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Taking that daunting first step!

Discussion in 'General Property Chat' started by Ghoti, 1st Jul, 2016.

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  1. Ghoti

    Ghoti Well-Known Member

    Joined:
    10th Jun, 2016
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    Melbourne
    So, when do you know you're ready?

    Have been reading and researching for 12 months now and honestly find myself becoming more confused. While you can learn a lot by reading, sitting on the sidelines won't get you a spot on the podium.

    So, I think I'm ready...but am I?

    The goal is to acquire 4 debt-free IPs over next 10 years to return a pre-tax retirement income (in today's $$) of circa $1200-1500pw.

    I have $100K available to start, and Bank pre-approval for IO investment loan to $418K on a property to $400k using 90% finance plus equity from PPOR. Fortunately as a bank employee I don't need LMI at 90% (note to self: confirm no cross collateralisation). Accountant engaged and suggested 2 x Units middle ring. I would prefer something where I could get some 'sweat equity', be neutrally-geared and have with future prospects.

    Thinking is to buy a house needing a tidy up on land that could be developed down the track, Karingal (near Frankston VIC), or possibly Frankston North. DIY on tidy up, then let out for a few years. Continue the buy - reno - rent cycle to accumulate enough properties so a sell off in yr 11 + super sees 4 retained debt free.

    Would purchase in own name as wife only works 2 days per week. Considered a Trust, but tax relief seems more likely to accelerate portfolio growth. Maybe revisit as portfoli grows.

    Considering using a BA for the first purchase with the intent of learning through the process.

    Interested in other folk's thoughts on preparedness, strategy and use of BA.
     
    Last edited: 1st Jul, 2016
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  2. Bayview

    Bayview Well-Known Member

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    Location:
    Mornington Peninsula
    The fact that you are here on the forum, and have been doing the research etc for a year - shows you are ready.

    It is easy to get confusion.

    The remedy is to formulate a plan -

    *Select a suburb you know (or estimate) will have all the criteria you are looking for for your first IP.
    *Select the property type you want (and what the target rental market wants).
    *Research the suburb for the best locations.
    *Make a short list of the properties for sale on your list (or ones you would like see come up for sale).
    *Make offers based on the research of other comparable in the area.

    This is a basic plan, and eventually the emotional aspect will disappear; your decisions will be ones of pragmatism and only based on the numbers (hopefully :p)

    You don't need to be fearful of pulling the trigger, because you will have done your research.

    An MB is important (plenty here on the forum to help you get it over the line), and then a suitable accountant as well.

    Good luck.
     
  3. markson

    markson Well-Known Member

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    I found once I was actually on the ground it was a lot easier to get over the analysis paralysis. On paper you can easily over analyse things and get bogged down in the "stats". Once you have a suburb picked then get on the ground and start inspecting places. You will soon find that you probably dont need a BA if you have been researching for 12 months.
     
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  4. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    4th Mar, 2016
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    Location:
    Melbourne
    Sounds like you are in a good position to progress foward, good work :)

    Do you have an outstanding loan on the PPOR? If so, and as you mentioned you have equity available, have you thought about borrowing 105% on the IP? A bit of debt recycling :)
     
  5. bob shovel

    bob shovel Well-Known Member

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    I stopped reading after the first paragraph. You're ready, now sign some papers :D
     
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  6. Marg4000

    Marg4000 Well-Known Member

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    Qld
    A few random thoughts.

    Sort out how you will buy if thinking of using a trust. Get it all sorted beforehand so you are ready to buy. Ask around and decide on a solicitor or conveyancer.

    Focus on getting the first IP. Maybe you can afford 2, but work on getting the first one bought and rented.

    A BA may be useful, but you will still need to sort out your requirements to make the process work best. If buying in an area you know, or near enough to visit, probably unnecessary.

    You won't get the perfect property on the perfect block of land for a ridiculously low price. Occasionally someone might, but if you wait for that you may wait forever.

    List your requirements in order of importance. There will be the "must haves" that are not negotiable, followed by the "would likes", aim for as many of these as you can.

    Prepare for buyers remorse. No matter how well you prepare and are happy with the deal, within a week you will see something that seems a better deal or you will have a panic attack about the place you just bought. So long as you have done your homework, you will be fine.

    When you take possession, something will go wrong, some undetected problem. Hot water systems are a personal favourite of mine, they always seemed to hold on till a month or so after purchase then quietly die. Allow a couple of thousand dollars. If you buy someone's PPOR, there may be issues they have put up with but a tenant won't. And legally doesn't have to. So have a buffer in place.

