Thoughts on real estate investment

big max · 19th Jun, 2016

Gockie said: ↑

Some places are much more boom-bust than others.
My places in Sydney I'd have a buyer within a month, (even in slow periods people still buy) but in other locations properties will just sit on the market because there are simply no buyers. I'd hate to be in desperate need to sell and to not be able to find a buyer.

I would not risk buying something where there is no tenant demand. Country towns can shrink.

Ps. I'd still stay away from apartments in the Gold Coast... there's too many of them. And when there's too many of them people have too much choice when they buy. Which mean if you are going to try to sell, or if strata fees jump (for whatever reason... for example, roof membrane failure, lift replacement, major plumbing works required), you are stuck.

If you have a big portfolio already, you could take it all on the chin and it might not be the end of the world. But for an investor just starting out, it could cause a premature end to their investing career.
My sister with the Wagga property completely missed the Sydney boom... her Wagga property would still be worth the same as she bought it for 5 or more years ago. If she had the same money in Sydney (maybe a Parramatta unit, it would have been around $250k at the time), the investment would probably have doubled, and her equity gone from say 40k to 300k. Big bikkies for someone starting out.....
That's why I look for growth. It's no good having your money tied up somewhere with no growth. Time is money.
Click to expand...

Agree on GC apartments. I generally would only be looking to buy houses, duplexes or older walk up units. And the closer to the beach the better. As a growing economy and population will only lead to enhanced demand for land (be it for development or end use living).

Reinor · 10th Aug, 2017

short but well written ! you enlighten me

MTR · 10th Aug, 2017

Omnidragon said: ↑

Someone asked me the other day on what I thought were some important things I've found over the years in real estate. Thought I'll share some of my thoughts here. Some of these are probably more useful for experienced investors

Cashflow vs CG
- Ideally both, obviously
- But if I had to take one it would be CG
- Getting a few hundred dollars a week is not going to compensate for the millions you'll leave on the table by picking the wrong suburban trend
- One of the early properties I bought at a young age - many years ago, and a dismal investment - was a resi. I ended up selling it for a small profit. It had fairly decent cashflow, but that by no means compensated for the capital growth. I could've bought in the Chinese suburbs in Syd or Melb at the same time, and probably sold 3x more, despite those Chinese properties renting for barely anything (ah hindsight is bliss)
- As a CG example on the other end of the spectrum, an investment that went up nearly 3x just in the last 24 months. It was on sale for around 3.5% yield at the time
- Leads me to my second point, not all properties grow equally
- There comes a point when you probably want cashflow. But before that, capital growth is by far much more important. The difference between 4% on your $300k equity and 6% is $6k.

Location?
- Yes!!! Worst house on best street
- Have held main road properties before. Probably up 50-70% when a street around the corner is up 100-150%. The only lucky break you might get with a main road is rezoning, and ability to suddenly build high rises (yes got lucky on one of them)
- Same rule with commercial. Slightly quieter locations (think your King Sts of Melbourne or Bent Sts in Sydney) can sit vacant for 12-18 months if you're not careful. If you hold your Swanston Sts or Pitt Sts, 5-6 credible groups fighting for the site every time it comes vacant is common. Luckily, in CBD, even the quiet locations get significant capital growth during times like this

Timing or Time?
- Timing
- The best example was when I bought at the last peak (early 2010). Maybe up 50-70% now
- I also bought in in 2012-early 2015, these have all doubled and more easily

