Property Investment Analysis

Hi Folks,

New user here with a problem that I’m keen to see if others have overcome.

Got a couple of investment properties and looking for the next residential investment. Making that decision is proving incredibly hard.

Example Scenario: 1) looking for a property which is positively geared from purchase (including all outgoing costs as well as mortgage P&I). 2) total investment of deposit, legals, etc needs to be less than 150k. 3) suburb need to have <1.5% vacancy rate. 4). Suburb cannot have a history of negative capital growth.

Problem: how can I easily identify these types of properties?

Current environment:
- Reliable data comes from different locations
- Domain and Realestate don’t segregate their data to allow detailed search criteria, nor do they force estate agents to provide valuable data (so much is provided via free text fields)
- vacancy rates come sources of limited reliability
- Infrastructure development data from councils is painful and monotonous to interpret



Keen to hear if others have the same pain and if there are any tips to share on other useful data sources or approaches to selecting the next investment.


Cheers

 

How did you select the ones you already have?

 

Hi @Dan LG,

I do something similar where I focus on purchasing properties with a "Nett Cashflow" position after all expenses including loans. I usually throw in 25% of the purchase price as a deposit which helps the end cashflow position, but my criteria is as follows:
- Gross rental yield above 7.5%,
- Council rates are less than 7% of the gross rental income,
- All other expenses including agent fees, water access rates, insurances, etc are less than 23% of the gross rental income,
- Positive Population Growth for the area I'm buying in excluding natural growth through births etc,
- Regional population of over 45,000 people (so that's pretty much the size of Albury, NSW and up),
- The property must be within 4km of the region's CBD, eg: Newtown near Toowoomba,
- And finally, it must produce a minimum of $100 a week in positive cashflow in my pocket.

Amongst other things I look at the area's age groups, main employment source of the city, owner to renter ratio, etc. Generally all positive cashflow generated from all my properties go off into the smallest outstanding loan balance to pay that off as quick as possible, which then adds more fire power to the next property I buy.

Capital growth isn't big on my list as I'm mainly concerned about replacing my current income into retirement (I'm 40 now, so I'm still a few years away from that). I acquire about 1 property every 12 months, but I have noticed a massive difference in the ease of getting money from lenders (even with a bigger portfolio).

I find that tripelexes & dual occ's (Not duplexes, but houses with granny flats) probably provide best bang for buck, as the next level to buy before you start generating good income are small blocks of 4-6 units.

In relation to finding properties to buy when I first started out, I tried to set new criteria for every property I liked to buy, but then found that I had several criteria for several properties. Once I focused on setting my search & investment criteria up to suit what I needed to achieve, properties started to find me.

It's easier to have a model because once you find a property and test it against your investment criteria, it either fits or it doesn't, there's no grey areas.

I hope this helps.
Elbowz

 

I would also add: if you want cash flow positive properties from year 1, including P&I, you need to identify the suburb before you do anything else. Corelogic is best at the suburb level. Or you could outsource to a BA who would have access to this sort of data.
Cheers,
John

 

Hi @Dan LG
Your criteria is good. I am also trying to buy one a year. So far so good.

But i also try to achieve 5% yield and try to create 10% to 20% gross margin so that my one time costs are covered. This helps me to avoid lmi and pay 10% only with lvr of 70% to 75%.

I would suggest work out on the state you are comfortable with, narrow down on suburb/ area. Then start talking to agents to get the hang of the area and try visiting.

Maybe see where other investors here are investing to get an idea.
Ample threads and learning. Listen to everyone and work out what suits you.
Lastly, talk to buyers agents and see if they can find you something that suits your criteria.

Regards

 

Wow these are pretty strict criteria. Are you numbers on P&I or IO? 7.5% yield and 7% council rate...doc you mind an example?

 

Hey @Luca

I always go P&I on my loans. I understand IO is great for cashflow, but I find my strategy works better in paying off the lowest loan balances first.

A current example I'm working on is a set of 4 x 1 Br units in South Toowoomba that are part of a strata but are all under one title. They're 10 years old with a purchase price of $570k, and a rental return of $56,940pa. Deposit at 25% is $142,500, Annual expenses (Council & water rates, agent fees, strata, etc) are $13,800pa, P&I Repayments are $26,245pa, and Net annual cashflow is just under $17k pa.

Council rates equate to 4% of rent, other expenses at 21%, and gross yield is 9.99%. I try to find multiple dwellings on a single title as they work out to be the best yields with the lowest expenses due to a single payable council rate. Council & water rates are the deal killer in most properties I look at investing in.

Cheers
Elbowz

 

Thanks for the detailed info. Good strategy. There is always a debate between P&I and IO. I guess equity wise you will be pretty static hence finance your next purchase with the cash-flow and money saved each year? $17k cash flow is very high, good one What about maintenance and vacancy on these sort of deals?

 

Dan,

One thing I would say, which is discussed at length on other threads, is that I don't think it is a good idea to chase yield, particularly if you are starting young.

"Yield" is synonymous with "risk", so to get the sort of yield you want, you would be investing in secondary areas, and with it, all of the likely problems you would have.

So, if you can balance that out a little more, focus on the best suburbs that you can preferably in one of the Eastern Seaboard capital cities - and then hang on for the long term - this is the most certain path to follow in property investing.