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Questions to ask when buying

Discussion in 'Where to Buy' started by daves88, 19th Oct, 2016.

  1. daves88

    daves88 Member

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    Sydney
    Hey PC

    My names Dave - Sorry about the long essay – I seem to be on PC more than FB these days…(I hope i have posted this in the right section)

    After spending a bit of time deciding what the best thing is for the future wife and myself – we have decided that the Sydney market is a little over the top to be purchasing where we want atm. (at least in the areas we wouldn’t mind living in)

    I would rather have spread risk with minimal debt instead of waking up every morning with a $700K mortgage for one property we are living in and not generating any rental income/putting a dent in the mortgage after 10 years.

    We are now thinking to purchase a couple investment properties and rent as close to Sydney CBD as possible. (and take advantage of my jobs 90% lend with no LMI)

    Our thought process is start a portfolio with properties with a decent yield (hopefully cash positive), and has decent capital growth (I understand that it’s generally one or the other – but finding some kind of balance would be good)

    The properties should ideally be a house with a decent block with the opportunity to add value either immediately or over time. Unless someone else thinks apartments/townhouses will also do the same job.

    Now here are the questions:

    What’s your train of thought when purchasing an IP? (Start to finish)

    What process leads you to the State/Suburb you end up buying in?

    What websites are you using to rely on data?

    What trends am I looking for in certain States/Suburbs? (and how do you find these trends)

    What are the key characteristics you are looking for in the property and where to buy?

    Do you guys only rely on realestate.com & domain when locating properties? Or are there other options?

    I always here of people owning X amount of properties. – But never hear how $XXX,XXX,XXX of debt lets them sleep at night? Is this something that lets you sleep at night?

    Thanks in advance
     
  2. Big Will

    Big Will Well-Known Member

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    What’s your train of thought when purchasing an IP? (Start to finish) Find budget, find suburbs I know about if nothing matches then either increase budget or start researching further and further out. I would only look at Syd, Melb, Bris but I know little about Sydney so yet to purchase (or look there).

    What process leads you to the State/Suburb you end up buying in? Budget & Knowledge and where I feel there is value. E.g. One suburb might be 1M and the very next suburb is 500k could be some real chance of growth if the suburb changes around when people are priced out of a suburb.

    What websites are you using to rely on data? RE.com, domain, homehero, reiv auction results, PC, anything that I can use. Flood maps for Brisbane how long is a piece of string?

    What trends am I looking for in certain States/Suburbs? (and how do you find these trends) New forms of development (check council & newspapers), look at the median house price if it has been flat for a while it might be worth looking into as it might time for a increase (see property clocks in a way).

    What are the key characteristics you are looking for in the property and where to buy? Could I live here, if I couldn't live there what sort of tenant am I attracting. If the street appears to have full of issues (e.g. abandoned cars, don't feel safe) then this will reflect one in the price but also the issues you may have with tenants. Otherwise close to infrastructure (e.g. trains, schools, shops).

    Do you guys only rely on realestate.com & domain when locating properties? Or are there other options? Mostly yes - if you get a good relationship with a REA then can assist you in getting properties off market in a quite market... Boom times it is more take a number and hope you get serviced. However once you miss out on a property you will find you will get a lot more attention as they can see you were a serious bidder and have money to spend now.

    I always here of people owning X amount of properties. – But never hear how $XXX,XXX,XXX of debt lets them sleep at night? Is this something that lets you sleep at night? I would be happy with 1 billion worth of debt and could sleep easy at night if it was manageable. If my Assests were 5 billion and debt 1 billion it is likely my portfolio is CF+ and any sort of issues are a lot easier to ride out due to one the cash buffers or the ability to get access to cash along with the rents would like assist in covering any incidents.

    I spend more time PC than FB so keep reading and learning.
     
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  3. daves88

    daves88 Member

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    Big Will!! thanks for the lengthy response... it has given me motivation to start on the right path.

    I'll be curious to see how others also operate.
     
  4. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    I might be a bit more general, in the interest of time.

    I work out what my goal is. Determine what I need to buy to move my closer to my goal. Determine where each state/area is at in its own property cycle. Tap into the knowledge/experience of investors with a track record to find out where they're looking/buying, ask for their reasons then investigate to refute or confirm.

