New Investor; Looking For Experienced Opinions

Hi all,

With 2020, the year of vision, just around the corner I am about to set off on my journey to invest in property. I have already sought pre-approval and can afford to buy around 500K. This can be stretched to 550K if need be.

My goal with property investing is to create passive income of 100Kp.a to supplement my super at retirement. I am 33 years old now and anticipate retiring around 65. To achieve this I have 32 years to end up with a portfolio of $2.5M yielding 4%.

Right now my biggest fear is that if my first investment is a poor one I will slow the momentum of my portfolio making it harder to achieve my goal.

For my first move I am looking at Brisbane's north side. I am somewhat rigid with this as I will be a first home buyer and will live in this property for the first year to get FHB concessions. I am already established on the north side so there is a strong appeal to stay around this area.

The two options being considered are the rail corridor between Keperra to Ferny Hills or Strathpine to Bray Park. From my analysis Strathpine/Bray Park is looking like a better option on paper given my situation; it has lower out of pocket costs and the benefits of holding this property have a higher net present value. Summary of my analysis is attached which were generated from the analysis spreadsheet. I can elaborate on the workings and assumptions of the spreadsheet if need be.

Like a good economist I am swayed by the higher NPV which Strathpine is offering. However, I can't help but feel more attracted to investing in Keperra. It is closer to the CBD, seems more established and I am more familiar with it having lived there before.

This is where I am reaching out to experienced investors. If you were presented with the situation I am facing which way would you go? Are you seeing something glaring in my analysis which I am missing which would sway you in one direction? Again happy to elaborate/clarify any of my workings and I welcome any feedback as unfiltered and as brutal as you'd like to give it.

 

Considered inflation and ppor requirement?

 

Don’t be too rigid from the outset by trying to pick one area.

You have identified two specific areas of interest, and I suggest you get to know both, then look for a good deal within those two areas.

When we bought our Brisbane PPOR, we searched two areas, one on the northside and one in the southside. We finished up with 3 choices, one north and two south. In the end, we bought on the southside simply because that was where we found the best value, for us - a bigger house on a larger block of land.

 

Yes I have accounted for inflation. The way I see it is if I wanted 100K p.a in todays dollars at retirement I would need to aim for 160-220K in passive income in future dollars. Assuming 4% yield I would need a 4.2M portfolio using current inflation @ 1.75% or over 6M using an inflation rate of 3%. I see 100k in future dollars being the equivalent of about 40K in todays dollars.. that plus the proceeds from my super will at retirement help me to maintain a desired level of income.

I have excluded our future PPOR out of this analysis as I am looking at the benefits of an IP portfolio only. One of the columns in my analysis is Out of Pocket % of Wage. I am currently saving about 35% of my wage so this is my target to keep investing expenses under. The remaining 65% of my wage plus my wifes wage go towards living and leisure expenses which currently includes rent. In future we would want our rent repayment to be replaced by PPOR repayment.

 

Thats all fine, but youll need a deposit for said ppor? One issue people run into is the PPOR needs a bigger deposit that they thought. Though this might be less of an issue if you want a Brisbane ppor.

 

Thanks Marg, sounds like I need to open my mind about going south of the river

 

That is correct and it is starting to go to the heart of my dilemma. Investing in Keperra will tie up more of that 35% of income I have to save and invest with, Strathpine ties up less. The crystal ball like question I am trying to answer is:
1. Do I invest in the Keperra region on the hope that CG will be sufficiently better providing me with usable equity
or
2. Do I play it safe and go around Strathpine where I would be able to save more of my salary.

 

Not necessarily. In our case it was because hubby and I had different favourite areas.

In your case, it is simply that your two preferred areas are on the north side. My point was to look in both areas to find the best deal for you.

 

Do you have the ability to add value while you live in it? If so it widens the options to Keperra, Everton hills/park, and Stafford/Stafford heights. Worst house mid 5s, can quickly become 6s and 7s if done correctly and then your well on your way to number 2.. something to think about.

 

I find it odd that you focus so much on mathematical analysis instead of getting out there and getting experience valuing and doing DD on potential purchases - go out there and do that!

 

That's the last thing you'd wanna do - analyse real estate and plan for wealth creation like an economist would.

Imo it's a great misconception that investing is all about the numbers. Economists are famous for their numbers and usually void of all other factors. It's often the other factors which have a huge effect on how wealth is created.

@Codie questions is what you'd want to start looking at.

 

Which one is easier to get parking at the train station?

 

@Codie Yes I am open to doing renos. I am not the handiest but happy to learn/accept my limitations/call in professionals where required

@Sackie Thanks, I take your point. There are important factors that can't be quantified and plugged into a benefits analysis

@thatbum Thanks, I hear your point loud and clear too. I have a sad love for playing around in Excel and this spreadsheet was a supplement to getting out there to open houses and auctions, admittedly I need to gain much more experience on the ground getting a better understanding of value in property

@Angel I think the best two stations in terms of parking are Ferny Grove or Petrie. Hot tip though for those not familiar with Brisbane, there is plenty of un-metered on street parking near Oxford Park station (next station after Mitchelton). You will still easily get a seat on the train if hopping on there.