hi all,

I've just started to study about property investment and realised it would be a good idea to share my learnings, concerns, questions and plans on a weekly basis. I'm hoping I can look back at this thread a few years from now and be able to say three things:
- I learned a lot
- A lot of people helped me
- I helped a lot of people

I'm definitely not expecting this to be a one-way street - much to the contrary, I'm hoping that, with every weekly post that I make, there will be several new posts from people asking and answering questions, suggesting different things, sharing experiences etc. The more we talk, the more we learn!

About me: 33 years old, no kids, live with my wife in Neutral Bay, Sydney. We have about 55k in savings plus a monthly saving capacity of 5k, and we've decided it's time to make something better with this money than just leaving it in a Savings account.

I'm definitely not in a hurry, for now all I care about is learning, and I'm confident this Forum will be my best possible source of knowledge.

Thanks in advance for everything I've already learned, you guys are awesome.

 

Week 1: 19/3/17 to 25/3/17

Got a reasonable grasp of some basic concepts:
- Yield (net and gross)
- Fixed vs Variable rate
- Offset Account
- Equity
- Capital Gains Tax
- Negative Gearing
- Depreciation
- Interest-only loan vs "normal" loan
- Vacancy rate
- VLR
- DSR
- Capital Growth
- Cash flow
- Cross-securitisation
- Transfer Duty (previously called Stamp Duty)
- Importance of buying close to amenities
- What a mortgage broker does
- What a buyer's agent does
- What a financial planner does (and why it seems to be superfluous)
- The importance of having a good accountant, preferrably one specialised in propeties
- The different strategies: focus on capital growth for quick trading? Focus on yield and long-term, possibly with positive cash-flow?

I was initially considering Brisbane for a few reasons:
- I visited it a couple of years ago and loved it
- A few friends are leaving Sydney to go to Brisbane and Gold Coast
- Considering how crazy the prices are in Sydney, my uneducated guess was that more and more people would go to Brisbane, therefore it would be a good place to invest in

However, I caught up with a friend on the weekend and he mentioned he bought an apartment in Brisbane and had to rent it for $100 less than what he was originally asking, which raised a red flag for me. After reading some threads in these forums, I'm more confused than ever: Brisbane? Gold Coast? Newcastle? Melbourne? Gosford? Western Sydney?

Also read a few things that had a huge impact on me and got me thinking a lot:
- First of all, a lot of people saying that we're at the peak and that prices are definitely going down this year and the next. Some have a moderate view and just mention a correction, while others have very catastrophic predictions.
- Around 40% of all loans in Australia are interest-only - what will happen if property prices start to drop? All these 40% loans are essentially investors betting on capital growth, right? What will these people do and how will it affect the market?
- Housing affordability is a trending topic everywhere these days. Will the regulations change? How will they affect the market and the prices?
- The huge private debt in the country is concerning. Once rates start to go up (which will naturally happen), what will be the impact?

All these four items got me thinking that I'd be better off going down the more conservative path, focusing on the very long term (~20 years): buy something with neutral or positive cash-flow and let it run its course. Ignore equity to avoid getting leveraged (less risk) - instead, just keep saving 5k a month until I can buy another neutral or positive cash-flow property. And then another one, and another one, and so on. That way I'd be immune to market fluctuations (i.e. I don't care if prices go up or down because I don't want to sell, I just want to own the property in the long term) and, after 20 years, I'd have a fully paid portfolio generating passive income.

I'm pretty sure this strategy will change as I keep studying and learning, but for now this is it, based on my (very limited) knowledge.

To wrap it up: started reading "The Slight Edge", which quite a few members of this Forum recommended. Loving it.

That's it, my first week ended like this. Quite excited, but full of questions and concerns. See you guys on Sunday with the summary of my second week, looking forward to see the replies to my first week!

 

@Jose Eduardo Slompo
Brisbane has an oversupply of apartments, and this may be one of the reasons your friend had to discount the rent. It comes down to supply vs demand. If there is a lot of supply, why would a tenant choose your property over your neighbours? With new apartments coming on the market, why would a tenant choose to live in your property or rent a brand new one up the road?
Same is applicable when it comes to selling property - when you come to selling, why would a buyer choose your property over another one up the road?

In terms of where to buy - consider when the last peak was for a particular market, and how has the market performed since then? How are the rental yields?

 

Welcome to the forum.

Many of us will appreciate you posting your learning process.

Regarding neutral/positive gearing - I am in the same boat and have all the same concerns and this is where my thoughts brought me to also.

Regarding Brisbane - I also was looking at Brisbane initially.
Apartments in particular are really terrible there because they are building a gazillion of them and really this can go on for a long time with all the extra space they have. Constantly increasing supply means demand can not rise and therefore it will not grow. It is the same with Melbourne high rises since they just build straight up.
I am not sure if investing in a house in Brisbane is a good idea or not, but since houses and apartments are very different there, if you have no even looked at the possibility of a house there it might be worth at least looking into it to see what the situation is.

 

Exactly, apartments in Brisbane seem to be a very bad option at the moment. I'll do some research on houses, it might be better....

 

Good on you @Jose Eduardo Slompo for commencing on your journey and sharing with the PC community. I hope the blog will be an opportunity for you to comment, reflect and receive information that may aid you in your investment journey and minimise the possible mistakes, but then again sometimes you do need to stumble in order to grow, if that makes sense!