    Some of the keys for me.
     
  5. daves88

    daves88 Member

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    Thanks for that Steven

    Is there a certain budget you like to stick to per property? (E.g Nothing over $500K?)
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    Melbourne
    Usually starts with
    "Oh man - this tax bill....!!"
    "Can I afford another IP to kill my cash flow without starving ourselves and pay less tax?"
    (Hang on - didn't someone say tax shouldn't be the main motive? :D)

    Suburbs I know that I can leave my car for 10 minutes (or longer) without it going missing or broken into - through experimentation.

    Also through talking to people on the ground (where my friends/relos are)

    That leads to places I frequent or can frequent.

    re . com
    auhouseprices for auction results

    Chinesification - spillovers from neighbouring suburbs popular with Chinese (generic -not just mainland)



    Affordability - for me and tenants
    Vacancies (Can I get tenants)
    Demographics of tenant base (can I get rent out of the tenants)
    Land content (does it have future dev potential, even if not now)
    Geographic dispersion where possible (different subs, cities) within the parameters above.
    Length of time on market
    Passed in a Auction(s)


    re . com


    Official Explanation:
    Sleep fine. Select your properties so the net tangible assets are positive (i.e. in worst case you sell and pay off debts)

    Alternative explanation:
    Sleep well after getting your friends to pay for dinner/drinks because you declare yourself extremely poor with millions in debt and no money (this is true because you have no cash flow after buying so many cf- IP's ~ well at least your tax is now <10%) :cool:

    The Y-man
     
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  7. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Short answer: no.

    Of course, has to fit into my plan (be within my means, allow me to get into the next one and the next one and the next one) but no sense in setting artificial limitations "just because" IMO.
     
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  8. Leo2413

    Leo2413 Well-Known Member Premium Member

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    "daves88, post: 292659, member: 7068"]

    I'll be brief because really the answers to these questions are very, very long and depend on quite a few things.

    Now here are the questions:

    What’s your train of thought when purchasing an IP? (Start to finish)
    Has to match my risk profile, meet my finance needs, be BMV, able to add value and most importantly get me closer to my goals.
    What process leads you to the State/Suburb you end up buying in?
    Property clock, Suburb cycles, value for money areas, rippling effect phenomena

    What websites are you using to rely on data?
    Rpdata, rea, domain and a few others.

    What trends am I looking for in certain States/Suburbs? (and how do you find these trends)
    Supply reducing, demand increasing, some confirmation that 6 o'clock is behind and price action is moving reflected by stats changing eg SOM down, ACR up, QTR CG increases month on month, Vacancy rates down, DSR up, DOM decreasing, Discount% decreasing, to name some,

    What are the key characteristics you are looking for in the property and where to buy?
    This will depend on your goals and the strategy employed to achieve them so will vary from investor to investor. For me its a property that I can get BMV, add value in some way and manufacture my profit from day 1 without having to rely completely on market movement. Also needs to have good key market indicators such as employment, infrastructure, transport, etc.

    Do you guys only rely on realestate.com & domain when locating properties? Or are there other options?

    Depends on your network. I have found deals from rea, domain, but mostly the best deals I have found were brought to my attention by agent contacts, architects, town planners and builders. Needless to say they all get regular xmas cards, new year cards and all kinds of smooches from me :)

    I always here of people owning X amount of properties. – But never hear how $XXX,XXX,XXX of debt lets them sleep at night? Is this something that lets you sleep at night?
    I sleep like a baby. And the reason being is I understand my risk tolerance and don't invest over it. It will be different for each person.
     
    Last edited: 20th Oct, 2016
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  9. Phase2

    Phase2 Well-Known Member

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    Perth
    Hi Dave and welcome. :)
    1. Train of thought.. "hmm I have some cash/equity that's not doing anything.. ok lets' see what I can afford for next IP".

    2. What's boomed, what's moving up and what's moving down?? I look for areas moving up (less risky), or maybe that have been flat for a while but should be moving (bit more risk).

