Simple investing rules

I'm quite new to investing and trying to get my head around it. My brain works from understanding basic principles and building out so at this stage I'm trying to gather simple concepts.

Wanted some input on simple concepts but wanted thoughts on questions below as well:

- Are house prices going to continue to double every 7-10 years?
- Is the S&P 500 a better lazy-man growth investment over next 7-10?

 

Hey Zimplestiltskin,
Great to see you're giving it a go.

What you are asking for is a crystal ball.
The future is any mans guess. The past does not dictate the future.
What does work are fundamentals of what it takes to succeed.
Read: Richest Man in Babylon, and The Slight Edge.

What basic principles specifically are you wanting to learn?

 

Well for example, land is what rises (and falls lately) in value while the house depreciates and provides cash flow.

Simple thing like that would tell me that flipping/developing houses is still valid in a market downturn as long as you can buy more land than the property you sold in the same area.

I'm mostly interested in housing renovation/development because I enjoy it.

 

It comes down to the numbers.

With experience, you can still find the deals. It most certainly requires superior skill, as there is less room for error.

I have friends who are developing with recently purchased properties. They did their numbers, knocked on a lot of doors, and negotiated hard. Many are still sourcing capital for new deals.

They barely broke even on their first few developments, however they learnt how to run tighter figures for the next few. In that regard, their starting during boom times was helpful, as they learnt without it costing them financially.

I only know a handful of people who have reno-flipped recently. They made maybe $40-50k. I don't know what that was as a %. Also I haven't heard of them repeating it.

 

Yes by flipping I mean either building a small house into a bigger house or 2 small houses (subdivided).

From your experience or friends, is there a target market for sales in mind? or do they try to find whatever is under-valued? what resources do they use to find whether something is under or over valued?

 

Sounds like your stacking strategies there.

Well. It's worth what it's worth.
It's more finding a better use for a site.

Work backwards.

1. An area has x-type property sell well. Or has a gap of y-properties that need filling.

You can work that out by talking to agents/looking at profile id. Etc.

2. Work out sale price. Then reverse engineer it. How much to build, taxes, marketing, how much profit, and so on. Get quotes, look at recent DAs on council websites.

3. With the above you can work out how much you should pay.

4. Knock on doors, talk to agents, send letters.

The above is super basic.

Read Margaret Lomas 20 must ask questions. Alternatively some good courses around such as Property Developer Blueprint.

I met one guy. Probably the most succesful I've met. He built luxury homes. HUGE profit margins. So he wouldn't have had comparables to go against.

 

My opinion is no. The trick is to find a way to make money from investing in property that will be profitable if prices don't double in 10 years.

Possibly yes. That said, investing tends to return more if you are leveraged and it is easier to leverage into residential property than shares.

Are you working? Do you have super? If so, I would suggest you consider putting a little extra aside out of every pay as a salary sacrifice into super. If you can do this consistently over time then you will be ahead.

Outside of super, how much can you invest per pay? If you can find a few hundred and consistently invest this into an index fund over a long period of time and reinvest the dividends then you will be way ahead.

 

That's my passion too! I love it and it can be profitable too.

 

So the value of super is that it's tax free and government contributions, other than that you can invest same in a stock market and have flexibility with the money?

 

Tax free is a benefit but also I invest pre-tax dollars into super and pay less income tax.

I also invest in the stock market outside of super for flexibility but also, if I retire at 55 but can't access super until 60 then what am I supposed to live on for 5 years?

For me super is part of an overall strategy which for me includes stock market, residential property and super.

 

See I can see value in that, people paying for luxury will pay for the luxury of not having to waste a year of their life building it.

I'm trying to work out what other demographics might pay to not have to build themselves.

 

Good thinking regarding standing from basic ground rules, but I'd recommend reading up on the Austrailan residential property maket first, and a few good investing books.

 

Pretty much everyone pays to not have to build themselves.

I love the questioning.
You'll get a lot further digging for answers, than taking on someone else's experience.

I've heard IT CAN'T BE DONE and THAT'S NOT POSSIBLE many a time, even from investors AFTER I've done it.

That stated, there are fundamentals for you to learn as Brody Hales has stated. Get your mindset sorted, and read, read, read, implementing as you go.

 

How do you read up on the Australian property market? Any recommendations of books?
I read 0 to 130 by McKnight.

 

You have found the place mate
This forum would be the most up to date resource on the Australian property market as well as finance and property taxation.

Steve McKnight is a mentor of mine and 0-135 is a classic but even he will tell you a lot of the strategies in that book don’t work in the current market. None the less the mindset stuff never gets old.

 

Yes, that's exactly what I need, up to date information.
That's great that you know him, I really liked the book, are the creative accounting aspects still relevant? I figured the ability to take out a mortgage has hampered this.

I worked my gap year and bought a place for $300k on 105%, then studied for 8 years earning 30k a year (enough to survive in a share house and pay mortgage gap) as it got positively geared. Been working a couple years now and I'm heading over to the US to work for 2-3 years. So I'm preparing for when I get back but also considering whether I should buy over there.

 

How to find properties to invest in areas where you have no knowledge of.. I know de diligence is the answer but its not always possible if say I am in Perth and want to invest in Adelaide. Is it better to trust a reputed buyers agent in this case. Any thought on this, also they don't come cheap will it pay off in the long run.

 

House prices don't double every 7-10 years in every market nor even the best market.

You might want to consider the difference between leveraged property vs unleveraged/leveraged shares...

e.g. You may have 100k in the S&P500 or 400k in a property (325k borrowed).

Very different scenarios.

 

Also.
Check if your character is suitable for investing.

You may find it it's not for you.

Not everyone is an investor.

By that I mean if you buy 1 place or 2 good.

But long term property investment is a different beast.