I've met so many people over the years that they comment on the "what if?" sort of question, but at the end of the day they do not take the initiative to commence or willing to put in the hard work to reap the reward. Some of my colleagues have houses which they have almost paid off in Eastwood, Northern Beaches, Castle Hill and etc areas but they are so fearful of losing money and their understanding/ fear of debt.

Possibly the one thing I like to add is don't buy into too many stories of people buying x amount of properties in a few short years. It can still be done but takes alot of hard work and they have had the opportunity of the relaxed lending criteria/ equity build up. I personally have been working nearly every day since I was 19......

I also urge you to have your wifey on the same page with you, because even with the best of intentions, she may be unwilling to share the same vision.

 

Yes houses only way to go in Bris!!

 

Thanks for the reply, @jins13! Yeah, I don't buy into these crazy stories either, I like to keep my feet on the ground. And yeah, having the wife in the same page is crucial!

 

It certainly looks that way, @rookie101. Do you own any? Are you looking at buying?

 

Thanks for the reply! Considering how conservative my strategy is, the main thing I'll be looking at is definitely rental yield. Any particular area you'd suggest in the 400k mark with good yield?

 

Week 2: 26/3/17 to 1/4/17

Started listening to some podcasts from Property Couch, Everyday Property Investing and The Smart Property Investment Show. Definitely a lot of interesting learnings. Two highlights for me, both from Property Couch: one about the 10 risks of property investment and another one with Ben Kingsley and his approach to Property Investment.

Key learnings this week:
- For someone starting off, it's better to avoid the high-end (prices can go down quickly) and low-end (bad tenants) and focus on the middle market instead. 400k would be a good starting point.
- When searching, it's important to be patient and try to find THE property: the one with a price that is 10% lower than average because the seller is desperate, or the one that can increase in value crazily with a simple reno, or the one that can have a granny flat built at the back to increase rental income... easier said than done, but should be the aim. If you can look at 5 to 10 properties per week, you'll eventually find THE one, even if it takes 6 months.
- Use variable rate because of the benefits (offset account, repayments). Need to be prepared for rate increases (which are already happening) by having a decent buffer in the offset account.
- When talking to the broker, important to mention the APRA changes and try to avoid being capped at the first property.
- Don't fully trust the pre-approval: the bank might change their mind once they've seen what you are investing in.
- The first property is the most difficult!

Caught up with two friends during the week and they have very different strategies:
- One of them has been investing for about 5 years in the "buy and sell" approach, with a few restrictions: he only buys what he calls "boutique" apartments (buildings with 3 to 5 floors and not a lot of units), always off the plan, always in suburbs where there's almost no vacancy rate, always using interest-only loans, always without a buyer's agent, always with fixed rate, always focusing on selling in a few years time. He's now looking at buying something in Melbourne.
- The other one is also in the "buy and sell" market, but a bit more conservative: he is planning to use a reputable buyer's agent in Melbourne who will charge him 15k for finding a nice apartment negatively geared with potential for capital growth. He wants to use variable rate and definitely wants something existing, not off the plan.

I didn't fully understand why the different preferences for off the plan vs existing, it's something I'll research more - unless someone in the forum is willing to provide some insight, obviously

A few questions still bugging me:
- Is it worth using a buyer's agent? How much effort will I save by using one?
- Location is still THE big question: Brisbane? Gold Coast? Newcastle? Melbourne? Central Coast? Western Sydney?

In terms of strategy, I haven't changed my mind during this week - actually, I'm more and more sure that the strategy that works better for me is a conservative one, either neutral or positively geared. I don't have crazy ambitions of having 5 properties in 5 years, or getting out-of-this-world capital gains, or all these crazy stories you hear all the time about retiring in a few years - there's too much risk in all of this, especially considering the economic moment we live in. I like my career and don't plan to retire in the next 20 years, all I want is to be able to slowly generate passive income as the years go by.

Still reading The Slight Edge, still loving it.

Knowledge is power! I'm loving this.

 

Jose I really love that you are keeping yourself accountable by making your goals public. This alone will get you to where you want to be and I'm looking forward to following your journey.

 

Thanks @Xenia! Making it public definitely adds that little bit of extra commitment!

 

When I started looking at investment, the first thing I did was identify my goals. Because I'm a bit of a nerd, I used the SMART methodology to document my goal (specific, measurable, achievable, realistic and timely).

My goals haven't changed, although I have to admit, I've changed my strategy because of tax changes and a few other things.

Have you had the opportunity to identify/document your goals, and how you determined that property is the best investment for achieving them.

 

Great point, @Kat. Truth is I still don't know enough to be able to have a SMART goal. I'd love to say my goal is to have a passive income of 150k/year in 20 years, but I'm still unsure in terms of how realistic (or unrealistic) this is. I hope I'll be able to have that answer in a few months, as I keep learning and understanding how it all works.

Thanks for the post!

 

Great thread Jose!

 

That seems like a good goal to me :-D

One possible framework for working out the requirements for achieving this:

$150,000 = $255,564 in 20 years (assuming inflation of 2.7%). If you use a 4% safe withdrawal rate you'll need $6,389,100 in 20 years (255,564/4%). This isn't taking into account taxes :-/

I hope that's useful and I'm not being antagonistic.

 

Week 336:

As every week, I checked whether the property next to one of mine was available. It wasn't, so I made a smartarse post in another member's thread.

 

what's that in today's money?

 

Going backwards from the 2.7% inflation quoted
((100/102.7)^20) * 6,389,100 = 3,750,000