    3. Whatever I can find. I try and piece the info together to see what patterns exist.

    4. Basically the same as 2. Also keep an eye on stats for days on market, auction clearance rates..

    5. a) I don't have preconceived notions on "what" to buy. Generally though I look for something with upgradable potential. Doesn't matter what kind of upgrade, it could be a splash of paint, major reno, facelift (change street presence), knockdown and rebuilt, lift and build-in underneath, slide and subdivide. I haven't done all of these, but they're ideas that I run through when I'm looking at a property.

    5 b) I like to buy near good infrastructure, can be anything from decent schools, major hospital, good transport links and/or any other point of interest that creates scarcity/desirability. e.g. close to beach or water views?

    6. I've only relied on RE sites, but I haven't bought that many properties. Buyer's agents can be a useful resource.

    7. I don't lose sleep over debt levels. If my IPs expenses are covered by the rent, I could sleep easily with $100M in debt, probably quite happily too!

    As a final note, I don't have an end-goal. I'm just working out what works for me, testing different ideas and investing as soon as I'm able (equity/servicability and BUFFER dependent).
     
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  10. daves88

    daves88 Member

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    Exactly the answers i'm looking for! Greatly appreciated by all!!!

    Now that i have an understanding on WHAT i'm looking for; the challanging part is WHERE.

    The flavour i'm sensing from the forums is Brisbane/Adelaide and maybe a little bit of Melbourne.

    Basically i have never explored the above - Am i best off googling suburbs with train stations/universities/hospitals and basically anything within a 10km radius from the CBD?

    OR should i be searching for new areas with planned infrastructure?

    And then working backwards with Budget/Properties i can add value to? Or find properties based on yield & recent CP?

    Is it worth doing the above in Sydney still?

    P.s do you guys fly over to visit all of these places you purchase interstate? or all over the phone/email?
     
  11. Phase2

    Phase2 Well-Known Member

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    Some planned infrastructure never gets built...
    I'd stick with proven or in-progress infrastructure.. 10km of CBD is nice if you can get it, but areas with prox. to good transport links and with other desirable features will probably also be quite good if you can't afford inside the circle.
     
  12. Scott No Mates

    Scott No Mates Well-Known Member

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    Do you only buy in areas of low demographics?
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    Yes I fit right in with them :D

    The Y-man
     
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  14. MsAli

    MsAli Well-Known Member Premium Member

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    Hi Dave - suggest checking out our blog. Will answer a lot of your questions.

    What’s your train of thought when purchasing an IP? (Start to finish)
    Do you mean when starting out? I'd have a goal and figure out what's possible for you. It's well and good to buy 1 property, but what about the one after and the one after that. Investors are often thinking about the next deal and the one after that when accomplishing the current one.

    What process leads you to the State/Suburb you end up buying in?
    Property Cycle, rental returns available, supply & demand, fundamentals [retailers, industries, government etc investment]

    What websites are you using to rely on data?

    A number of those - Price finder is what we have found really useful

    What are the key characteristics you are looking for in the property and where to buy?
    Figure out your negotiables and non negotiables....that would be a good starting point

    I always here of people owning X amount of properties. – But never hear how $XXX,XXX,XXX of debt lets them sleep at night? Is this something that lets you sleep at night?
    Buy cash flow neutral to positive / Have adequate buffers in place. Property numbers versus portfolio value are two different things
     
  15. wombat777

    wombat777 Well-Known Member Premium Member

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    In a nutshell I look for signs of gentrification or factors that will drive gentrification ( such as government investment in an area through infrastructure/transport or drivers for urban change ).

    Try and find properties close to amenities such as shops, transport and schools, etc. I avoid the outer-reaches of suburbs.

    I also look for downstream potential to add value. i.e. Sites that you can buy+hold now with a respectable yield but do something down the track such as a small development.

    allhomes.com.au is a good resource as it allows you to research dimensions of blocks.
     
  16. daves88

    daves88 Member

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    Good advice! Note taken
    Done :)
    Thanks wombat :)
     
  17. daves88

    daves88 Member

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    Basically i have the tools & i know what i'm looking for.

    I think i'll work my way around NSW then head into Brisbane?

    Thanks