Partnerships
- I've been in a few partnerships, and growing up have also seen my parents in multiple partnerships. So certainly have some experience in this regard
- Only get into partnerships if you're a very good judge of character. If your wife/husband/family tell you you're not but you think you are, you're probably not. Try to do it yourself, and if you can't afford it, give it a miss because it's obviously too big for you
- Sometimes partnerships fail despite everyone acting in good faith, because people may have different objectives or different goals, or see things differently. So set rules early on, and document them
- Don't get into a partnership thinking if your partner is well-to-do, things will be easier and capital will be more forthcoming. Sometimes the nastiest and greediest are found in this cohort. Remember the old saying? Money only amplifies a person's true character - perhaps the writing was long on the wall with these people, but it's easy to be blinded when you convince yourself to only see the positives. Certainly met a few in my journey
- Control is very important. Either pay a premium and get control, or take such a small stake it doesn't matter. Worst thing is you can do is take a 50% stake (ie you've pretty much paid for control) but don't actually have control (ie you don't have 50% + 1 share). I've been/am in all 3 situations. Nothing worst than the third. In my best partnerships, I either have 50%+, or below 20%
- Despite all this, we're all bound to get blindsided, so don't kick yourself too hard if you end in a bad/toxic situation

Brokers
- I don't have a strong view on using one. I find them convenient, and they have good intel, but you also have to be very careful. Some are quite self-serving too. Are they really giving you the best product or going for the one with the biggest commission? Some guys here seem quite level headed so that's good
- When you're in the game long enough, banks are happy to pay you the broker commissions anyway, even if you're not a broker

Borrowing
- When you're trying to grow, you obviously want leverage (and hopefully you're not taking it out right before a recession)
- But banks are a funny creature. If they 'perceive' you to not be desperate, you can bluff them. The number of times I've told a bank I'm going to settle in cash if I don't get what I want (whether it's term, LVR, rate etc), and then the issue being escalated and me getting the outcome I want, will surprise you

Legals
- Don't skimp on legal advice. Obviously spend according to the size of the purchase. I used to use $500 conveyancers. These days I can spend up to ten(s) of thousands on important purchases to get documentation right. How much is your SANF and legal indemnity worth?

Real Estate vs Other
- Don't be afraid of exploring other things. Google with words 'lithium asx' and you'll find they've all done 3-10 baggers in the last 12 months. Keep an open mind.
- The world's a big place. Did you know Singapore is tanking now? Did you know the Chinese's number 1 target is actually not Sydney/Melb/Vancouver, but Tokyo?
Click to expand...

Great thread and insights
Yep, timing is everything, capital first

eletronic_exp0430 · 10th Aug, 2017

I agree to aim for CG first - at the end of the day that's what makes you a millionaire but you will know when you reach a certain point and your portfolio is the size of 0.01% of all property investors well you need cash flow as importantly as CG.

There will always come to a point if you grow large enough that it will probably end up 50% potential for CG and 50% for cashflow in your decisions on where to invest.

Tom Simpson · 10th Aug, 2017

Great post! Thanks for sharing.

Omnidragon said: ↑

- The world's a big place. Did you know Singapore is tanking now?
Click to expand...

...I'm more worried about Perth.

Luke_melb · 11th Aug, 2017

I agree with the comment on being close to a beach, there is a trend towards that life style now.
I would also add, check the schools are at least rates average for Victoria, and consider getting property within short driving distance to trains, university & a shopping mall. Frankston & Seaford do pretty well on those checks & is still reasonably priced.

The Y-man · 11th Aug, 2017

Keeping in mind someone has dug up a thread 18 months old, I wonder if any views has changed?

The Y-man

Luke_melb · 11th Aug, 2017

Crime happens in all areas, highlighted recently with the 2 killings in Brighton & police injured. Don't base decisions on random events. Check of a surburbs total crime rate can be useful information but it is not a main factor in my view.

Log in or Sign up

Thoughts on real estate investment

big max Well-Known Member

Reinor Member

MTR Well-Known Member

eletronic_exp0430 Well-Known Member

Tom Simpson Well-Known Member

Luke_melb Member

The Y-man Moderator Staff Member

Luke_melb Member

Log in or Sign up

Thoughts on real estate investment

big max Well-Known Member

Reinor Member

MTR Well-Known Member

eletronic_exp0430 Well-Known Member

Tom Simpson Well-Known Member

Luke_melb Member

The Y-man Moderator Staff Member

Luke_melb Member

Useful Searches