Some Basic questions - learning investor

Hi

Just like to clarify some things with you guys please in the key things to tick those boxes in finding an investment property. Ill list then in the order I think that are most to least important and correct me if I am wrong

1. Location Location Location ( in my budget )
2. Land Size ( in my Budget)
3. House over Units/Townhouse over apartments ( in that order)
4. Buy land and then build a new house (to pay stamp duty only on land)
5. Build new to take advantage of tax deductions of fixtures and fittings
6. Look for higher owner occupied areas to increase the demand of your "rental" property

I also need to make sure I am reading this part right, I go to Free Suburb Profile report for Tarneit VIC (3029) for example and look at the Tenure Type data ( check attached picture)

it says
Being Purchased 59%
Rented 28%
Fully Owned 11%

now what is the Being Purchased more specially?
owner occupiers secured a block or in the process of building but not yet living in there?
owner occupiers living in their home and paying a mortgage?
Investors building a house to rent out but not yet complete

Can it be all 3 of those ?

 

New house and land often in new riskier suburbs.
2nd usually cheaper than new. Paying more for depreciation isnt good.
Higher oo may mean its already gentrified.

 

Agree - you need an area that is full of renters with a view to it becoming owner occupied territory. Happening in quite a few places right now.
Unfortunately, lots of renters, means lots of investors. Which means thatthere is often a big sell-off as soon as a down turn hits and it really drags on sales and pulls values down.
In the tough times you jeed to trust your decision. That why it's very important to look for recent infrastructure builds and upcoming work (a relection of an acknowledged increase in population).
Trains and other transport, health facilities, educational facilities, cafes, cinemas, access to employment; combine a good dose of ugly with some quality and you're looking at an ugly duckling which will become a swan.
Anywhere that first home buyers are targeting is a pretty good bet. They are definitely keeping it under 600K.

 

There is a lot under the surface of your list. That is, you need to understand the concepts of why these things are good and how they can be mixed and matched and what trades off what.

There is no way to go into all of it, but to learn about it, I would recommend some books because there are some great ones out there.


Also, there are trade-offs.

- Bigger block further out vs smaller block closer in. neither is "bad", but they have different plusses and minuses and you need to know what they are before you can decide.

- Newer (not new) vs older. newer offers depreciation but you are paying for a lot of the benefit by paying more for the depreciating asset, older you have a higher percent of the property as the appreciating asset, but you will have to pay a lot more for repairs and lack of depreciation to help cash flow. neither is "bad", just trade offs, so you need to understand these before being able to decide.

- IMO always a detached house, unless you are in a massively built up area where most of the area is already chock-a-block full of apartments (eg within 12km of Syd CBD, or similar right near CBDs of London, New York, Hong Kong - but not in cities that are not crammed in like those).

Don't necessarily need to build, can buy and split and sell without building to avoid paying GST which eats away at a lot of profit, or can buy, hold until next peak, then split and sell the split land to pay off debt.
In the McKnight book, he separates property profit it into groups
1. growth (from a good growth location with scarcity)
2. cash flow
3. ability to add value (splitting, renovating, development - can be one or a combination)

In regards to you mentioning OO%, just take it as 100 less renters. If it says 39% renters then 61% are OO (or at least that is what I do).
Over about 65% OO is good. 80% in some locations but there are other factors, so don't assume this is the be-all-and-end all. Major growth factors include a variety of things:

Proximity
1. Proximity to the city
2. Proximity to the sea
3. Adjacent to a good suburb for ripple effect
4. Proximity (walking distance) to a train, shopping centre
5. Proximity to prestigious universities, schools, medical centres
6. Traffic congestion

Demographics
1. High OO
2. Family demographic
3. Socio-economic level of the population there
4. Crime rates

Density/zoning restrictions​

Most of these are based on "scarcity".
For example, only so many houses can be right near a major CBD, so this is the most significant form of scarcity.
Similar to something near the beach, only so many can be there.
Same again for being near shops, train station, sought after schools, etc.
Again for big blocks where most have already been split - only so many will remain that developers want.
All of these things are "scarce" and in demand and have a permanent upwards lift in the long term.


There is such an enormous amount of great information on these concepts and more if you are willing to spend time reading books.

I was going to show you my spreadsheet for a city I am researching but I just checked and has 17 columns and 30 suburbs and will freak you out unnecessarily - you don't need to start with that much data.
Maybe to start
1. Check your budget
2. Use realestate.com/invest to check the suburbs that are +/- about 20% of your budget, and note them down for a starting point. medians are not correct values, but you need a starting point and this is why you go 20% on either side before you find out real values
3. Put it into a spreadsheet with a few columns like
- Dist to cbd
- Median price or property type you are looking for (I use 3 & 4 bedder detached houses)
- Yield
- OO%
- Household income
- Vacancy rates
- Distance to train
You can add more later if you need but I think these are a good start without being confusing.
Then I put a light green for good cells (eg OO 70%+) and dark green for V good (eg OO 80%+) and a light pink for not good (eg OO under 50%), and just leave anything in between the default white. This colouring will make it easier to see rows with stand out cells through colours

Once you have an idea of the stats, it is time to delve a bit deeper becuase numbers do not tell you all and you can not rely on just this - it is more of a starting point.

It is a city I don't know so I asked a few people on the forum and picked a few suburbs from the list of re.com that sounded like it might be suitable, and went through the last 6-12 months of sales listings of a single suburb and noted down price and property type (3bd vs 4bd for me) and block size, and finish (reno'd vs avg vs shtbox), and after enough listings you get a feel for the prices of certain property types and also start to know which parts of the suburb are higher and lower priced.
I would then ask some of these people who are from there, which suburbs have more state housing (avoid this), and which have better schools, and so on. Going through all of this for a suburb takes time, but the suburb becomes your "patch" that you get to know more intimately. It is not as good as going and inspecting dozens of properties, but if you live remotely, it is a good way to get to know a suburb.

Do this for a few suburbs near each other within your budget and you will get to know the area.

Later on, go and try a different part of the city where properties are similarly around your budget.

All of this takes time, but you want to know your patch so that you are capable of doing your own due diligence to get the best chance of success and avoid end up with something that will cost you a fortune in lost opportunity cost or worse.

There are other things, but this is a good start.

 

This is like a guide itself !

I have put all this in my onenote thanks heaps

And If you want to share your spreadsheet I will just like to check out how you have organised it so I can try to replicate a baby version of my own if you dont mind