    And when you find a good deal, at a reasonable price, just take a deep breath and jump.

    Good luck
    Marg
     
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  7. TheGreenLeaf

    TheGreenLeaf Well-Known Member

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    Here and there
    Seek advice on how to structure the ownership as if the property is quickly paid off, it might not be interesting to be on the name of the high income earner.
     
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  8. MTR

    MTR Well-Known Member Premium Member

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    Perth, Melbourne, USA

    Your on the right track, adding value, either reno or develop. Start small and chip away.
    Your accountant suggested middle ring, I am assuming Melb?
    Its already had a massive jump, however I think there are still opportunities to find value, I would not ignore West.

    Start researching on PC, check under "developing" section and search posts on Melb, and posts by @melbournian.

    All the best

    MTR:)
     
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  9. Ghoti

    Ghoti Well-Known Member

    Joined:
    10th Jun, 2016
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    Location:
    Melbourne
    Thanks for all your replies. I keep thinking I am missing something, but the only conclusion I come to is "experience", and there's only one way to get that!

    @MTR - Yep, middle ring Melbourne. With my budget of circa $400K I'd be stuck with units and see no opportunity to add value there.

    @TheGreenLeaf - PPOR is still financed so that is the first one to pay off. IP loan is IO and I intend to rely on CG for both IP and PPOR to help fund next purchase. PPOR is undergoing reno and should return a handsome uplift in equity when done.

    @Marg4000 - I've already experienced buyers remorse, wondering if I could have paid less for PPOR (settled May this year). Also had sellers remorse having only had prior PPOR on market for 6 days! I had come to the conclusion you have suggested...buy something that seems a reasonable prospect and move on.

    @SimonMoore - 'Downsized' from family home ~60km from CBD to a house 'with potential' ~20km from CBD. Now have large PPOR mortgage but also have cash and a property that should provide good sweat equity. But also means bank will lend $418K against $400K IP, or 104.5%.

    @BobShovel - lovin' your style :)

    @markson - Fair call too. I found with our PPOR purchase my confidence improved once I started attending opens and auctions. Funny thing though, the PPOR I bought I looked at twice and said 'no way, too much work', but at the auction I got to thinking this may be an ugly duckling. Time will tell.

    @Bayview - kinda what I have done, other than visiting the area. Also believe I have a good feel for what my target market (families) want.

    Now just to put in some miles and some offers!!
     
  10. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Good to learn you're read @Ghoti. You sound just about ready – all that's missing is having a clearer idea of how to go about things.

    You'll learn heaps here. Keep posting and reading – that's what most of us have done. And if you really want to fast track your progress, connect with some successful investors and pick their brains too. Coffee/lunch/meet ups work wonders.

    I find clients who do it themselves tend to do best but a Buyers Agent is great for those who are either time poor and/or paralysed by fear.

    One final note.. make sure you have a plan to reach your goal of $1,200-$1,500/wk passive income in 10 years before you start buying. This is something most of the great brokers here will do with their clients but if you're going direct through the bank you may need to work on that part of the plan yourself (with help from the friendly folks on Property Chat) :)
     
  11. retire@45

    retire@45 Active Member

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    Location:
    Sydney
    Most people have already said this, but for what it's worth the first is the hardest and I was in the same position as you almost 12 months ago. Don't aim for perfection aim for action on a good plan and purchase and you will find the 2nd (and 3rd) one that much easier.
     
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  12. Jacque

    Jacque Buyers Agent and Bookworm, Sydney Business Member

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    Location:
    Sydney
    It's all about hard work, dedication and sticking to the plan. Best of luck and if you do go down the BA path check out www.rebaa.com.au for the largest list - Australia's only national body for independent BAs. Happy planning!
     
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  13. Ghoti

    Ghoti Well-Known Member

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    Posts:
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    Location:
    Melbourne
    @Steven Ryan you are right that I lack a plan for getting from number 1 to....whatever the number of acquisitions is in order to finally end up with enough to make the income I desire.

    I also realised that I have not factored in depreciation being less on older houses. May impact how quickly I can move to next acquisition.

    @retire@45 yep, like with most things the first leap is often the hardest.
     
  14. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Sydney & Gold Coast
    @Ghoti, something to work on :) Though things will continue to become clearer once you have dipped your toe in the water.

    Depreciation may have a small impact on cashflow, but won't really change your borrowing capacity so probably won't make much of an impact!